US-Ukraine Business Council

UKRAINE BUSINESS NEWS: TEN ARTICLES

1. WORLD BANK APPROVES $US500 MILLION LOAN TO SUPPORT
UKRAINE'S STRUCTURAL REFORMS TO MITIGATE FINANCIAL CRISIS
Approves US$500 Million Third Development Policy Loan
World Bank, Washington, D.C., Monday, December 22, 2008

2. FALL IN UKRAINIAN ECONOMY MAY STOP BY LATE 2009, SAYS DRAGON CAPITAL HEAD
Interfax Ukraine Economic, Kyiv, Ukraine, Monday, December 22, 2008

3. NATIONAL BANK OF UKRAINE HAS ADOPTED A NEW "ANTI-CRISIS" REGULATION
DLA Piper Ukraine Financial Newsletter, Kyiv, Ukraine, Friday, December 19, 2008

4. UKRAINE: NEW RESEARCH AND EDUCATION CENTER TO FOCUS
ON ENERGY EFFICIENCY TECHNOLOGIES IN IVANO-FRANKIVSK
U.S. Civilian Research & Development Foundation (CRDF)
Arlington, Virginia, Monday, December 22, 2008

5. SOFTSERVE APPOINTS ROBERT GELINAS VICE PRESIDENT OF SALES
Independent multinational software development and consulting company
SoftServe Inc., Fort Myers, Florida, Monday, December 15, 2008

7. NATIONAL BANK OF UKRAINE APPROVES TERMS, METHODS FOR ANALYSIS OF LARGE BANKS
Interfax Ukraine, Kyiv, Ukraine, Monday, December 8, 2008

8. BANK CONSOLIDATION: WHAT EVERY UKRAINIAN BANKER SHOULD NOW
SEMINAR HELD BY INTERNATIONAL LAW FIRM CHADBOURNE & PARK LLP
Chadbourne & Parke LLP, Kyiv, Ukraine, December 12, 2008

9. OVERVIEW OF THE LABOUR LAW OF UKRAINE
Salans International Law Firm Newsletter, Kyiv, Ukraine, December 2008

1. WORLD BANK APPROVES $US500 MILLION LOAN TO SUPPORT
UKRAINE'S STRUCTURAL REFORMS TO MITIGATE FINANCIAL CRISIS
Approves US$500 Million Third Development Policy Loan

World Bank, Washington, D.C., Monday, December 22, 2008

WASHINGTON - The World Bank’s Board of Executive Directors today approved the Third Development Policy Loan (DPL-III) for Ukraine in the amount of US$500 million.

The programmatic DPL series has supported reforms related to improving the investment climate, public finance, and service delivery. Some key reforms under the DPL III include the enactment of the Joint Stock Companies Law, initial steps in building a framework to rehabilitate the financial system, executive actions to reduce the high costs of regulation and inspections, executive regulation to improve the public procurement framework, and the implementation of measures to improve transparency in access to higher education.

“The measures taken by the government under the DPL series are important signals of Ukraine’s commitment to economic reform at a time of severe economic difficulties,” says Martin Raiser, World Bank Country Director for Ukraine, Belarus and Moldova. “But clearly more efforts are required going forward to implement commitments already made, improve policy coordination, and deepen structural and financial sector reforms.”

The DPL III is part of a comprehensive package of support to Ukraine to mitigate the economic downturn and lay the foundations for a sustained recovery. Key elements of this package include:

[1] budget support,
[2] targeting more efficient spending and further deepening of structural reforms,
[3] loans to support critical infrastructure investments,
[4] technical and financial assistance to rehabilitate the financial sector, and
[5] a comprehensive program of analytical and advisory work.

The World Bank Group is working with other development partners in this endeavor.

“The challenges faced by Ukraine’s economy underscore the need to accelerate structural reforms in areas such as the business climate, the financial sector, trade diversification, land reform, competition policy, and energy security,” explains Pablo Saavedra, World Bank Senior Economist for Ukraine.

Moreover, he adds that “in the short-run particular attention needs to be placed on designing a prudent 2009 budget − one that targets social assistance to those in particular need and also safeguards critical capital investments.”

For more information about the World Bank in Ukraine, please visit http://www.worldbank.org.ua/. LINK: http://go.worldbank.org/UT7KI8DW70.

2. FALL IN UKRAINIAN ECONOMY MAY STOP BY LATE 2009, SAYS DRAGON CAPITAL HEAD

Interfax Ukraine Economic, Kyiv, Ukraine, Monday, December 22, 2008

KYIV - The Ukrainian economy will continue falling in H1 2009, and the trend may stop only in Q4 2008 thanks to the lower comparative base of 2008, according to the head of Dragon Capital Investment Company, Tomas Fiala.

"In December and Q1 2009 the situation won’t improve. In Q2 a fall is still expected, although the falling pace will be smaller. The fall will stop approximately in Q4 2009," he said in an interview with Interfax-Ukraine. Fiala, who was the head of Wood & Company Investment Company during the previous crisis in Ukraine in 1998, said that the present crisis would more hit Ukraine.

He said that the quick fall in industry and in the economy as a whole is explained by the fact the crisis affected the banking system, which резко stopped crediting, very quickly. Fiala said that one of the key factors for improving of the situation should become the restoration of the international economy and improvement of positions of Ukrainian export sectors thanks to the weakening of the hryvnia.

He said that at present, the exchange rate of the national currency is close to the balanced level. He said that the political vagueness may again destroy the balance on the currency market. Fiala said that the situation would improve in case of the parliamentary collation to adopt anti-crisis bills.

Commenting the situation on the Ukrainian stock market, Fiala said that as a rule, the stock market reacts on the economic situation in advance. He said that a fall in Ukrainian shares started in spring 2008. He said that currently the market fell by almost 90% in dollars and 76.6% in hryvnias, which is the largest fall in the world.

"The majority of negative expectations are reflected in the present evaluations of the company," he said. He said that one may forecast that in Q1 2009 the stock market will be rather weak, and later the stirring up on the market could be seen.

"The most interesting moments for investment will be before summer 2009, especially is the investment period will be from three to five years," he said.
He said that Ukrainian shares are rather cheap, although the interest to the domestic market is falling due to its liquidity.

3. NATIONAL BANK OF UKRAINE HAS ADOPTED A NEW "ANTI-CRISIS" REGULATION

DLA Piper Ukraine Financial Newsletter, Kyiv, Ukraine, Friday, December 19, 2008

KYIV, UKRAINE - On 4 December 2008 the National Bank of Ukraine ("NBU") adopted a new regulation to substitute its famous "anti-crisis" Regulation 319 dated 11 October 2008 (as amended) ("Regulation 319").

Although the "new anti-crisis" Regulation No. 413 ("Regulation 413") restates most of the restrictions and limitations set forth in Regulation 319, certain new restrictions and new rules replace the previous restrictions and limitations.

The NBU has decreed that from 4 December 2008 every Ukrainian bank must:
[1] Develop plans and actions for restoring its capitalisation and liquidity
[2] Take all necessary actions not to allow the premature withdrawal of term deposits, which, in other words, means that the NBU maintains its ban on the paying out of term deposits prior to their maturity date
[3] Review the value of the property pledged in favour of a bank and adjust to the market price
[4] Direct at least 50percent of its net profit for the year 2008 to the bank's reserve fund
[5] Reduce its administrative expenses by at least 10 percent
[6] Restrict payment of bonuses and other additional extra payments to top managers

The NBU has also decreed that if banks fail to meet the requirements mentioned above, it will take regulatory action such as putting banks into temporary
administration, revocation of banks' licences and compulsory reorganisation or liquidation of such banks.

Please note, that under Regulation 413 there are no restrictions on:
[1] Disbursing loans in foreign currency to Ukrainian residents who do not receive any proceeds in foreign currency
[2] Undertaking currency exchange transactions in cash through so called "currency exchange points"

The NBU has also lifted its restrictions on the time to be taken for making transfers between accounts which had been introduced by Regulation 319.
NBU recommends Ukrainian banks to:
[1] Consider reduction of interest rates charged on certain loans in foreign currency
[2] Restrict entry into unconditional facility agreements if the bank's liquidity goes down
[3] Take reasonable steps towards prepayment of loans previously disbursed Under Regulation 319, extension of the term of loans by banks was, in effect, prohibited. However, from 4 December 2008 banks are entitled, at their own risk, to extend the term of loans disbursed to domestic commodity producers. Subject to the borrower's satisfactory financial performance, the risk assessment of the borrower does not need to take into account the extension of the term of loans expiring prior to 1 October 2009.

FOREIGN CURRENCY TRANSACTIONS
The NBU has restated the existing prohibition for residents to make payments abroad in foreign currency for goods which are not actually imported into Ukraine.

Moreover if any advance payment in foreign currency is returned to an account of a Ukrainian importer as a result of the non-resident's failure to fulfil its obligation under an import contract, such currency must be converted into UAH at either the exchange rate which was used for buying such currency, or at an official exchange rate of the NBU effective as of the date of making the advance payment (if an advance payment was made with
borrowed foreign currency).

The NBU has also restated that banks may only purchase foreign currency for individuals at an interbank currency market for the purposes of transfer of such currency abroad for non-trade-related reasons in amounts not exceeding the equivalent of UAH75,000 per month.

However the NBU has extended the list of exceptions from such restriction to include salary payments in Ukraine in favour of non-residents. All other restrictions established by the most recent wording of Regulation 319 remain in Regulation 413.

Please do not hesitate to contact us should you have any questions on the above: Oleksandr Kurdydyk, Partner, oleksandr.kurdydyk@dlapiper.com or Illya Muchnyk, Senior Associate, illya.muchnyk@dlapiper.com.

DLA Piper Ukraine LLC is part of DLA Piper, a global legal services organisation. International Law Firm of the Year 2008 in Ukraine. DLA Piper ranked 3rd in Financial Times Law 50 Innovative Lawyers 2008.

The matters covered in this newsletter are intended as a general overview. This newsletter is not intended, and should not be used, as a substitute for taking legal advice in any specific situation. DLA Piper Ukraine LLC will accept no responsibility for any actions taken or not taken on the basis of this newsletter. www.dlapiper.com

DLA Piper Ukraine LLC is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C., www.usubc.org.

4. UKRAINE: NEW RESEARCH AND EDUCATION CENTER TO FOCUS
ON ENERGY EFFICIENCY TECHNOLOGIES IN IVANO-FRANKIVSK

U.S. Civilian Research & Development Foundation (CRDF)
Arlington, Virginia, Monday, December 22, 2008

ARLINGTON, VA - The U.S. Civilian Research & Development Foundation (CRDF), the U.S. Agency for International Development (USAID) and the Ministry of Ukraine for Education and Science (MESU) [of Ukraine] are pleased to announce the creation of a new Research and Education Center to be located at the Vasyl Stefanyk Precarpathian National University in Ivano-Frankivsk, Ukraine.

The new center -- “Nanomaterials in Energy Generation and Accumulation Devices” -- will carry out fundamental and applied research in nanotechnologies for energy efficiency such as cathode, solar-electric and thermoelectric materials.

The center will feature state-of-the-art research equipment to attract and retain high-quality faculty, innovative educational programs that link coursework with current research, and collaborations connecting the center with Ukrainian and international research partners.

SECOND CENTER ESTABLISHED IN UKRAINE
This Center for Energy Efficiency Technologies is the second established by CRDF and the Ministry of Ukraine for Education and Science under the bilateral CREST program (Cooperation in Research, Education, Science, and Technology), and the first involving support from the United States Agency for International Development.

CREST aims to accelerate Ukraine’s transition to a knowledge-based economy through reinvigorating scientific research and higher education in Ukraine. CREST Research and Education Centers strengthen the research capabilities of Ukrainian universities to meet economic and technological needs, and train the next generation of young Ukrainian scientists in key technology fields.

The first CREST Research and Education Center, “Geotechnical Systems Stability,” was established in 2007 at the National Mining University in Dnipropetrovsk. This initial Center is focused on mining safety and environmentally sound mining techniques.

The CREST Research and Education Center in Ivano-Frankivsk was competitively selected from among six applicant universities. The center is planning to open its doors in January 2009.

MORE CENTERS PLANNED IN UKRAINE
CRDF envisions establishing additional centers focused on areas of importance to Ukraine’s future, including public health, information technologies, and agricultural technologies. For more information and sponsorship opportunities, please visit our CREST overview or e-mail CREST. www.crdf.org.

United States Agency for International Development’s (USAID) assistance focuses on the following areas: Economic Growth, Democracy and Governance, Health and Social Sector. Since 1992, USAID has provided $1.6 billion worth of technical and humanitarian assistance to Ukraine to further the processes of democratic development, economic restructuring and social sector reform in the region.

For additional information about this and other USAID programs in Ukraine, please call USAID's Office of Program Coordination, at tel. (044) 537-4600 or visit the USAID website at: http://ukraine.usaid.gov.

LINK: http://www.crdf.org/newsroom/newsroom_show.htm?doc_id=758862

CRDF is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C., www.usubc.org.

5. SOFTSERVE APPOINTS ROBERT GELINAS VICE PRESIDENT OF SALES
Independent multinational software development and consulting company

SoftServe Inc., Fort Myers, Florida, Monday, December 15, 2008

FORT MYERS, FL - SoftServe Inc. announced the assignment of Robert E. Gelinas, a professional with over 20 years of high tech, sales and executive managerial experience, as Vice President of Sales.

Robert E. Gelinas has been appointed Vice President of Sales for SoftServe, Inc., a leading global software development and consulting company. SoftServe’s newly appointed executive is coming on board with over 20 years of executive managerial experience of successful sales, business development and consulting in advanced IT, information security and networking technologies.

Previously, Mr. Gelinas held the positions of President & CEO of iCrypt, Inc., an Incubator Funded Start-Up; Vice President of Worldwide Sales & Operations of CyberGuard Corporation; Director of Strategic Accounts for WholeSecurity, a VC Funded Start-Up; Business Development Manager in SAIC/Global Integrity, Southeast Regional Sales Manager in AXENT Technologies.

Among his most significant achievements has been the development of successful sales teams which produced over $100 million in revenue within 8 years, all of which were in early‐stage, start‐up, or new regions/divisions, plus executed a successful turnaround of a failing public company.

"Robert Gelinas is a welcome addition to our senior management team. He brings a wealth of business experience, industry knowledge and relationships to SoftServe," said Taras Vervega, SoftServe’s EVP, Business Development, “With his extensive know-how and drive, Robert is the right person to help us continue with our mission to help achieve a quantifiable contribution to the client’s success helping them to enhance their competitive capabilities.”

Robert E. Gelinas holds a degree in Electronic Systems Technology from the CCAF, University of Texas at San Antonio, and University of Maryland (Heidelberg, GE), and received training in numerous formal technical courses, corporate sponsored business management courses, sales and negotiation trainings.

At SoftServe Robert will be responsible for driving the company's global sales activities while implementing new strategic initiatives and driving customer growth.

ABOUT SOFTSERVE
SoftServe, Inc. is an independent multinational software development and consulting company that helps global organizations enhance their customer's competitive capabilities by providing the technology and processes that achieve strategic results.

With Europe headquarters in Lviv, Ukraine and U.S. headquarters in Fort Myers, Florida, SoftServe has its development facilities located throughout Ukraine. Since 1993, SoftServe has been partnering with over hundred companies worldwide offering superior level of capability in technical skills and project leadership.

SoftServe's state of the art infrastructure, ISO- and CMMI-certified processes and unrivaled talent ensure our promise of excellence in even the most complex of projects. For more information please visit our site at http://www.softservecom.com/. Contact: Yuliya Kovalyova, ykoval@softservecom.com.

SoftServe is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C., www.usubc.org.

6. VAST MAJORITY OF BANKS LACK ENTERPRISE-WIDE VIEW OF RISK
Risk management functions in Ukrainian banks are receiving ever increasing levels
of attention and executive management support, especially as the Ukrainian market
goes through various stages of challenge and evolution.

Ernst & Young, New York, NY, Kyiv, Ukraine, Monday, December 22, 2008

NEW YORK, KYIV - Only 14% of respondents in a survey of top executives at nearly 40 global banks indicated they have a consolidated view of risk across their organizations. According to Ernst & Young’s second annual study on risk governance entitled Navigating the Crisis, the current economic crisis has exposed inherent weaknesses in risk management, forcing banks to improve their risk governance processes, increase the collaboration between risk and finance functions, and make instilling a risk culture a true priority.

Organizational silos, decentralization of resources and decision-making, inadequate forecasting, and lack of transparent reporting were cited as major barriers to effective enterprise-wide risk management. The need to create a risk-aware culture throughout the institution emerged as a top priority in the study – three-quarters of all respondents cited its vital importance – as banks struggle to develop a consolidated view of risk across business units and various risk dimensions.

“In light of recent events, there was strong agreement that managing risk effectively requires both top-down oversight and bottom-up involvement from front-line risk takers,” says Bill Schlich, leader of Ernst & Young’s Global Banking & Capital Markets practice. “In order to create and instill a culture of risk awareness within banks, risk management must become everyone’s business.”

ERNST & YOUNG UKRAINE
Roman Tatarsky, Business Risks Services Leader with Ernst & Young Ukraine, adds: “Banks and other financial institutions have been leaders in the Ukrainian market with respect to initiating, building and evolving their risk management functions and instilling a risk-aware culture within their organisations. This is due partly to the nature of the banking business itself but also due to close coordination and regulation by the central bank of Ukraine.

Having said this, risk management functions in Ukrainian banks are receiving ever increasing levels of attention and executive management support, especially as the Ukrainian market goes through various stages of challenge and evolution.

"Shareholders, executive management and all stakeholders are demanding more comprehensive, timely, collaborative and forward-looking risk management information and analysis of all parts of the business. The evolution of enterprise-wide risk management as a strategic management tool is particularly relevant during these times of financial turmoil.”

To do that, respondents agreed that the discussion of risk must be elevated to the strategic level with much closer collaboration across functions, business units and risk classes. Eighty-six percent of those surveyed indicated that their banks are implementing a variety of projects designed to provide a more comprehensive approach to risk. However, only 16 percent said they have a well-defined, shared vision of what it would look like.

Respondents consistently cited the need for better information flow and reporting in the area of risk. Poor data quality, gaps in data flow, and the sheer volume of data are just a few challenges banks face.

Sixty-seven percent of executives indicated that they were under way with the process of implementing consolidated risk reporting across their organizations but only 9% felt they have truly been able to aggregate data across the enterprise. Survey participants agreed greater transparency, faster delivery and better synthesis of data must be top priorities.

“In last year’s study, identifying emerging risk was reported to be a relatively low priority on the path to better risk management,” says Hank Prybylski, head of Ernst & Young’s Global Financial Services Risk Management practice. “The current crisis demonstrates the need for firms to focus on emerging and unforeseen risk.”

A vast majority of this year’s survey respondents said that their organizations do not have well-defined, rigorous processes for forecasting risk. However, all recognized the need to strengthen forecasting by developing more formal processes and more forward-looking risk assessment tools.

This includes implementing more frequent executive risk committee meetings to monitor issues and events, creating detailed scenario modeling, and mandating periodic portfolio reviews to monitor leading risk indicators.

Many of those interviewed said this crisis might ultimately lead to more robust risk governance. The crisis is already acting as a catalyst by dismantling silos, promoting more dialogue between risk and finance, and stimulating broader discussion of risk as a core issue. As one executive observed, “The survivors of this 500-year flood will emerge as much stronger global institutions.”

ABOUT THE STUDY
Ernst & Young commissioned Broderick & Company, an independent market strategy firm, to conduct a global market survey of key industry opinion leaders from leading banks. From May through October 2008, Broderick completed in-depth, qualitative interviews with 48 senior executives from 36 major banking institutions around the world.

Interviewees included a mix of senior executives in each organization, including chief financial officers, chief risk officers and heads of business units, as well as heads of functional divisions including finance, operational risk, internal audit, compliance, legal and strategy.

ABOUT ERNST & YOUNG
Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 135,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve potential.

In Ukraine Ernst & Young established its practice in 1991. Ernst & Young Ukraine now employs more than 570 professionals providing a full range of services to a number of multinational corporations and Ukrainian enterprises. For more information, please visit www.ey.com/ukraine. Contact: Natalia Partach, Ernst & Young Senior PR Specialist, Kyiv, Ukraine, Natalia.Partach@ua.ey.com.

Ernst and Young is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C. www.usubc.org. UKRAINE'S NATIONAL BANK (NBU)

7. NATIONAL BANK OF UKRAINE APPROVES TERMS,
METHODS FOR ANALYSIS OF LARGE BANKS

Interfax Ukraine, Kyiv, Ukraine, Monday, December 8, 2008

KYIV - The National Bank of Ukraine (NBU) has drawn up a list of eight audit firms to analyze large banks in order to determine their solvency and
viability in the conditions of the crisis and evaluate the size of required additional capitalization. The decision is stipulated in NBU resolution No.
389, which was also sent to Interfax-Ukraine.

"[The resolution] obliges the banks to conduct the analyses using their own funds and attracting one of the audit firms," reads the document.

The list of audit firms includes PricewaterhouseCoopers (Audit), KPMG Audit, Deloitte and Touche USC, Ernst & Young Audit, BDO-Balance Audit, RSM ApiK, Grant Thornton Ukraine and Baker Tilly Ukraine. According to the document, the first group banks should submit a report to the NBU by December 15, 2008, and the second group banks – by February 25, 2009.

The resolution foresees that audit firms should have access to materials of the latest comprehensive inspection of the bank conducted by the NBU, and a
report on the analysis should be submitted to the Ukrainian cabinet, the International Monetary Fund and World Bank.

As for methods for evaluating the banks' solvency, the resolution foresees the evaluation of the ability of bank leadership to determine the impact of the slump in the financial and macro-economic conditions in 2009 on the bank's solvency and profitability. In addition, the resolution scheduled the evaluation of banks' investment into securities and checks of the quality and liquidity of credit provision.

The NBU obliged banks to re-classify credit transactions and determine the predictable size of their reserves, which should be compared with actual size of reserves after the results of the evaluation of the credit portfolio of banks. The document also foresees the evaluation of the size of the banks' regulatory capitals and their adequacy.

NOTE: Approved list includes KPMG Audit and Ernst & Young Audit,both members of U.S.-Ukraine Business Council (USUBC], Washington, D.C. www.usubc.org.

8. BANK CONSOLIDATION: WHAT EVERY UKRAINIAN BANKER SHOULD NOW
SEMINAR HELD BY INTERNATIONAL LAW FIRM CHADBOURNE & PARK LLP

Chadbourne & Parke LLP, Kyiv, Ukraine, December 12, 2008

KYIV, UKRAINE - The international law firm Chadbourne & Parke LLP held a private seminar at its Kyiv office exclusively for Ukrainian bank management and legal counsel on "Bank Consolidation: What Every Ukrainian Banker Should Know".

Kyiv Managing Partner Jaroslawa Johnson, London partner Charez Golvala, international partner Oleg Mazur, senior associate Olena Repkina and senior associate Anna Iakubenko spoke about the impact of banking consolidation and available means for merging assets in Ukraine as well as the possible use of documents structured under English law and minimization of tax risks in such deals.

Chadbourne's Kyiv office is well versed in M&A transactions in Ukraine, and has worked on numerous bank acquisitions in Ukraine over the past three years. The office also has extensive experience in dealing with regulators and authorities in regulated industries.

Nine banks attended the seminar. Several bank representatives noted that the presentations were packed with information and provided a comprehensive review of the consolidation process which would be invaluable in helping their banks evaluate consolidation opportunities.

ABOUT CHADBOURNE & PARKE LLP
Chadbourne & Parke LLP, an international law firm headquartered in New York City, provides a full range of legal services, including mergers and acquisitions, securities, project finance, private funds, corporate finance, energy, communications and technology, commercial and products liability litigation, securities litigation and regulatory enforcement, special investigations and litigation, intellectual property, antitrust, domestic and international tax, insurance and reinsurance, environmental, real estate, bankruptcy and financial restructuring, employment law and ERISA, trusts and estates and government contract matters.

Chadbourne's Kyiv office is a full-service office comprised of 20 US, English and Ukrainian qualified attorneys, in addition to several English speaking paralegals and other support staff. Top locally qualified attorneys in the Kyiv office are fluent in English, Ukrainian and Russian, and most of them have a graduate degree from a first-class American law school.  For additional information, visit www.chadbourne.com.

Chadbourne & Parke LLP is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C., www.usubc.org.

9. OVERVIEW OF THE LABOUR LAW OF UKRAINE

Salans International Law Firm Newsletter, Kyiv, Ukraine, December 2008

KYIV, UKRAINE: Overview of the Labour Law of Ukraine; IN THIS ISSUE:

1.         Employment Agreements
2.         Terms of Employment
3.         Labour Books
4.         Payroll Taxation
5.         Disabled Persons- Employment Requirements
6.         Work Permits

INTRODUCTION
Labour issues in Ukraine are governed primarily by the Labour Code of Ukraine (“Labour Code”), which regulates matters such as wages and salaries, sabbaticals and vacation, employment agreements, collective bargaining agreements, termination of employment and employee guarantees. Related issues, including social security, mandatory withholdings, taxation, pensions, and work permits are regulated by a number of other legislative acts and regulations.

The Labour Code, being based on the old Soviet labour code, is slanted heavily in favour of workers’ rights and protections. For example, the concept of “employment at will” is undeveloped in Ukrainian labour legislation. In addition, an employee cannot contractually waive many of the rights he or she may have under Ukrainian law.

Therefore, provisions of the Labour Code will prevail over any less-favourable terms in the employment agreement. This becomes particularly relevant in the context of termination of employment, given that the Labour Code permits termination only in specific and limited circumstances, described further under “Termination,” below.

1. Employment Agreements
There are three types of employment agreements in Ukraine: (i) fixed term, (ii) indefinite term, and (iii) project-based agreements. The latter are entered into to fulfil a specific job or responsibility and terminate when the task has been completed.

Employment agreements are usually evidenced by an internal order ("nakaz" in Ukrainian), which contains inter alia the employee’s name, position and employment starting date. The order should be signed by the local director and the written agreement signed by the employer and employee should be attached. As a general rule, the employer may not demand that the employee perform duties not detailed in the employment agreement.

A specific type of fixed term employment agreement is the “labour contract,” which may be utilized only in specific circumstances permitted by Ukrainian law. For instance, the Business Code of Ukraine permits a labour contract to be entered into with the “director of an enterprise” which, under current professional classification codes, would potentially include a director of any business entity.

A labour contract may contain additional bases for termination beyond those permitted by the Labour Code (for example, breach of confidentiality obligations, failure to attain productivity levels), as well as impose additional rights and obligations on the parties. An employer may wish to consider using the labour contract form of agreement to provide more flexibility in structuring its employment relationship with a director.

2. Terms of Employment
An employee may be hired for an initial trial or probationary period that generally should not exceed three (3) months. The standard probationary period is one (1) month for “labourers,” three (3) months for other employees.

During this trial period, employment can be terminated without prior notice if the employee proves unfit for the job. However, if the employee continues to work after the trial period has elapsed, the employee is considered to have "passed the test," and is entitled to all rights and protections under Ukrainian labour law.

Under Ukrainian currency regulations, salary payments made by employers to Ukrainian residents are permitted only in local currency, the Ukrainian Hryvnia. In practice, salaries are often indexed against a foreign currency to protect against the risk of currency devaluation. By law, a salary should be paid twice per month with the period between payments not exceeding 16 calendar days.

According to the Labour Code, regular working hours may not exceed 40 hours per week, based on either five or six working days. However, the Labour Code also recognizes a “non-normative” work schedule for certain classes of employees, such as managers and professionals, which allows extended work hours without additional remuneration. In all other cases, employees are entitled to overtime pay for working extended hours. Negotiated overtime may not exceed four hours in any 48-hour period or 120 hours annually.

Most businesses in Ukraine are open from 9:00 am until 6:00 pm. Under the Labour Code, lunch breaks may not exceed two hours; however, usual practice is for the lunch break to last one hour. The timing of the lunch break should be established by the internal regulations of the employer.

The Labour Code currently recognizes 10 national (paid) holidays, and also provides employees with the opportunity of taking an additional three religious holidays on the condition that the employee makes up those days later. In addition to national holidays, employees are entitled to at least 24 calendar days of paid vacation each year.

Depending on the employee’s position and qualifications, he or she may be entitled to additional vacation time. For example, employees working a “non-normative” schedule (i.e., over 40 hours per week) are entitled to up to seven (7) calendar days of paid vacation above and beyond the 24 calendar days.

Employees may not waive vacation time in exchange for monetary compensation, except in certain limited circumstances. Employees earn their annual vacation entitlement after the elapse of six-months following commencement of employment.

Employees are also entitled to paid sick leave; however an employer may terminate an employee’s contract if he or she takes more than four consecutive months’ sick leave, subject to certain exceptions. Sick leave is paid as a percentage of the employee’s full salary, determined on the basis of duration of employment.

Termination of employment is strictly regulated by Ukrainian labour rules. During the initial probationary period, either the employer or the employee may terminate the employment relationship without cause and without prior notice. After this probationary period, however, the employer’s right unilaterally to terminate employment is limited to those cases expressly stipulated by the Labour Code.

Such limited cases include, for example,
[1] persistent non-performance without cause of the employee’s duties , in spite of prior written reprimands;
[2] a single gross violation of employment duties (in limited cases only);
[3] absence from work for more than three consecutive working hours without sufficient cause;
[4] drunkenness, theft or embezzlement;
[5] sick leave of more than four consecutive months, subject to certain exceptions;
[6] unsuitability for a position or inadequate qualifications. In this case, however, the employer must first offer the employee another job that matches the employee’s qualifications, if such a job exists;
[7] liquidation, reorganization or necessary staff reductions. In such case, the employer must first offer the employee an alternative position (if one is available) and must provide two months’ prior written notice and one month’s severance pay.

In contrast, employees working under an indefinite term employment agreement have the right to terminate the employment relationship at any time, subject to two weeks’ (and less in certain cases) prior written notice. The Labour Code also permits termination of the employment relationship by mutual agreement of the employer and employee.

3. Labour Books
Labour books typically contain information about the type of work performed, any awards, the duration of employment, etc., and serve as a basis for ascertaining the employee's length of service with reference to social security and pension rights upon retirement.

Although representative offices of foreign companies may engage Ukrainian employees, they are not permitted to make any entries in the labour books of such employees. Any entries made directly by a representative office would be declared invalid.

Rather, those books are submitted to and maintained by appropriate government agencies. In Kyiv, the relevant agency is the General Directorate for Servicing Foreign Representations (commonly referred to by its acronym “GDIP”). A representative office must enter into an appropriate service agreement with GDIP and compensate GDIP for its services.

4. Payroll Taxation
Ukrainian law imposes a number of tax obligations on an employer in relation to the payroll of its employees as described below.

Under Ukrainian tax law, an employer is deemed to be a “tax agent” for its employees. This means that the employer is obliged to withhold and remit to the state budget personal income tax (“PIT”) on salary and on certain fringe benefits provided to its employees. Moreover, the employer must regularly file PIT reports with the tax authorities.

The standard PIT rate is 15%. The PIT base for payroll income is determined as being gross salary less social security contributions payable at the expense of the employee.

In addition to PIT, a Ukrainian employer is liable for paying relevant mandatory social security contributions for its employees and reporting to the relevant social security funds. Mandatory social security contributions apply to payroll salary payable by an employer to its employee.

Social security contributions are split into two types: (1) those payable at the expense of the employer; and (2) those payable at the expense of the employee. Social security contributions payable at the expense of the employer are accrued on top of payroll. Conversely, social security contributions due from an employee are withheld by the employer from the employee’s payroll.

The tax base for social security contributions is currently capped at UAH 10,035 (approximately - USD 1,600) per month per person. To explain, if a salary exceeds the payroll cap, social security contributions will not apply to the amount of salary that exceeds the payroll cap.
For your reference, we summarize the rates for social security contributions in the table below.

No. Type of mandatory social security Rate of contribution, % of payroll
                                                                     Employer             Employee
1.     Pension                                                     33.2                        2
2.     Unemployment *                                        1.3                        0.5
3.     Temporary disability                                  1.5                        1
4.     Accident at work                                  0.66-13.6                  N/A
                                                 (depending on the class of professional hazard)
* Foreign individuals who temporarily reside in Ukraine are exempt from the liability to make mandatory contributions to the Unemployment Fund of Ukraine.

5. Disabled Persons- Employment Requirements
Ukrainian law sets requirements for the employment of a certain number of disabled persons by Ukrainian employers. Specifically, a Ukrainian employer must employ disabled persons as 4% of its average number of employees per year. If a Ukrainian employer engages between 8 and 25 staff, at least one disabled person must be employed.

6. Work Permits
Any foreign citizen seeking employment in Ukraine must obtain a work permit from the relevant state or local employment centre of the Ministry of Labour. However, the Ministry of Labour has stated that expatriate directors of local representative offices are exempt from the requirement to obtain a work permit.

It is the employer’s obligation to ensure that every foreigner working in their office obtains a work permit. A foreign citizen employed without a work permit is subject to immediate deportation from Ukraine at the employer’s expense, and the passport of such foreign citizen will be stamped with “persona non grata”.

For further information regarding our Kyiv employment practice, please contact: Oleg Batyuk, Managing Partner, E-mail: batyuk@salans.com or Volodymyr Monastyrskyy, Partner, Employment/Corporate/Real Estate, E-mail: vmonastyrskyy@salans.com

SALANS, 49-A, Volodymyrska Street, 2nd floor, 01034 Kyiv, Ukraine; Web-page: www.salans.com, E-mail: kyiv@salans.com.

SALANS is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C., www.usubc.org.

10. SOFTSERVE HOSTS SUCCESSFUL CLIENT CONFERENCE IN FLORIDA
Multinational software development and consulting company

SoftServe, Fort Myers, FL, Thursday, December 18, 2008

FORT MYERS, FLORIDA - SoftServe, Inc, a leading multinational software development and consulting company, hosted its first client conference on December 7-9 at Ritz-Carlton Hotel in Naples, Florida. The event's theme was "Transforming experience into business value."

“Successful clients are the foundation for the future growth of SoftServe. That is why we feel it is very important to start providing gatherings such as this conference, where they can share their thoughts and ideas to help shape the future roadmaps of our services,” said Taras Vervega, EVP Business Development, SoftServe, at the conference opening.

The two-day event began with a keynote presentation from Frederic D. Mapp, CEO, Quality Service Solutions. Fred presented on how companies can improve business processes and implement technology that is directly tied to business strategies to achieve a sustained competitive edge. With more than 40 years of experience in IT, Fred Mapp has been a frequent guest speaker at CIO conferences and numerous industry seminars.

Panel discussions featuring the speakers, Lori Holmes, Managing Consultant, Q/P Management Group, and Mark Pushinsky, Consultant, www.ScrumTraining.com, followed the keynote address. Lori Holmes also hosted the panel session on metrics in outsourcing the following day.

Throughout the first day, attendees also had the opportunity to attend SoftServe session “Rethinking Usability” and the session by Neal Reizer, VP R&D, Allscripts, who spoke on the long-term client relationship with SoftServe.

A representative from Microsoft Corporation, Murray Gordon, ISV Architect Evangelist, presented a panel session entitled “Software + Services”. Murray has co-authored three publications in the past two years, two titles for Microsoft Press and his most recent title for O'Reilly Media, Sharepoint 2007: The Definitive Guide.

Microsoft presentation was followed by panel session on using multi-level continuous integration for distributed development hosted by David Jabs, VP Engineering, AccuRev, another client of SoftServe. David was one of the founding architects of IBM Rational ClearCase at Atria Software and is a co-inventor of two ClearCase patents.

The working agenda was finalized by SoftServe session, entitled “Ukraine Today and Tomorrow” presented by Wilf Voge, SoftServe’s Account Executive with significant knowledge of Ukrainian history and culture and experience of its reality.

The participating clients found the event excellently organized and appreciated the opportunity of interacting with SoftServe management and exchanging thoughts with each other. Furthermore, the participants considered valuable the presentations by recognized industry speakers and hearing about SoftServe’s own strategic initiatives that would help them see potential opportunities across their own businesses.

“In order to help our clients be successful in the dynamic global marketplace, we have always favored an open dialogue that gives us insight into their needs, wishes and problems,” said Taras Kytsmey, SoftServe’s President at the event. “That’s why we consider this conference a powerful driver for further improvement of quality of SoftServe services”.

ABOUT SOFTSERVE
SoftServe, Inc. is an independent multinational software development and consulting company that helps global organizations enhance their customer's competitive capabilities by providing the technology and processes that achieve strategic results.

With Europe headquarters in Lviv, Ukraine and U.S. headquarters in Fort Myers, Florida, SoftServe has its development facilities located throughout Ukraine. Since 1993, SoftServe has been partnering with over hundred companies worldwide offering superior level of capability in technical skills and project leadership.

SoftServe's state of the art infrastructure, ISO- and CMMI-certified processes and unrivaled talent ensure our promise of excellence in even the most complex of projects. For more information please visit our site at http://www.softservecom.com//. Contact: Yuliya Kovalyova, ykoval@softservecom.com.

SoftServe is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C., www.usubc.org.