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Chambers Europe

«Нещодавно фірма провела консультування з низки фармацевтичних справ. Багато хто погоджується, що ця команда «рухається в правильному напрямку, особливо вражає її робота у фармацевтичній галузі».

 

Сільське господарство: ноу-хау для учасників ринку

28.05.2012

Текст доступний лише мовою оригіналу – англійською.

The Lawyer, Маy 28, 2012

Agflation is the reason that neither Ukraine’s worldfamous corruption, its complicated regulations nor its lack of transparency have stopped international companies getting involved in the agriculture sector in the country. Despite the fact that in most cases this only involves the export of agricultural products, some brave hearts have integrated more deeply by erecting grain elevators, engaging in the cultivation of crops, gardening or seed-growing. Less brave hearts are waiting and hoping they will soon be allowed to buy agricultural land.

Currently, neither foreign companies nor foreign individuals can own agricultural land in Ukraine. The same applies to Ukrainian companies founded or partially owned by foreign companies or foreign individuals. There are also a number of other restrictions with regard to alienation and the purchase of agricultural land.

However, some agricultural land is now indirectly controlled by foreign companies. This is obviously done via Ukrainian subsidiaries which own shares in Ukrainian companies, being in turn the owners of parcels of agricultural land. Due to such a scheme of possession the established restrictions do not apply. In fact, most agricultural land in Ukraine is not owned, but leased by agricultural companies, while the owners of such land remain individuals and the state.

The great reform

In 2011 a great reform of the land market was announced. Several draft laws on the land market were submitted to Ukrainian parliament and in December it passed a preliminary vote in favour of the draft law. The draft is not yet published officially as law, and is subject to further development and final adoption by parliament, but the current edition still says no to alien ownership of agricultural land. Moreover, the list of potential owners of agricultural lands is decreased in the draft.

The government tries to generate investment in agriculture not by liberalisation of the land market, but by granting tax allowances and subsidies to agricultural companies which are allowed – under certain conditions – not to pay VAT. However, it is not so easy to achieve these conditions. According to the tax code a company shall be considered agricultural if its main activity is the supply of agricultural products and/or the rendering services in agriculture. It is crucial that the income of an agricultural company from the sale of such goods or services should make up not less than 75% of its total income during the previous 12 months.

There is also a difference between agricultural companies and agricultural producers. The latter may choose to pay the so-called ‘fixed agricultural tax’ instead of the company profit tax, land tax, fee for the use of water and duty imposed on trading entrepreneurs. Agricultural producers are also entitled to mport certain types of machines and equipment without paying the import duty. Companies that provide services are not considered agricultural producers and thus enjoy only some of the preferences provided by law.

Other forms of state support to agricultural companies are stipulated by the law ‘On State Support of Agriculture in Ukraine’. This was significantly amended in December, 2011 and now provides for the state support of agricultural producers including the forward secured purchase of grain, the partial compensation of payments under leasing agreements and the partial reimbursement of interest paid under loan agreements (the so-called ‘loan subsidy’).

Not all of these work well. For example, the procedure and terms for granting loan subsidies should have been published by the Cabinet of Ministers of Ukraine, but they have not yet been adopted.
State support also extends to state subsidies for companies and farmers engaged in gardening and the cultivation of grapes, and to the forward purchase of low-cost petroleum by agricultural companies at a lower price due to the Special Fund of the State Budget.

Using the above allowances, subsidies and other forms of support can save a lot of money, but gaining such support is tough because the difference between ‘how it should be’ and ‘how it is’ can be quite significant in Ukraine. This is the main reason why I would strongly recommend that even global businesses should turn to local law firms in Ukraine. This is not to say that international firms are unable to advice on Ukrainian law – their experience in multijurisdictional affairs should not be underestimated – but know-how counts for a lot and local advisers are often engaged in practical issues more deeply than big internationals with locally qualified staff. This is of paramount importance when it comes to the practical implementation of the law in the agricultural sector in Ukraine.

 
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