Ukraine

Exchange controls

General legal framework

On 24 February 2022, a martial law legal regime was declared in Ukraine. In order to ensure stability of the financial system, the National Bank of Ukraine (NBU), by its Board Resolution No 18, dated 24 February 2022, introduced a number of restrictions and limitations for financial transactions. The NBU updates the Resolution on a regular basis.

Key limitations to currency transactions

• Generally, payments abroad are prohibited (for details please see our comments below).
• Period for settlements under the export and import operations executed starting from 5 April 2022 is shortened to 180 days (from 365 days).
• All expenditure transactions of residents of Russian Federation/Republic of Belarus and legal entities which beneficial owners are residents of Russian Federation/Republic of Belarus are suspended (except certain transactions, e.g. salary and tax payments, transactions in favour of state authorities).
• The official UAH to USD exchange rate has been fixed at the level of UAH 36.5686 per USD 1 starting from 21 July 2022.
• All payments to Ukraine (e.g. under the export transactions, loan provisions, funds transfer) are allowed on a usual basis (except for most payments from the Russian Federation/Republic of Belarus, which are generally restricted).

Remittance/movement of funds across the Ukrainian border by individuals

Generally, settlements abroad using Ukrainian credit/debit cards are limited to a certain extent. For instance, individuals may transfer funds abroad within the limit of UAH 100,000 (or its equivalent) per month for online purchases (for cards both in UAH). Online purchases from the account in foreign currencies are not limited.

Peer-to-peer (P2P) transfers to a foreign banking card are allowed for cards in foreign currency only and are limited to the equivalent of UAH 100,000 per month.

Also, cash withdrawal from bank accounts in Ukraine is limited to UAH 100,000 per day (or its equivalent for withdrawal from bank accounts in foreign currency).

Cash withdrawals from Ukrainian credit/debit cards abroad are limited to UAH 12,500 per week (7 calendar days) for accounts in UAH and in the amount of UAH 100,000 per day for accounts in foreign currency.

There is also no limit for remittance of funds by post or physical cash movement across the Ukrainian border. However, they are subject to the following requirements:

• Physical movement of cash across the border in excess of EUR 10,000 is subject to filing a customs return.
• Remittance of funds by post is subject to declaring the value of the transfer.

Remittance of funds across the Ukrainian border by business entities

As mentioned above, payments abroad (for instance payments as a result of a charter capital decrease, return of the loan [both principal and interest] to a non-resident, investing, etc.) are prohibited, except (inter alia):

• import of goods (services also may be imported subject to a list specified by the Cabinet of Ministers of Ukraine, e.g. IT, communication services)
• under the special limits of National Bank of Ukraine
• operations ensuring mobilisation needs in the sphere of national security, and
• operations of international financial institutions, settlements with such international financial institutions, or settlements under the transactions for purchasing goods using funds granted by international financial institutions, etc.

Choice of business entity

Generally, a limited liability company (LLC) is one of the most widely used vehicles for legal presence in Ukraine for both residents and non-residents. An LLC has a quite straightforward registration procedure and is generally easy to maintain. 

There is no statutory fee for the LLC’s registration.

The Law 'On Limited and Additional Liability Companies’ adopted in 2018 introduced a new legal framework for operation of LLCs in Ukraine.

Another type of legal presence business structure that foreign investors tend to choose is a representative office (RO) of a foreign company in Ukraine. The choice between the RO and the LLC depends on the nature of the planned business activities, need to obtain any licenses/permits, plans regarding further development of business in Ukraine, taxation issues, and other factors. 

The RO does not have a status of a separate legal entity (it is rather a structural division of the parent company). 

In certain situations, it may be relevant to establish a joint stock company (JSC). However, in case of JSCs, various establishment and operational considerations should be taken into account. In comparison with LLCs and/or ROs, setting-up and operating of the JSC is usually significantly more arduous and time-consuming.

Business and tax treatment of intellectual property (IP)

Ukraine ratified major international treaties in the IP field, including the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement), Paris Convention for the Protection of Industrial Property, Patent Cooperation Treaty, Berne Convention for the Protection of Literary and Artistic Works, and Rome Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organization. In 2014, Ukraine also ratified the Association Agreement between the European Union and Ukraine, which means that Ukraine must ensure an adequate level of effective protection and enforcement of IP rights.

The key legal aspects of IP protection in Ukraine to consider are as follows:

• Copyright in Ukraine protects the authors and their successors’ (i) moral (non-proprietary) rights, e.g. a right to require recognition of authorship by properly indicating the author’s name on a work, and (ii) economic (proprietary) rights. Copyright in Ukraine does not allow to transfer or assign the moral (non-proprietary) rights of the author to third parties.
• Trademark and patent protection is territorial and will cover Ukraine only. Patent protection is granted for a specific period of time, generally a maximum of 20 years (with the possibility of obtaining additional protection of rights to inventions for no more than 5 years). A registered trademark is only valid for 10 years, after which it can be renewed indefinitely on payment of additional fees. Ukraine applies a first-to-file system for registering IP rights, i.e. the right to the IP right lies with the first person to file an application for protection.

IP legislation is expected to be strengthened after the adoption of several draft laws of the European integration direction, which provide for the intensification of the IP rights enforcement by court. By the end of 2022, a new Law of Copyright and Related Rights (the Draft Law No 5552-1 dated 9 June 2021) is expected to be adopted and come into force, which provides for the regulating and strengthening of copyright protection in the digital environment, particularly:

• Non-original databases and non-original objects generated by a computer program receive legal protection based on the sui generis right.
• The list of ways of using copyright objects in the digital environment that may constitute a violation in case of unauthorised use is being expanded to include framing, embedding, and other placement of hyperlinks.

Tax treatment for IP transactions is subject to separate analysis on a case-by-case basis since the Ukrainian tax legislation provides different approaches depending on the nature of the concluded agreement. For instance, the transfer of IP may be treated as a sale of intangible assets, the provision of services, or a royalty agreement.

For tax purposes, the term ‘royalty’ does not include payments for the use of computer programs by the end user or for purchasing electronic copies of IP for final consumption.

Mergers and acquisitions (M&A) from a business and tax perspective

There are no specific laws regulating public takeovers or mergers in Ukraine.

The Ukrainian Tax Code provides some guidance on the tax regime for corporate mergers and acquisitions. CIT consequences of such transactions will depend on their accounting in accordance with the financial accounting rules. Some special rules apply to the transfer of the tax attributes within business restructurings.

In view of the martial law enacted in Ukraine on 24 February 2022, the Unified State Register of Legal Entities, Private Entrepreneurs, and Public Organizations of Ukraine (as well as other public registers) functions with certain limitations.

Legal regime of the temporarily occupied territories

The legal regime of the temporarily occupied territories is regulated by the Law of Ukraine 'On Ensuring Civil Rights and Freedoms, and the Legal Regime on the Temporarily Occupied Territory of Ukraine'. The Law foresee the following:

• Legal entities and private entrepreneurs have to change their tax address if they are located in occupied territory to another territory of Ukraine to carry out business activities.
• All agreements are void if one of their parties is registered in the temporarily occupied territories.
• Attracting deposits and/or granting loans (credits) denominated in the currency of the occupying state is prohibited on the territory of Ukraine.
• The transfer of funds between the temporarily occupied territories and another territory of Ukraine is prohibited.
• During the regime of temporary occupation, the norms of regulatory legislation in the temporarily occupied territories are not applied.
• All licences are invalid in the temporarily occupied territories.
• A certificate of Ukrainian origin may not be issued for goods produced in the temporarily occupied territories.
• Any activity of state lottery operators and gambling organizers is prohibited in the temporarily occupied territories.
• In the temporarily occupied territories, an individual is not legally liable for non-payment or delay in payment of wages to employees provided by the legislation of Ukraine if such non-payment (delay) arose as a result of temporary occupation (circumstances of force majeure).

As of now, Crimea and certain territories of Donetsk and Lugansk region are considered as temporarily occupied territories. 

New territories that are de facto occupied by the Russian Federation as a result of escalation of Russian Federation military invasion may be declared as temporarily occupied territories subject to the decision of the National Security and Defense Council of Ukraine enacted by the Decree of the President of Ukraine.

United States (US) Foreign Account Tax Compliance Act (FATCA) rules compliance

The United States and Ukraine have reached an agreement in substance with regard to implementing the US FATCA under a Model 1 Intergovernmental Agreement (IGA), and Ukraine has consented to disclose this status. On 29 October 2019, Ukraine’s Parliament ratified the IGA.

Under the IGA between Ukraine and the United States, Ukrainian financial institutions are required to annually report, by 1 September of the year following the reporting year, to the State Tax Service of Ukraine information about financial accounts held in Ukraine by US taxpayers or foreign entities in which US taxpayers hold a substantial ownership interest. This information will be further transferred to the US Internal Revenue Service (IRS). Please note that due to the war in Ukraine, the deadline for 2021 reporting year has been postponed to 2023.