WORLD TRADE RESTRICTED WT/ACC/UKR/116/Rev.1 25 July 2007 ORGANIZATION (07-3178) Working Party on the Original: English Accession of

ACCESSION OF UKRAINE

Draft Notification on Industrial Subsidies

Revision

The following submission, dated 18 July 2007, is being circulated at the request of the Delegation of Ukraine.

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The following description of measures of support to industries is intended solely for the purpose of information. Ukraine wishes it to be noted that it does not consider that any of the measures listed constitutes a subsidy prohibited by Article 3 of the ASCM. It further notes that analogous notifications made by WTO Members under ASCM Article 25.2 are, in accordance with Article 25.7, without legal consequences and that, as indicated in G/SCM/6/Rev.1, such notifications do not prejudge the effects of the measure under the SCM Agreement, or the nature of the measure itself.

In preparing this notification, Ukraine has taken into account applicable "General Rules" listed in G/SCM/6/Rev.1

(A) HORIZONTAL PROGRAMMES

- Special Economic Zones and Priority Territories

Policy objective and/or purpose:

Eleven "Special Economic Zones" (also described as "Free Economic Zones or FEZs) and nine "Priority Territories with Special Investment Regimes" have been established. They are intended to encourage investment, both domestic and foreign, in geographically defined depressed regions to offset:

- Structural unemployment resulting from decommissioning of uneconomic coal mines (, Lugansk, and Volyn Oblasts); and - Structural unemployment resulting from closure of military production complexes (Kharkiv and Shostka).

Economic and social impact of:

- Accident at Chernobyl NPP (Slavutych and districts and cities in the Zhytomyr and Chernihiv oblasts); - Contamination by sulphur DGHP Mining and Chemical Mills ( district of L'viv oblast); and - Flooding in Carpathian region.

In addition, special investment regime has been established in the Autonomous Republic of Crimea aimed at encouraging investments in public health protection, recreation and tourism sectors, preservation and efficient management of available recreation resources, also at industrial production development in the peninsula.

Assistance programs available in a zone or special territory are particular to that zone or territory.

Background and authority:

The basic enabling authority for the establishment of Special Zones and Priority Territories is contained in:

- Law of Ukraine "On General Principles of Creation and Functioning of Special (Free) Economic Zones" of 13 October 1992 (with changes and amendments) No.2673-XIII/921.

1 Referred to in document WT/ACC/UKR/79 page 9.

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Each of eleven zones and nine Priority Territories is established under a particular statute:

Zones

Location Duration and date Legislative basis established Donetsk, Donetsk 60 years from Law of Ukraine No. 356 dated 24 December 1998 "On the Oblast 21 July 1998 Special Economic Zone and Special Regime of investment activities in ". , Donetsk 60 years from Law of Ukraine No. 356 dated 24 December 1998 "On the Oblast 21 July 1998 Special Economic Zone and Special Regime of investment activities in Donetsk Oblast". Uzhgorodskiy and 30 years from Law of Ukraine No. 2322 dated 22 March 2001 "On the Mukachevskiy 9 January 1999 Special Economic Zone "Zakarpattia'" , Zakarpatska Oblast Yavorivskiy , 20 years from Law of Ukraine No. 402 dated 15 January 1999 "On the Oblast 17 February 1999 Special Economic Zone "Yavoriv'" Kovel, Volyn Oblast 20 years from President of Ukraine Decree No. 702 dated 22 June 1999 "On 1 January 2000 the Special Economic zone "Interport-Kovel'" Mykolaiv (on the 30 years from Law of Ukraine No.1909 dated 13 July 2000 "on the Special territory of ship- 1 January 2000 Economic Zone "Mykolaiv'", Decree of the Cabinet of building enterprises) Ministries of Ukraine No.1175 of 26 July 2000 approving the list of priority economic activities on the territories of priority development in Zhytomyr Oblast, Chernigiv Oblast, in the City of Shostka, Oblast and territory of special economic zone "Mykolayv'. Odesa (on the 25 years from Law of Ukraine No.1607 dated 23 March 2000 "On the Territory of the 1 January 2000 Special (Free) Economic Zone "Porto Franco" on the Odesa Sea Trade Territory of the Odesa Sea Trade Port" Port) Reni, Odesa Oblast 30 years from Law of Ukraine No.1605 dated 23 March 2000 "On the 17 May 2000 Special Economic Zone 'Reni'" Kerch, Autonomous 30 years from Law of Ukraine No.2189-III of 21 December 2000 "On a Republic of Crimea 1 January 2000 Special Regime of Investment Activity at Territories of Priority Development and the Special Economic Zone "Port Krym" in the Autonomous Republic of Crimea" Slavutych, Kyiv 20 years from Law of Ukraine No. 721 dated 3 June 1999 "On the Special Oblast 30 July 1998 Economic Zone "Slavutych'" Kurortopolis 20 years from Law of Ukraine No. 514 dated 18 March 1999 "On the , Lviv 1 January 2000 Special Economic Zone for Tourism and Recreation Oblast "Kurortopolis Truskavets""

Priority Territories Page 4 WT/ACC/UKR/116/Rev.1 Special regime of Cities of Artemivsk, Vehledar, , Dzerzhynsk, 30 years from Law of Ukraine No. 356 dated 24 December 1998 "On Special investment activity on the Dymytrov, , Donetsk, Yenakiyeve, 21 July 1998 Economic Zones and Special Regime of Investment Activity in territories of priority , Kirovske, , , Donetsk Oblast"; Decree of the Cabinet of Ministries of Ukraine economic development in Krasnoarmiysk, Krasnyi Lyman, Makiyivka, No. 1255 of 11 August 2000 approving the list of priority Donetsk Oblast Mariupol, Novohrodivka, Selidove, , economic activities on the territories of priority development in , , , , Khartcysk, Donetsk Oblast; Decree of the Cabinet of Ministries of Ukraine Zugres, Illovaysk as well as the Amvroziyivskiy, No. 1065 of 18 June 1999 approving the Procedure of Volnovaskiy, Kostyantynivsk, Marianskiy and consideration of investment projects that are being realized in Slovanskiy, Starobeshivskiy and Shahtarskiy raions priority economic activities on territories of priority development in Donetsk Oblast. Special regime of Cities of Brianka, Krasnodon, Sverdlovsk, 30 years from Law of Ukraine No. 970 dated 15 July 1999 "On the Special investment activity on the Pervomaisk, Stakhaniv, Krasniy Luch, as well as the 2 February 1999 Regime of Investment Activity in Territories of Priority territories of priority Antrаtsytivskiy, Kreminskiy and Krasnodonskiy Development in Luhansk Oblast"; Decree of the Cabinet of economic development in raions Ministries of Ukraine No. 1968 of 25 October 1999 "On approving Luhansk Oblast of the list of priority economic activities in the territory of priority economic development in Luhansk Oblast and of the Procedure of consideration of investment projects that are being realized in priority economic activities on territories of priority development in Luhansk Oblast". Special regime of All of Zakarpatska Oblast 15 years from Law of Ukraine No. 357 dated 24 December 1998 "On a Special investment activity in 29 January 1999 Regime of Investment Activity in Zakarpatska Oblast", Decree of Zakarpatska Oblast the Cabinet of Ministries of Ukraine No. 548 of 6 April 1999 "On approving of the list of priority economic activities in the territory of Zakarpatska Oblast to which the Special regime of investment activity is applied". Special regime of Cities of Yalta, Alushta, Sudak, Feodosia, Kerch, 30 years from Law of Ukraine No. 2189-III of 21 December 2000 "On a Special investment activity on Krasnoperekopsk, Armiansk; Krasnoperekopskiy and 1 January 2000 Regime of Investment Activity at Territories of Priority territories of priority Leninskiy raions Development and the Special Economic Zone "Port Crimea" in the development in the Autonomous Republic of Crimea"; Decree of the Cabinet of autonomous Republic of Ministries of Ukraine No. 212-r of 23 May 2001 "On approval of Crimea the Procedure of consideration of investment projects that are being realized in priority economic activities on territories of priority development and in the SEZ "Port Crimea" in the autonomous Republic of Crimea, and of the list of priority economic activities in the territory of the autonomous Republic of Crimea, to which the Special regime of investment activity is applied".

Special regime of Shostka, 30 years from Law of Ukraine No. 1251 of 18 November 2003 "On the Special investment activity in the 1 January 2000 Regime of Investment Activity in the City of Shostka of Sumy WT/ACC/UKR/116/Rev.1 City of Shostka, Sumy Oblast", Decree of the Cabinet of Ministries of Ukraine No1175 of Oblast 26 July 2000 approving the list of priority economic activities on the territories of priority development in Zhytomyr Oblast, Chernigiv Oblast, in the City of Shostka, Sumy Oblast and territory of special economic zone "Mykolayv'.; Decree of the Cabinet of Ministries of Ukraine No. 1552 of 12 October 2000 "On approval of the Procedure of consideration of investment projects which are being realized in the priority economic activities on the territory of the City of Shostka, Sumy Oblast". Special regime of Korostenskiy, Novohrad-Volynskiy, Luhynskiy, 30 years from Law of Ukraine No. 1276 dated 3 December 1999 "On the Special investment activity on Narodytskiy, Ovrutskiy, Olevskiy, Malynivskiy, 1 January 2000 Regime of Investment Activity on Territories of Priority territories of priority Yemilchynskiy, Volodarsko-Volynskiy raions and the Development in Zhytomyr Oblast"; Decree of the Cabinet of development in Zhytomyr cities of Berdychiv, Korosten, Novohrad-Volynskiy Ministries of Ukraine No. 1205 of 3 August 2000 "On approval of Oblast the Procedure of consideration of investment projects that are being realized in priority economic activities on territories of priority development in Zhytomyr Oblast", Decree of the Cabinet of Ministries of Ukraine No. 1175 of 26 July 2000 approving the list of priority economic activities on the territories of priority development in Zhytomyr Oblast, Chernigiv Oblast, in the City of Shostka, Sumy Oblast and territory of special economic zone "Mykolayv'. Special regime of Kharkiv 30 years from Law of Ukraine No.1714 dated 11 May 2000 "On the Special investment activity on the 1 January 2000 Regime of Investment Activity on the Territory of the City of territory of the city of Kharkiv"; Decree of the Cabinet of Ministries of Ukraine No. 2076 Kharkiv of 11 November 1999 On approving of the List of priority economic activities on territory of the city of Kharkiv to which special regime of investment activity is applied, and of the Procedure of consideration of investment projects that are being realized by the subjects of business activity on territory of the city of Kharkiv. Page 5

Special regime of Horodnianskiy, Koriukivskiy, Novhorod-Siverskiy, 30 years from Law of Ukraine No. 1250 of 18 November 2003 "On the Special investment activity on Semenivskiy, Ripkinskiy, Chernihivskiy, Shchorskiy 1 January 2000 Regime of Investment Activity in Territories of Priority Page 6 WT/ACC/UKR/116/Rev.1 territories of priority raions Development in Chernihiv Oblast"; Decree of the Cabinet of development in Chernihiv Ministries of Ukraine No. 1206 of 3 August 2000 "On approving Oblast of the Procedure of consideration of investment projects that are realizing in priority economic activities on territories of priority development in Chernihiv Oblast"; Decree of the Cabinet of Ministries of Ukraine No. 1175 of 26 July 2000 approving the list of priority economic activities on the territories of priority development in Zhytomyr Oblast, Chernigiv Oblast, in the City of Shostka, Sumy Oblast and territory of special economic zone "Mykolayv". Special regime of Novovolynsk, Volyn Oblast 30 years from Law of Ukraine No. 2354 of 5 April 2001 "On the Special Regime investment activity on 1 January 2000 of Investment Activity on Territories of Priority Development in territories of priority Volyn Oblast"; Decree of the Cabinet of Ministries of Ukraine development in Volyn No. 2210 of 6 December 1999 "On approving of the List of Oblast priority economic activities on territories of priority development in Volyn Oblast and of the Procedure of consideration of investment projects that are being realized in priority economic activities on territories of priority development in Volyn Oblast".

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Incentives offered in the form of import duty and internal tax exemptions and deferrals are inscribed in the relevant tax laws:

Corporate Income Tax:

- Law of Ukraine "On Corporate Income Tax" as of 28 December 1994 No. 334/94-VR (with changes and amendments).

Land Tax:

- Law of Ukraine "On Land Tax" as of 3 July 1992 No. 2535-XII (with changes and amendments).

Import duties:

- Law of Ukraine "On Common Customs Tariff" 5 February 1992 No. 2097-XII (with changes and amendments); and - Law of Ukraine "On Customs Tariff of Ukraine" as of 5 April 2001 No. 2371-III (with changes and amendments).

VAT:

- Law of Ukraine "On Value Added Tax" as of 3 April 1997 No. 168/97 (with changes and amendments)

On adoption of the Law of Ukraine as of 25 March 2005 No.2505 "On amendments to the Law of Ukraine "On the State Budget of Ukraine for 2005" and some other legislative acts of Ukraine" the tax privileges and special customs regime were cancelled.

Currently the investment projects in SEZ and Priority Territories are implemented under regular tax regime.

Form:

The enterprises locating in zones or priority territories benefited from a number of assistance programs mainly in the form of exemptions, or reductions in direct and indirect taxes. Programs vary as between individual zones and territories and are summarized below:

Zones

Special Exemption Exemption Exemption Name of FEZ/Form Exemption from Customs from income from taxation from Import of Assistance land tax Zone Regime tax of investments Duty and VAT Azov + rate-20% + - + (for duration of site preparation) Donetsk + rate-20% + - + (for duration of site preparation) Zakarpattia + rate-20% - - - Yavoriv, including + (only for + (5 years), - + (5 years) + (3 years), next Autoport Krakovets next -50% -50% of Autoport) existing rate

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Special Exemption Exemption Exemption Name of FEZ/Form Exemption from Customs from income from taxation from Import of Assistance land tax Zone Regime tax of investments Duty and VAT Slavutych - + (3 years), + + (5 years) + (3 years), from Year 4 to Year 4 to Year year 6 -50% 6 -50% of of existing rate existing rate Kurotopolis - + (3 years), + + + (for duration Truskavets from Year 4 to of site Year 6 -50% preparation), of existing rate next 10 years - 50% of existing rate Porto-Franco + + (3 years), + - - from Year 4 to Year 6 - 50% of existing rate Reni + rate-20% + - - Port Krym + rate-20% + - + (5 years) Interport Kovel + rate-20% - - + (5 years) Mykolaiv + (ship- + (3 years), + + (5 years) + (5 years) building from Year 4 to dock territory Year 6 - 50% only) of the existing rate, from Year 4 to 10 years - reinvestment

Priority Territories

Exemption Exemption Exemption from payment Name of territory Exemption from income tax from taxation from payment of import duty of investments for land and VAT Donetsk Oblast + (3 years) Year 4 to Year 6 - + + (5 years) - 50% of existing rate Luhansk Oblast + (3 years) Year 4 to Year 6 - + + (5 years) + (5 years) 50% of existing rate Zakarpatska Oblast + (2 years) Year 3 to Year 5 - + + (5 years) - 50% of existing rate Autonomous + (3 years) Year 4 to Year 6 - + + (5 years) + (5 years) Republic of Crimea 50% of existing rate City of Shostka, + (3 years) Year 4 to Year 6 - + + (5 years) + (5 years) Sumy Oblast 50% of existing rate Zhytomyr Oblast + (3 years) Year 4 to Year 6 - + + (5 years) + (5 years) 50% of existing rate Kharkiv City + (3 years) Year 4 to Year 6 - + + (5 years) + (5 years) 50% of existing rate Chernihiv Oblast + (3 years) Year 4 to Year 6 - + + (5 years) + (5 years) 50% of existing rate Volyn Oblast + (3 years) Year 4 to Year 6 - + + (5 years) - 50% of existing rate Notes: + = benefit program applies for the full duration of the zone/territory as set out in the basic legislation. + (number of years) = benefit program applies only to the initial period of the years shown. = enterprises in the zone/territory are not eligible for the benefit program shown.

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Explanation of Benefits:

There follows an explanation of the benefits what were available to enterprises investing in zones/priority territories as indicated in the preceding tables.

- Special Customs Zone Regime (Zones only)

Enterprises investing in a zone where there was a Special Customs Zone Regime benefited from certain tax exemptions at the time of transactions (see the table below).

Custom Duty (Import Transaction VAT Excise Duty or Export) Importation of goods (excluding Not Applied Not Applied excisable goods) outside customs territory of Ukraine on the territory of SCZ Importation to the customs territory of Applied Applied Applied Ukraine of goods from the territory of SCZ Importation to the customs territory of Applied Applied Not Applied Ukraine of goods from the territory of Applied* SCZ that were manufactured or processed in the SCZ Exportation from the SCZ territory Zero Rate Not Applied Not Applied outside customs territory of Ukraine of goods that were manufactured or processed in the SCZ Exportation from the SCZ territory Not Applied Not Applied Not Applied outside customs territory of Ukraine of goods that were imported to SCZ from outside customs territory of Ukraine Exportation of goods (excluding Zero Rate Not Applied excisable goods) from the custom territory of Ukraine to SCZ territory

In case of transit the usual customs charges are applied according to Ukrainian legislation. And in all other cases import duties and taxes are applied as usual according to Ukrainian legislation.

Exemption from income tax:

- Enterprises investing in a zone or territory enjoy a short-term tax holiday. According to the regime applicable to the specific zone or territory (see tables), enterprises were exempted from it for an initial period and then were liable for the tax at a reduced (50 per cent) rate.

Exemption from taxation of investments:

- Sum of investments was excluded from the gross revenue of enterprise for the aim of taxation.

Exemption from payment of import duties:

- Enterprises with the status of a zone/territory subject were entitled to import free of import duty foreign origin equipment as well as materials and parts used as inputs. In some zones and

* Only to SEZs "Azov", "Donetsk", "Zakarpattia" and "Interport Kovel"

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all territories this exemption is of limited duration (five years). State authorities had drawn up lists and defined amounts of imported equipment, materials and parts eligible for this special tax treatment (this list with amounts is integral part of an investment project). This preferential regime did not apply to excisable goods. - For some zones (see table above) products of a zone entering the customs territory of Ukraine were charged no duty and were exempted from payment of import duties on imported material and other inputs provided the product is deemed a zone product in accordance with Ukraine's standard rules of origin. Generally, zone origin is established when:

- products created by processing in the zone are classified differently (at the level of any first four digits of HS code) from the imported materials and parts used; and/or - value added in the zone is at least 50 per cent of the declared value of the final product.

Exemption from payment of VAT:

Enterprises with the status of a zone/territory subject were exempted from payment of VAT on same products (and for the same periods) that customs duties exemptions applied. The SEZ enterprises were also exempted from payment of VAT (zero rate) on the same products of domestic origin. This preferential regime did not apply to excisable goods.

Zone products entering the customs territory of Ukraine, are liable to full payment of internal taxes (VAT and excise) on the full value of the final product.

Exemption from land tax:

Enterprises investing in a zone or priority territory where the exemption applies were either exempted from the standard land tax or were liable to it at a reduced rate in accordance with the regime indicated in the tables under "Form" above.

Beneficiaries:

Enterprises of any sector (excluding gambling business) may invest in a zone or priority territory. Individual zone management, in consultation with the national Government, had drawn up lists of business activities eligible for zone status. A similar process is undertaken by local authorities responsible for managing priority territories. Such eligibility lists, which reflect local resource endowment and available labour skills, are then incorporated in the national legislation (see reference to relevant Decrees of the Cabinet of Ministers Of Ukraine in the "Background and Authorities" tables).

In most zones and territories, investing enterprises are required to be legal persons. An enterprise's investment in a zone/territory is approved by a managing body established for the zone or the relevant local authority responsible for the priority territory in case after expertise it is accepted by the central government authorities. Approval conditions include compliance with the zone/territory's programs of development as well as programs of economic, technological and social development set by the state.

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In some zones and all territories minimum levels of investment have been established:

SEZ Investment Project Cost Reni At least US$200,000 Porto-franco at Odessa Commercial sea Port At least US$1 million Slavutych At least US$200,000 Port Crimea At least US$100,000 Mykolayiv At least:

US$500,000-in food-processing and agricultural produce processing industries; US$700,000-in construction, energy and transport; US$1million-in machine building and instrument building; US$3 million-in shipbuilding industries. Yavoriv At least US$500,000 (excluding projects of technological park) Priority Territories in Chernihiv Oblast At least:

US$200,000-in agriculture, food-processing and agricultural produce processing industries, light industry, pulp and paper industry, wood processing, furniture production, health protection and education; US$300,000-in construction, tourist and recreation industry US$500,000-in extractive industry, machine and equipment building, non-metal mineral products, chemical production, transport. Volyn Oblast At least US$200,000-in all priority business activities The city of Kharkiv At least:

US$3 million-in metallurgy and metal working, machine and equipment building, building of electrical, electronic and transport equipment; US$1 million-in producing of electricity, gas, water, coke, other non-metal mineral products, in transport, communications, in metal waste and scrap working. US$700,000-in construction, sanitation, scavenging and waste working, in chemical production, furniture, pulp and paper industry, printing industry; US$500,000-in food-processing and agricultural products processing industry, textile and clothing industry, tanning and shoe manufacturing industry, in health protection and education, in public assistance and in research and development in natural and technical sciences. Zhytomyr Oblast At least:

US$200,000-in agriculture, food-processing industry, textile industry, pulp and paper industry, wood processing, furniture production, clothes and furs manufacturing, health protection and education; US$300,000-in construction US$500,000-in extractive industry, machine and equipment building, mineral material products, chemical production, transport.

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SEZ Investment Project Cost The City of Shostka, Sumy Oblast At least:

US$200,000 - in food-processing industry and agricultural products processing, wood processing and wood working, health protection; US$500,000-in construction, waste working, producing electricity by thermoelectric power station and in distribution of heat; US$1 million-in machine and equipment building, powder metallurgy and chemical production. Autonomous Republic of Crimea At least:

US$100,000-in activity for protection of historical and natural resources, research and development of information infrastructure, culture and sport, consumer services, territory cleaning, forestry, production of sport and fancy goods, toys, souvenirs; US$200,000-in health protection and public assistance, in agriculture, fish industry, food-processing and agricultural produce processing industries, textile industry, wood working, furniture production; US$500,000-in activity of health and resort centres, hotel and restaurant business, transport and communications, in construction, waste working, tourism services, rest and entertainment services. US$1 million-in extractive industry, processing industry, electricity, gas and water production. Zakarpatska Oblast At least US$200,000-in all priority business activities Luhansk Oblast At least:

US$500,000-in agriculture, food-processing and agricultural produce processing industries, health protection; US$700,000-in construction and transport industry; US$1 million-in extractive industry, electrical energy and coke production, chemical production and machine building. Donetsk Oblast At least:

US$1 million (US$250,000-for small enterprises) - in all priority business activities

Once approved, the investment is registered and the investing enterprise enjoys the status of zone subject. The enterprise enters into a contractual agreement with the zone's/territory's managing authority in accordance with a Model Agreement given in Resolution No. 1199 of the Cabinet of Ministers of Ukraine of 5 July 1999 (with changes and amendments).

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Amount: Costs to state budget of special regimes in place in zones and priority territories are:

Exemption from income tax

Year SEZ, thousand UAH Priority Territories, thousand UAH 2003 16,179.5 391,753.9 2004 21,836.0 520,272.4 2005 1,183.6 2,824.2 2006 0.0 0.0

Exemption from import duties

Year SEZ, thousand UAH Priority Territories, thousand UAH 2003 220,602.3 915,931.2 2004 593,534.5 2,977,334.7 2005 294,122.5 1,321,416.6 2006 0.0 0.0

Exemption from VAT

Year SEZ, thousand UAH Priority Territories, thousand UAH 2003 160,601.5 162,322.0 2004 356,881.4 170,329.7 2005 146,910.3 67,286.9 2006 0.0 0.0

Exemption from Land Tax

Year SEZ, thousand UAH Priority Territories, thousand UAH 2003 8,293.3 1,329.5 2004 11,913.5 287.0 2005 5,104.3 85.7 2006 0.0 0.0

Duration:

On adoption of the Law of Ukraine as of 25 March 2005 No. 2505 "On Amendments to the Law of Ukraine "On the State Budget of Ukraine for 2005" and some other legislative acts of Ukraine" tax privileges and special customs regime were cancelled.

Currently the investment projects in SEZ and Priority Territories are implemented under regular tax regime.

Also for the duration of the benefits in zones and priority territories, see the above Tables under "Background and Authorities"

Trade effects:

It is not possible to estimate what, if any, trade effects may result from the use of the programs described.

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B. TECHNOLOGICAL PARKS

Policy objective and/or purpose:

Encourage investment, promotion of research and development of new technologies.

Background and authority:

The basic enabling authority for the establishment and functioning of the technological parks is contained in:

- Law of Ukraine "On Changes to the Law of Ukraine "On Special Regime of Innovation Activity of the Technological Parks" and other laws of Ukraine" of 12 January 2006 No. 3333-IV (with changes and amendments); - Law of Ukraine "On priority directions of the science and technology development" of 11 July 2001 No. 2623-III (with changes and amendments); - Law of Ukraine "On priorities of the Innovation Activity in Ukraine" of 16 January 2003 No. 433-IV (with changes and amendments); - Decree of the Cabinet of Ministers of Ukraine of 17 December 1999 No. 2311 (with changes and amendments) approving the Procedure of Consideration and Approval of the Priority Directions of Activity of the Technological Park, the Procedure of Consideration, Examination and Registration of Technological Park's Projects; - Decree of the Cabinet of Ministers of Ukraine of 23 November 2006 No. 1643 approving the procedure of accumulation of corporate income tax amounts on special account of technological park, use and control of such amounts; and - Decree of the Cabinet of Ministers of Ukraine of 21 March 2007 No. 517 approving the procedure of control and monitoring of the technological parks projects implementation.

Incentives offered in the form of import duty and internal tax exemptions are reflected in the relevant tax laws.

Corporate Income Tax:

- Law of Ukraine "On Corporate Income Tax" as of 28 December 1994, No. 334/94-VR (with changes and amendments).

Import duties:

- Law of Ukraine "On Common Customs Tariff" of 5 February 1992, No. 2097-XII (with changes and amendments); and - Law of Ukraine "On Customs Tariff of Ukraine" of 5 April 2001, No. 2371-III (with changes and amendments).

VAT:

- Law of Ukraine "On Value Added Tax" of 3 April 1997, No. 168/97 (with changes and amendments).

Form:

Tax exemptions/deferral and credits support.

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Explanation of Benefits:

Exemption from income tax.

Sums of income tax are accumulated on a special account and used for science, scientific and technical activity, development of the park's scientific and technological and research and exploratory development basis only.

VAT payment deferral:

The promissory note for 720 calendar days is used for tax obligations while importing new equipment and parts and for 180 calendar days while importing materials which are not produced in Ukraine (in both cases). The period is calculated from the day when the promissory note is given to the customs authority.

Exemption from payment of import duties:

New materials, equipment, component parts used as inputs in projects could be imported duty-free if they are not produced in Ukraine.

Credit support:

Each year The State Budget of Ukraine foresees certain budget for:

- Full or partial (up to 50 per cent) credits with zero interest (with inflation indexation) for park's projects; and - Full or partial compensation of interest paid by park's project implementation authority to commercial banks and other finance and credit institutions for credits for park's projects.

Beneficiaries:

Beneficiaries of the favourable regime are technological parks, their participants and joint enterprises implementing innovative projects in priority areas.

Technological park-is a legal person or association of legal persons which are implementing innovative projects, implication of high technology developments.

Priority directions for each park are developed according to the Law of Ukraine "On Priority Directions of Science and Technology Development" of 11 July 2001, No. 2623-III, Law of Ukraine "On Priorities of Innovative Activity in Ukraine" of 16 January 2003, No. 433-IV, considered by the Presidium of the National Academy of Science and approved by the central government authority responsible for science issues.

Amount:

2003, million 2004, million 2005, million 2006, million

UAH UAH UAH UAH Exemption from income tax 115.9 176.3 55.5 74.7 (till 2005 also included VAT) Credit support (since 2006) Not applied Not applied Not applied 0 Exemption from payment of 19.8 19.5 3.2 3.3 import duties

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Duration:

The favourable regime for technological parks established for the period of 15 years.

Trade effects:

It is not possible to estimate what, if any, trade effects may result from the use of the programs described.

(B) SECTORAL PROGRAMMES

- Introduction

The legislative bases for Ukraine's sectoral assistance programs are found in:

- Enabling legislation specific to the sector itself (shipbuilding, automotive etc.) cited below for each Sector; and - The law applying a particular tax measure under for which assistance is provided (exemptions or deferral for import duties, VAT etc.)

The Sector specific enabling legislation is identified under each of the supported sectors listed below. The relevant tax laws providing benefits to enterprises in supported sectors are:

Import duties:

- Law of Ukraine "On Common Customs Tariff" 5 February 1992, No. 2097-XII (with changes and amendments); and - Law of Ukraine "On Customs Tariff of Ukraine" as of 5 April 2001, No. 2371-III (with changes and amendments).

VAT:

- Law of Ukraine "On Value Added Tax" as of 3 April 1997, No. 168/97 (with changes and amendments).

Excise:

- Decree of the Cabinet of Ministers of Ukraine "On Excise Duty" as of 26 December 1992, No. 18-92 (with changes and amendments); and - Law of Ukraine "On Excise Duty and Import Duty Rates for Some of Vehicles" as of 24 May 1996, No. 216/96-VR (with changes and amendments).

Income Tax:

- Law of Ukraine "On Corporate Income Tax" as of 28 December 1994, No. 334/94-VR (with changes and amendments).

Land Tax:

- Law of Ukraine "On Land Tax" as of 3 July 1992, No. 2535-XII (with changes and amendments).

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- Shipbuilding

Policy objective and/or purpose:

The overall objectives for providing assistance to the shipbuilding industry are to:

- Promote better use of the industry's existing production and Research and Development facilities; and - Encourage new investment in the industry to achieve greater efficiency and competitiveness.

Background and authority:

The subsidy measures for five years the period (since 1 January 2000 till 1 January 2005) were provided under the Law of Ukraine "On Measures of State Support for the Ship-Building Industry in Ukraine" of 18 November 1999, No. 1242-XIV (including changes and amendments introduced in accordance with the Law of Ukraine of 13 December 2001, No. 2892-III).

Most of the measures (except for exemption from payment of import duties, which remained in force during 2004 and deferral of corporate income tax) were suspended by the Law of Ukraine "On State Budget of Ukraine for 2004" as of 27 November 2003, No. 1344-IV.

Information about those measures was provided in the document WT/ACC/UKR/116 of 15 April 2004.

Currently subsidy measures are provided under the Law of Ukraine "On Measures of State Support for the Ship-Building Industry in Ukraine" as of 15 June 2004, No. 1766-IV.

Form:

Deferral of Corporate Income Tax:

At option of an eligible shipbuilder, advance payments received from a customer and earmarked loans received for financing of seagoing crafts, river boats and other floating means may be placed in a special account and be exempt from withholding tax. Funds in such accounts may only be used to meet costs associated with fulfilling the contract under which the advance payments are made or earmarked loans are received. In the fiscal year in which the builder delivers the ship to the customer, payments to and from the special account are included in gross revenue/expenditure for the purpose of calculating profit for corporate income tax.

Exemption from land tax:

This measure had been reduced by 50 per cent for the year 2004 by the Law of Ukraine "On State Budget of Ukraine for 2004" of 27 November 2003, No. 1344-IV.

According to the Law of Ukraine "On State Budget of Ukraine for 2005" of 23 December 2004, No. 2285- IV in 2005 this measure was exercised exceptionally by the decision of the respective local authorities in the portion aimed for local budget.

Later on the exemption from land tax was changed by the Law of Ukraine "On Amendments to the Law of Ukraine "On State Budget of Ukraine for 2005" and some other legislative acts of Ukraine" of 25 March 2005, No. 2505-IV and was exercised in the following way:

- since 1 April 2005 it came up to 75 per cent of the rates effective on the respective territories;

WT/ACC/UKR/116/Rev.1 Page 18

- since 1 January 2006 it came up to 50 per cent of the rates effective on the respective territories; - since 1 January 2007 it came up to 25 per cent of the rates effective on the respective territories; and - since 1 January 2008 this measure should be withdrawn.

Credit support:

Since 1 January 2005, the support of seagoing crafts, river boats and other floating means, building and reconstruction of basic production assets of shipbuilding industry was by partial compensation of the interest paid to commercial banks for the provided credits. Every year a certain budget allocation is foreseen by the Law of Ukraine "On State Budget" for providing such support. However, in 2005 and 2006 no allocations were made.

The procedure of use of such allocations from the State Budget is annually determined by the Cabinet of Ministers of Ukraine.

Exemption from import duties:

During 2004 it applied to imports by eligible shipbuilders of inputs (construction equipment, materials, parts, and sub-assemblies) not produced in Ukraine or, if produced, did not comply with international standards as to certification or terms of individual contracts. The Cabinet of Ministers of Ukraine annually approves a list of inputs to be exempted.

Since 2005 the Decree of the Cabinet of Ministers of Ukraine of 8 November 2000, No. 1678 (with changes and amendments) is not in force.

Beneficiaries:

The Cabinet of Ministers of Ukraine approves a list of eligible ship building enterprises according to the order determined in the Decree of Cabinet of Ministers of Ukraine of 12 July 2005, No. 555. The current approved list of enterprises appears in the Resolutions of the Cabinet of Ministers of Ukraine of 21 December 2005, No. 1256.

Amount: Subsides received by the industry during the recent (three) years through:

2004, million UAH 2005, million UAH 2006, million UAH Deferral of Corporate Income Tax 9.4 0.2 0.5 Exemption from import duties 2.7 0.7 0 Exemption from land tax 7.400 1.812 1.108 Credit support Not applied n/a n/a

Evaluation of effects for trade

Amount of products 2004, million UAH 2005, million UAH 2006, million UAH Seagoing crafts, river boats, other 1,542 2,080 2,224 floating means

WT/ACC/UKR/116/Rev.1 Page 19

- Automotive Sector

Policy objective and/or purpose:

Promote investment and development in the production of cars, trucks, buses and their parts.

Background and authority:

Preferential tax treatment for production of cars, trucks, buses and manufacture of parts was initially introduced by the Law of Ukraine "On Stimulation of Production of Motor Cars in Ukraine" No. 535/97-VR of 19 September 1997 (with changes and amendments).

At present the subsidies are provided under the Law of Ukraine "On Development of the Motor-Car Industry in Ukraine" of 18 March 2004, No. 1624-IV (with changes and amendments).

Form:

Exemptions from corporate income tax:

Exemption applied to that part of income, which is re-invested and used for the loan re-payment within investment project.

This measure was withdrawn by the Law of Ukraine "On State Budget of Ukraine for 2004" of 27 November 2003, No. 1344-IV excluding those enterprises which had already approved investment programs and made investments.

By the Law of Ukraine "On Development of the Motor-Car Industry in Ukraine" of 18 March 2004, No. 1624-IV in 2004 this measure applied to enterprises defined in this Law.

In 2005 this measure was withdrawn by the Law of Ukraine "On Amendments to the Law of Ukraine "On State Budget of Ukraine For 2005" and some other legislative acts of Ukraine" of 25 March 2005, No. 2505-IV.

Exemption from import duties:

Exemption covers goods and component parts, which are imported by the enterprises according to the Law of Ukraine "On Development of the Motor-Car Industry in Ukraine" and are used by these enterprises for production of cars, buses, component parts and spare parts originated in Ukraine as well as for construction, re-construction, technical equipment and re-equipment of production facilities, building and/or modernizing of works. The list of such enterprises, procedure and volume of import as well as criteria of their proper use and control procedure are determined by the Cabinet of Ministers of Ukraine. Improper use of the mentioned goods would cause payment of import duties plus fine according to the legislation.

According to the Decrees of the Cabinet of Ministers of Ukraine of 20 August 2005, No. 788 and of 23 May 2007, No. 755, the Decree of the Cabinet of Ministers of Ukraine of 1 June 2002, No. 737 "On the list, procedure and volume of exempt from import duty imported goods that are used for construction and for production activity of enterprises producing automobiles and spare parts for them" has lost its force with the exception of executing court rulings on custom clearance of goods at tariff preference, provided by the Law of Ukraine "On Development of the Motor-Car Industry in Ukraine" of 18 March 2004, No. 1624-IV.

WT/ACC/UKR/116/Rev.1 Page 20

Exemption from VAT on imports of equipment and inputs:

As for import duties - this measure was suspended by the Law of Ukraine "On State Budget of Ukraine For 2004" of 27 November 2003, No. 1344-IV excluding enterprises that had already approved investment programs and done investments.

Later on this measure was withdrawn by the Law of Ukraine "On amendments to the Law of Ukraine "On the State Budget of Ukraine for 2005" and some other legislative acts of Ukraine" of 25 March 2005, No. 2505.

Zero rates of VAT on domestic sales:

Sales of manufactured cars, trucks, buses by qualified enterprises on the domestic market are charged VAT at a zero rate.

This measure was suspended by the Law of Ukraine "On State Budget of Ukraine For 2004" of 27 November 2003, No. 1344-IV excluding enterprises that had already approved investment programs and done investments.

Later on this measure has withdrawn by the Law of Ukraine "On Amendments to the Law of Ukraine "On State Budget of Ukraine For 2005" and some other legislative acts of Ukraine" of 25 March 2005, No. 2505.

Exemption from excise tax:

Sales of passenger cars, trucks and motorcycles manufactured in Ukraine were exempted from excise taxes when sold on the domestic market. The exemption applied to companies, which produce a minimum of 1,000 automobiles or 1,000 motorcycles per year. Later on this measure was withdrawn by the Law of Ukraine "On amendments to the Law of Ukraine "On State Budget of Ukraine For 2005" and some other legislative acts of Ukraine" of 25 March 2005, No. 2505.

Exemption from land tax:

The land area exempt from land tax is proportional to the investment made. One hectare of land is exempted for each US$400,000 of investment at the rate of exchange, as determined by the National Bank of Ukraine, on the day of the investment.

This measure has been 50 per cent reduced for the year 2004 by the Law of Ukraine "On the State Budget of Ukraine for 2004" of 27 November 2003, No. 1344-IV.

According to the Law of Ukraine "On State Budget of Ukraine For 2005" of 23 December 2004, No. 2285- IV in 2005 this measure was exercised exceptionally by the decision of the respective local authorities in the portion aimed for local budget.

Later on the exemption from land tax has been changed by the Law of Ukraine "On amendments to the Law of Ukraine "On the State Budget of Ukraine for 2005" and some other legislative acts of Ukraine" of 25 March 2005, No. 2505-IV and was exercised in the following way:

- since 1 April 2005 it came up to 75 per cent of the rates effective on the respective territories; - since 1 January 2006 it came up to 50 per cent of the rates effective on the respective territories; - since 1 January 2007 it came up to 25 per cent of the rates effective on the respective territories; and

WT/ACC/UKR/116/Rev.1 Page 21

- since 1 January 2008 this measure should be withdrawn.

Beneficiaries:

Enterprises, which according to the Law of Ukraine "On Stimulation of Production of Motor Cars in Ukraine" No. 535/97-VR of 19 September 1997 (with changes and amendments) invest in the assembly of cars, trucks and buses and in the manufacture of parts for automotive sector, have investment programmes approved by the Cabinet of Ministers of Ukraine by 1 January 2004 and have (including foreign) exclusively in monetary form.

To qualify enterprises must meet minimum levels of investment (in monetary form):

- for manufacturing cars-not less than US$150 million; - for manufacturing trucks and buses - not less than US$30 million; and - for manufacturing parts for cars and buses - not less than US$10 million.

Amount:

2004, million 2005, million 2006, million

UAH UAH UAH Exemption from Corporate Income Tax 146.7 0 0 Exemption from import duties 329.4 157.5 0 Exemption from VAT on imports 651.9 239.1 0 Zero rates of VAT on domestic sales 495.0 94.1 0 Exemption from land tax 3.0 2.4 1.2 Exemption from Excise taxes on domestic 424.4 136.3 0 sales

Duration:

Until 31 December 2008.

Estimation trade effects statistics:

Production (of enterprises- 2004, million UAH 2005, million UAH 2006, million UAH beneficiaries) Cars, Trucks, Buses, Parts thereof 4,684.988 6,839.557 8,885.756

- Aircraft

Policy objective and/or purpose:

The overall objective for providing subsidies to the aircraft construction industry is to promote an efficient use of existing production, research and development facilities and to encourage investment to provide for modernization and greater competitiveness of the industry.

Background and authority:

Preferential tax treatment in aircraft construction is provided for in the Law of Ukraine "On State Support of Aircraft Construction Industry in Ukraine" No. 2660-III of 12 July 2001.

Form:

Deferral of Income Tax.

WT/ACC/UKR/116/Rev.1 Page 22

At option of an eligible aircraft producer, advance and interim payments received from a customer may be placed in a special account and be exempted from withholding tax. Funds in such accounts may only be used to meet costs associated with fulfilling the contract under which the advance/interim payment is made. In the fiscal year in which the producer delivers the aircraft to the customer, payments into and from the special account are included in gross revenue/expenditure for the purpose of calculating profit for corporate income tax."

Exemption from import duties:

It applies to imports by eligible aircraft producers of inputs (equipment, materials, and sub- assemblies) not produced in Ukraine or, if produced, do not comply with international requirements as to classification or terms of individual contracts. The Cabinet of Ministers approves annually the list and volumes of inputs for exemption.

Products that could be imported duty free by the eligible enterprises are listed in the Resolution of the Cabinet of Ministers of Ukraine as of 12 April 2002 No. 519 (with amendments).

Since 16 May 2005 this measure had been withdrawn by the Law of Ukraine "On amendments to the Law of Ukraine "On the State Budget of Ukraine for 2005" and some other legislative acts of Ukraine" of 25 March, 2005 No 2505-IV.

Exemption from VAT on imports:

Exemption subject to the same conditions and approval process as for import duties.

This measure was suspended by the Law of Ukraine "On State Budget of Ukraine For 2004" of 27 November 2003, No. 1344-IV excluding enterprises, which had signed contracts before Law No. 1344-IV entered into force, and under these contracts had received advanced payments of more than 20 per cent of the contract value.

Later this measure was withdrawn by the Law of Ukraine "On Amendments to the Law of Ukraine "On State Budget of Ukraine For 2005" and some other legislative acts of Ukraine" of 25 March 2005 No. 2505.

Zero rates of VAT on domestic sales:

Sales of aviation products manufactured at the expense of State Budget by qualified enterprises on the domestic market are charged VAT at a zero rate.

This measure has been suspended by the Law of Ukraine "On State Budget of Ukraine For 2004" of 27 November 2003, No. 1344-IV excluding enterprises which had signed contracts before Law No. 1344-IV entered into force, and under these contracts had received advanced payments of more than 20 per cent of the contract value.

Later this measure was withdrawn by the Law of Ukraine "On amendments to the Law of Ukraine "On State Budget of Ukraine For 2005" and some other legislative acts of Ukraine" of 25 March 2005, No. 2505

Exemption from land tax:

This measure was reduced by 50 per cent for 2004 by the Law of Ukraine "On State Budget of Ukraine For 2004" of 27 November 2003, No. 1344-IV.

WT/ACC/UKR/116/Rev.1 Page 23

According to the Law of Ukraine "On State Budget of Ukraine For 2005" of 23 December 2004 No. 2285- IV in 2005 this measure was exercised exceptionally by the decision of the respective local authorities in the portion aimed for local budget.

Later on the exemption from land tax has been changed by the Law of Ukraine "On amendments to the Law of Ukraine "On State Budget of Ukraine For 2005" and some other legislative acts of Ukraine" of 25 March 2005, No. 2505-IV and was exercised in the following way:

- since 1 April 2005 it came up to 75 per cent of the rates effective on the respective territories; and - since 1 January 2006 it came up to 50 per cent of the rates effective on the respective territories.

Beneficiaries:

The list of eligible enterprises presented in Article 2 of the Law of Ukraine "On State Support of Aircraft Construction Industry in Ukraine" No. 2660-III of 12 July 2001.

Amount:

2004, million UAH 2005, million UAH 2006, million UAH Deferral of Corporate Income Tax 0.07 0 0 Exemption from import duties 1.39 0.03 0 Exemption from VAT on imports 3.8 0.2 0 Zero rates of VAT on domestic sales 0.07 0.02 0 Exemption from land tax 19.2 19.0 14.5

Duration:

Since 1 January 2002 until 1 January 2007.

Statistics for estimation of trade effects:

2004, million UAH 2005, million UAH 2006, million UAH Production 1,920.0 2,203.0 2,684.0

- Space Industry

Policy objective and/or purpose:

Assistance is intended to preserve and effectively employ the existing scientific, research, and production potential of Ukraine's space industry as a priority component of the high technology sector and to encourage investment as to ensure the future viability of the industry.

Background and authority:

Preferential tax treatment for eligible enterprises in the space industry is provided for in the Law of Ukraine "On State Support of Space Activity" No. 1559-III of 16 March 2000.

Form:

Accelerated amortization of key assets:

The 20 per cent annual accelerated amortization is determined for key assets of group 3.

WT/ACC/UKR/116/Rev.1 Page 24

Group 3 includes key assets except for buildings, constructions, their structures and transmitting devices, motor transport and components for it, furniture, household, electronic, optical and electro- mechanical devices and instruments, other office equipment and devices, electronic computers, other information processing machines, information reading and printing devices, other information systems, computer programs, telephones (including cell phones), microphones and portable radio transmitters, cost of which is higher than those goods (things) of little value.

At this the amortization of key assets of group 3 is being realized until the book cost makes zero.

Exemption from import duties:

Exemption applies to imports by eligible enterprises of products used for production of space machinery (including units, systems and their components for space complexes, space carrier rockets, space vehicles and land segments of space systems). The Cabinet of Ministers approves the relevant list and volumes of goods to be exempted.

The list and volumes to be exempted, as well as the list of qualified enterprises approved by the Resolution of the Cabinet of Ministers of Ukraine as of 22 February 1999, No. 276 (with changes and amendments).

This measure was withdrawn by the Law of Ukraine "On amendments to the Law of Ukraine "On State Budget of Ukraine For 2005" and some other legislative acts of Ukraine" of 25 March 2005, No. 2505-IV.

Exemption of imports from VAT:

As to import duties.

This measure was withdrawn by the Law of Ukraine "On amendments to the Law of Ukraine "On State Budget of Ukraine For 2005" and some other legislative acts of Ukraine" of 25 March 2005, No. 2505-IV.

Zero rate VAT on sales in the domestic market:

Sales of space complexes, space carrier rockets, space vehicles, land segments of space systems and their units, systems and components, by eligible enterprises on the domestic market are charged VAT at a zero rate.

This measure was withdrawn by the Law of Ukraine "On amendments to the Law of Ukraine "On State Budget of Ukraine For 2005" and some other legislative acts of Ukraine" of 25 March 2005, No. 2505-IV.

Exemption from land tax:

The list of enterprises exempted from land tax is annually approved by the Cabinet of Ministries of Ukraine.

The latest list (for 2004) approved by the Resolution of the Cabinet of Ministries of Ukraine of 31 March 2004, No. 412.

This measure was withdrawn by the Law of Ukraine "On amendments to the Law of Ukraine "On State Budget of Ukraine For 2005" and some other legislative acts of Ukraine" of 25 March 2005, No. 2505-IV.

WT/ACC/UKR/116/Rev.1 Page 25

Beneficiaries:

The agents of the space industry which realize their activity according to the Law of Ukraine "On Space Activities" (with changes and amendments)of 15 November 1996, No. 502/96

Amount: Revenue foregone in most recent (three) years with respect to:

2004, million UAH 2005, million UAH 2006, million UAH Accelerated amortization 2.080 0.637 1.433 Exemption from import duties 0.213 0.234 0 Exemption from VAT on imports 55.998 2.692 0 Exemption from land tax 29.955 0 0 Zero rates of VAT on domestic sales 6.285 0.802 0

Duration:

Until 1 January 2009.

Trade effects estimation statistics:

Amount of products 2004, million UAH 2005, million UAH 2006, million UAH Amount of products in established prices 1,278.205 1,427.181 1,821.250

- Coal Mining

Policy objective and/or purpose:

To assist in restructuring and modernization in the coal mining sector, raising industrial safety, labour safety improvement.

Background and authority:

Since September 2003 State Support to Coal Mining Enterprises had been provided in accordance with new "Procedure of provision and identification of the state support to coal producers for partial refund of expenses from the production price, as well as construction and technical re-equipment of black coal, brown coal and peat producers" that was approved by the Resolution the Cabinet of Ministers of Ukraine of 21 August 2003, No. 1311 (with changes and amendments).

The Resolution of the Cabinet of Ministers of Ukraine of 21 August 2003, No. 1311 was cancelled by the Resolution of the Cabinet of Ministers of Ukraine of 6 March 2007 "On the procedure of application of the funds from the state budget aimed at support of the enterprises producing coal, brown coal and peat, by construction and technical re-equipment and overhaul of mining equipment".

State support to construction and technical re-equipment of coal enterprises is provided according to the Resolution of the Cabinet of Ministers of Ukraine No. 1764 of 27 December 2001 "On approval of the Procedure for State Financing of Capital Construction".

The scope of the program is determined annually under the Law on State Budget of Ukraine for the corresponding year.

WT/ACC/UKR/116/Rev.1 Page 26

Form:

Grants to coal mining enterprises to partially cover production cost. Grants are made annually in advance in accordance with the estimated production costs and anticipated sales of eligible enterprises.

Conditions for obtaining support:

- Coal production of this enterprise should be demanded in Ukraine; - This enterprise commits itself to increase the efficiency of production, particularly cut down cost price; and - Volume of the commercial coal output being expressed in forecast price of sales do not cover production expenses.

Main economic indexes for determination of the state support are:

- Volume of the commercial coal output; - Production expenses; and - State support to construction and technical re-equipment of coal enterprises is provided in form of grants (to state or public ownership enterprises) or credits (to enterprises of other ownership).

Beneficiaries:

The program applies to black coal, brown coal and peat producers irrespectively to enterprise ownership.

The program does not apply to enterprises subject to liquidation.

List of eligible enterprises is drawn up by the Ministry of Mining on the basis of economic indicators of enterprises activity and their plans for respective year.

Amount:

2004, million UAH 2005, million UAH 2006, million UAH Partial refund of expenses from the 880.412 1,035.804 1,953.553 production price Support of construction and technical 2,224.284 1,175.225 1,186.695 re-equipment

Duration:

Since September 2003-Indefinite.

Trade effects estimation statistics:

Amount of production 2004, million tons 2005, million tons 2006, million tons Black coal 50.5110 46.1435 46.3855 Brown coal 0.243 n/a n/a Peat n/a 0.613 0,520

WT/ACC/UKR/116/Rev.1 Page 27

- Book-Publishing

Policy objective and/or purpose:

Overcoming of the crisis in this sector and providing for development of Ukrainian book-publishing.

Background and authority:

Support is provided by the Law of Ukraine "On State Support of Book-publishing in Ukraine" of 6 March 2003, No. 601-IV (with changes and amendments).

In the year 2003 support was not provided. In 2004 the Law of Ukraine of 6 March 2003, No. 601-IV was suspended by the Law of Ukraine "On the State Budget of Ukraine for 2004" of 27 November 2003, No. 1344-IV with exemption for production of copy-books, textbooks and school-books.

Later by the Law of Ukraine of 17 June 2004, No.1801-IV "On changes to the Law of Ukraine "On the State Budget of Ukraine for 2004" the Law of Ukraine No. 601-IV was resumed.

Form:

Exemption from import duties:

Exemption applies to imports of products used for book-publishing (paper, cardboard, cellulose, other polygraphic materials, equipment, computer-based equipment including units) that are not produced in Ukraine. The list of inputs to be exempted presented in the Law of Ukraine "On the Common Custom Tariff" No. 2097-XII of 5 February 1992 (with changes and amendments).

Exemption from VAT on imports:

The same as for import duties.

This privilege was suspended by the Law of Ukraine "On the State Budget of Ukraine for 2004" of 27 November 2003, No. 1344-IV with exemption for production of copy-books, textbooks and school-books.

Later that privilege was resumed by the Law of Ukraine of 17 June 2004, No.1801-IV "On changes to the Law of Ukraine "On the State Budget of Ukraine for 2004".

Exemption from VAT on domestic sales:

Exemption applies to supply of services in books-publishing, activity of production and distribution by publishing-houses and organisations, polygraphic enterprises of books-publishing production produced in Ukraine. Also applies to production and/or supply of paper, cardboard produced in Ukraine for books production, and to supply of books production produced in Ukraine exempt advertising services and published materials of erotic nature.

Exemption from Corporate Income Tax:

Exempted income of publishing-houses and organisations, polygraphic enterprises and distributors of books-publishing production, produced in Ukraine.

WT/ACC/UKR/116/Rev.1 Page 28

This privilege was withdrawn by the Law of Ukraine "On the State Budget of Ukraine for 2004" of 27 November 2003, No. 1344-IV.

Later that privilege was resumed by the Law of Ukraine of 17 June 2004, No.1801-IV "On changes to the Law of Ukraine "On the State Budget of Ukraine for 2004".

Beneficiaries:

Publishing-houses and organisations, polygraphic enterprises and distributors of books-publishing production which conducting their activity in accordance with the Law of Ukraine "On publishing" No. 318/97-VR of 5 June 1997 (with changes and amendments).

Amount:

2004 р., million UAH 2005 р., million UAH 2006 р., million UAH Exemption from Corporate Income 19.8 22.2 31.1 Tax Exemption from import duties 6.11 8.84 14.80 Exemption from VAT on imports 28.2 48.9 75.6 Exemption from VAT on domestic 252.8 411.6 504.1 sales

Duration:

From 1 January 2004 till 1 January 2009.

Statistic for estimation of trade effects:

Production 2004 2005 2006 Number of titles of books and 14,790 15,720 15,867 brochures, published items Annual Edition, thousands items 52,804.7 54,059.8 54,209.6

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