Doing Agricultural Business in Ukraine: Legal Aspects 2016

DOING AGRICULTURAL BUSINESS IN UKRAINE: LEGAL ASPECTS

2016 Introduction

Agriculture is one of the most attractive sec- agriculture (including in the areas of veteri- tors of the Ukrainian economy. According to nary, agro-chemicals, livestock, food products, the Ministry of Agrarian Policy and Food of fisheries, use of natural resources), powers Ukraine, agriculture provides 14% of the total of certain state authorities were limited, risks GDP of Ukraine. Exports of agricultural sector of corruption were reduced, simplification of in 2015 amounted to USD 14.6 billion, repre- registration procedures for water use, as well senting the unprecedented 38.2% of Ukraine's as turnover of fertilizers and plant protection total exports. Last year the agricultural sector products were implemented, etc. attracted over one billion USD of investment. There are over 3 million people employed in ag- In this brochure, we provide an overview of the ricultural industry, which constitutes more than legal regulations applicable to agribusiness, 17% of all employed persons in Ukraine. including legislative framework for sale and purchase and lease of agricultural land, various Given the importance of this sector to the state, aspects of employment relations and taxation there were significant changes in legislation regime, etc. Our publication will be helpful for regulating economic activity in the agricultural potential agriculture investors, agriculture-ori- industry in 2015. The primary objective of these ented producing and processing enterprises changes was to simplify doing business in the and other persons interested in the Ukrainian agricultural sector. agriculture sector.

In particular, more than twenty licensing procedures were cancelled and some other man- Truly yours, datory licenses and permits were revised in DLF attorneys-at-law

1. Sale and purchase of agricultural land...... 4 3.4. Employment of foreigners...... 12

1.1. Agricultural lands...... 4 3.5. Residence permit...... 13 1.2. Transfer of agricultural land...... 4 3.6. Leave ...... 13 1.3. Moratorium on sale of agricultural land...... 5 3.7. Minimum wage...... 14

2. lease of land...... 7 4. taxation in agriculture...... 15

2.1. Agreement on lease of land...... 7 4.1. Terms for single tax application...... 15 2.2. Essential terms of the agreement on lease of land...... 7 4.2. Object and tax base...... 16 2.3. Duration of the lease agreement...... 8 4.3. Single tax rates...... 16 2.4. Rent ...... 8 4.4. Reporting period and procedure for payment of single tax...... 16 2.5. Rights and obligations of the parties...... 8 4.5. Procedure for registration as a single taxpayer...... 16 2.6. Termination of agreement...... 8 4.6. Peculiarities of VAT...... 16

3. employment relations...... 9 4.7. Transfer pricing...... 17 3.1. Employment agreement...... 9 5. protection of foreign investment...... 18 5.1. International agreements...... 18 3.2. Employee probation...... 10 5.2. Safeguards of Ukrainian legislation...... 18 3.3. Termination of employment agreement...... 10

DLF attorneys-at-law DOING AGRICULTURAL BUSINESS IN UKRAINE: LEGAL ASPECTS 3 1. Sale and purchase of agricultural land

1.1. Agricultural lands 1.2. Transfer of agricultural land

Agricultural lands are lands available for agri- Agricultural land is transferred into ownership cultural production, implementation of agricul- or for use to: tural research and training activities, placing of relevant production infrastructure, including in- a) citizens - for individual farming, gardening, frastructure of wholesale markets for agricul- mowing and grazing, agricultural commodity tural products, or designed for such purposes. production; Agricultural lands comprise of: b) agricultural enterprises - for agricultural commodity production; a) agricultural areas (arable lands, perennial plants, hayfields, pastures and fallows); c) agricultural research institutions and educational establishments, rural vocational b) non-agricultural areas (farm roads and trails, schools and secondary schools - for research shelter belts and other protective plantings, and educational purposes, propagation of except those classified as land for forestry the best practices in agriculture; purposes, land under farm buildings and yards, land under the infrastructure of who- d) non-agricultural enterprises, institutions lesale markets for agricultural products, and organizations, religious organizations temporary land conservation, etc.). and associations of citizens - for subsidiary farming; The state recognizes the priority of agricultural land. Land suitable for agriculture must be e) the wholesale markets for agricultural pro- available primarily for agricultural use. ducts - for accommodation of their own infrastructure.

DLF attorneys-at-law DOING AGRICULTURAL BUSINESS IN UKRAINE: LEGAL ASPECTS 4 Agricultural land shall not be transferred into but in any event not earlier than 1 January ownership to foreigners, stateless persons, 2017, it is prohibited to: foreign legal entities and foreign states. • sell state-owned and municipal land plots Foreigners and stateless persons may acquire designated for agricultural use, except for ownership of non-agricultural land plots with- the withdrawal (buy-out) of such land plots in settlements, as well as non-agricultural for public needs; land plots outside settlements, on which im- • sell and purchase or otherwise alienate movable property owned by them is located in agricultural land plots or change the desig- case of: nation of agricultural land plots owned by a) acquisition by way of sale and purchase individuals or legal entities for agricultural agreement, lease, gift, barter, or other commodity production, for individual farm- agreements; ing, except for inheritance, for barter one land plot to another and for withdraw- b) purchase of land plots, on which their own al (buy-out) of such land plots for public immovable property is located; needs, and other than changing the desig- c) inheritance. nation of land for the purpose of providing to investors-participants of the production However, agricultural land inherited by for- sharing agreements for activities under eigners and stateless persons is subject to such agreements. alienation within one year from the time of inheritance. Any agreements (including powers of attorney) concluded under the effective prohibition in the part of sale, purchase or other alienation of 1.3. Moratorium on sale of agricultur- agricultural land plots and similarly in the part al land of transfer of the rights for future alienation of these land plots shall be null and void from the time of conclusion thereof. The moratorium on sale of agricultural land in Ukraine has been introduced in 2002. In It should be noted that the said prohibition shall November 2015 the effect of the moratorium not apply to land plots, which at the time of was prolonged until 1 January 2017. their transfer into private ownership were de signated other than "for agricultural commodi- The law stipulates that until the law regulating ty production". In particular, such designations turnover of agricultural land comes into force, include for subsidiary farming, for gardening,

DLF attorneys-at-law DOING AGRICULTURAL BUSINESS IN UKRAINE: LEGAL ASPECTS 5 for mowing and grazing, for research and educa- infrastructure of wholesale markets for agricul- or other alienation of the abovementioned land tional purposes, for propagation of the best tural products, for other agricultural purposes. plots and changes into their designation. practices in agriculture, for accommodation of There are no restrictions on sale or purchase

DLF attorneys-at-law DOING AGRICULTURAL BUSINESS IN UKRAINE: LEGAL ASPECTS 6 2. Lease of land

2.1. Agreement on lease of land • object of lease (cadastre number, location and size of a land plot);

The right to lease a land plot is formalized by • duration of the lease agreement; way of execution of the agreement on lease of • rent payment with specification of its land. amount, indexation, methods and con- The agreement on lease of land is executed in ditions of payment, terms, procedure for writing and at the request of one party may be payment of rent and its revision, as well as certified by a notary. The Model Land Lease liability for failure to pay. Agreement was adopted by the Cabinet of Min- The parties may agree to include any other isters of Ukraine. The right to lease a land plot terms and conditions. is subject to state registration. We note that until February 2015 the agree- The citizens are entitled to lease land plots de ment on lease of land had to contain eleven signated for individual farming to legal entities mandatory terms and five additions (plan or of Ukraine. Legal entities may use such land scheme of a land plot, act on determining the plots for agricultural commodity production, boundaries of the land in kind, act on accep as well as farming without change of designa- tance and transfer of the object of lease, etc.). tion of a land plot. Absence of only one of the essential terms or additions of the agreement on lease of land could be the ground for refusal for its regis- 2.2. Essential terms of the agreement tration or serve as a basis for declaring it as on lease of land void. However, despite changes in legislation, the Model Land Lease Agreement still contains old extended list of essential terms. There- The essential terms of the agreement on lease fore, until the Model Land Lease Agreement of land are: is amended in line with the current legislation,

DLF attorneys-at-law DOING AGRICULTURAL BUSINESS IN UKRAINE: LEGAL ASPECTS 7 we recommend specifying all essential terms as of lease payments may be carried out in kind provided with protection of his/her rights to the provided by the Model Land Lease Agreement. upon agreement of the parties, which shall cor- leased land on par with the protection of the respond to the monetary equivalent of market rights of ownership of the land. In particular, If the agreement on lease of land provides for value of goods as of the date of payment of rent. the lessee is entitled to demand the leased land measures on improvement and safety of the ob- Rent for lease of state and municipal land plots from any illegal possession and use, removing of ject of the lease agreement, the agreement on is paid exclusively in monetary form. any barriers to use, reimbursement of damages reimbursement of expenses incurred by the les- caused to land by third parties. see shall be attached. 2.5. Rights and obligations of the parties 2.6. Termination of agreement 2.3. Duration of the lease agreement The risk of accidental destruction or damage of the object of lease lies with the lessor, unless The agreement on lease of land is terminated on Duration of the agreement on lease of land is de- otherwise provided by the agreement on lease the following grounds: termined by the parties, but shall not exceed 50 of land. years. • expiration of the term of agreement; The lessor is entitled to demand from the lessee, For lease of agricultural land for agricultural inter alia, to use the land plot according to its de- • purchase of the land plot for public purposes commodity production, individual or subsidiary signated purpose, to comply with the ecological or alienation of the land plot for the reasons farming, duration of the agreement on lease of safety of land use and preservation of soil fertili- of public necessity pursuant to the law; ty, government standards, rules and regulations, land shall not be less than 7 years. • combination of lessor and lessee in one person; water protection zones, coastal strips, sanitary protection zones, buffer zones, zones of special • death of the lessee, his/her conviction to im- 2.4. Rent regime of land use and areas, which are especi- prisonment or his/her refusal to implement ally protected. the agreement on lease of land; Amount, conditions and terms for payment of rent The lessee, inter alia, is entitled to independent- • liquidation of the legal entity which is the lessee; for lease of land shall be established by the parties ly farm his/her land under the conditions of the (except for terms of payment of rent for lease of lease of land; build residential, industrial, cultu- • selling the right of lease by the mortgagee; land plots of state and municipal ownership, which ral and other buildings and structures and lay the is established by the Tax Code of Ukraine). plantations upon the lessor’s written consent. • obtainment of ownership of a house or build- ing located on the land plot leased by the The rent is paid in monetary form. Settlements Pursuant to Ukrainian legislation, the lessee is other person.

DLF attorneys-at-law DOING AGRICULTURAL BUSINESS IN UKRAINE: LEGAL ASPECTS 8 3. Employment relations

The Labour Code of Ukraine is the main docu- • working conditions; ment which regulates employment relations in • work time and holiday time; Ukraine. It was adopted in 1971 and does not meet the basic principles of a market economy. • guarantees and compensation for work in In addition, protection of rights of employees is hazardous or dangerous conditions. the core leitmotif of this code: the grounds for dismissal of the employee are limited, whereas The special form of the employment agreement the employee benefits from a significant number is the employment contract in which its validity of social guarantees. During the last decade the period, rights, liabilities and responsibilities of adoption of a new Labour Code that would meet the parties (including material ones), conditions the realities of today's labour market has been of material security and organization of emplo actively discussed in Ukraine. As of February yee’s work, conditions of termination of the con- 2016, the draft of the new Labour Code was pre- tract, including cases of early termination, may liminary approved by the parliament. be determined as agreed upon by the parties. Scope of the contract is specified by the laws of Ukraine. Thus, in particular, the employment 3.1. Employment agreement contract might be executed with the director of the entity. Employment agreement is the basis for the em- The employment agreement is usually made in ployment relationships. Employment agreement writing and may be: shall include the following terms and conditions: • place of work, including separate unit or 1) termless that is entered into for indefinite pe- branch; riod of time; • labour function of the employee; 2) entered into for definite period of time as • start date of employment; agreed upon by the parties; • conditions relating to wages, bonuses or al- 3) entered into for the period of performance of lowances; certain work.

DLF attorneys-at-law DOING AGRICULTURAL BUSINESS IN UKRAINE: LEGAL ASPECTS 9 Termed employment agreement shall be entered 3.2. Employee probation 3.3. Termination of employment into in cases when labour relations may not be agreement established for indefinite period of time due to When entering into the employment agreement, the nature of subsequent work, or conditions of the parties may agree upon probation with the its performance, or employee's interests, and in The Labour Code specifies the non-exhaustive purpose of verification of relevance of the em- other cases prescribed by legislative acts. list of grounds for termination of employment ployee to the job entrusted thereto. Probation agreement. The list is as follows: In addition, the special type of termed employ- shall not be established in case of employment of ment agreement, namely the seasonal employ- persons under eighteen years old; young emplo- 1) agreement of the parties; yees upon graduation from vocational schools; ment agreement, might be used in agriculture. 2) expiration of validity period, except for the young specialists upon graduation from higher Seasonal works are such works, which due to cases when labour relations are actually con- educational institutions; persons retired from natural and climate conditions cannot be per- tinuing, and neither party demand termination military or alternative (non-military) service; formed during the whole year, but only within thereof; the certain period (season), which lasts for less disabled persons directed to work according to than six months. In agriculture such works in- recommendations of medical and social expert 3) call or entry of the employee to military ser- clude: works in vegetable production, horticul- examination. Probation shall not be established vice, appointment to alternative (non-military) ture, viticulture, sugar beet production, works in also in case of employment in other locality and service, except for cases when employment is growing and harvesting potatoes, tobacco, feed, in case of transfer to work at other enterprise, preserved for the employee; cucurbitaceous crops, medicinal herbs, as well in institution or organization, as well as in other 4) termination of the employment agreement on as works at poultry incubator stations and in- cases as prescribed by legislation. In addition, the initiative of the employee, on the initiative ter-farm poultry incubator stations. Any works, the employees under the seasonal employment of the owner or body authorized by him/her, or which are not specified above, are not deemed to agreement shall not be subject to probation. at the request of trade union or other repre- be seasonal, even if such works last for less than Unless otherwise established by legislation of sentative body; six months. Ukraine, the probation period may not exceed 5) transfer of the employee by his/her consent One of the special features of the seasonal em- three months, and in certain cases, as agreed to another enterprise, institution or organiza- ployment agreement is that the employees in- upon with respective elective body of primary tion, or transfer to the elective office; volved in the seasonal works are entitled to trade union organization, six months. terminate the seasonal employment agreement Probation period at employment of workers 6) refusal of the employee to transfer to another upon a written notification to the employer with- shall not exceed one month. job in other locality together with enterprise, in three days prior to the intended date of termi- institution or organization, as well as refusal nation (not within two weeks, as for other types to continue working in connection with chan- of employment agreements). ges in essential working conditions;

DLF attorneys-at-law DOING AGRICULTURAL BUSINESS IN UKRAINE: LEGAL ASPECTS 10 7) entry of court judgment into legal force con- work for over three hours during the work- demning the employee (except for the cases ing day) without good reasons; of indemnification from servicing punishment with probation) to imprisonment or to 5) absence from work within more than four other punishment, which excludes possibili- successive months as the result of tempo- ty to continue this work; rary disability, except for maternity leave, unless longer period of workplace (office) 8) grounds prescribed by the employment con- preservation at particular disease is estab- tract. lished by legislation. Employees, who lost capability in connection with labour injury Employment agreement entered into for indef- or occupational disease, shall retain their inite period of time, as well as termed employ- workplace (office) until rehabilitation or es- ment agreement prior to expiration of its validity tablishment of disability; period may be terminated by the owner or body authorized by him/her only in the following cases: 6) reinstatement of the employee, who had been previously performing this work; 1) changes in production and labour organization, including liquidation, reorganization, 7) showing up for work intoxicated with alco- bankruptcy or conversion of enterprise, in- hol, narcotics or other toxic substances; stitution, organization, reduction of number or staff of employees; 8) on-the-job embezzlement (including pet- ty one) of owner’s property established by 2) revealed inconsistency of the employee with court judgment that became effective, or by job or with work performed as the result of in- resolution of the body, which competence sufficient qualification or state of health, which includes imposing administrative sanction prevent continuing this work, as well as in case or taking measures of social influence; of cancellation of access to state secret, if ful- filment of obligations imposed on him/her re- 10) call of the individual employer to military quires an access to state secret; service or his/her mobilization during the special period. 3) systematic failure of the employee without good reasons to fulfil obligations imposed Also, one should remember that in certain cases on him/her under labour contract or internal in order to terminate the employment agreement regulations, if disciplinary or civil sanctions on the initiative of the owner or body authorized have been previously applied thereto; by him/her, it is necessary to obtain previous consent of the elective body (trade union repre- 4) absence from work (including absence from sentative), if there is such at the entity.

DLF attorneys-at-law DOING AGRICULTURAL BUSINESS IN UKRAINE: LEGAL ASPECTS 11 3.4. Employment of foreigners mission of documents for acquiring of a work permit. This is due to the fact that the prefe rence in employment is given to Ukrainian citi The Constitution of Ukraine provides that for- zens, who are qualified and able to perform eigners that legally stay in Ukraine have the such type of work. Then a set of documents same volume of rights and freedoms and bear is submitted, including copies of education the same responsibilities as the citizens of and qualification documents of the foreigner, Ukraine. This provision is also applicable to the a sealed and signed certificate certifying that employment activities of foreigners. the position offered to the foreigner does not The employers in Ukraine are entitled to em- require the employee to be a Ukrainian citizen ploy a foreigner provided that the State Em- and does not require the provision of access to ployment Service of Ukraine has issued a work state secrets, a non-conviction certificate is- permit for employment of a particular foreign- sued in Ukraine or home country supplement- er. The law provides that a work permit shall ed with an apostille stamp and certified trans- be issued, if one of the following conditions is lation into Ukrainian, if issued abroad, along applicable: with some other documents.

• there are no qualified Ukrainian employees Moreover, in relation to certain categories of or the necessity of a foreigner’s employ- foreigners, whose employment is considered ment is duly substantiated; to be duly substantiated, an expedient procedure is established for consideration of their • a foreigner seconded by a foreign busi- application. In particular, such expedient pro- ness entity to Ukraine under agreements cedure applies to: between a Ukrainian and foreign business entity (the number of foreigners hired shall • foreigners applying for positions of manag- not exceed half of the total number of em- ers in entities, institutions or organizations ployees of respective Ukrainian business wherein such foreigners possess share- entity); holding or are founders or co-founders;

• a foreigner has been seconded to Ukraine • foreigners applying for positions of manag- as intra-corporate transferee; ers or IT-specialists in an entity in the soft- ware development area; • a foreigner has applied for the refugee status. • foreigners applying for positions wherein A Ukrainian employer shall notify the State the main tasks are creating the objects of Employment Service on available vacant po- copyright and/or related intellectual prop- sitions not later than 15 days prior to sub- erty rights;

DLF attorneys-at-law DOING AGRICULTURAL BUSINESS IN UKRAINE: LEGAL ASPECTS 12 • foreigners holding a higher education diplo for up to a year, and a permanent residence ma from an educational institution within permit, which allows to stay in Ukraine for one of Top 100 higher education institu- indefinite period. Both temporary and perma- tions listed in the Times Higher Education, nent residence permits are issued by the State Academic Ranking of World Universities by Immigration Service of Ukraine. the Center for World-Class Universities at Shanghai Jiao Tong University, QS World Application for a temporary residence permit University Rankings by Faculty, Webo requires a set of standard documents along metrics Ranking of World Universities as of with documents, which confirm the purpose of the current year, the last or the year before stay in Ukraine, i.e. for work (a work permit), the last. for studies (a document confirming enrolment in Ukrainian university), for a family reunifica- The submitted documents are considered by tion (a document confirming marriage to a cit- the State Employment Service within seven izen of Ukraine), etc. business days following receipt of all required documents. The application for obtaining a temporary residence permit is considered within 15 business The fee for submission of application for work days following receipt of all required documents. permit is established in the amount of four minimum wages (one minimum wage amounts to Application for a permanent residence per- UAH 1378.00 or approx. USD 55.00-60.00 as of mit also requires submission of the immi- February 2016). gration permit. The latter is obtained from the State Immigration Service of Ukraine The work permit is usually issued for a term within the quota established by the Cabinet of validity of the employment contract, but not of Ministers or out of quota in certain cas- more than one year, and may be prolonged for es. The State Immigration Service of Ukraine unlimited number of times for the same period. considers application for the immigration permit within one year following receipt of all required documents. 3.5. Residence permit

The right to legally stay in Ukraine is certified 3.6. Leave by the residence permit. There are two types of Ukrainian residence permit: a temporary resi- Annual basic leave shall be given to employ- dence permit, which allows staying in Ukraine ees for the period of at least 24 calendar days

DLF attorneys-at-law DOING AGRICULTURAL BUSINESS IN UKRAINE: LEGAL ASPECTS 13 per calendar year worked to be calculated from (140 calendar days in case of birth of two and imum wage in Ukraine is UAH 1378.00 (approxi the date of entering into the employment agree- more children and in case of birth difficulty). It mately USD 55.00-60.00). The amount of mini- ment. shall be granted to women in full irrespective mum wage is established in the state budget of of number of days actually used prior to birth. Ukraine for the respective year. On the ground of medical opinion, women shall be granted a paid maternity leave for 70 The wage is subject to indexation pursuant to legis- calendar days prior to childbirth and 56 calen- 3.7. Minimum wage lation. Wage is regularly paid to employees during dar days (70 calendar days in case of birth of business days within terms specified in collective two and more children and in case of birth dif- agreement or regulation act of employer, but not ficulty) as from the day of birth. Minimum wage is the statutory amount of sal- less than twice per month after time interval that ary for a simple, unskilled labour performed does not exceed 16 calendar days and not later Maternity leave period shall be calculated as on a monthly basis, and the hourly labour rate than seven days after the expiration of period, dur- aggregate and constitute 126 calendar days (amount of work). As of February 2016 the min- ing which the payment is made.

DLF attorneys-at-law DOING AGRICULTURAL BUSINESS IN UKRAINE: LEGAL ASPECTS 14 4. Taxation in agriculture

The main provisions of the Ukrainian legisla- 2) each individual person created by split-up tion governing taxation in agriculture are em- or spin-off. In this case, it is possible to be- bodied in the Tax Code of Ukraine, which regu- come a single tax payer from the next year, if lates the special tax regime in the agricultural share of agricultural commodity production sector. Ukraine’s tax law provides certain tax obtained for the previous tax year equals to benefits for agricultural producers. or exceeds 75%; 3) person created by transformation. In this 4.1. Terms for single tax application case, it is possible to become a single tax payer in the year of transformation, if share of agricultural commodity production ob- Agricultural producers, subject to certain con- tained for the previous tax year equals to or ditions, may become taxpayers of a single tax exceeds 75%; of the fourth group. Newly created agricultural commodity pro- Thus, legal persons have the right to choose ducers may be single tax payers from the the fourth group of the single tax provided that next year, if share of agricultural commodity their share of agricultural commodity produc- production obtained for the previous tax year tion in the previous year amounted to at least equals to or exceeds 75%. 75%. This is applicable to: The other condition for application for single 1) all persons separately, which carry out tax of the fourth group is the use of own or merger or accession. In this case, it is possi- leased agricultural land. ble to become a single tax payer in the year In addition, there are three restrictions due to of creation, if share of agricultural commod- which legal entities may not become single tax ity production obtained for the previous tax payers, namely: year by all commodity producers involved in their creation equals to or exceeds 75%. • 50% of overall income comes from selling

DLF attorneys-at-law DOING AGRICULTURAL BUSINESS IN UKRAINE: LEGAL ASPECTS 15 ornamental plants, wild animals and birds, • for arable land, hayfields and pastures – 0.81; However, agricultural producers need to confirm fur products and fur (with some exemptions); their status annually. In order to confirm the sta- • for arable land, hayfields and pastures locat- tus of a single tax payer of the fourth group, the • production of excisable goods, except for the ed in mountainous areas and marshy wood- agricultural producer shall submit a number of land areas – 0.49; sale of wine-making materials by companies reporting documents on the activities in the pre- engaged in primary wine-making, takes place; • for perennial plantations – 0.49; vious year before 20 February of the current year. • there is tax indebtedness as of 1 January of the • for perennial plantations located in mountainous reporting year, except for bad tax indebtedness, areas and marshy woodland areas - 0.16; 4.6. Peculiarities of VAT which arose in the result of force majeure. • for lands of water fund – 2.43; Any company operating in the field of agricul- 4.2. Object and tax base • for arable land, hayfields and pastures on ture, forestry or fishery may choose a special closed soil – 5.4. VAT regime.

The object of taxation for single tax payers of the However, it should be noted that the special VAT fourth group is the area of farmland (arable land, 4.4. Reporting period and procedure for regime will be valid only in 2016. Starting from 1 hayfields, pastures and perennial plantations) or payment of single tax January 2017 it will be fully abolished. lands of water fund (inland waters, lakes, ponds, reservoirs), which is owned or leased by the VAT taxation is carried out in the following for- agricultural producer. The reporting period for agricultural producers mats: is a calendar year. The single tax is paid in each Ownership/lease rights to land plots shall be quarter within 30 calendar days following the a) under transactions with agricultural goods/ duly registered in accordance with the law. last calendar day of the tax quarter in the follow- services (except for grain and industrial crops, ing amounts: as well as livestock transactions), 50% of VAT The tax base for single tax payers of the fourth • in I quarter – 10%; shall be paid to the state budget and 50% of group for the agricultural producers is the regu- VAT shall be credited to the special VAT ac- • in II quarter – 10%; latory monetary value of one hectare of agricul- count of the agricultural producer; tural land subject to indexation. • in III quarter – 50%; • in IV quarter – 30%. b) under transactions with grain and industrial crops, 85% of VAT shall be paid to the state 4.3. Single tax rates 4.5. Procedure for registration as a budget and 15% of VAT shall be credited to the special VAT account of the agricultural pro- single taxpayer ducer; For single tax payers of the fourth group the rates depend on the category of land, its location Pursuant to tax legislation of Ukraine, registra- c) under transactions with livestock, 20% of VAT and amounts to (in per cent of the tax base): tion as a single tax payer is for indefinite time. shall be paid to the state budget and 80% of

DLF attorneys-at-law DOING AGRICULTURAL BUSINESS IN UKRAINE: LEGAL ASPECTS 16 VAT shall be credited to the special VAT ac- and the share of agricultural goods and/or ser- tions of the taxpayer and/or its related parties count of the agricultural producer. vices shall make up to at least 75% of the total with each counterparty exceeds UAH 1 million value of all goods and/or services supplied du- As of 1 February 2016, there are two open re- (approximately USD 41,500.00) (excluding VAT) ring 12 preceding consecutive reporting periods gisters for budget refund of VAT. One register is or 3% of the taxpayer’s income for the relevant (months) in aggregate. for the applicants for automatic refund of VAT, tax year. the other is for all other applicants. The automatic VAT refund is applied if the share of export 4.7. Transfer pricing The transaction is deemed to be controlled, if it transactions in the commercial activity of the is: (1) with related non-residents; (2) on the sale company is more than 40%. of goods through the non-resident commission Transfer pricing is applied to controlled transac- agents; and (3) with non-residents from offshore However, in order to qualify for the special VAT tions, provided that the total annual income of regime, the principal activity of the compa- the taxpayer and/or its related parties exceeds jurisdictions. Taxation of controlled transactions ny shall be supply of agricultural goods or/and UAH 20 million (approximately USD 830,000.00) is carried out exclusively under the pricing me- services produced at its own or leased facilities, (excluding VAT), while the volume of transac- thods prescribed in the tax legislation of Ukraine.

DLF attorneys-at-law DOING AGRICULTURAL BUSINESS IN UKRAINE: LEGAL ASPECTS 17 5. Protection of foreign investment

5.1. International agreements Terms of the bilateral agreements on promotion and protection of investments are not stan- dardized and may vary significantly. One of the means for protection of foreign investment is the conclusion of international agreements on promotion and protection of 5.2. Safeguards of Ukrainian investment. Thus, following ratification of the legislation Convention on the Settlement of Investment Disputes between States and Nationals of Other Convention by Ukraine in 2000, the sig- Generally, protection of foreign investment in natories to the convention have the opportuni- Ukraine is regulated by the Law of Ukraine "On Foreign Investment" and the Law of Ukraine ty to address the matters in relation to protec- "On Protection of Foreign Investments". These tion of their investments to the International regulatory acts define basic safeguards con- Centre for Settlement of Investment Disputes. cerning protection of foreign investments in At the International Centre for Settlement of Ukraine. Investment Disputes the investors shall be- The principle of guaranteeing the protection nefit from protection of their rights due to the of foreign investments in case of changes of confiscation of their property, unequal attitude Ukrainian legislation stipulates that in the towards national and foreign investors. event of change of guarantees in relation to International agreements on promotion and protection of foreign investment, the state guarantees effective at the time of investment protection of investments were signed with would apply, upon request of a foreign inves- a number of countries, including Germany, tor, within ten years from the date of enact- the United Kingdom, France, Switzerland, the ment of such changes to legislation. Netherlands, Denmark, Poland, Turkey, China, Japan, the United States of America, Canada The state authorities of Ukraine are not enti- and many countries in the Middle East. tled to requisite foreign investments, except

DLF attorneys-at-law DOING AGRICULTURAL BUSINESS IN UKRAINE: LEGAL ASPECTS 18 for emergency measures in the event of natural authorities of Ukraine or their officials towards a activities their investments in kind or in currency disasters, accidents, epidemics, epizootics. Such foreign investor or enterprise with foreign invest- of investment in the amount of actual contribu- requisition might be made on the basis of deci- ments, according to the legislation of Ukraine. tion, without payment of customs duties, as well sions of state authorities authorized by the Cab- as revenues out of such investments, in mone- inet of Ministers of Ukraine. All expenses and losses incurred by foreign investors as a result of such actions should be re- tary or goods form at a real market value at the Decisions on requisition of foreign investments imbursed on the basis of current market prices date of termination of the investment activities. and compensation conditions can be appealed in or substantiated estimates confirmed by the au- Following payment of taxes, duties and other court. dit firm. Compensation payable to foreign inves- mandatory payments, the foreign investors are tor should be prompt, adequate and effective. Foreign investors are entitled to reimbursement guaranteed unhindered and immediate transfer of losses, including lost profits and moral da In case of termination of investment activities, a of their revenues, profits and other sums in for- mage caused to them due to actions, omissions foreign investor has the right to return not later eign currency obtained legally as a result of for- or improper performance of duties by the state than six months following termination of such eign investment.

DLF attorneys-at-law DOING AGRICULTURAL BUSINESS IN UKRAINE: LEGAL ASPECTS 19 Contacts

Igor Dykunskyy, LL.M. Andriy Navrotskiy, LL.M. Partner Partner [email protected] [email protected]

Sale and purchase of agricultural companies Merger clearance and unfair competition in agriculture Supply and leasing in agriculture Lease, sale and purchase of land

Andrii Zharikov, LL.M. Dmitriy Sykaluk Associate Associate [email protected] [email protected]

Project finance in agriculture Tax structuring for agricultural companies Employment in agriculture Dispute resolution in agriculture

Igor Dronov DLF attorneys-at-law Associate [email protected] Torus Business Centre Permits in agriculture Export and import of agricultural products 17 d Hlybochytska Street 04050 Kyiv, Ukraine

www.DLF.ua | [email protected] | Tel.: +380 44 384 24 54

DLF attorneys-at-law DOING AGRICULTURAL BUSINESS IN UKRAINE: LEGAL ASPECTS 20