Legislation Novelties in 2007, January 2007

No notarization required for leasing agreements of less than three years

List of domestic services subject to patenting is renewed

No more claims of "Light" cigarettes
Year 2007 brings new licensing rules

Tax privileges for producers and distributors of films to be limited
New personal income tax rate introduced for 2007

Personal profits on the sale of immovable property now subject to taxation

Tax privileges on car sales extend to deals notarized by a private notary

Inheritance taxes no longer payable by first relation degree successors

Other tax figures
Moratorium on alienation of agricultural lands to be extended until January 1, 2008

Builders are to meet more strict rules in the project-development process

Rules for complex reconstruction of obsolete residential blocks introduced
Custom bodies receive significant new powers on suspension of custom registration of goods with intellectual property rights attached to them
Commercial courts gain jurisdiction for all corporative disputes involving private persons

Courts of Appeal may be empowered to proceed
with new trials of civil cases in cassational procedure, pending proceedings in the Supreme Court
of Ukraine

No notarization required for leasing agreements of less than three years

Pursuant to the Law of Ukraine, "On amending the Civil code of Ukraine regarding notarization and state registration of a lease agreement", as from January 10, 2007, agreements on lease, and sub-lease of buildings and other capital facilities (or their parts) will be subject to notarization in case they are concluded for a period of 3 years and more. The old rule reached one-year period agreements as well as those, concluded for more than 12 month. Still, one should be careful in applying this norm. Notwithstanding the fact that according to its provisions this Law enters in force from the date of its official publication (January 10, 2007), at the same time, its norms directly affect the revenue side of the state budget. That is why the application of this norm prior to January 1, 2008 may prove to be shadowy and questionable.

List of domestic services subject to patenting is renewed

Starting from January 1, 2007 the renewed List of domestic services, subject to patenting enters into force. The law-givers excluded pawnbroker's services from the List, but included services on repairing of personal articles, residential use and also rental of hydrocycles and skis, boats and powerboats.

No more claims of "Light" cigarettes

The Law of Ukraine "On measures aimed at preventing and lessening the use of tobacco products and their harmful effect on public health" sets forth new requirements for cigarettes packs as of January 1, 2007. In particular, any indication on the cigarettes packs either in verbal form or by means of image, which may mislead the customers on the characteristics of tobacco products, such as "mild", "lights", "ultra lights" etc, will be prohibited.

From now on each pack of cigarettes must contain a general medical warning for smokers and one additional medical warning concerning the harm which may be caused by using tobacco products as well as information about the level of such compounds as nicotine and resins.

The Law also provides for a new system of sanctions for non-compliance with the provisions of relevant legislation concerning manufacturing and distributing of tobacco products.

Year 2007 brings new licensing rules

On November 9, 2006 the National Council of Ukraine on Television and Radio-broadcasting approved a Development Plan of the National Television and Radio Information Space for 2006-2007. The named Plan became a path-breaking document in its field, as it contains an algorithm for state regulation in the field of television and radio broadcasting.

Thus, the Plan forms the guidelines for the National Council in drafting decisions on establishing and development of broadcasting channels, networks, which involve exploiting RF resources of Ukraine. Furthermore, this state body determines the competition terms and launches competitive tenders for licenses on broadcasting and also broadcasting conditions and requirements, subject to licensing by means of registration.

It is envisaged that the terms of competitive tenders shall be determined according to territorial categories of broadcasting and correlations of broadcasting formats in each territorial segment of TV and radio information space. At the same time the mentioned Plan contains no specification concerning the required formats for broadcasting for each territorial segment of the market.

Note that the National Council in its Plan also defines the process of transition to digital broadcasting as one of its main and urgent priorities, thus planning to finish the era of analog broadcasting in Ukraine by the end of 2014. Such decision is consistent with current global trends. Thus, the International Telecommunications Union (ITN) determined that the transition period from analog to digital broadcasting should finish by 2015.

The National Council envisaged the following course of development of TV and broadcast channels and networks:

- First quarter 2007 - organization of competitive tenders to obtain licenses for analog TV broadcasting and determination of radio broadcasting frequencies and also frequencies for multi-channel TV and radio networks (DVB-T is a priority).

- Second chapter 2007 - organization of competitive tenders to obtain licenses for radio broadcasting;

- The second half of 2007 - organization of competitive tenders for development of multi-channel TV and radio networks within available technologies (DVB-T, MITRIS, "Teleselo").

Furthermore, it was stated that determination of frequencies for digital broadcasting in DVB-T standard is of higher priority for all territory of Ukraine.

As of November 1, 2006 the National Council specified in its Plan 15 national TV and radio organizations and 4 regional TV networks.

Beginning with January 1, 2007 the National Council takes permanent measures to cease ads distribution in regional advertisement blocks on a step by step basis. The state body explains the new limitations recalling the Law of Ukraine "On TV and radio broadcasting", which contains prohibition of selling ads and services at dumping prices. A number of analytics mention that the National Council approved this decision with excess of power, whereas such limitations may be fixed only by relevant Laws.

At the end, it was provided that the Plan may be altered not less than once a year after considering the results of the report, produced by the National Council.

Tax privileges for producers and distributors of films to be limited

On January 1, 2007 the Law of Ukraine "On introducing amendments to some Laws of Ukraine on taxation" became effective. This Law considerably limits income tax privileges granted to producers and distributors of cinematographic products. Thus the provision of the Law of Ukraine "On profit taxation of businesses", which allowed amounts of facilities or property values spend on buying, creating or producing of audiovisual objects to be assigned to gross expenditures, was repealed.

Consequently, the provision of the Law of Ukraine "On profit taxation of businesses", which allowed tax bearers instead of amortizing the mentioned expenses, to assign them to gross expenditures, was repealed as well.

From now on, only amounts of facilities or property values voluntarily transferred to the benefit of residents for intended use to produce national films or audiovisual objects may be assigned to gross expenditures. But this amount mustn't exceed 10 per cent of the taxable income of the previous tax period.

At the same time, the Law of Ukraine, "On cinematography" still contains a provision according to which gross expenditures may include amounts of facilities or property values provided by a taxpayer in the form of assistance for production or demonstration of a national movie, but no more than 10 per cent of a gross income of such taxpayer for the previous tax year.

Specialized organizations, such as the Industrial Television Committee and Association of Producers of Ukraine, organized their joint efforts to initiate the process of development and implementation of privileges and preferences for film producers and distributors of audiovisual objects.

New personal income tax rate introduced for 2007

Pursuant to the Law of Ukraine "On income taxation of private persons" starting from January 1, 2007 the income tax rate for private persons increased from 13% to 15%.

Personal profits on the sale of immovable property now subject to taxation

The Verkhovna Rada of Ukraine (Parliament) stipulated a moratorium for taxation of private persons' profits on the sale of immovable property during the past two years of the operation of the Law of Ukraine "On taxation of income of private persons". But since January, 2007 such profits fall within the taxable ones on the general grounds. The peculiarities of payment are as follows.

The tax is not to be paid if the square of a residential apartment, flat or cottage doesn't exceed 100 square meters, and this is the first transaction of a kind during a year.

The 1% tax is to be paid if the square of the object exceeds 100 square meters and this is the first transaction of a kind during a year. Only a part of a profit, which is proportional to the excessive sum, shall be taken to consideration in paying this tax.

The 5% tax is to be paid in case of several transactions executed during a year and also in case of selling uncompleted buildings.

Tax privileges on car sales extend to deals notarized by a private notary

Starting from January 1, 2007 profits, obtained from the sale of cars, bikes, scooters will not be the subject of taxation, provided that this is the first transaction of a kind during a year. Also to receive this tax privilege, such transaction may be notarized not only by a public notary but by a private one as well. Previously this tax privilege could be received only in case of notarization of a deal by a public notary.

Inheritance taxes no longer payable by first relation degree successors

The rules of taxation of inheritance were altered substantively. From now on they serve for the benefit of a successor.

As from January 1, 2007 any object of inheritance, received by a member of the family, who is of a first relation degree, is not a subject of taxation any more. According to the article 1261 of the Civil Code of Ukraine the first relation degree includes children, wife/husband and parents.

As for successors of the first relation degree, who are not members of the family, the tax rate amounts to 5% irrespective of the object of inheritance. In case inheritance was received from a non-resident, the tax rate amounts to 15% in comparison with previous 26% rate, which was effective till January 1, 2007.

Other tax figures

As from January 1, 2007 the maximum value of actual expenditure on the payments of salaries, which is subject to pension and social insurance contributions, amounts to 15 minimum wages for an active working person. As at January 1, 2007 this sum amounts to 7 875 hryvnyas; on or after April 1, 2007 - 8 025 hryvnyas; on or after December 1, 2007 - 8 220 hryvnyas.

The levy on non-cash currency exchange dropped to 1 %.

The living minimum wage for an active working person amounts to: as at January 1, 2007 - 525 hryvnyas; on or after April 1, 2007 - 535 hryvnyas; on or after October 1, 2007 - 548 hryvnyas. Consequently, the value of income, subject to social tax privilege was altered accordingly. As at January 1, 2007 the value of such income amounts to 740 hryvnyas; on or after April 1, 2007 - to 750 hryvnyas; on or after October 1, 2007 - 770 hryvnyas.

Minimum wage as at January 1, 2007 amounts to 400 hryvnyas; on or after July 1, 2007 - 420 hryvnyas; on or after December 1, 2007 - 450 hryvnyas.

Social insurance contributions in connection with temporary disablement for employers now amounts to 1,5% in comparison with previous 2,9%, effective till January 2007.

Pension contributions for employees and those, who work in virtue of civil agreements were lowered as well. Thus, if their salary doesn't exceed the minimum wage for an active working person, the contribution will amount to 0,5% in comparison with previous 1% rate.

Moratorium on alienation of agricultural lands to be extended until January 1, 2008

The Land Code of Ukraine contained a moratorium on alienation of any kind of agricultural lands and plots, except in virtue of inheritance and seizure for public needs. The realization of expectations concerning the possibility to acquire and dispose of agricultural lands at the end of the mentioned term is to be postponed till January 1, 2008. Thus, at the end of the year 2006 the legislators decided to prolong the moratorium on:

- Selling or alienation by other means of land plots, destined for agricultural production, which are in the ownership of private persons or legal entities;

- Selling of land plots, destined for agricultural production, which are in the public or community ownership;

- Inclusion of a title to land plot or its share to the charter fund of an enterprise.

Builders are to meet more strict rules in the project-development process

On December 29, 2006 alterations to the Law of Ukraine "On territory planning and development" became effective. From then on the rules for builders in the project-development process became much severer.

Thus, in accordance with these innovations, private persons and legal entities, intending to build a town development object, must submit to the relevant executive bodies of self-government documents, affirming their title or right to use the land plot concerned. In case a builder (owner of a project) is not an owner or authorized user of a land plot, then he must provide a notarized consent for building development from the owner or owner and user respectively.

Furthermore, state inspectorate on construction and architectural control provide licences on construction only after the builder have met all the necessary requirements. Among them are the following:

- Consideration and approval of project documentation in the order provided by law.

- Obtaining a consent from the owner of the land plot (in certain cases, notarized consent both from the owner and user) on its building development;

- Maintenance of field and technical supervision of building process.

Rules for complex reconstruction of obsolete residential blocks introduced

Pursuant to the Law of Ukraine "On complex reconstruction of obsolete residential blocks (microdistricts)" realization of investment projects of complex reconstruction of obsolete residential blocks (microdistricts) as from 2007 will be carried out only after compliance with certain requirements. Thus, the investor must in advance and in full amount compensate the value of living quarters to their owners by means of providing them upon their consent either with new apartments or relevant money compensation.

Any resettlement of owners (lenders) of residential (non-residential) quarters of the buildings under reconstruction may take place only upon consent of these owners (lenders) in virtue of relevant agreements with investors.

Custom bodies receive significant new powers on suspension of custom registration of goods with intellectual property rights attached to them

As of February 11, 2007 the alterations to the Customs code of Ukraine, aimed at protection of intellectual property rights at goods transition through the customs border of Ukraine, enter into force.

The Law empowers custom authorities to suspend custom registration of goods on their own initiative. Such measures may be applied provided that there is a just cause that there might be an infringement of intellectual property rights and in case the owner of property rights in such objects of intellectual property is known.

At the same time, suspension of custom registration shall not be applied in relation to goods with intellectual property rights attached to them in the following cases:

- if such goods are being moved by physical persons for private use only and not for manufacturing or commercial use (in case their joint price doesn't exceed 200 euros);

- if such goods are being sent through international post or express services.

The alterations to the Custom code of Ukraine contain only general provisions; therefore many issues concerning the mechanism of their practical implementation are still unsettled. Pursuant to the Law such mechanism shall be provided by the Cabinet of Ministers of Ukraine.

Commercial courts gain jurisdiction for all corporative disputes involving private persons

As of December 29, 2006 the Law of Ukraine "On introducing alterations to some legal acts of Ukraine concerning ruling of jurisdiction of cases on privatization and corporate disputes" became effective. The Law changed the jurisdiction of the majority of corporate cases, namely:

- Disputes, arising from corporate relations between an enterprise and its member (founder, shareholder), including those who withdrew;

- Disputes between members of enterprises, involving establishment of the respective enterprise, its operations, management and liquidation (with the exception of labor disputes).

All disputes, mentioned above, from now on fall within the jurisdiction of commercial courts according to the place of residence of enterprises concerned, according to the Uniform State Registry of Enterprises and Organizations of Ukraine.

The named jurisdiction is exclusive, and its irregularity will be deemed as a just cause to annul the court's ruling.

The other peculiarity of this Law is that in this category of cases a national may be a party to a case as a private person (not as an entrepreneur). The following amendments were brought into being because of the urgent need to meet the challenges of a "raider" practice, which has become a mass phenomenon in Ukraine lately.

Courts of Appeal may be empowered to proceed with new trials of civil cases in cassational procedure, pending proceedings in the Supreme Court of Ukraine

The Draft Law of Ukraine "On introducing amendments to the Law of Ukraine "On judicial system of Ukraine" pending its consideration in the Verkhovna Rada of Ukraine (Parliament). This Draft Law suggests hearings of civil cases in cassational procedure to be held by judicial collegiums of the relevant courts of appeal. It is envisaged that such collegiums will be established by presidiums of courts of appeal.

This Draft empowers the mentioned collegiums to proceed with civil cases in cassational proceedings, filed to the Supreme Court of Ukraine before January 1, 2007, provided that the preliminary hearing of the case was not held.

In case a preliminary hearing was held, and if cases were filed on or after January 1, 2007, they will be disposed of in cassational proceedings by judicial chamber on civil cases of the Supreme Court of Ukraine.

According to the Draft Law, it should have become effective as of January 1, 2007, but presently it is only a Draft.