Frishberg & Partners

In these difficult economic times, some foreign investors are understandably reluctant to acquire costly factories in emerging markets to produce their goods. Instead, they employ the good old method of production outsourcing, and for several good reasons: when properly implemented, tollmanufacturing schemes enable foreign manufacturers to avoid Ukrainian customs taxes, reduce their cost of production, and realize greater profit margins in the West.

The Ukrainian government began to strictly regulate the stay of foreigners, especially those hired by local companies, back in 2009. Prior to that date, many foreigners simply ignored the local registration and customs rules with impunity. However, the Ukrainian "immigration revolution" began with the government's strict application of the rules for applying for and receiving temporary residency status in Ukraine.

Welcome to the conference hall of the Investment Company Sigma Bleyzer. We have an interesting topic for you today, a topic that is interesting in any country, but especially so in Ukraine. Our topic today is how to protect foreign investors in Ukraine and what legal support is available from professionals. My name is Alexander Pavlov, head of the Ukraine-Israel Business Council.

Until recently, residential property owners in Ukraine did not need to pay any property tax whatsoever. At long last, however, the government has passed legislation designed to remedy this significant loophole in its ongoing tax collection efforts.

We would like to inform you that the Law of Ukraine No. 3454 “On Amendments to Certain Legislative Acts of Ukraine to Increase Liability for Violation of Personal Data Protection Law” comes into force on July 1, 2012. The key provision of this law establishes liability for company officials in case they fail to register personal data base with Ukrainian authorities.

In order to initiate the executive enforcement procedure, the judgment holder must present to the state enforcement service the enforcement order of the commercial court along with an application and, if applicable, the court decision to permit enforcement of a foreign court decision or the arbitration court decision.

According to Article 35 of the Law of Ukraine “On International Commercial Arbitration,” an arbitration award, regardless of the state of origin, is recognized as mandatory (binding) and, after submission of a written petition to a competent court, is subject to enforcement.

A. Applicable Ukrainian and International Treaties - Article 390 of the Code of Civil Procedure of Ukraine provides that the procedure for enforcement in Ukraine of foreign court judgments and foreign arbitration awards is determined by the corresponding international treaties of Ukraine and the laws of Ukraine. In the absence of an international treaty, such judgments or awards may be enforced on the principle of reciprocity.

Recognizing that Ukraine is a young nation without a long history of rendering and enforcing international commercial arbitral awards involving foreign investors, Western parties naturally prefer dispute resolution to take place in an impartial third country, such as the United Kingdom or Switzerland. Considering the current Ukrainian economic climate, however, decisions concerning the place of arbitration must be made in light of each particular transaction.

On January 15, 2002, foreign investors were provided with another option for settling any disputes with their Ukrainian counterparts with the coming into effect of Law No. 2860-III “On the Recognition and Enforcement of Foreign Court Decisions in Ukraine,” dated November 29, 2001.

Like all of its legislation, Ukraine inherited its court system structure from the Soviet Union. Only recently the court system has begun undergoing reforms with the passage of a number of laws. The initial steps were made on June 1, 2001, with the passage of amendments to various laws, including Law No. 1789-12 “On the Prosecutor’s Office,” Law No. 1142-12 “On Arbitration Courts,” Law No. 2862-12 “On the Status of Judges,” etc.

Recognizing the general rule that “everything always goes wrong at the worst possible moment,” large multi-national companies often agree to resolve their disputes with each other in an international, and therefore presumably unbiased, arena.

It’s funny how things change. Just a few years ago, foreign companies flooded into Ukraine, driving up the prices of everything – buildings, factories and land. Now, just a few years later, Ukraine is considered to be a high-risk country with a notoriously difficult business environment. Unfortunately, this is a fair assessment, and it’s largely due to systematic government corruption and bureaucracy.

Until May 7, 1997, much to the ongoing dismay of the Western financial world, debt financing was not an option for most Ukrainian companies. The key obstacle was the now-cancelled National Bank’s Provision No. 329, dated December 29, 1995, which strictly required all Ukrainian residents to obtain a special license prior to receiving loans in foreign currency from foreign creditors. Naturally, such licenses were not generally granted to the average Ukrainian company.

Ukraine has long been called “the bread-basket of Europe,” and for one excellent reason: its fertile, black soil. The estimated value of this treasure is anywhere between 40 and 80 billion dollars. The only problem with investing in such an obviously profitable business was an artificial bureaucratic/legislative barrier commonly known as the “moratorium on alienation of farm land” (the “Moratorium”).

From a purely legal perspective, there is no such term as “raid” in the Tax Code. All the necessary forms, legal grounds and procedure for carrying out inspections of the subjects of entrepreneurial activity, as well as the procedure for execution of documents per results of such inspections, are regulated by the Tax Code of Ukraine. From a practical perspective, however, tax inspection visit can quickly escalate into a battle for your company’s survival.

After years of paralysis, Ukrainian business-related legislation is undergoing major changes. For instance, a new tax code came into effect in the New Year, and we can already hear the protests associated with the proposed new labor code. Meanwhile, completely undetected, a new law has quietly entered into force on January 1, 2011, entitled the Law of Ukraine No. 2297-VI “On Protection of Personal Data”, dated June 1, 2010 (hereinafter the “PDP Law”).

For a while, it seemed like any and all M&A transactions in Ukraine have ceased to exist. Only recently did the Ukrainian M&A activities finally pick up, mostly due to Russian companies coming into Ukraine through Cyprus. Significantly, they all complied with the basic rules for acquiring Ukrainian companies, which are clearly set forth in the Law “On Joint Stock Companies” and related legislation on antimonopoly rules, taxation, etc.

Looks like the Yanukovich government is finally turning its attention to the Ukrainian taxpayer (physical and legal entities alike). Is that good news or bad? To answer this question, we provide you with a brief analysis of the new-and-improved draft Tax Code that is currently under consideration.

Import-export basically involves a signed contract and having a partner in Ukraine. Your goods are shipped to Ukraine and, hopefully, you will eventually get paid for it, per terms of your duly executed agreement. That is the simple legal essence of all import-export transactions. From a timing standpoint, when setting up your import-export transactions in Ukraine, you can either go slowly or you can go fast.

Two weeks ago Frishberg & Partners held a round table on "Foreign Investment in Ukrainian Agriculture." We are pleased to share with you a tranof that highly informative event (you may follow the link below). Our speakers included Mr. Jens Bruno, who works with an agricultural holding company "Grain Alliance" in Ukraine and Mr. Roman Fedorowycz, is an ex-founder, CEO and land acquisition manager for Ukrainian Agrarian Investments Ltd.

As you know, all foreigners must have a “foreign work permit” in order to legally work in Ukraine. Until recently, all one had to do was simply file the necessary documents and then patiently wait for three months. However, the Cabinet of Ministers recently passed Resolution No. 322, which will surely cause controversy among the foreign business community.

Only a year ago it seemed that prices on the real estate market in Ukraine would continue to skyrocket without end. Not surprisingly, one of the most profitable businesses involved landlords who rented their premises (residential or non-residential) to the highest paying tenants.

With food prices rising across the globe, adventurous foreign investors can find excellent business opportunities in Ukrainian agricultural sector despite (or perhaps due to?) the global economic crisis. Known as “the breadbasket of Europe”, Ukraine still boasts enormous land reserves that can grow various grains, seeds, fruits and vegetables. Plus livestock. And due to the crisis, at last everything and everyone is available for sale or rent at rock-bottom prices.

Most importers applauded Ukraine’s entry into the World Trade Organization in May 2008, which resulted in a decrease of import duty (including the duty for the automobiles) from 25% to 10%.

Admittedly, the current economic crisis has dealt a severe blow to the foreign business community in Kiev. As a result, most companies are taking radical anti-crisis measures in order to survive. And cutting labor costs is at the top of everyone’s list.