Date of publication: 11 January 2024
Oleksandr Rudenko, Attorney at Law, Counsel
Source: NV Business
Ukraine’s business landscape will be influenced by macroeconomic and military-political factors in 2024. Ukrainian compliance with its obligations to the EU and other international organizations will be directly affected by these factors, as will the ongoing aggression by the Russian Federation against Ukraine.
Land Market
Taking effect on 01 January 2024, the next phase of the Law of Ukraine on Land Market will begin. In this phase, Ukrainian-registered legal entities with Ukrainian citizens as participants will be able to purchase up to 10,000 hectares of land. State and communal agricultural land can still be sold only to residents of the country. The sale of land to foreigners is currently prohibited. Despite this, we anticipate an increase in interest in purchasing agricultural land in the coming year with this next stage of reform.
Automatic Exchange of Financial and Tax Information
With effect from 2023, the provisions of the Law of Ukraine No. 2970-IX as of 20.03.2023 “On Amendments to the Tax Code of Ukraine and Other Legislative Acts of Ukraine Regarding Implementation of the International Standard of Automatic Information Exchange on Financial Accounts” came into effect. This law facilitates Ukraine’s adherence to the international standard known as the Common Reporting Standard (CRS). Under CRS, Ukraine exchanges information with other countries about the financial accounts of their residents and receives similar data about Ukrainian residents’ accounts held abroad. Starting from 01 January 2024, the law’s penalties provisions will come into effect. These include fines for failing to submit a report on accountable accounts. They also include late submissions, incomplete reports, failure to provide documents in response to regulatory requests, and not disclosing ownership structures or beneficiaries either independently or upon regulatory request.
The Ministry of Finance of Ukraine issued Order No. 516 as of 25.09.2023 “On Approval of Procedure for Filling Out and Submitting Report on Accountable Accounts by Financial Agents According to the Multilateral Agreement of Competent Authorities on the Automatic Exchange of Information on Financial Accounts”. This order specifies the procedures for financial agents to follow when reporting accountable accounts.
The first report for the period from 01 July 2023 to December 31, 2023, must be submitted by 01 July 2024. The previous calendar year will be the reporting period in subsequent years.
In the procedure established by the Ministry of Finance, the content and form of these reports are outlined, as well as how they should be completed and submitted to the tax authorities. Specifically, the report must include information on all accountable accounts for the given reporting period.
Taxes
In light of the lifting of the tax audit moratorium, we should prepare for an increase in tax audits. In addition, we should anticipate the expansion of criteria for selecting taxpayers for examination. However, these changes will not affect individual entrepreneurs in Groups I and II.
Additionally, supervisory authorities emphasize the inadmissibility of using undeclared or incompletely declared labor, which will come under increased scrutiny in 2024.
Furthermore, the 2022-2023 income declaration campaign for controlled foreign companies (CFCs) must be kept in mind and the regulatory reporting deadlines must be met.
National Revenue Strategy
At the end of 2023, the Cabinet of Ministers of Ukraine approved the National Revenue Strategy for 2024-2030 (the “Strategy”), serving as a comprehensive roadmap for implementing reforms in the tax and customs sectors until 2030. The preparation of the Strategy was one of three prerequisites for the IMF Board of Directors’ approval of the extended EFF financing program for Ukraine. In addition, it provides a crucial framework for the alignment of Ukrainian legislation with EU requirements during the association process, focusing on coordinating and systematizing state tax and customs collections.
The Strategy outlines key changes in the field of taxation up to 2030 across the following vectors:
- VAT Administration and Payment Reforms: A systematic harmonization of tax legislation to comply with Directive 2006/112/EC on the common system of value-added tax and a review of VAT benefits in accordance with EU regulations.
- Excise Duty Increases: The excise duties on alcoholic beverages (to be raised until 2028) and on fuel and tobacco products (to be raised until 2029) will be gradually raised to meet the EU minimum levels.
- Income Tax and Benefits Revision: A phased increase in rates for certain categories of individual entrepreneurs using the simplified taxation system, including the gradual elimination of the simplified system for legal entities. Additionally, a review of existing projects that offer significant corporate income tax benefits, such as “Дія.City” and industrial parks.
- Personal Income Tax and Real Estate Tax Revision: Providing tax authorities with access to bank account data in order to more accurately identify and calculate the tax base for relevant taxes. It is also likely that a progressive personal income tax rate will be discussed and potentially implemented in 2027-2028.
Regulation of Non-Banking Financial Companies
For non-banking financial firms, including insurers, financial companies, lessors, credit unions, and pawnshops, the upcoming year will be a crucial one. Three new laws will take effect from January 1, 2024: the Law of Ukraine on Financial Services and Financial Companies, the Law of Ukraine on Insurance, and the Law of Ukraine on Credit Unions.
These changes introduce guidelines and regulations similar to those governing banks under the National Bank of Ukraine (NBU). Key amendments include:
- Regulation and Supervision: The NBU will have the authority to apply corrective measures to all market participants, even before any violations occur. The level of NBU oversight will depend on the size, significance, complexity, and risk level of each company. Different criteria will be applied to different market segments.
- Consumer Rights Protection: The NBU will implement market behavior supervision to protect consumer rights. It includes ensuring that advertising is not manipulated, prohibiting the imposition of extra services, and prohibiting unilateral changes to essential contract terms (such as interest rates and credit terms). Before concluding an insurance contract, all contract information must be disclosed.
- Increased Capital Requirements: Various quantitative and qualitative indicators will be introduced to measure and assess risks in companies’ activities. It includes standards for solvency capital and minimum capital requirements for insurers. New capital requirements will be imposed on credit unions.
Nonbanking financial institutions are required to implement these changes in order to improve stability, transparency, and consumer protection.
Ukraine’s Law on Compulsory Civil Liability Insurance of Owners of Land Vehicles (draft No. 8300) is expected to be considered and adopted shortly. According to European standards, this law introduces a new regulatory model for the market of compulsory civil liability insurance for vehicle owners (OSTCPV, or “third-party insurance”).
The proposed changes focus on:
- The formation of new standards for the quality and cost of insurance coverage;
- A simpler method for settling insurance claims;
- Enhancing and modernizing the Motor (Transport) Insurance Bureau of Ukraine’s management system and improving its oversight.
Regulation of Banking Activities
In 2024, the National Bank of Ukraine (NBU) is expected to implement several regulatory changes to strengthen the banking sector, including:
- Increased Regulatory Capital Requirements: To address gaps in compliance with EU legislation and meet the challenges of Ukraine’s current macroeconomic situation.
- Management of Problem Debt: Regulatory updates to the Law of Ukraine “On Property Appraisal, Property Rights, and Professional Appraisal Activity in Ukraine” to ensure fair appraisals of pledged property and alignment with international standards.
- Legislation on Virtual Assets: Amendments to mitigate potential risks to price stability and the effectiveness of the monetary transmission mechanism.
Insurance of Investments Against War Risks
Starting from 01 January 2024, the Law of Ukraine No. 3497-IX “On Amendments to the Law of Ukraine “On Financial Mechanisms for Stimulating Export Activity” will come into effect. This law empowers the Export Credit Agency (ECA) to insure and reinsure investments of both international and Ukrainian companies even before the end of martial law. This includes insurance for investments in export-oriented enterprises. Previously, only foreign companies could access such services through international financial organizations like MIGA and DFC; Ukrainian companies did not have this opportunity.
Throughout 2024, the NBU, in collaboration with the Ministry of Economy and the Ministry of Finance, is tasked with developing proposals to establish a fully functional war risk insurance system in Ukraine.
Mobilization
Equally important for businesses and society are the anticipated changes to legislation on mobilization and military service. Businesses need to understand specific proposals and formalized changes to the mobilization process and military service requirements. This understanding is crucial for complying with the necessary regulations and rules that apply to employers, as well as for resource and employee planning during a special period.
The year 2024 will be marked by significant legislative innovations driven by the demands of the military-political and macroeconomic situation. Businesses will need to closely monitor these changes and adapt to the updated terms of operation in the new year.
