Changes in the Ukrainian Legislation Conditioned upon Ukraineĺs Accession to the World Trade Organization

19.03.2008

In accordance with the WTO accession procedure, Ukraine must ratify the Protocol on accession by 4 July 2008 and will become a WTO member 30 days after the ratification date. The accession process is accompanied by adoption of a number of laws and regulations in order to bring Ukrainian legislation into compliance with WTO requirements.

In this press-release we analyze provisions of legislative acts which will come into force upon Ukraine's accession to the WTO.

Insurance

For 5 years starting from Ukraine's accession to the WTO, residents may enter into insurance agreements with foreign insurance companies only in certain cases; five years after accession, branches of foreign insurance companies maybe registered in Ukraine.

Upon Ukraine's accession to the WTO, non-resident insurers will receive direct, though limited access to the Ukrainian insurance market. This provision was established by the Laws dated 16 November 2006 and 31 May 2007, which introduced changes to the Law of Ukraine On Insurance.

In accordance with the current version of the Law of Ukraine On Insurance, Ukrainian companies may only enter into reinsurance agreements with non-residents. Upon accession to the WTO Ukrainian companies will be able to obtain the following services from non-resident insurers:

  • insurance of risks, related to marine transportation, commercial aviation, space rocket launches and freight (including satellites) if the insurance object is the ownership interests related to commodities being transported, and/or transport used for their transportation, and/or any responsibility arising in connection with such commodities' transportation;
  • re-insurance;
  • insurance mediation, such as brokerage and agent operations concerning re-insurance exceptionally dealing with insurance of risks related to marine transportation and other risks from the above-mentioned list;
  • ancillary insurance services such as consultations, actuarial risk evaluation and satisfaction of claims.

The law does not require non-resident insurers to register representative offices or branches in Ukraine in order to provide the above-mentioned services.

To conclude insurance agreements with Ukrainian companies, an insurer must meet the following requirements:

  1. Non-resident insurer is incorporated in a WTO member state, engaged in international cooperation in the field of prevention and counteraction of legalization (laundering) of illegally received profit, terrorism financing; and also cooperates with the Financial Action Task Force Group (FATF)
  2. Memorandum (agreement) on information exchange is in force between the authorized body for insurance companies supervision of a country, where such non-resident insurer is incorporated and the respective Ukrainian authority;
  3. There is state supervision of non-resident insurer's activity in the country of its incorporation;
  4. Double tax treaty is in force between Ukraine and the country of a non-resident insurer's incorporation;
  5. Non-resident insurer is located on the territory of countries or territories, which in accordance with the decision of the Organization for Economic Cooperation of the United Nations Organization possess an offshore-free status or on the territory of other countries, if such offshore-free status is acknowledged by a determination of the respective trade economic mission;
  6. Non-resident insurer has a licence for insurance activity in accordance with the legislation of the country of its incorporation;
  7. Non-resident insurer's financial credibility (fortitude) rating meets the requirements established by the authorized body.

It should also be noted that upon Ukraine's accession to the WTO, Section 9 of Article 15 of the Law of Ukraine On Insurance, in compliance with which non-resident insurance or re-insurance brokers may provide services only through permanent representative offices in Ukraine, to be registered as tax payers in accordance with the legislation of Ukraine and included into the state register of insurance or re-insurance brokers, will remain in force.

In order to implement the abovementioned changes, the State Commission on Regulation of Financial Services Market of Ukraine adopted a number of regulatory acts which will come into force upon Ukraine's accession to the WTO. Thus, the Order of the State Commission on Regulation of Financial Services Market of Ukraine dated 1 November, 2007 No 8197 introduces Requirements to the procedure of conclusion of agreements with non-resident insurers, under which a person, intending to conclude such agreements shall receive from a non-resident insurer a written information (confirmation) stating that its activities correspond with the provisions of the Law of Ukraine On Insurance.

The Decree of the State Commission on Regulation of Financial Services Market of Ukraine dated 25 October 2007 No 8170 introduced the Order and requirements in relation to intermediary activity on the territory of Ukraine on conclusion of insurance agreements with non-resident insurers. In accordance with this Order, insurance mediators may carry out intermediary activity on the territory of Ukraine on conclusion of insurance/re-insurance agreements only with those non-resident insurers which have the right to carry out insurance activity in Ukraine in accordance with Law of Ukraine On Insurance. Also, this Order introduces requirements for information to be disclosed by insurance mediators to their clients.

The requirements for financial credibility (fortitude) of non-residents insurers' authorized to undertake insurance activity in Ukraine were approved by the Decree of the State Commission on Regulation of Financial Services Market of Ukraine dated 28 August 2007 No 7924. In accordance with these requirements, a non-resident insurer's financial credibility (fortitude) rating shall not be lower than high credibility rate under the classification of such international rating agencies as: "└.╠. Best" (USA) - "┬+"; "Moody's Investors Service" (USA) - "┬ÓÓ"; "Standard & Poor's" (USA) - "┬┬┬"; "Fitch Ratings" (Great Britain) - "┬┬┬".

It should also be noted that after five years following Ukraine's accession to the WTO international insurance companies are expected to receive full access to the Ukrainian market. The respective provision was laid down in the Law of Ukraine On Introducing Alterations to the Law of Ukraine On Insurance dated 7 July 2005. Foreign insurance companies having received a license will be able to conduct insurance activity to the same extent as insurance companies, incorporated in Ukraine.

Earlier in 2006 - for the purposes of Ukraine's accession to the WTO - the State Commission on Financial Services Market of Ukraine adopted the Order for branch registration of non-resident insurers, the Order for branch liquidation of non-resident insurers, the Regulation on non-resident insurers' branch activity supervision and penalties for financial legislation infringement, the Requirements for non-resident insurer's branches guarantee deposit, and the Terms of license for non-resident insurers' branches activity. All these legislative acts will come into force five years after Ukraine's accession to the WTO.

Agriculture

Ukraine will give up VAT privileges for agriculture; government control of milk production and sale will diminish.

Conditional upon Parliament's ratification of the Protocol on accession to the World Trade Organization (WTO) in 2008, agricultural commodity producers from 1 January, 2009 will loose their current VAT privileges and will have to pay VAT on general basis.

Under the Law of Ukraine On State Budget of Ukraine for 2008 and on Introducing Amendments to Some Legislative Acts of Ukraine Article 81 of the Law of Ukraine On Value Added Tax is rescinded as of 1 January 2008 till Ukraine's accession to the WTO. This Article 81 of the Law of Ukraine On Value Added Tax provides for the special taxation regime (6% and 9% VAT) for agricultural forest and fishing industries. Upon Ukraine's accession to the WTO Article 81 of the Law of Ukraine On Value Added Tax will be excluded therefrom on the basis of the law of Ukraine On Introducing Amendments to the Law of Ukraine On Value Added Tax Regarding Taxation of Agricultural Commodity Producers.

Presently, agricultural commodity producers do not pay VAT and keep these monies for their own production purposes on the basis of paragraph 11.29 of the Law of Ukraine On Value Added Tax. The Law of Ukraine On State Budget of Ukraine for 2008 and Introducing Amendments to Some Legislative Acts of Ukraine dated 28 December 2007 establishes that paragraph 11.29 of the Law of Ukraine On Value Added Tax operates till 1 January of the year, following the year of Parliament's ratification of the Protocol of Ukraine's accession to the WTO. Thus, starting from 1 January of the year, following Ukraine's accession to the WTO, agricultural commodity producers will have to pay VAT to the state budget on general basis.

Also starting from 1 January of the year following the year when Parliament ratifies the Protocol on Ukraine's accession to the WTO, the VAT amounts collected will be directed to the state budget. Presently such amounts are directed to processing enterprises in the form of donations to agricultural commodity producers for distributed milk and milk products, meat and meat products.

The Law of Ukraine On Introducing Alterations to the Law of Ukraine On Milk and Milk Products dated 30 November, 2006 stipulates that as of the day Ukraine's accession to the WTO, minimum purchase prices of milk will be abolished, along with the quota for milk production and sale by agricultural commodity producers, the maximum threshold for trade raises on milk products. Also, the provisions of the Law of Ukraine On Milk and Milk Products regarding milk products export support and establishment of the Fund on Granting Assistance to Development of Milk and Milk Products' Markets will be abolished.

Export and Import of Agricultural Products

The export duty for live cattle, raw leather, oil seed will gradually diminish. An import quota for raw sugar is introduced.

The Law of Ukraine On Introduction of the Tariff Quota for Raw Sugar Import in Ukraine dated 30 November 2006, introduces an annual quota from 1 January till 31 December for raw sugar import in Ukraine in the amount of 260 thousand tones with import duty rate in the amount of 2 percent of its customs value. This Law will come into force as of 1 January of the year next to the year of Ukraine's accession to the WTO.

It should be noted that in accordance with the Report produced by the WTO Working Group, Ukraine undertook to increase the quota to 267,800 tons per year within two years after its accession.

As from January 1st of the year following Ukraine's accession to the WTO, the reduced export duty rates on live cattle and raw leather, will begin to apply, in accordance with the Law of Ukraine dated 16 November 2006. In future, the duty rates on these commodities will gradually diminish to the level of 10-20% depending on the commodity type.

Upon Ukraine's accession to the WTO, the export duty on oil seed (sunflower flax and false flax) will be diminished from 17% to 15% and will annually diminish by 1% till it reaches a 10% threshold. Also, upon Ukraine's accession to the WTO, indicative prices on oil seed will be cancelled, such prices presently constituting the minimum export prices. The said changes in the export duty rates on oil seed were introduced by the Laws of Ukraine dated 7 July 2005 and 31 May 2007.

Scrap metal export

For 5 years, only specialized metallurgical enterprises may export alloyed iron and nonferrous scrap subject to export duty; gradually the export duty on iron scrap and wastes will decrease.

In accordance with the Law of Ukraine On Scrap Metal, export in the form of give and take raw materials outside the customs territory of Ukraine of alloyed iron and nonferrous scrap, products of primary metallurgical processing, shaped as bars, blocks, plates and other intermediate products, made of unrefined copper, is forbidden. On becoming a WTO member, Ukraine will be forced to allow export of the abovementioned metallurgical raw material.

For the purpose of export limitation, the 30% export duty on alloyed iron, nonferrous scrap and intermediate products with their utilization was introduced by the Laws of Ukraine dated 13 December 2006 and 31 May 2007. Starting from the calendar year next to Ukraine's accession to the WTO, the amount of the export duty will be gradually decreased over five years. Upon expiration of this five-year period no export duty is provided, which is anomalous, because the export duty on iron scrap survives in subsequent years.

Over this five-year period there will be another limitation in relation to persons authorized to export alloyed iron, nonferrous scrap and intermediate products with their utilization. Only manufacturing metallurgical processing enterprises may export these commodities, provided they possess an export certificate of quality. Quality control system of such enterprises must meet the ISO 9000-2001 standards, confirmed by conformance certificate.

The Laws dated 30 November 2006 and 31 May 2007 reduce the export duty on iron scrap and wastes from 30 to 25 Euros per ton, contingent upon Ukraine's accession to the WTO. For six years thereafter, the export duty will be gradually reduced to 10 Euros per ton and this rate will continue for the future.

Banking

Establishment of foreign banks branches in Ukraine.

Upon Ukraine's accession to the WTO the amendments to the Law of Ukraine On Banks and Banking Activity will come into force. In accordance with these new provisions foreign banks will have the right to open branches in Ukraine, which will carry out banking activity, provided that:

  1. Foreign bank is incorporated in a state engaged in international cooperation in the field of prevention and counteraction of legalization (laundering) of illegally received profit, terrorism financing; and also cooperates with the Financial Action Task Force Group (FATF);
  2. Banking supervision in the state, where such foreign bank is incorporated, meets Basic standards of effective bank supervision of Basel Committee on Bank Supervision;
  3. Agreement on cooperation in the field of bank supervision, harmonization of the respective standards and terms is in force between the National Bank of Ukraine and a banking supervisory authority of the state, where such foreign bank is incorporated;
  4. Minimum amount of the Ukrainian branch's capital at the date of its accreditation shall be not less than Euro 10 million;
  5. Guarantee from a foreign bank on non-conditional performance of obligations arising from its branch's activity on the territory of Ukraine.

To begin their activities in Ukraine, branches of foreign banks shall be accredited with the National Bank of Ukraine.

Customs Fees

The number of customs fees will be significantly reduced.

As of the date of Ukraine's accession to the WTO, the Regulation of Cabinet of Ministers of Ukraine dated 27 January, 1997 No N 65 On Customs Fees, establishing a great number of customs fees, including the fee for customs registration of commodities, loses its effect. This Regulation will be replaced by another Regulation of the Cabinet of Ministers of Ukraine dated 18 January, 2003 No 93 On Fees Collection for Customs Registration of Commodities and Transport Vehicles outside Customs Authorities Location or not during Business Hours, Established for Customs Authorities, which provides for two customs fees only: the fee for customs registration of commodities and transport vehicles outside the customs office location; and the fee for customs registration of commodities and transport vehicles within the the customs office location not during business hours established for customs authorities.

Intellectual Property Law

New official fees are expected in connection with Ukraine's accession to WTO.

New official fees concerning intellectual property rights protection will come into force in Ukraine from the date when Ukraine becomes a WTO member. New schedule of the official fees was approved by Resolution of Cabinet of Ministers of Ukraine dated 19 September 2007 No. 1148.

The current procedure of payment of the official fees in the sphere of intellectual property rights protection in force as of 23 December 2004 makes the amount of the official fees conditional upon the annual GDP per capita in the country of the applicant's (owner's) residence. Thus, for this purpose countries are divided into two groups according to the World Bank statistics: countries with annual GDP less than USD 3000, and countries with annual GDP more than USD 3000. According to the Resolution the same fees will be established for all applicants and owners of IP rights regardless of the country of their residence. Therefore, the amount of fees will be considerably higher than the current fees for residents of countries with annual GDP less than USD 3000, but still they will be lower than those fees, payable by residents of other countries.

Also it should be noted that presently authors of inventions, utility models, industrial designs or integrated circuit topographies pay the majority of the official fees, related to the said objects in the amount of 50% of the set rates. After Ukraine's accession to the WTO, these official fees for authors will constitute only 10% thereof. These reduced amounts do not apply to license and assignment fees to the abovementioned objects of intellectual property rights. New official fees will be introduced in the national currency of Ukraine, though non-residents will still be able to pay these fees in USD or Euro under the currency exchange rate, established by the National Bank of Ukraine as of the payment date.

Publishing Business

In five years companies with the share of foreign investment exceeding 30% of share capital will be granted the right to distribute printed output.

Five years after Ukraine's accession to the WTO, the prohibition on establishment and operation of organizations dealing with distribution of printed output with more than 30% foreign investment share in the share capital will be cancelled. The respective prohibition is currently contained in Article 25 of the Law of Ukraine On Publishing Business.