Aleksey Paliy,
attorney, managing partner
Primary Advisors LLC

When the war began, business was in a stupor and did not understand what would happen next. Later on, changes on the battlefield and related social processes, changes in legislation began to impose survival conditions on business.

According to the latest data, the World Bank forecasted that Ukraine’s GDP will shrink by 45% in 2022. According to the forecasts of the NBU, the annual inflation rate in 2022 is likely to exceed 20%.

State regulation has failed to prevent a significant increase in the price of essential goods and fuel. One of the main reasons for this is the increase in the cost of production due to the destruction of infrastructure facilities, changes in logistics and supply companies by the aggressor.

Main groups of factors that negatively affect business performance in war

  1. Military and economic factors:
    • Cessation of activities of enterprises in the occupied territories and in the war zone, most of which were unable to relocate;
    • Destruction as a result of combat operations of warehouses and production facilities of enterprises;
    • There is no mechanism of compensation for losses, which would provide a particular company with a real opportunity to restore the lost capacity;
    • Decrease in demand for certain categories of goods. Most businesses today could not and will hardly be able to shift their activities to the rails of the military economy;
    • Reduced supply of certain categories of goods produced in the occupied territories or war zone, leading to shortages and rising prices;
    • Increase in the size and duration of logistical costs as a result of the aggressor’s blockade of maritime transport corridors;
    • Migration of specialists to Western Europe, Canada, the United States, etc. Mobilization of qualified specialists;
    • Fuel shortages at gas stations due to destruction of infrastructure facilities, change of suppliers.
  2. Currency factors:
    • Limitation of foreign economic transactions only to the supply of critical imports, as well as goods necessary for security and defense;
    • Setting the deadline for settlements for export/import operations – 90 calendar days;
    • Increasing the time limits for currency control by banking institutions, which increases the time of export and import operations.
  3. Regulatory factors:
    • Suspension of trading of securities in the depository system, limitation of registration activities in case of purchase and sale of corporate rights;
    • Permanent changes in the legislation, the conflict between acts of higher legal force, such as the Constitution of Ukraine and the laws of Ukraine, on the one hand, and the Resolutions of the Cabinet of Ministers and acts of the central bodies of the executive power – on the other hand;
    • There is no clear mechanism of state regulation of price setting for first necessity products and fuel, price control.

So, at this time business is very vulnerable and depends on the further development of combat operations, which most experts today predict to be protracted. However, despite the difficult conditions, the business does not give up and continues to work.

Tax changes for business

In general, liberalization of taxation of businesses in the period from March to June 2022 in the form of a reduced tax rate for simplified tax system with a reduced rate, reduction of VAT for private entrepreneurs and the excise tax on petroleum and transport vehicles, moratorium on inspections, reduction of tax on certain categories of vehicles and defense and military goods can be characterized positively.

On the other hand, the basic tax burden for medium and large businesses has not changed (VAT, PIT, Military tax, UST). A part of enterprises, which are payers of VAT, initially switched to the simplified system “with peculiarities”, but then returned to the general system.

Exemtion from payment of land tax and property tax was established only for the objects located in the areas of military operations and temporarily occupied territories. At the same time, for example, in Kyiv and Kyiv region the majority of enterprises are forced to pay land tax, as the list of areas where military operations are conducted has not been approved.

In addition, businesses were given the opportunity to transfer aid to the affected communities, military formations and the Armed Forces of Ukraine without paying the VAT, but in practice such exemtion applies only to the transfer of aid to organizations that are financed from the state budget. At the moment there is no clarity as to whether local councils and their committees belong to such organizations.

Raiding as a Risk Factor

Raiding is one of the manifestations of criminal practices in wartime. In general, the war created conditions to raidings, as well as other crimes against property.

In accordance with the Criminal Code of Ukraine (hereinafter referred to as the CCU) Criminal offenses include:
• Falsification of documents provided for state registration of legal entities and sole proprietor (Article 205-1 of the CCU)
• Opposition to legitimate business activities (Article 206 CCU);
• Illegal seizure of property of an enterprise, institution, organization (Article 206-2 CCU).

In this case, raiding should be understood not only as a physical seizure of property by force or registration of property rights on the basis of forged documents, but also as illegal access and use of trade secrets, intellectual property rights and other means of production, which play a key role in business.

In territories where hostilities and occupation are taking place, enterprises seizures are widespread, supported by the occupying power of the aggressor and its accomplices. At the same time the return of this property is possible only through reparations in the future or in case of de-occupation.

Martial law, as we know, provides for certain restrictions on the rights of individuals and legal entities, including the use of enterprise property or its alienation in favor of the state. These cases are strictly regulated and require the execution of a set of documents. In practice, however, certain persons or units abuse their powers, as a result of which they can use production facilities for free, create obstacles in economic activity, and take possession of trade secrets and property.

It should be noted that in the short term, before control is resumed in the territory in question, this approach to combating raiding, such as restricting the operation of state registries or individual registration activities, is an effective restraint. Although in the long run it only hurts business. For example, it is impossible to make changes to the USR in the case of the sale of a business, independent of its location, as well as impossible to carry out the purchase and sale of shares in the depository system.

In addition, in most cases it is difficult to qualify the actions of the participants and collect evidence of raiding, and the chance of solving the crime and collecting damages in real conditions is very low.

X

Order a call

Our specialist will contact you and give detailed information on your questions.



09
:
00
+38(999)999-99-99
We will answer you soon