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The rules of attraction


Authors: Leonid Gilevych and Andriy Sydorenko, Lawyers, Ilyashev & Partners Law Firm
Source: The Lawyer

The final months of 2012 and the first half of 2013 saw significant number of amendments to various areas of Ukrainian law to make the country more attractive to foreign investors. On 1 January, 2013 two codes, 56 laws and 36 acts became effective. Below is the outline of legislative innovations that are aimed at meeting European standards in a bid to boost business.

Facilitation of state registration procedures

On 17 December, 2012, Ukraine introduced new laws covering the registration of legal entities and individuals/entrepreneurs. The purpose of this law was to put in place a «single point of contact principle» during the registration of legal entities and individuals/entrepreneurs with state authorities: the State Registration Service, tax bodies, the Pension Fund of Ukraine and social insurance funds. Effective from 17 December, 2012, registration is now performed through the State Registration Service, which is the single point of contact and issues an extract (certificate) from the state register. The single unified document can be used for identification purposes during business activities and the opening/managing/closing of bank accounts, instead of several documents issued by individual authorities.

New regulation on bankruptcy proceedings

The largely outdated laws covering solvency and bankruptcy was revised in December 2011 and became effective on 19 January, 2013. The amended law provides for three types of bankruptcy procedures (general, special and simplified), subject to the debtor’s category, activities and property. One of the major amendments was the introduction of prejudicial rehabilitation aimed at prevention of bankruptcy, which could be applied in case of agreement between a debtor and its creditor (claims of which constitute more than 50 percent of the debtor’s accounts payable). The new law also sets out shorter and clearer terms of court bankruptcy proceedings, improves the creditors’ identification procedure and the protection of their rights, while determining the priorities for the sale of a business.

Residential real estate tax
From 1 January, 2013, section XII of the Tax Code of Ukraine came into force. The newly-effective provisions cover the taxation of residential real estate. Under the code, individuals and companies pay tax on the living space of the residential real estate. The code grants individuals an exemption from the tax, by allowing decreasing of the taxable area of the real estate by 120 square metres for an apartment or 250 square metres for a house. According to the code, legal entities independently calculate, report and pay the amount of tax due in equal amounts each quarter. Individuals, on the other hand, should wait for the tax notification-decisions (tax notice), that should be sent to them before 1 July. However, it is anticipated that not all individuals are going to receive tax notices this year. This is due to the existing difficulties in transferring information about residential real estate and its owners to the tax office. Despite the existing difficulties, we anticipate that by the end of this fiscal year, provisions of this tax will be updated by the draft laws that are already registered and undergoing hearing in the parliament.

Transfer pricing rules
On 1 January 2013, new transfer pricing rules entered into force. The new rules extend the applicable transfer pricing methods generally following the Organisation for Economic Cooperation and Development’s Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations. New transfer pricing rules introduce the resale price method, the cost plus method, the profits distribution method and net profit method. The code does not advise on methods, therefore, taxpayers can choose which transfer pricing method suits them. In separate cases, when there is insufficient data to establish the regular price, it can be defined by the independent valuation. In addition, the new transfer pricing rules introduce a novelty to Ukrainian transfer pricing rules, by allowing the big taxpayers to enter into the advance transfer pricing agreements; however, there is little practice on their application. The code also provides an exclusive list of the official information sources that could be used for establishing the regular price. However changes to transfer pricing rules are not final, as the Ukrainian Parliament is reviewing a further update, harmonised with the OECD Transfer Pricing Guidelines, which should facilitate use of all transfer pricing methods.

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