UKRAINE BUSINESS NEWS #16 - TEN ARTICLES
Situation with VAT refunds is extremely bad, strikes a crushing blow to agribusiness
Ukraine raises 27.4% less foreign direct investment (FDI) in 2009 year-on-year U.S.-Ukraine Business Council (USUBC), Kyiv, Ukraine, Mar 23, 2010
TUESDAY, MARCH 23, 2010
Kyiv, Ukraine
UKRAINE BUSINESS NEWS #16 - TEN ARTICLES
Situation with VAT refunds is extremely bad, strikes a crushing blow to agribusiness
Ukraine raises 27.4% less foreign direct investment (FDI) in 2009 year-on-year
INDEX OF ARTICLES ------
Clicking on the title of any article takes you directly to the article.
Return to Index by clicking on Return to Index at the end of each article
1. GRAIN MARKET SITUATION IN UKRAINE REQUIRES ATTENTION OF GOVERNMENT
Situation with VAT refunds is extremely bad and strikes a crushing blow to agribusiness
News Release: Volodymyr Klymenko, President, Ukrainian Grain Association (UGA)
Press Conference, Interfax News Room, Kyiv, Ukraine, Mon, March 22, 2010
Original UGA news release in Ukrainian translated into English by the
U.S.-Ukraine Business Council (USUBC), Kyiv, Ukraine, Tue Mar 23, 2010
2. UKRAINE UPDATE: EVENTS ARE MOVING QUICKLY IN UKRAINE
Commentary & Analysis: By Timothy Ash,
Emerging Markets Strategy | CEEMEA Update
Royal Bank of Scotland, London, UK, Wed, March 17 2010
3. UKRAINE: TAXATION NEWS
Tax Newsletter, Salans law firm, Kyiv, Ukraine, March 15, 2010
4. UKRAINE RAISES 27.4% LESS FOREIGN DIRECT INVESTMENT IN 2009 YEAR-ON-YEAR
Interfax - Ukraine Business, Kyiv, Ukraine, Thu, March 11, 2010
5. GMAC CFO HEADS TO PROVIDENCE EQUITY PARTNERS
AltAssets, London, UK, Wed, March 10, 2010
6. UKRAINIAN BIOFUEL FORUM, KEY BUSINESS EVENT FOR THE UKRAINIAN INDUSTRY OF SOLID BIOFUELS AND BIOMASS, IN KYIV ON APRIL 22-23
Interfax Ukraine Economic, Kyiv, Ukraine, Wed, March 10, 2010
7. OLGA PROKOPOVYCH JOINS CHADBOURNE & PARKE IN KYIV
Kyiv office of Chadbourne & Parke LLP expands its corporate practice
Chadbourne & Parke LLP, Kyiv, Ukraine, Tue, March 16, 2010
8. UKRAINE: PROCEDURE OF AFTER-PAYMENT OF CUSTOMS DUTIES IN RESPECT OF IMPORTED GOODS FOR WHICH ROYALTIES ARE PAID
Tax Alert: DLA Piper Ukraine, Kyiv, Ukraine, Tue, Mar 16, 2010
9. UKRAINE BANKING AND FINANCE LEGAL NEWS
Amendments to the Provision on the Functioning of Domestic and International
Payment Systems in Ukraine; Registration of Corporeal Rights over Immovable Property
Salans law firm, Kyiv, Ukraine, Thu, March 18, 2010
10. UNITED STATES HOPES NEW UKRAINE'S GOVERNMENT WILL CARRY OUT REFORMS AIMED AT DEVELOPMENT OF ECONOMY AND SOCIETY
Interfax Ukraine, Kyiv, Ukraine, Fri, March 12, 2010
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1. GRAIN MARKET SITUATION IN UKRAINE REQUIRES ATTENTION OF GOVERNMENT
Situation with VAT refunds is extremely bad and strikes a crushing blow to agribusiness
News Release: Volodymyr Klymenko, President, Ukrainian Grain Association (UGA)
Press Conference, Interfax News Room, Kyiv, Ukraine, Mon, March 22, 2010
Original UGA news release in Ukrainian translated into English by the
U.S.-Ukraine Business Council (USUBC), Kyiv, Ukraine, Tue Mar 23, 2010
KYIV, UKRAINE - The current situation on the Ukrainian grain market requires immediate attention and response from all branches of government, business and organizations.
Ukraine exported approximately 25 million tons of grain from the 2008 harvest (53 million tons). The 2009 harvest was also quite good (approximately 48 million tons) and Ukraine can export about 22 million tons of grain. It should be noted that Ukrainian grain exporters do their job professionally, working in a financial crisis and fierce competition on world markets.
BEST GRAIN EXPORT SYSTEMS CREATED IN UKRAINE
Over the last decade, one of the best grain export systems in the world has been created in Ukraine. It is founded on market economy principles and sound cooperation between business, government and agricultural organizations. This is reflected by Ukraine holding third place in the world for grain exports (after the US and EU).
The transshipping complexes built at Ukrainian ports in recent years by private investors have increased export capacity from 7 to 32 million tons of grain per year, and construction of new facilities continues. Ukraine exports grain to 89 countries.
The domestic market needs about 26-27 million tons of grain. Therefore, half the crop must be exported. Given these conditions, grain prices are fully dependent on world prices for grain and no actions in Ukraine can change this dramatically.
What can be managed in Ukraine is the cost of grain production and the cost of export. Ukraine’s competitiveness on the world market is based on reduced cost of production and export of grain.
FOUR MAJOR FACTORS IMPACTING GRAIN PRICES IN UKRAINE
In 2009 we talked a lot about purchase prices for grain. The four major factors impacting grain prices are:
[1] world prices;
[2] hryvnia-dollar exchange rate;
[3] cost of the marketing chain from the fields to the ship;
[4] VAT refunds to grain exporters.
The exchange rate of the hryvnia to the dollar, the cost of the marketing chain from the field to the ship and VAT refunds to grain exporters are the factors that directly shape the cost of grain exports and grain producers’ incomes.
World prices have fallen, but still allow grain producers to operate profitably. Over the next ten years, world prices for grains are expected to be stable.
The hryvnia exchange rate stimulates exports. Ninety percent of grain contracts are in US dollars. However, recently there has been much talk about the need to revalue the hryvnia to the level of 6 or 7 to 1 USD. In making these decisions, it should be kept in mind that by changing the exchange rate from 8 to 7 hryvnias per US dollar, grain producers stand to lose close to UAH 7 billion.
Even worse would be the situation with the cost of the marketing chain. The cost of the marketing chain increased by 210 hryvnias per ton from October 2007 to July 2009, which is approximately UAH 5 billion that was removed from grain producers’ pockets. We should emphasize that the state provides the bulk of services in the marketing chain.
SITUATION WITH VAT REFUNDS IS EXTREMELY BAD
The situation with VAT refunds to agricultural exporters is extremely bad. Tymoshenko's government drove this issue to a standstill.
For six months, grain exporters have been receiving mere pennies! Export companies can’t get any information on this matter, can’t put together financial plans, and have no funds to continue exporting. As a result, in February 2010, the volume of grain exports dropped 50%. But Ukraine still needs to export 5 million tons from the 2009 harvest.
If problems with VAT refunds to grain exporters don’t get resolved, on 1 July 2010 Ukraine will have unprecedented high levels of excess grain that will force down prices for the new harvest. Purchase prices will fall by 20% solely based on the failure to return the VAT to grain producers. Grain producers will lose about UAH 10 billion in the marketing year.
We are convinced that the problem with VAT refunds is the result of incorrect estimates of the amount to be compensated out of the State Budget of Ukraine. The budget for 2008 included UAH 32,592,692,800 or VAT refunds.
We all know about the problems with VAT refunds to exporters in 2008 and everybody understood that the amount included in the budget was not enough. Exporters of Ukrainian products hoped that the 2009 budget calculations for VAT refunds would take into the account the errors made in 2008.
However, the budget for 2009 included only UAH 36,518,500,000 for VAT refunds. Incidentally, during one of the meetings at the State Tax Administration on the 2009 budget, in response to the question of how much was needed in the budget to pay off VAT arrears to Ukrainian exporters for the past years and to ensure full reimbursement in 2009, the figure of UAH 53 billion was given.
On 16 September 2009, President Viktor Yushchenko’s official website published materials "On the draft budget for 2010.” "Based on the planned VAT refunds in 2009 (UAH 36.5 billion), projected export growth (9.5%) and the need to pay off outstanding amounts (UAH 4.9 billion) the amount to be compensated in 2010 should be UAH 45 billion."
However, in the draft budget this figure was reduced by UAH 15.7 billion, even compared with the volumes planned for 2009.” Therefore, the amount allocated for VAT refunds was short by UAH 24 billion.
One is left with the impression that when putting together the budget, Tymoshenko's government didn’t calculate the revenue figure “budgetary refund of value added tax” based on projected export volumes for 2010 by sector, and used it as a balancing figure, to show a decent budget deficit.
As of 1 January 2010, UAH 20 billion was owed in VAT refunds, but the budget for 2010 includes only UAH 20.6 billion for refunds.
WHAT DOES THIS MEAN?
What does this mean? Is it a signal to Ukrainian exporters that there will be no VAT refunds on exports in 2010?
Tymoshenko's government took and didn’t return 20 billion in current capital from Ukrainian enterprises, striking a crushing blow to those businesses that operate legally, earn currency for the country, and legally pay salaries and taxes to the budget and Pension Fund.
Was this a 20 billion loan that the government took without the companies’ consent? Based on what loan agreements? At what interest rate? Did they even have the right to do this?
Talk that this money was spent on pensions and salaries for teachers and doctors doesn’t stand up to scrutiny. This money was spent for them to remain in power. But it didn’t help.
But what will happen to the Ukrainian hryvnia after the destruction of Ukraine’s exporters? Did the previous government think about this?
What will happen to the country's budget and Pension Fund if Ukrainian exporters terminate operations? Will there be anyone left to even pay taxes?
Where are the decisions that will help fill the budget? For example, the decision to introduce a market for land, taxes on the rich, a program to bring the economy out of the shadow. According to various sources, 30 to 70 percent of the state economy is in the shadow. And someone is serving this part of the economy, just like the part that operates legally.
And where are the decisions to significantly reduce unnecessary spending? Introducing basic order in public procurement, a significant reduction in the state apparatus, exorbitant benefits, etc. Clear and economically reasonable measures should have been taken, rather than telling people about love and caring for them and simultaneously scaring them with an increase in gas prices.
I'd like to personally ask Tymoshenko’s minister of economy and acting minister of finance what they had in mind when calculating and presenting to parliament and the public the draft budget for 2010 – our country’s development or decline? Will we ever get answers to these questions?
RESOURCES FOR VAT REFUNDS?
In response to exporters’ appeals as to when their money will be returned, they were originally offered grain from the Agrarian Fund, then nitrate. Thank God and the voters that it didn’t come down to boots and gas masks. There is a well know UN Program: Oil-for-Food.
The economists in Tymoshenko’s government devised their own program: resources-for-VAT. But the question is - why should the Agrarian Fund buy nitrate with public funds and then not know where to sell it? Then they went even further and officials started talking about returning the VAT with bonds.
Why not pay salaries in bonds to those officials who came up with this idea?
UKRAINIAN EXPORTERS LEFT WITH FINANCIAL HOLE
For now, Ukrainian exporters are left with a financial hole of UAH 20 billion, while the new government is left with a host of difficult problems that require immediate resolution. According to expert data, which needs clarification, approximately UAH 50 billion is needed for VAT refunds on exports in 2010 alone.
UKRAINIAN GRAIN ASSOCIATION PROPOSALS
Given the importance of agriculture to the country’s economy (25 percent of Ukraine’s inflow of foreign currency comes from agriculture) and the catastrophic consequences that can occur in the 2009/2010 marketing year, UGA proposes:
1. In order for the state to function properly, there must first be a realistic budget that balances real revenues and expenses, which must be significantly reduced.
2. Taking into account the necessity to support exports of Ukrainian grain, not to allow a fall in purchase prices for grain producers of 20% and [to raise funds for] the financing of the spring sowing campaign, some UAH 5 billion should be found to pay the debt for VAT reimbursements to grain exporters in March-May 2010, providing for a steady return of funds under current transactions. Reimbursement to all exporting companies should be proportional to the current debt. VAT should be reimbursed only in real funds;
3. Taking into account the necessity to expand grain production and provide financial support to grain producers, consider providing financing to the Agrarian Fund for forward purchases using state currency reserves, given that grain is a liquid commodity throughout the world whose cost is directly linked to the major world currencies. Thus, a part of the state’s currency reserves would be kept in grain.
4. Taking into account President Viktor Yanukovych’s position on VAT refunds, revive the Cabinet of Ministers Council of Exporters of Ukraine, including in it associations that represent exporters from all sectors of the economy. The Council of Exporters should on a monthly basis analyze all VAT refund problems, and prepare a report that will be posted on the Cabinet of Ministers website.
5. The government together with the associations representing exporters from all sectors of the economy should analyze and present to be used when forming the state budget for 2010 projections on the amount required to refund VAT on exports in 2010 and arrears for past years.
The Ukrainian Grain Association is confident that the new government of Ukraine together with agricultural organizations and business will find an effective way to stabilize and develop the country’s economy.
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2. UKRAINE UPDATE: EVENTS ARE MOVING QUICKLY IN UKRAINE
Commentary & Analysis: By Timothy Ash,
Emerging Markets Strategy | CEEMEA Update
Royal Bank of Scotland, London, UK, Wed, March 17 2010
LONDON - Events are moving quickly in Ukraine.
Last week S&P moved to upgrade Ukraine's rating from CCC+ to B-, while also maintaining a positive outlook. This puts S&P's rating on par with Fitch
(B-) but it is still one-notch below Moody's B2 rating.
S&P's decision follows parliament's decision to back the appointment of a new government led by Mykola Azarov. In total 242 deputies out of 450 voted to back the new administration, including Regions of Ukraine, the party of President Yanukovych of which Azarov is a co-founder, plus also the Communists, the Litvin block, and also a score or so of dissidents from former President Yushchenko's Our Ukraine party, and even Yulia Tymoshenko's block of the same name (BYuT).
The above vote was facilitated by President Yanukovych's decision earlier in the week to sign into law a Constitutional amendment which in effect gave deputies a free vote on the formation of a cabinet; previously a majority of deputies in each faction had to first agree to join a ruling coalition. The opposition have described the above amendment as unconstitutional, threatening to challenge it in the courts.
The government's view though is that what matters most at the present time is quickly moving to form a government, to stabilise the domestic political scene and to push forward with the policy agenda sufficient to get IMF lending back on track.
A legal challenge is likely, but while the opposition seems to have a strong case (the Constitutional Court ruled in favour of maintaining the existing system back in 2008, so there seems to be a precedent), the assumption is that the Constitutional Court will not rush to judgement, and the case is likely to drag on keeping the current government in place for the time-being.
The above constitutional change seems to have side-tracked opposition from nationalists within Our Ukraine, in particular, to Azarov's appointment; they argue that the prime minister should be able to speak the state language, and Mr Azarov is a native Russian speaker.
Azarov himself is generally accepted to be an experienced and an able policy maker, having served as head of the State Tax Administration for the period 1996 to 2000, and then (under Yanukovych) as minister of finance and also as first deputy prime minister in two stints, first between 2002 and 2005, and then again between 2006 and 2007.
During his past stints in office, he won praise for prudence, maintaining the budget with modest deficits albeit this was an era of rapid real GDP growth which bolstered the revenue side of the budget.
Azarov has also moved to present a market friendly image by appointing Serhiy Tyhipko as deputy prime minister with responsibility for economic policy. Tyhipko, a banker, ran as a liberal reform candidate in the presidential election earlier this year, securing a very respectable 13% share of the vote.
Tyhipko is joined in Yanukovych/Azarov's economy team by the respected economist, Iryna Akimova who was appointed first deputy head of the presidential administration with responsibility for economic reform.
Tyhipko and his economy team have moved quickly, inviting the IMF to return to Kiev to try and get the stalled IMF SBA back on track. An IMF team is due back in town this week.
Getting an IMF programme back on track could still be difficult, albeit there seems to be willingness on both sides to cut a deal; there has been talk of a new 2 year programme, perhaps augmented with additional IMF funds (around one-third of the original US$16.4bn IMF funding is still to be disbursed). The IMF will no doubt have taken some encouragement from comments by Tyhipko promising gas price hikes which are key to reigning in the quasi fiscal deficit at the state-owned gas transit company, Naftogaz.
However, government ministers are still suggesting that wage/pension hikes legislated by parliament late last year, which ultimately pushed the IMF programme off track, will not be rolled back. To fund these increases, cuts will have to be made elsewhere in the budget.
The government is meanwhile promising still a range of measures which could boost budget spending, including tax cuts (a 5 year tax holiday for small business) and a pick up in infrastructure spending (talk of up to US$20bn in new borrowing to fund these). At first glance these commitments do not appear to fit with the IMF's likely call or the budget deficit to be reigned in; from the 12-13% deficit run in 2009.
Ukrainian hard currency debt has rallied in spectacularly over the past few months. We have had an overweight recommendation on Ukrainian external debt since late in 2009, over which time the market has rallied in by over 700bps.
We had set a target for 5Y CDS at around the 700bps mark, but at 670bps at present it is looking a bit top heavy, given the still considerable risks facing the government and the difficult decisions which will need to be made on the policy front to get the IMF programme back on track.
After our trip to Kiev earlier this month we suggested that Ukrainian domestic government debt offered much better value with yields of 20-25%, and in our mind limited reason for FX weakness this year; if anything the UAH will be under pressure to appreciate. Recent MOF auctions have been well bid, a reflection of the now liquid state of the domestic banking sector (and limited appetite still to lend to the real economy given high NPLs), plus a growing foreign bid.
Concerns over domestic debt sustainability seem to have been overdone. This week the MOF managed to place 12 month UAH bonds at a yield of just 16%, down from 22.75% at the last auction. The MOF placed just UAH600m in paper, but had bids of more than UAH9bn. We expect further yield compression even from current levels, albeit liquidity will be the main problem.
NOTE: This material is for information only. It is not an offering document and its terms are qualified in their entirety by the final transaction documents in respect of the securities described therein. Certain transactions mentioned may give rise to substantial risks and may not be suitable for all investors. RBS may have positions, deal or make markets in these securities or related derivatives. Prices are based on current information, are subject to change, are not offers to transact and cannot be relied upon as representations that transactions can be effected at such prices. This material is based on information considered to be reliable, but we do not represent its accuracy or completeness. Visit our website at www.rbs.com.
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3. UKRAINE: TAXATION NEWS
Tax Newsletter, Salans law firm, Kyiv, Ukraine, March 15, 2010
KYIV - Salans law firm Taxation Newsletter. Nine issues are highlighted in this newsletter:
1. New Tax Clarification on Taxation of Non-Residents
2. Tax Incentives for the Aircraft Construction Industry
3. Types of Depreciation of Fixed Assets
4. Bonus Depreciation for the Alternative Fuel Industry
5. New Tax Clarification on the Compensation of Withholding Tax Paid on Interest to Non-Resident Creditors
6. New Pension Fund Duty Rate for Buying Foreign Currency
7. New Tax Clarification on the Taxation of Commissioners (Agents) that are Single Tax Payers
8. New Tax Clarification on Tax Agents’ Functions with Respect to Individual Entrepreneurs
9. Special VAT Regime for Agricultural Enterprises
1. New Tax Clarification on Taxation of Non-Residents
On 23 December 2009, the State Tax Administration of Ukraine (‘STAU’) issued explanatory letter No. 28593/7/17-0717 on the taxation of non-residents’ income. In particular, the letter states that:
[1] All income of non-residents (including salary) is subject to 30% tax, except for dividends, interest and royalties.
[2] If a non-resident qualifies for Ukrainian residential status, this must be proved by obtaining a certificate from the tax authorities. In particular, this is required when a non-resident has a permanent residence permit or is registered as an entrepreneur in Ukraine.
[3] A non-resident acquires Ukrainian tax resident status after the issuance of the certificate; all his income (in particular, salary) is then subject to 15% tax. After acquiring Ukrainian residential status, non-residents must file a tax declaration in Ukraine and pay personal income tax (‘PIT’) on their worldwide income.
[4] Non-residents registered as entrepreneurs cannot qualify for the simplified tax regime (single tax) in Ukraine unless they acquire Ukrainian residential status.
[5] Immovable property situated in Ukraine and owned by a non-resident can only be leased out by such non-resident through a resident legal entity, which must act as the tax agent in respect of lease payments.
Currently the STAU is planning to amend letter No. 28593/7/17-0717 dated 23 December 2009 to regulate a number of ambiguous issues.
It should be noted that the STAU in letter No. 2718/7/17-0717 dated 11 February 2010 confirmed that taxpayers who acted under the STAU’s General Clarification letter No. 50 dated 29 January 2004 (and applied 15% PIT to non-residents’ salaries) will not bear any responsibility for the period before this clarification was cancelled.
2. Tax Incentives for the Aircraft Construction Industry
On 20 January 2010, the Ukrainian Parliament passed the law “On Amending Certain Legislative Acts of Ukraine regarding State Support of the Aircraft Construction Industry in Ukraine”. In particular, the law provides the following incentives for the aircraft construction industry, until 1 January 2016:
[1] VAT exemption for the following transactions of aircraft construction businesses: (1) the import of goods which are used for aircraft construction purposes, except for excisable goods, if such goods are exempt from import duties; and (2) the Ukrainian domestic supplies of the results of scientific, research and construction works for the purposes of the aircraft construction industry.
[2] Aircraft construction businesses may apply a bonus depreciation rate to certain categories of new assets in the amount of 50% of book value of assets in the 3rd group and 100% – in the 4th group, at the end of the first reporting period in which such assets are put into use.
[3] Aircraft construction businesses can recognize as taxable income the proceeds of sales of goods, works or services relating to the development, production, re-equipment, repair, modification of air equipment and engines, and relating to the conduct of scientific research and construction works related to aircraft construction in the reporting period when the factual supply of such goods, works or services took place, but can claim tax deductible expenses only upon the actual receipt of goods, works, or services from suppliers.
[4] Exemption from import duties for certain categories of goods which are imported into Ukraine by aircraft production businesses (for example, engines and radio equipment for civil aviation); and
[5] Exemption from land tax for land plots owned by aircraft construction businesses which are used for the production of finished products.
3. Types of Depreciation of Fixed Assets
On 20 January 2010, the Ukrainian Parliament passed the law “On Amending Certain Legislative Acts of Ukraine regarding State Support of the Aircraft Construction Industry in Ukraine”, which introduced certain changes to the Ukrainian law “On Corporate Profit Tax” regarding the depreciation of fixed assets.
The law introduces the following types of depreciation: normal, bonus and accelerated. Normal depreciation of fixed assets is governed by general rules. Bonus depreciation works by treating the part of expenses attributable to the acquisition (or construction) of a fixed asset as deductible expenses and further depreciation is governed by the general rules. Accelerated depreciation applies at a double rate (except for in the case of assets in the 4th group).
4. Bonus Depreciation for the Alternative Fuel Industry
On 20 January 2010, the Ukrainian Parliament passed the law “On Amending Certain Legislative Acts of Ukraine regarding State Support of the Aircraft Construction Industry in Ukraine”, under which producers of alternative fuels, until 1 January 2019, can apply a bonus depreciation rate to new equipment which runs on alternative fuels and new equipment for the production of alternative fuels upon completion of the first reporting period in which such equipment was put into operation, namely: (1) 50% of the book value of assets in the 3rd group; and (2) 100% of the book value of assets in the 4th group.
5. New Tax Clarification on the Compensation of Withholding Tax Paid on Interest to Non-Resident Creditors
On 18 November 2009, the STAU issued letter No. 14086/5/22-5016, in which it states that it considers the grossing-up of interest payable to a non-resident creditor to be illegal.
To support its position, the STAU refers to art. 18.2 of the Ukrainian law “On Corporate Profit Tax”, according to which contracts with non-residents should not include tax provisions under which Ukrainian legal entities paying sums to non-residents must pay withholding tax for those non-residents.
6. New Pension Fund Duty Rate for Buying Foreign Currency
On 31 December 2009, the Pension Fund of Ukraine issued letter No. 24746/03-02 regarding obligatory state pension duty rate on the purchase of non-cash foreign currency. The Pension Fund believes that since the rate of 0.2% was set for 2009, in 2010 the applicable rate must be 0.5%, as it was before 2009.
7. New Tax Clarification on the Taxation of Commissioners (Agents) that are Single Tax Payers
On 18 December 2009, the STAU issued letter No. 15700/5/15-0116 about the application of a single taxation regime for funds received by legal entities – single tax payers which perform commission brokerage or agency services. The STAU has changed its previous position in this respect and its new position provides for the inclusion of only the commissioner’s (agent’s) remuneration received from the above activities as taxable income.
8. New Tax Clarification on Tax Agents’ Functions with Respect to Individual Entrepreneurs
On 23 November 2009, the STAU issued letter No. 12004/6/17-0716 on the taxation of individual entrepreneurs’ income paid to them by legal entities. The STAU has changed its previous position in this respect and now believes that a copy of the certificate of state registration (irrespective of the system of taxation being applied) is the required document for a tax agent not to be obliged to withhold personal income tax paid to individual entrepreneurs.
At the same time, the tax agent must notify the tax authority using form No. 1-ДФ upon payment of personal income tax. Please be reminded that previously the STAU considered it obligatory for the tax agent to receive copies of a single tax payer’s certificate and documents confirming the payment of tax.
9. Special VAT Regime for Agricultural Enterprises
On 22 December 2009, the Ukrainian Parliament passed the law “On Amending Certain Laws of Ukraine to Support the Agro-Industrial Sector during the Financial Crisis”. The law, in particular, restores the privileged VAT regime for agricultural enterprises, from 31 December 2009.
The VAT that must be paid to the budget by agricultural processing enterprises from sales of milk and diary products, meat and meat products, must be fully utilised for donations to agricultural producers for the milk and meat sold by them to agricultural processing enterprises.
For further information regarding taxation in Ukraine, please contact: Igor Davydenko, Partner, E: idavidenko@salans.com; Sergiy Melnyk, Associate
E: smelnyk@salans.com
NOTE: Salans is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C., www.usubc.org.
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4. UKRAINE RAISES 27.4% LESS FOREIGN DIRECT INVESTMENT IN 2009 YEAR-ON-YEAR
Interfax - Ukraine Business, Kyiv, Ukraine, Thu, March 11, 2010
KYIV - The net inflow of direct foreign investment in Ukraine in 2009 was $4.41 billion,or 27.4% less than last year,the State Statistics Committee announced on February 17.
It said that over one year,foreign investors injected $5.635 billion into the Ukrainian economy in direct investments and simultaneously withdrew $941 million from it.
In Q4,2009,the inflow amounted to $1.435 billion compared to $620 million in Q3,2009,$1.88 billion in Q2,2009 and $820 million in Q1,2009.
As reported,in 2008 the net inflow of direct foreign investment in Ukraine came to $6.181 billion,which is 22.1% less year-over-year. The outflow of direct foreign investment in Ukraine was seen mainly in Q4,2008,when it reached $1.898 billion.
The total volume of direct foreign investment in Ukraine as of late 2009 reached $40.027 billion,which is 12.4% up compared to the start of the year. Direct foreign investment per capita is estimated at $872.6,against $775.3 a year ago.
The volume of credits and loans received by Ukrainian enterprises from direct investors in the fourth quarter of 2009 grew by $278 million,while over the whole year it rose by $1.381 billion,to $6.615 billion.
The total volume of direct foreign investment including loan funds as of the end of 2009 was $46.642 billion, against $40.957 billion in the previous year.
In 2009,the volume of investment from Cyprus grew by $947 million, from Russia by $827.4 million, the Netherlands by $804.6 million, France by $408.9 million, and Aruba by $273.6 million. The total volume of investment from these countries was estimated at 74% of the total investment in Ukraine.
The sectors that saw the greatest increase in foreign capital in 2009 were financial companies ($1.814 billion), trade,auto repairs,domestic appliances and personal supplies ($537.6 million),real estate,engineering and business services ($451.2 million),and industrial enterprises ($969.3 million), including processing enterprises ($885.1 million). The largest increase in investment in the processing sector was in the oil and chemicals industries (by $255.7 million) and food,beverages and tobacco production ($151.3 million).
Investment in Ukraine last year came from 125 countries. The largest investor countries,the total share of which was estimated at 81% of the total investment, were Cyprus ($8.593 billion), Germany ($6.613 billion), the Netherlands ($4.002 billion), Russia ($2.675 billion), Austria ($2.604 billion), Britain ($2.376 billion), France ($1.640 billion),the United States ($1.387 billion), the British Virgin Islands ($1.371 billion), and Sweden ($1.272 billion).
Industrial enterprises received $9.022 billion (22.5%) of the total direct investment in Ukraine,including $7.741 billion in the processing industry and $1.128 billion in the extracting industry.
About $1.837 billion in direct foreign investment went into food,beverages and tobacco production,$1.401 billion into metallurgical and finished steel production,$1.206 billion into chemical and oil and chemical sectors,$1.094 into car manufacturing,and $834.2 million into the production of other non-metallic mineral goods,
Financial institutions accumulated $8.968 billion (22.4%) in direct investment,for real estate,engineering and business services the amount was $4.065 billion (10.2%),and for trade,auto repairs,domestic appliances and personal items the sum was $4.225 billion (10.6%). A total of 19,000 Ukrainian companies reported that they had attracted FDI.
As of January 1,2010,Ukrainian companies received $6.615 billion in loans from direct investors. The largest amount of investment was received from Cyprus ($1.848 billion), the Netherlands ($802.2 million), Germany ($535.6 million), France ($503.4 million), Russia ($435.3 million), Austria ($351.8 million), Britain ($243.4 million), Poland ($194.7 million), Sweden ($189.7 million), and the United States ($185.4 million).
In 2009,Ukraine made $69.8 million in direct investments in the economies of other countries,mainly in the form of monetary payments. Ukraine made direct investment of $6.223 billion in other countries,including $5.908 billion in EU countries (95% of the total),$220.1 million in fellow CIS countries (3.5%) and other countries $94.9 million (1.5%).
Ukraine made direct investment in 51 countries,particularly Cyprus. Loans from Ukrainian direct investors totaled $123.4 million on January 1,2010. Total direct investment in other countries,including loan capital,totaled $6.347 billion.
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5. GMAC CFO HEADS TO PROVIDENCE EQUITY PARTNERS
AltAssets, London, UK, Wed, March 10, 2010
LONDON - Providence Equity Partners, a global private equity firm specialising in media, entertainment and communications investments, has hired former GMAC executive vice president and CFO Robert Hull. He will join Providence as CFO, succeeding Raymond Mathieu, who will become a managing director focused on special projects.
In his most senior position, Hull helped GMAC become a bank holding company in late 2008 and worked closely with the US Treasury and the Federal Reserve to complete multiple equity transactions in 2009, including adding Chrysler as a business partner in May.
GMAC provides a suite of financial programmes, including insurance and mortgage operations, in various countries. The company was previously the wholly owned financial services arm of General Motors, before the US automaker divested the unit.
Jonathan Nelson, CEO of Providence, said, “Rob brings an exceptional track record of serving as CFO at large and complex financial institutions, as well as public and private companies in a variety of industries.”
Providence investment Kabel Deutschland, a TV, telephone and internet services company, is gearing up for an initial public offering, with a portion of the company set to list on the Frankfurt Stock Exchange.
LINK: http://altassets.net/private-equity-news/article/nz18103.html
NOTE: Providence Equity Partners is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C., www.usubc.org. Providence Equity Partners works closely with the SigmaBleyzer Private Equity Investment Management Group in Kyiv and is a major investor in Volia Cable.
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6. UKRAINIAN BIOFUEL FORUM, KEY BUSINESS EVENT FOR THE UKRAINIAN INDUSTRY OF SOLID BIOFUELS AND BIOMASS, IN KYIV ON APRIL 22-23
Interfax Ukraine Economic, Kyiv, Ukraine, Wed, March 10, 2010
KYIV - Ukrainian Biofuel Forum will take place on April 22-23, 2010 in the center of the Ukrainian capital. It is a key business event for the Ukrainian industry of solid biofuels and biomass, which will host a conference, exhibition, workshops, sales master classes and presentations.
Without doubt, this Forum will become a substantial contribution to the popularization of alternative fuels and energy efficiency and will become one of the best business and informative grounds for market participants in this field. Forum will consist of a two-day international conference, exhibition, workshops, master classes, round-tables, presentations of companies and projects on solid biofuels.
The objective of the Forum: to provide effective guidance for companies to obtain competitive advantages in the Ukrainian fuel market, as well as obtain tax incentives provided by laws.
The Ukrainian Biofuel Market is on the threshold of a new stage of evolution. Early forecasts show rising prices for imported natural gas to the European price level. Hereof, the relevance of creating a closed, vertically integrated production of fuel briquettes and pellets aimed at meeting the definite needs of the domestic market.
In addition to traditional wood, Ukrainian companies are actively pursuing agricultural waste as a resource for the production of solid biofuels, creating a radically new market niche on the European market, and Ukraine –serving as the foundation for new business models.
An additional catalyst for market development are the recent legislative changes which took effect on January 1, 2010.The new legislation will provide tax preferences for biofuel companies. How not to remain on the sidelines of the new Ukrainian energy evolution? We will not give an answer to this question.
The answer will be given by people who create the modern Ukrainian biofuel industry.
The main subjects of the Forum:
· Legislative framework for the solid biofuel market, national and international standards;
· Recent trends in the EU and Ukrainian markets of pellets and briquettes;
· Modern biomass as an energy source; the analysis of technological solutions;
· Agricultural raw materials, especially its use in pelleting and briquetting;
· Solid straw biofuel on the market: who is its buyer? What are the prospects for expanding the market?
· Business construction in the production and marketing of briquettes and pellets;
· Raw-material base for the development of biofuel projects;
· Logistics as the central issue of effectiveness of biofuel project development;
· The ways of raising funds under biofuel projects;
· Export and formation of an internal market for briquettes and pellets in the current context;
· Formation of the internal market of biofuel boilers as a step toward creating a market of pellets and briquettes;
· Boiler for biofuels in Ukraine: Prospects for the segment;
· Prospects for biofuels in the municipal sector. Practical experience of project implementation;
· Building of an effective information policy by market operators, aimed at promoting solid biofuels.
The Forum committee prides itself for recruiting high-level Forum speakers and participants. The speakers and participants come from various fields of the biofuel industry such as: owners and top managers from companies operating in the production and marketing of briquettes and pellets; manufacturers and suppliers of equipment for the production of biofuels; producers and suppliers of boiler equipment for solid biomass and biofuels; leading experts and representatives of central and local authorities in Ukraine, CIS, the EU, and the United States.
The Interfax Ukraine News Agency is a media partner of the Forum. For all questions, please contact: project manager Yuliya Berezovskaya
(tel. +380 67 501 21 77, e-mail: conference@FuelAlternative.com.ua)
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7. OLGA PROKOPOVYCH JOINS CHADBOURNE & PARKE IN KYIV
Kyiv office of Chadbourne & Parke LLP expands its corporate practice
Chadbourne & Parke LLP, Kyiv, Ukraine, Tue, March 16, 2010
KYIV - The international law firm of Chadbourne & Parke LLP announced that Olga Prokopovych has joined the firm as a Senior Associate in the corporate practice of the Kyiv office.
Ms. Prokopovych, 32, comes to Chadbourne from the Kyiv office of 1849 PLC Group of companies, where she worked as General Legal Counsel. Prior to joining this international real estate development company, Olga worked as a Senior Associate for an international law firm in Kyiv and a Consultant for the World Bank in Kyiv and Washington, DC.
Ms. Prokopovych's practice focuses on mergers and acquisitions, general corporate issues, real estate, banking and finance transactions, asset finance and project finance. Ms. Prokopovych also advises clients on anti-monopoly issues, intellectual property and employment law. Ms. Prokopovych has an extensive experience representing numerous Ukrainian and international clients in varied industry sectors.
"Olga will be an asset to our M&A practice. She is a skilled lawyer with first-hand corporate experience. I have no doubt that clients will benefit from her practical advice," said Jaroslawa Johnson, Managing Partner of Chadbourne's Kyiv office.
Ms. Prokopovych earned her master's degree in law from the Kyiv National Taras Shevchenko University in 2000 and an MPPA at University of Missouri, St. Louis in 2003.
About Chadbourne & Parke LLP: Chadbourne & Parke LLP, headquartered in New York City, is a full-service, international law firm with 12 offices worldwide, including in Kyiv. Top locally qualified attorneys in the Kyiv office advise clients on corporate matters, project finance, corporate finance, securities, real estate, domestic and international tax, insurance, intellectual property, antitrust, energy, bankruptcy and financial restructuring as well as employment and government contract matters. More information about the firm can be found at www.chadbourne.com.
NOTE: Chadbourne & Parke is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C., www.usubc.org, and has been a member for many years.
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8. UKRAINE: PROCEDURE OF AFTER-PAYMENT OF CUSTOMS DUTIES IN RESPECT OF IMPORTED GOODS FOR WHICH ROYALTIES ARE PAID
Tax Alert: DLA Piper Ukraine, Kyiv, Ukraine, Tue, Mar 16, 2010
KYIV - Last year the State Customs Service by its Order No. 900 dated as of 28 January 2009 amended the Methodical Recommendations concerning
determination of customs value of goods imported into Ukraine (hereinafter - the "Order").
The Order amended the Methodical Recommendations by adding the provisions on inclusion of royalties into goods customs value. In accordance with the
Order, in certain cases royalties should be included into goods customs value upon their customs clearance.
In practice, royalties are in most cases paid as percentage to the turnover from sale of goods. As a result, the actual amount of royalties to be further paid is often unknown at the moment of goods customs clearance. Exactly for such cases the Order foresees the possibility to include estimated amounts of royalties into goods customs value (e.g., on the basis of anticipated figures) with further adjustment of the goods customs value.
Pursuant to the Order, in the result of such adjustment the taxpayers are in particular obliged to make the after-payment of customs duties where the actual amounts of royalties exceed the amounts previously calculated upon
import.
However, the Order did not define procedure and terms of such after-payment and this caused practical ambiguity for importers.
In order to eliminate such ambiguity the State Customs Service of Ukraine ("the SCSU") issued the Summary Tax Explanatory Letter (the Order No. 59 dated as of 29 January 2010 (hereinafter - the "Letter"). In the Letter the SCSU expressed its approach concerning responsibility of the taxpayers for untimely after-payment of customs duties and, thus, indirectly determined the terms for customs duties after-payment.
According to the Letter, the penalties should not be assessed if the taxpayer executes the after-payment of customs duties before:
[1] the date of actual remittance of royalties to a non-resident licensor by an importer-licensee; or
[2] the date of recognition of royalties as deductible expense.
In our opinion, the conclusion of the customs authorities expressed in the Letter, is disputable due to the fact that the legislation does not connect the terms of customs duties after-payment with the actual payment of royalty or their attribution to deductible expenses.
Though SCSU's approach is arguable, in practice the customs authorities will adhere to it upon customs clearance of goods and subsequent control of
customs value determination.
Please do not hesitate to contact us should you have any questions on the above. DLA Piper Ukraine – Tax team: Svitlana Musienko, Legal Director, Head of Tax, T +380 44 490 9564, E svitlana.musienko@dlapiper.com; Yulia Logunova, Senior Associate, T +380 44 495 1787, E yulia.logunova@dlapiper.com; Illya Sverdlov, Senior Associate, T +380 44 490 9575, E illya.sverdlov@dlapiper.com; Anna Demchenko, Associate,
T +380 44 490 9575, E anna.demchenko@dlapiper.com; Dmytro Donets, Associate, T +380 44 490 9575, E dmytro.donets@dlapiper.com.
DLA Piper Ukraine LLC is part of DLA Piper, an international legal practice. International Law Firm of the Year 2008 in Ukraine. Kyiv switchboard: +380
44 490 9575, www.dlapiper.com.
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. If you would like further advice, please contact Tax Team at +380 44 490 9575.
NOTE: DLA Piper Ukraine is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C., www.usubc.org.
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9. UKRAINE BANKING AND FINANCE LEGAL NEWS
Amendments to the Provision on the Functioning of Domestic and International
Payment Systems in Ukraine; Registration of Corporeal Rights over Immovable Property
Salans law firm, Kyiv, Ukraine, Thu, Mar 18, 2010
KYIV, UKRAINE - Information is found in this issue of Salans Banking and Finance Legal News are the following two issues:
1. Amendments to the Provision on the Functioning of Domestic and International Payment Systems in Ukraine
2. Registration of Corporeal Rights over Immovable Property
1. Amendments to the Provision on the Functioning of Domestic and International Payment Systems in Ukraine
Resolution No. 6 of the board of the National bank of Ukraine dated 5 January 2010, “Amendments to the Provision on the Functioning of Domestic and International Payment Systems in Ukraine” (“Resolution No. 6”).
Resolution No. 6 introduced amendments to the Provision on the functioning of domestic and international payment systems in Ukraine (the “Provision”). In particular, according to the amendments, the Provision now also regulates the activity of legal entities planning to conduct clearing and payment transactions.
The NBU also stated that, if a payment organisation fails to transfer money for a period of one year from the date of NBU permission (for such money transfer transactions) being obtained, the NBU shall withdraw such permission. If a legal entity fails to provide international payment system services for a period of one year from the date of the NBU registration certificate (permitting participation in such system) being obtained, such registration certificate may be cancelled.
Resolution No. 6 took effect on 15 February 2010.
2. Registration of Corporeal Rights over Immovable Property
The law of Ukraine, “On amendments to the law of Ukraine ‘On state registration of corporeal rights over immovable property and restrictions on corporeal rights’ ” (the “Law”);
Decree No. 324/5 of the Ministry of Justice dated 17 February 2010, “On the regulation of state registration of property rights over immovable property” (the “Decree”).
On 11 February 2010 the Verkhovna Rada adopted the Law, pursuant to which the law of Ukraine “On state registration of corporeal rights over immovable property and restrictions on corporeal rights” was amended and restated as a new version. The new version contains certain changes, in particular:
[1] the controller of the state registry of rights shall be a specially authorized central executive body dealing with the issues of state registration of rights, namely the Ministry of Justice of Ukraine (previously it was the State Committee for Land Resources), and the administrator of the state registry shall be a state company which falls under the management of the Ministry of Justice of Ukraine;
[2] the list of corporeal rights which must be state registered was expanded, in particular the following rights must be state registered: right of economic management, right of operational management, right of permanent exploitation and right of lease of a land plot, right of exploitation (lease, rent) of a building or other construction or part thereof, mortgage, property trust; and
[3] state registration of rights over immovable property, as stipulated by the Law, shall commence on 1 January 2012.
The Law shall take effect on the date of publishing, except for Provision 4 and sub-items 2 and 4 of Provision 5 of Part V “Transitional Provisions” of the Law, which shall take effect on 1 January 2012.
In connection with the adoption of a new version of the Law, the Ministry of Justice amended the Temporary provision on the state registration of property rights over immovable property (the “Temporary Provision”) with the Decree which amends the procedure for state registration of rights over immovable property. In particular:
[1] property rights over unfinished constructions shall be registered in the BTI (the Technical Inventory Bureau) in future transactions;
[2] mortgage agreements containing provisions of a mortgagor’s claim settlement entered into or amended after the law of Ukraine “On limiting the influence of the global financial crisis on the development of the building sector” took effect, became one of the title documents. Thus, the provision of the law of Ukraine “On mortgages”, according to which enforcement of an outstanding mortgage debt against mortgaged property can be fulfilled on the basis of the mortgage agreement, was realized in practice in the Decree;
[3] the list of additional documents to be provided for registration of property rights over immovable property on the basis of mortgage agreements which contain the provisions of a mortgagor’s claim settlement (entered into after the above-mentioned law took effect) was provided; and
[4] the form of the certificate of ownership for immovable property was amended.
The Decree took effect on 05.03.2010, except for sub-items 8.2 and 8.3 of Provision 8, sub-items 11.2 and 11.3 of Provision 11 and Provisions 12 and 13 of the Temporary Provision, which take effect 3 months after state registration of the Decree.
For further information regarding Salans Banking and Finance practice in Ukraine, please contact: Oleg Batyuk, Managing Partner, Kyiv, E: obatyuk@salans.com; Natalia Selyakova, Partner, Head of Banking and Finance Group in Ukraine, E: nselyakova@salans.com.
NOTE: Salans is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C., www.usubc.org.
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10. UNITED STATES HOPES NEW UKRAINE'S GOVERNMENT WILL CARRY OUT REFORMS AIMED AT DEVELOPMENT OF ECONOMY AND SOCIETY
Interfax Ukraine, Kyiv, Ukraine, Fri, March 12, 2010
KYIV - The United States hopes that with the election of new president of Ukraine and the appointment of a new government, Ukraine will continue to carry out reforms aimed at the development of its economy and society, U.S. Ambassador to Ukraine John Tefft told reporters in Simferopol on March 11.
"I will repeat what President [Barack] Obama said when he phoned to congratulate newly elected President Viktor Yanukovych and what Secretary of State [Hillary] Clinton said: we are ready to cooperate with the new government, and we hope for the further carrying out of reforms that will be to the benefit of Ukraine, its economy and society," the U.S. ambassador told reporters during a visit to Crimea.
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U.S.-UKRAINE BUSINESS COUNCIL (USUBC)
Mr. E. Morgan Williams, Director, Government Affairs,
Washington Office, SigmaBleyzer,
Emerging Markets Private Equity Investment Group;
President/CEO, U.S.-Ukraine Business Council (USUBC)
Publisher & Editor, Action Ukraine Report (AUR)
1701 K Street, NW, Suite 903, Washington, D.C. 20006
Telephone: 202 437 4707; Fax: 202 223 1224
Ukraine Mobile: 380 50 689 2874
mwilliams@sigmableyzer.com; mwilliams@usubc.org
www.sigmableyzer.com; www.usubc.org
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