Author: admin_fedoryshyn

Author: Anastasia Holovatyuk, Lawyer at F&P

Running a business in Ukraine can be both rewarding and challenging. Like any other country, entrepreneurs face various legal, financial, and regulatory requirements. However, to ensure the successful and safe development of your business in Ukraine, it’s important to consider several key points. This article offers a complete checklist of the main steps to ensure the legal safety of your business.

1. Choosing the Right Legal Form for Your Business

The first step is determining the type of business you want to run. In Ukraine, there are several organizational and legal structures:

• Sole Proprietor (FOP)— suitable for small entrepreneurs with a limited number of employees and income.

• Limited Liability Company (LLC) — a more complex structure for medium and large businesses.

• Joint Stock Company (JSC) — suitable for large corporations with a large number of shareholders.

Choosing the right option will help you avoid legal problems in the future.

2. Business Registration and Obtaining Necessary Licenses

Ukrainian law requires mandatory registration of legal entities or sole proprietors. It’s also important to obtain all necessary licenses and permits for your activity, if required in your field.

• Check for special licenses or permits if your business is related to specific activities (e.g., medical services, financial services, construction).

• Registration with state authorities (Unified State Register of Legal Entities and Individual Entrepreneurs).

3. Ensuring Tax Safety

Entrepreneurs in Ukraine are obligated to pay taxes, depending on the chosen tax system. Here are some key points:

• Tax System — choose one of the tax systems that suits your business: the general tax system or the simplified tax system (single tax).

• Tax Reporting — timely submission of tax reports and tax payments is important to avoid penalties and sanctions.

• Tax Benefits — small and medium-sized businesses have the opportunity to take advantage of certain tax benefits.

For effective business management, it’s important to choose the correct tax regime and ensure regular updates on changes in tax legislation.

4. Compliance with Labor Legislation

Labor issues in Ukraine are governed by the Labor Code of Ukraine (LCU). You need to ensure compliance with the following requirements:

• Formalization of labor contracts with employees.

• Compliance with minimum wage and social security payments.

• Preparation and signing of contracts regarding working conditions.

• Observance of occupational safety regulations.

Non-compliance with labor legislation can lead to fines and other legal consequences.

5. Protection of Intellectual Property

If your business involves creating original products, brands, or services, it’s important to take care of intellectual property protection:

• Registration of trademarks, patents, copyrights.

• Protection of commercial secrets.

• Drafting contracts regulating intellectual property rights.

This will help prevent the illegal use of your developments by competitors.

6. Compliance with Environmental Legislation

For businesses related to manufacturing, it’s important to comply with environmental regulations, including:

• Obtaining environmental licenses and permits.

• Paying environmental taxes and fees.

• Ensuring proper waste and pollution control.

Compliance with environmental standards not only prevents fines but also helps in creating a positive business image.

7. Contractual Relationships

For safe business operations, it’s essential to enter into legally sound contracts. These contracts should:

• Clearly define the rights and obligations of each party.

• Regulate dispute resolution mechanisms.

• Include terms that protect your interests in case of contract breaches.

Properly drafted contracts help prevent disputes and provide legal protection.

8. Consumer Rights Protection

If your business is related to the consumer market, it’s essential to comply with consumer protection laws:

• Informing customers about service terms.

• Compliance with product return and refund policies.

• Fulfilling warranty obligations.

Adhering to these requirements prevents legal conflicts and fines from regulatory authorities.

9. Risk Management and Insurance

Plan measures to minimize risks and reduce the likelihood of losses. It is recommended to:

• Insure the business and assets.

• Analyze and manage financial risks.

• Conduct regular legal audits of your business activities.

10. Maintaining Legal and Financial Documentation

Ensure proper management of documentation:

• Maintaining accounting and financial records.

• Complying with requirements for document storage according to Ukrainian law.

• Observing electronic document circulation rules.

Proper documentation is the foundation of transparency and protection for your business from potential claims.

Conclusion

Running a business in Ukraine requires considering numerous legal aspects. Compliance with registration, tax, labor, environmental, and other requirements not only helps avoid fines but also creates the foundation for your company’s sustainable development. To avoid risks and problems, it’s important to work with experienced lawyers who will provide legal support and help you streamline all business processes.

If you need professional advice or assistance in resolving legal issues, contact our law firm. We will help you run your business safely in Ukraine!

 

Author: Oleksandr Fedoryshyn, Managing Partner at F&P

Entering the international market opens up many opportunities for business, but it also brings new and quite complex legal risks. Conflicts with foreign counterparties, investors, or government agencies can result in financial and reputational consequences. This is why international arbitration is a key element in the strategic protection of business abroad. It offers a flexible, confidential, and effective dispute resolution mechanism. How it works will be explained in this article.

International Arbitration: Definition and Key Importance

International arbitration is an out-of-court dispute resolution process arising in the field of international commercial relations. It is based on the voluntary agreement of the parties (arbitration agreement) to submit an existing or future dispute to an independent arbitration tribunal. Its decision is binding and enforceable.

Why Is International Arbitration Critically Important for Business Abroad?

Unlike national courts, which may be influenced by local political or economic interests, international arbitration provides a neutral platform for dispute resolution. The parties have the right to choose arbitrators from different countries who have the necessary expertise and no conflicts of interest.

The arbitration process is usually confidential. The parties can independently set the rules: choose the location of the arbitration, the language of proceedings, and the applicable law. In other words, there is the possibility to adapt the process to the specifics of a particular dispute.

Another important point: thanks to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, verdicts rendered in one country can be enforced in most other countries worldwide.

Leading International Arbitration Institutions:

• -International Chamber of Commerce (ICC) Arbitration Court (Paris): One of the most authoritative and oldest institutions, known for its high-quality rules and experienced arbitrators. It is often used for complex international commercial disputes.
• London Court of International Arbitration (LCIA): Noted for its efficiency and flexibility in procedures. Particularly popular in disputes involving English law and financial transactions.
• Stockholm Chamber of Commerce (SCC) Arbitration Institute: Specializes in disputes with countries in Eastern Europe and Russia, known for its impartiality and professionalism.
• International Centre for Settlement of Investment Disputes (ICSID): A specialized institution within the World Bank group. It resolves disputes between states and foreign investors based on international investment treaties.

When is Arbitration an Inevitable Choice?

Choosing arbitration is a strategic decision that should be made during the drafting of international contracts. Let’s look at situations where arbitration is particularly advisable.

International Commercial Contracts:

Sales agreements, service contracts, licensing agreements, joint ventures, and other types of international commercial contracts almost always should include arbitration clauses to minimize risks in case of disputes.

Investment Disputes:

To protect foreign investments in countries with unstable legislation or high levels of corruption, arbitration is necessary, especially investment arbitration (via ICSID or based on bilateral investment treaties).

Disputes with Government Agencies:

If a business faces actions by government agencies that violate its rights, arbitration ensures a more independent and objective examination of the case.

Cross-Border Disputes Difficult for National Courts:

When a dispute involves the legal systems of several countries, arbitration allows the selection of a single procedural law and location for proceedings.

Contracts with Unique Expertise Requirements:

In industries requiring special technical or sectoral knowledge, arbitration allows the appointment of arbitrators with the relevant expertise.

Enforcement of Arbitral Awards: Potential Challenges

While the New York Convention has significantly facilitated the enforcement of international arbitral awards, the challenges do not end there. Specifically, states may refuse to enforce an arbitral award if it contradicts their public policy or the fundamental principles of national law.

Even with an arbitral award, its enforcement becomes complicated if the debtor lacks sufficient assets or if these assets are hidden or moved to other jurisdictions.

The process of recognition and enforcement of an arbitral award in national courts may be prolonged and accompanied by various legal formalities. In some cases, political factors may influence national courts’ decisions regarding the enforcement of arbitral awards.

Can These Risks Be Minimized? Yes, but for this, it is essential to carefully analyze the potential jurisdictions for enforcement at the contract drafting stage and anticipate asset protection strategies.

Effective Strategies for Protecting Business Using International Arbitration

For international arbitration to be a truly effective tool for protecting your business, certain strategies must be followed. Let’s explore them in more detail.

The arbitration agreement must be clear, unambiguous, and cover all key aspects:

• Seat of arbitration: This significantly affects the procedural law to be applied, as well as the possibility of appeal and enforcement of the arbitral award.
• Governing law: This is crucial for predicting the outcome.
• Arbitration institution: It determines the rules of procedure and the level of administration of the process.
• Number of arbitrators: Usually, one or three arbitrators are chosen.
• Language of the arbitration process: This helps avoid misunderstandings.

Before concluding an international contract, a thorough legal analysis of potential risks should be conducted, and the most favorable arbitration institution and seat should be selected based on the specifics of the contract and the counterparty.

Additionally, before starting cooperation, the financial capability of the counterparty and the presence of assets in jurisdictions where the arbitral award can be effectively enforced should be assessed.

If your business is making investments abroad, it is essential to study the availability of bilateral or multilateral investment treaties. These treaties can provide additional protection mechanisms through investment arbitration, such as within ICSID.

Furthermore, including provisions in the contract for mandatory pre-dispute resolution steps (such as negotiations or mediation) can sometimes help avoid arbitration and reach a mutually acceptable solution at an early stage.

In certain situations, it is advisable to take interim measures through the arbitral tribunal or national courts to preserve assets or prevent actions that may cause harm.

The Key to Successful Signing of International Contracts and Arbitration Proceedings Remains Qualified Legal Support. Experienced professionals will help develop an effective strategy, prepare the necessary documents, and represent the company’s interests in the arbitral tribunal.

International Arbitration — A Strategic Advantage for Business

Indeed, international arbitration is an effective tool for protecting the rights and interests of businesses. Given the potential risks and challenges, businesses should proactively foresee legal mechanisms to protect their investments and commercial interests abroad.

If your company needs expert consultation on international arbitration matters and the development of an effective strategy to protect your business abroad, contact our qualified lawyers. We are ready to provide comprehensive support at every stage: from drafting international contracts to representing your interests in arbitration proceedings.

Author: Viktoriia Staryk, lawyer at F&P

The Law of Ukraine No. 263-IX dated October 21, 2019, introduced the procedure of civil confiscation, i.e., the recognition of assets as unjustified and their seizure if a public servant does not prove the legality of acquiring such property.

Assets are monetary funds (including cash, funds held in bank accounts or in custody with banks or other financial institutions), other property, property rights, intangible assets, including cryptocurrencies, the amount of reduction in financial obligations, as well as works or services provided to a person authorized to perform state or local government functions.

If the court establishes that the assets or funds for their acquisition were not obtained from legal income, such assets will be recognized as unjustified.

Assets may be considered unjustified if acquired by a person authorized to perform state or local government functions, provided that the difference between their value and the person’s legal income is between UAH 1,003,500 and UAH 9,841,000.

If the amount exceeds the specified threshold, criminal liability for the crime of “Illegal enrichment” under Article 368-5 of the Criminal Code of Ukraine is provided, instead of civil confiscation. Moreover, unjustified assets may only be recognized if they were acquired after November 28, 2019, i.e., after the date when the law on civil confiscation came into effect.

The identification of unjustified assets is authorized by the NABU, SAP, and, in certain cases, the DBR and OGP. These bodies are authorized to collect information by sending written requests without a court decision for the disclosure of bank secrecy concerning a person’s assets in a bank.

If the NAPC establishes that a civil servant has acquired unjustified assets and there are grounds for civil confiscation, the National Agency has the right to raise the issue with the SAP or OGP regarding the filing of a lawsuit for civil confiscation. If signs of unjustified assets are found as a result of a full verification of the declaration, the NAPC gives the declarant the opportunity to provide a written explanation with evidence within 10 working days. If the declarant does not provide written explanations and evidence within the specified period or provides them incompletely, the NAPC informs the NABU and SAP.

Judicial practice regarding the recognition of assets as unjustified and their seizure for the benefit of the state is still in the process of formation, but the VAKS has already highlighted the circumstances that need to be considered when reviewing such cases (VAKS decision of July 13, 2022, in case No. 991/366/22):

• whether the defendant (the person who acquired unjustified assets, according to the plaintiff) had the status of an authorized person to perform state or local government functions at the time of acquiring these assets;
• whether the provisions of Law of Ukraine No. 263-IX dated October 21, 2019, apply to the assets in question;
• whether there is a connection between the assets and the defendant;
• whether the person acquired the assets in one of the ways indicated in paragraph 2, part 8, Article 290 of the Civil Procedure Code of Ukraine (acquisition of ownership, acquisition of ownership by another person on behalf of the defendant, actions with such assets equivalent to exercising the right to dispose of them).

In the event of opening proceedings to recognize assets as unjustified and their seizure for the benefit of the state, it is extremely important to seek qualified legal assistance in a timely manner. Such cases are usually complex and require thorough analysis of evidence and proper interpretation of legislative norms.

The FEDORYSHYN & PARTNERS team is ready to provide the necessary legal assistance to reduce the risk of losing your property. Remember, timely consultation with a specialist is the key to effectively protecting your rights.

 

Author: Olena Andriyko, lawyer at F&P

Investing in art and antiques is not only a profitable financial instrument but also a field regulated by special legislation. Transactions involving such objects require legal expertise, as they may have the status of cultural value, be subject to customs restrictions, and also be the subject of copyright and inheritance law.

Investing in art objects (paintings, sculptures, iconography) is not a classical form of investment. In fact, such objects are purchased for their subsequent sale, rental, with the aim of making a profit. The formation of the value of objects is influenced by numerous factors, such as: the author; the author’s reputation; the “age” of the object; the materials from which the object is created, etc. An important aspect for the formation of the object’s value is intangible assets, and intellectual property that arises as a result of the creative process.

An important role in investing in art objects is played by copyright. In particular, the author of the original work retains personal non-property rights to the work even after its alienation, such as:

• the right to demand recognition of their authorship by properly indicating the author’s name in the original and copies of the work and in any use of the work, if practically possible;
• the right to prohibit the mention of their name during any use of the work if the author wishes to remain anonymous;
• the right to choose a pseudonym, to indicate and demand the indication of the pseudonym instead of the author’s real name in the original and copies of the work and in any use of the work;
• the right to demand the preservation of the integrity of the work, to oppose any distortion, alteration, or other modification of the work, including the accompaniment of the work with illustrations, prefaces, postfaces, commentaries, etc., without the author’s consent;
• the right to give a title to the work or leave it untitled;
• the right to dedicate a work to a person (persons), event, or date.

Personal non-property rights belong solely to the author and cannot be transferred (alienated) to other persons and do not pass to heirs.

The author may transfer (alienate) their economic rights to another person based on law or transaction either fully (for all methods of using the work in the territory of all countries of the world) or partially (for specific methods of using the work in the territory of all countries of the world or for specific methods of using the work in the territory of individual countries of the world, or for all methods of using the work in the territory of individual countries of the world). The person to whom the economic rights to the work have been transferred in full or in part is a subject of copyright within the limits of the acquired rights.

If copies of a work have been lawfully introduced into civil circulation through their first sale in Ukraine, further transfer of these copies is allowed without the consent of the copyright holder and without payment of remuneration (exhaustion of rights), except for original works of art, the further transfer of which is carried out with the payment of remuneration for the right of suite.

Depending on the price of the next sale excluding taxes, the amount of fair compensation (right of resale) provided by the first part of this article is:

• 6 percent – for the sale price equivalent to between 50 euros and 3000 euros inclusive;
• 5 percent – for the sale price equivalent to between 3,000.01 euros and 50,000 euros inclusive;
• 3 percent – for the sale price range equivalent to 50,000.01 euros to 200,000 euros;
• 1 percent – for the sales price range equivalent to 200,000.01 euros to 350,000 euros;
• 0.5 percent – for the sale price range equivalent to 350,000.01 euros to 500,000 euros;
• 0.25 percent – for a sale price above the equivalent of 500,000 euros.

Thus, the acquisition of an art object requires conducting a legal examination regarding the authorship of the work and the necessity of making additional payments to the author (or their heirs) during the resale of the work, which, undoubtedly, can affect its investment attractiveness.

Particular attention in the context of investing in art should be paid to transactions involving the acquisition of antiques. Antique items differ from ordinary works of art in that they possess historical and cultural value. They may be subject to special legal regulations, including:

• restrictions on their sale;
• prohibition of export abroad;
• mandatory authenticity examination.

Legislation defines antiques as objects created more than 50 years ago that have cultural, historical, or artistic value. The sale of such objects is possible only through specialized institutions – auctions, antique shops, or galleries.

The antique buyer has the right to demand from the seller an expert opinion on the origin and value of the item. This will help avoid the purchase of a counterfeit or an item subject to legal restrictions.

For individuals, the legislation does not impose restrictions on the purchase of paintings, sculptures, iconography, antiques, and jewelry, as these objects are considered civil rights objects according to the provisions of the civil code. However, if such objects have cultural value, established restrictions on import and export may apply to them.

In turn, a number of specific requirements are established for legal entities. In particular, for business entities engaged in the sale of antiques, requirements are set that such entities must meet. Moreover, legal entities must keep records of their assets in accordance with the current legislation of Ukraine.

Thus, when investing in art objects, the most important stage is the verification of the object and the conclusion of a contract with the author or owner. These processes have the greatest impact on the subsequent realization of the investor’s rights and the reduction of the risks of negative consequences.

When investing in antiques, it is essential to demand expert conclusions and research from the seller. The conclusions will help determine the level of cultural value and the absence or presence of restrictions regarding the further disposal of the acquired assets.

The company FEDORYSHYN&PARTNERS provides support for transactions related to investing in art objects and offers a full range of services in this area.

Author: Oleksandr Fedoryshyn, Managing Partner at F&P

According to a study by the Centre for Economic Recovery, about 40% of Ukrainian companies are already integrating ESG into their operations, and more than 60% of managers consider ESG implementation important for the success of their business. Modern business can no longer exist in a vacuum, ignoring environmental, social and corporate governance issues. How can Ukrainian companies increase their competitiveness and remain relevant in the global economic environment? Let’s learn more about the concept of Environmental, Social, Governance and its implementation in Ukraine.

ESG: why is it important for Ukraine?

ESG (Environmental, Social, Governance) is a concept that encompasses the environmental, social and governance aspects of a company’s operations. It determines the extent to which a business complies with the principles of sustainable development and social responsibility. Here’s what the main components include:

• Environmental aspect (E). This includes reducing environmental impact, energy efficiency, waste and emissions management, and biodiversity protection. Current challenges for Ukraine are the impact of agriculture on soil and water resources, as well as the effects of pollution due to military operations.
• Social aspect (S). It covers relations with employees, customers, suppliers and local communities, as well as issues of occupational safety, human rights, gender equality and personal data protection. An additional challenge is the social responsibility of business to rebuild war-affected communities, as well as support for veterans and IDPs.
• Governance aspect (G). It concerns corporate governance, transparency, ethics and anti-corruption. An independent supervisory board, transparent decision-making procedures, and effective internal controls are key elements of good governance.

International organisations, investors, and donors analyse potential partners by ESG factors. Obviously, this gives them the opportunity to assess the transparency and reliability of organisations. This is the foundation for building trust. That is why businesses aiming for long-term growth in the market should implement the ESG concept.

What are the business benefits of ESG?

Strategically, the concept serves as an additional tool for attracting investment from international partners. This is one of the key areas for Ukraine’s economic recovery after the end of the war.

Another important factor is access to European markets. The EU is actively implementing ESG standards. Among the well-known initiatives: Green Deal and the Sustainable Finance Taxonomy. To remain competitive, businesses need to adapt to these conditions.

Ultimately, ESG practices help to increase business efficiency, reduce risks and improve reputation. Companies that care about the environment and society have an advantage in attracting talented employees and loyal customers.

Sustainable development through ESG: practical steps for business

To effectively implement ESG principles in business processes, you need to:

1. Conduct an audit of the environmental and social impact of the business.
2. Identify key areas for improvement and develop an ESG strategy.
3. Ensure transparency of corporate governance and compliance with ethical standards.

We recommend engaging legal expertise to achieve compliance with ESG requirements and mitigate legal risks.

Sustainable development at the level of the state strategy

Ukrainian legislation enshrines the concept of sustainable development in several key documents:

• The Sustainable Development Goals of Ukraine until 2030 (adopted in 2019). They help to develop government programmes and laws aimed at balancing the economy, social sphere and environment.
• Targets and indicators for achieving the goals (approved in 2024). They cover all three ESG pillars, and their implementation means gradual integration of this concept into government and business strategies.
• The National Economic Strategy until 2030 (adopted in 2021), which takes into account sustainable development goals.
• The Strategy for the Implementation of Sustainability Reporting (adopted in 2024). It stipulates that companies should publish information not only on financial results, but also on environmental, social and governance impact. Starting from 2025, such reporting will be in line with European standards (ESRS).

Legislation already provides for certain reporting requirements for large companies. For example, the Law of Ukraine ‘On Accounting and Financial Reporting in Ukraine’ requires large enterprises to prepare and publish a management report. It must contain both financial and non-financial information about the business.

State-owned companies also have to report on their environmental impact, social issues and corruption risks in accordance with international OECD standards. And starting in 2025, Ukraine is planning to introduce sustainability standards similar to those in Europe. Therefore, large companies, and later medium-sized ones, will be required to publish non-financial reports. They will help investors and partners assess the sustainability and responsibility of the business.

Conclusions

Implementing ESG is a strategic necessity for modern business. Companies that operate according to these principles increase their own competitiveness, as well as create a positive impact on society and improve the environment. This is a situation where the need to achieve business goals at the same time helps to improve reputation and the world around us. So it’s time to adapt to the new standards, reduce risks and build a sustainable business.

Author: Uliana Luchkevych, lawyer at F&P

The import of goods containing refrigerants requires strict compliance with customs and environmental legislation. Failure to comply with these requirements may result in the drafting of customs violation protocols, the imposition of fines, and the detention of cargo at customs. This article examines the requirements for the importation of refrigerants, the relevant legislative norms, the legal consequences of violations, as well as the successful experience of FEDORYSHYN&PARTNERS in closing cases related to the importation of goods with refrigerants.

According to the Law of Ukraine dated December 12, 2019, No. 376-IX “On the Regulation of Economic Activities Related to Ozone-Depleting Substances and Fluorinated Greenhouse Gases” – fluorinated greenhouse gases are any substances listed in Appendix 2 to this Law, which exist independently or in mixtures, primary, recovered, regenerated, or processed for recycling, or their isomers, and have a global warming potential above zero.

Annually, the Cabinet of Ministers of Ukraine approves a list of goods whose export and import are subject to licensing in the following year, which includes refrigerants—fluorinated greenhouse gases used for cooling in a range of equipment such as air conditioners, refrigerators, machines, etc.

Thus, if the imported product contains refrigerants, it is subject to special control, and its importation is possible only with the appropriate license. Import licenses are issued by the Ministry of Economy of Ukraine based on the relevant application from the recipient of the product.

In practice, our client faced a situation where the supplier did not inform them about the presence of refrigerants in the goods, and the latter were discovered by the customs authority during the customs clearance of the goods. Based on this, the customs authority drew up a protocol on customs violations under Article 472 of the Customs Code of Ukraine and temporarily seized the goods worth over 10 million UAH.

According to Article 472 of the Customs Code of Ukraine, failure to declare information about refrigerants in the customs declaration or their importation without a license may be considered as non-declaration of goods, which entails:

• • a fine of 100% of the value of the goods with the possibility of their confiscation;
• detention of the cargo by customs authorities until all circumstances are clarified.

Judicial practice shows that in cases where the declarant and importer acted in good faith but were not informed about the presence of refrigerants in the product (for example, due to a manufacturer’s error), there are legal grounds for closing the case and returning the product to the importer.

Our lawyers managed to prove the absence of intent in the actions of the declarant, specifically the fact that the declarant acted in good faith, relying on accompanying documents that did not contain information about the presence of refrigerants. Based on our own experience in defending similar cases, we proposed a model to prove the declarant’s ignorance about the presence of refrigerants, which became the basis for closing the case.

In particular, the court took into account the following arguments:

1. absence of intent in the actions of the declarant;
2. absence of actual concealment of information;
3. prompt appeal by the importer for obtaining a license after the detection of the presence of refrigerants;
4. The manufacturer’s error for not disclosing the presence of refrigerants in the documentation.

Contact the lawyers at FEDORYSHYN&PARTNERS, who have positive experience in cases involving the import of goods with refrigerants, to protect your interests with customs authorities and in court.

FEDORYSHYN&PARTNERS are ready to provide legal assistance to businesses in matters of customs clearance and appealing decisions of customs authorities. If your company has encountered a similar problem, we are ready to provide effective protection. It seems like you haven’t provided any text to translate. Please share the text you’d like translated, and I’ll be happy to help!

Author: Maryna Pokotylo, Partner at F&P

Individuals who have chosen the simplified taxation system have defined rules regarding income formation. In particular, their income is considered to be any profit received in monetary (cash or non-cash) form, as well as in material or intangible forms.

If a third group taxpayer works under a commercial agency contract, their income is the remuneration they receive for intermediary services, not the total amount of funds that pass through them. Intermediary activity implies that the entrepreneur acts in the interest of another person (the principal), helping to conclude agreements, fulfill assignments, or sell goods.

The legislation clearly states that such individuals cannot be compensated for their services in kind (non-monetary form). All payments must be made exclusively in money – cash or through bank accounts.

However, in practice, questions often arise regarding the ability of such individuals to conduct offsetting in settlements.

Mutual offset is a method of settlement where two parties offset reciprocal obligations to each other without transferring real money.

Cash settlements are payments made in cash by business entities and individuals for sold products (goods, completed works, provided services), as well as for transactions that are not directly related to the sale of products (goods, works, services) and other property. In turn, cashless settlements are the transfer of funds from the accounts of payers to the accounts of recipients, as well as the transfer by payment service providers of funds deposited by payers in cash to the accounts of recipients.

Considering the legal norms provided, it can be concluded that the offset of monetary claims conducted through banking institutions is a cashless transaction, which is considered a monetary transaction.

A similar position was established by the Supreme Court in the ruling dated 20.10.2020 No. 822/2972/13-a, according to which: “calculations carried out by the plaintiff through mutual settlement are considered to be conducted in monetary form.”

Thus, legal entities and individual entrepreneurs who are single tax payers of the third group do not have the right to engage in barter transactions, including settling debts in any way other than monetary.

In turn, withholding the commission of a commercial intermediary and/or conducting a mutual settlement is a monetary form of payment that is not prohibited by the Tax Code.

Author: Anastasia Holovatyuk, Lawyer at F&P

During the period of martial law, the reservation of conscripted employees has become particularly relevant. Diia City resident companies, as part of the IT sector critical to the state, can exercise the right to reserve employees in accordance with legislative norms. However, to do this, it is necessary to undergo a complex procedure to obtain the appropriate status and be included in the Unified Register of Enterprises, Institutions, and Organizations entitled to reserve employees.

Before reserving employees, a Diia City resident company must obtain the status of a critically important enterprise. To do this, it must meet at least three of the following criteria:

1. The amount of paid taxes and fees exceeds the equivalent of 1.5 million euros per year.
2. Foreign currency receipts exceed 32 million euros per year.
3. The company is of strategic importance for the economy and security of the state. Confirmation of the status of importance for the industry can be achieved through the enterprise’s activities defined in the Law of Ukraine “On Stimulating the Development of the Digital Economy in Ukraine.”
4. The enterprise is key to the national economy or the territorial community.
5. Absence of debt to the budget and social insurance funds.
6. The enterprise is a resident of Diia City.
7. The enterprise is a provider of electronic communication services using mobile communication networks, with an average monthly net income exceeding 200 million hryvnias, or a provider of electronic communication services using fixed communication networks, with an average monthly net income exceeding 20 million hryvnias.

An application for obtaining the status of a critical enterprise is submitted to the Ministry of Digital Transformation of Ukraine or to the relevant military administration at the company’s place of registration. Inclusion in the Unified Register of Enterprises, Institutions, and Organizations entitled to employee reservation is carried out based on a notification submitted by the Ministry of Economy or a state body about inclusion in the Unified Register, which is formed using the Diia Portal.

Therefore, the confirmation of the recognition of a Diia City resident as a critical infrastructure enterprise will be the corresponding decision of the competent authority and inclusion in the Unified Register of Enterprises, Institutions, and Organizations entitled to employee reservation.

After the company is recognized as critical, it can apply for employee reservation. The process consists of the following stages:

1. Formation of the list of employees to be reserved.
2. Submission of the list to the relevant ministry or military administration for approval.
3. Transfer of the approved list through the Diia Portal to the Ministry of Economy.
4. Submission of the list to the Territorial Center for Recruitment and Social Support (TCRC and SS) for registration in the database of military personnel.

It is worth emphasizing that no more than 50% of the company’s military personnel can be reserved. At the same time, gig contractors and individuals providing services to the enterprise as sole proprietors are not subject to reservation.

The reservation is made for a period of 6 months with the possibility of extension after submitting an updated list.

Overall, the reservation of employees for Diia City residents is an effective mechanism for retaining key personnel in critically important sectors of the economy during martial law.

At the same time, the procedure requires careful legal support and the company’s compliance with clearly defined criteria. Adhering to all requirements allows Diia City residents to reserve employees, ensuring the continuous operation in the digital economy sector.

Author: Aliona Yevtushenko, lawyer at F&P

Foreign economic activity of Ukrainian business entities and foreign business entities, as well as the activity of state customers for defence procurement in cases specified by the laws of Ukraine, is based on the relationship between them, which takes place both in Ukraine and abroad.

The Law of Ukraine ‘On Currency and Currency Transactions’ No. 2473-VIII dated 21.06.2018 (hereinafter – the Law No. 2473-VIII) defines the legal basis for currency transactions, currency regulation and currency supervision, the rights and obligations of currency transactions and authorised institutions and establishes liability for violation of currency legislation.

Currency control in the field of foreign economic activity requires strict compliance with the deadlines for settlements under export and import transactions. Violation of these deadlines may result in the imposition of penalties in accordance with Article 13 of Law No. 2473-VIII.

However, in a number of cases, a taxpayer may avoid liability or appeal against the accrued penalty. Such cases will be discussed in this article.

According to the Law No. 2473-VIII, the National Bank of Ukraine exercises currency supervision over authorised institutions in accordance with the procedure established by it. The National Bank of Ukraine has the right to set deadlines for settlements under export and import transactions.

In accordance with clause 21 of the NBU Board Resolution No. 5 dated 02.01.2019, the deadline for settlements under export and import transactions is 180 calendar days.

The control over compliance with the settlement deadlines is vested in:

• banks that carry out currency supervision of clients’ transactions (in accordance with NBU Instruction No. 7);
• the State Tax Service of Ukraine (STSU), which conducts inspections and levies penalties in case of violations.

The Bank carries out currency supervision over the resident’s compliance with the deadlines for settlements for:

• a resident’s export of goods, if the settlement of such transaction is not completed (funds from the sale of goods to a non-resident have not been received on the resident’s current account or have not been received in full) or the bank has no information on the completion of settlements under such transaction;
• a resident’s import transaction, if on the date of payment by the resident for the goods, the non-resident has not delivered the goods under the import transaction;
• an import transaction of a resident, if on the date of payment by the resident for the goods, the import transaction was not completed without importation of the goods into the territory of Ukraine.

Pursuant to Article 13(5) of Law No. 2473-VIII, in case of violation of the payment deadline, the tax authorities shall charge a penalty of 0.3% for each day of delay. However, the total amount of the penalty cannot exceed the amount of the debt under the contract.

In case of objective impossibility to execute the contract within 180 days, the law provides for the possibility of extending the payment deadlines. The decision to extend or refuse such an extension falls within the competence of the Ministry of Economy of Ukraine and is regulated by the Resolution of the Cabinet of Ministers of Ukraine No. 104 dated 13.02.2019.

The Ministry of Economy of Ukraine issues an opinion on certain export and import transactions carried out by residents. This applies to transactions arising from the following types of foreign trade contracts:

• Production cooperation – the supply of raw materials, parts, and components necessary for the manufacture of final products.
• Consignment – the sale of goods through a consignor who sells them from a warehouse on his own behalf for a fee.
• Construction – the supply of construction materials, equipment, and machinery for construction works.
• Tender supply—supply of goods ordered as a result of international tenders.
• Warranty service – export of goods with phased payment after inspection, installation, and expiry of the warranty period.
• Supply of complex equipment – import of equipment in parts that requires installation, adjustment and warranty service, as well as goods with a long production and delivery time (more than 180 days).
• Supply of special purpose goods – international supplies of military goods, natural gas and its transit with final payments made after signing the relevant acts.

An application for an extension of time must be submitted no later than 10 business days before the expiry of the deadlines for settlements for export and import transactions. The period for the extension of settlements is calculated from the date of expiry of the deadline or the deadline set in accordance with the opinion of the Ministry of Economy issued earlier in respect of the transaction.

Despite the existence of a mechanism for extending the settlement deadlines, in practice, in the vast majority of cases, the Ministry of Economy refuses to extend the settlement deadlines.

In this case, a business entity has the option to stop the accrual of penalties in two ways:

• providing the supervisory authority with a confirmation of the impossibility of fulfilling the foreign trade contract due to force majeure.

Part two of Art. 14-1 of the Law of Ukraine ‘On Chambers of Commerce and Industry in Ukraine’ stipulates that force majeure (force majeure circumstances) are extraordinary and unavoidable circumstances that objectively make it impossible to fulfil obligations under the terms of the agreement (contract, agreement, etc.), obligations under legislative and other regulatory acts, namely threat of war, armed conflict or a serious threat of such conflict, including but not limited to enemy attacks, blockades, military embargoes, actions of a foreign enemy, general military mobilisation, military operations, declared and undeclared war, actions of a public enemy, riots, acts of terrorism, sabotage, piracy, riots, invasion, blockade, revolution, rebellion, insurrection, mass riots, curfew, quarantine, established by the Cabinet of Ministers of Ukraine, expropriation, compulsory seizure, seizure of enterprises, requisition, public demonstration, blockade, strike, accident, illegal actions of third parties, fire, explosion, long interruptions in transport operations regulated by the terms of relevant decisions and acts of state authorities, closure of sea straits, embargo, prohibition (restriction) of export/import, etc., as well as those caused by exceptional weather conditions and natural disasters, namely epidemic, severe storm, cyclone, hurricane, tornado, storm, flood, snow accumulation, ice, hail, frost, freezing of the sea, straits, ports, passes, earthquake, lightning, fire, drought, subsidence and landslide, other natural disasters, etc.

The existence of force majeure must be confirmed by a certificate of the authorised organisation (body) of the country of location of the party to the foreign economic agreement (contract) or a third country in accordance with the terms of the agreement (contract).

 

• Providing the supervisory authority with evidence that a court has accepted a resident’s claim for consideration to recover from a non-resident a debt arising from the non-resident’s failure to comply with the deadline.

If a court or international commercial arbitration decides to dismiss the claim in whole or in part as to property claims or to refuse to initiate proceedings or to leave the claim without consideration, as well as if a document on debt collection from a non-resident debtor is declared unenforceable, invalid, illegal, etc., and/or if the proceedings are closed (terminated) without crediting funds to residents’ accounts in Ukrainian banks under such a document, the term established in accordance with this Article shall be renewed.

Thus, in order to suspend the accrual of penalties for violation of the deadlines for settlements under a foreign economic contract, it is not enough to provide documents relating to the opening of proceedings, but also to obtain a court decision to satisfy the claims and recover the debt from the non-resident.

Appealing against penalties for late currency payments is an important mechanism for protecting the interests of foreign economic operators. A decision to impose a penalty may be appealed administratively (by filing a complaint with the State Tax Service) or in court. It is important to file timely objections with proper evidence to prove the validity of the taxpayer’s claims.

Thus, taxpayers engaged in cross-border transactions should not only closely monitor compliance with the deadlines for currency settlements but also be aware of their rights in case of unjustified penalties. The use of legal protection mechanisms available to FEDORYSHYN&PARTNERS allows for the reduction of financial risks and the avoidance of unjustified sanctions from regulatory authorities.

Author: Viktoriia Staryk, lawyer at F&P

Recognition as a critical organization gives the organization the opportunity to obtain an official status that will allow it to retain key personnel in their jobs even in emergency circumstances, including during mobilization. In order to book employees of a charitable organization that provides assistance to the Armed Forces of Ukraine and other military formations, it is necessary to successfully pass the procedure for recognizing a charitable organization as a critical one and be included in the relevant register.

A positive decision can be obtained if the charitable organisation has produced/purchased goods, performed works, and provided services necessary to meet the needs of the Armed Forces of Ukraine and other military formations for the previous period, not less than 12 months prior to the date of application, at the rate of UAH 10,000,000 of assistance per 1 (one) person liable for military service, which is proposed for reservation for the period of mobilisation and martial law.

In accordance with the mechanism of inclusion in the list of enterprises, institutions and organisations that are critical to the needs of the Armed Forces of Ukraine and other military formations during a special period, in order to optimise the procedure for consideration of applications, enterprises, institutions and organisations are recommended to submit applications to the Ministry of Defence of Ukraine in accordance with the approved template.

In the content of the application, enterprises, institutions, organisations should indicate compliance with the criteria set out in the Order of the Ministry of Defence of Ukraine dated 10.07.2024 No. 463 ‘On Determining Enterprises, Institutions, Organisations, as well as Legal Entities of Private Law, which are Critical to Meeting the Needs of the Armed Forces of Ukraine and Other Military Formations in a Special Period’.

Documents to be prepared by the organisation for submission:

1. Application to the relevant authorised body.
2. List of employees to be reserved
3. Certificate of the number of persons liable for military service employed by the organisation.
4. An explanatory note justifying the importance of each employee for the organisation’s functioning.

To confirm that the organisation produces/purchases goods, performs works and provides services necessary to meet the needs of the Armed Forces of Ukraine and other military formations, supporting documents must be provided. Failure to provide such documents may result in a refusal to recognise the organisation as a critical one.

Enterprises, institutions and organisations, as well as legal entities of private law, are recognised as critical to the needs of the Armed Forces of Ukraine and other military formations during a special period if they meet one or more criteria and if the share of the state in the authorised capital of such enterprises, institutions or organisations, as well as legal entities of private law, is not held by the state, which is designated by the Verkhovna Rada of Ukraine as the aggressor and/or occupying state.

Incorrect execution or failure to provide the necessary evidence may result in a refusal to grant a non-profit organisation the status of a critical mass organisation. FEDORYSHYN&PARTNERS has the necessary skills and experience to support the process of recognising a non-profit organisation as a critical one.

Author: Olena Andriyko, lawyer at F&P

Actual audits are one of the methods of tax control carried out by the controlling authorities to verify compliance with tax legislation, cash discipline, payment transactions and licensing conditions. However, in many cases, the results of such audits may be challenged by business entities due to violations of the audit procedure or unreasonable conclusions of the tax authorities.

Actual audits are carried out without prior notice to the taxpayer and may be initiated by the controlling authority in cases provided for in Article 80 of the Tax Code of Ukraine (the ‘TCU’), in particular in the following cases

• violation of the procedure for conducting settlement transactions, use of cash registers or cash discipline;
• inspection of licence conditions (for example, in the field of retail trade in excisable goods);
• failure to submit reports related to the payment of taxes or fees;
• detection of violations in labour relations.

One of the most common grounds for conducting an actual audit is clause 80.2.5 of the Tax Code of Ukraine, namely, conducting an audit in case of availability and/or receipt of information in accordance with the procedure established by law on violations of the law in terms of production, accounting, storage and transportation of alcohol, alcoholic beverages, tobacco products and liquids used in electronic cigarettes and fuel, and the intended use of alcohol by taxpayers, equipment of excise warehouses with flow meters and/or equalisers.

Further, within the framework of this article, we propose to analyse the mistakes made by the tax authorities when issuing orders for conducting an audit and which are the grounds for cancellation of the results of such audits.

First of all, it is worth noting that the correctness of the order to conduct an actual audit and its completeness is one of the most important prerequisites for the controlling authority to proceed with the audit. The legal and factual grounds set out in the order define the subject of the inspection, the period – its limits, and the indication of the subject to be inspected indicates compliance with other requirements regarding the procedure for its conduct.

In the decisions of 12 August 2021 (case No. 140/14625/20), 10 April 2020 (case No. 815/1978/18), 25 January 2019 (case No. 812/1112/16), 5 November 2018 (case No. 803/988/17), 22 May 2018 (case No. 810/1394/16), 20 March 2018 (case No. 820/4766/17), etc., the conclusion of which was taken into account by the court of appeal in this case, the Supreme Court stated that subpara. 2.5 of para. 80.2 of Article 80 of the TC of Ukraine provides for alternative grounds for conducting a factual audit, which can be applied both in aggregate and separately, namely

– availability and/or receipt of information in accordance with the procedure established by law on violation by the taxpayer of the requirements of the legislation in terms of production, accounting, storage and transportation of alcohol, alcoholic beverages and tobacco products and the intended use of alcohol by taxpayers, equipment of excise warehouses with flow meters and/or level meters;

– performing the functions defined by law in the field of production and circulation of alcohol, alcoholic beverages, tobacco products and fuel.

At the same time, in its resolutions dated 08 September 2020 in case No. 640/21536/19, 19 November 2020 in case No. 160/7971/19, 17 December 2020 in case No. 520/12028/18, the Supreme Court stated that the order to conduct a factual audit pursuant to subparagraph 80.2.5 of paragraph 80.2 of Article 80 of the Tax Code of Ukraine, in addition to the usual reference to the provision governing its appointment, should also specify the specific factual grounds for its appointment. In these cases, it was concluded that when appointing a tax audit, the controlling authority must specify one of the grounds set out in subparagraph 80.2.5 of paragraph 80.2 of Article 80 of the Tax Code, and if such ground is the availability and/or receipt of information about the taxpayer’s violation of the law, the latter must be specified.

In addition, the Supreme Court in its resolutions dated 11 July 2022 in case No. 120/5728/20-a and 21 December 2022 in case No. 500/1331/21, noted that the wording of the specific content of the order is at the discretion of the controlling authority, however, with mandatory compliance with the requirements of the third paragraph of Article 81.1 of the Tax Code regarding the content of the order to conduct an audit. If several independent grounds for conducting an audit are established in one subparagraph of the article, each of them does not necessarily have to be formulated identically to the content of the legal provision that establishes this ground, but must be clearly defined and comply with the legal provision.

Fulfilment of this requirement ensures that the business entity understands the reasons for the audit, as well as the range of issues that may be the subject of the audit, depending on the grounds for the audit.

Thus, if the order does not contain any references to the specific grounds for the audit, defined by subparagraph 80.2.5 of paragraph 80.5 of Article 80 of the TC of Ukraine, namely, whether the audit is appointed due to the availability of information on violation of the law or in connection with the performance by the controlling authority of functions defined by law in the field of production and circulation of alcohol, alcoholic beverages and tobacco products, fuel, such an order contradicts the requirements of the law. In this case, it can be argued that the controlling authority did not comply with the requirements of paragraph 81.1 of Article 81 of the Tax Code of Ukraine, according to which its officials have the right to proceed with a documentary on-site inspection, an actual inspection if there are grounds for their conduct as defined by this Code.

According to the conclusions of the Supreme Court set out in its decision of 26.03.2024 in case No. 420/9909/23, each violation alleged in a particular case is assessed by the court for its ‘materiality’ or ‘immateriality’. The Supreme Court has concluded that if the controlling authority finds that the tax authorities have committed material violations of tax legislation (for example, establishing that there are no legal grounds for the appointment of an audit), this may result in the cancellation of the order to appoint an audit and/or decisions made as a result of the audit.

Therefore, even if the tax authority’s representatives are actually admitted to the audit, the taxpayer is not deprived of the opportunity to refer to the shortcomings of the audit order when challenging the tax assessment notices issued as a result of such audit.

Taxpayers may use both administrative and judicial means of appealing tax assessment notices. The main thing is to build a competent defence strategy, and FEDORYSHYN&PARTNERS’ specialists can help.