Ukraine open for business

Having recently gained its independence, Ukraine is a country comparable in geographical size and population to Italy and France. The country possesses numerous competitive strengths, namely a strategic geographical position and mils climate, rich natural resources, sizable consumer market, highly educated labor force, well developed transport infrastructure, significant achievements in natural sciences and military related research, and a sophisticated research and development infrastructure.

However, the Ukrainian economy is currently in a critical position. This is due to the fact that the economy of Ukraine was previously quite isolated, not oriented towards satisfying the national interest of the country. The pricing policy was basically inappropriate because the prices for raw materials and fuel supply were very low and were stimulating their rational use and the introduction of high technology to industry.

Ukrainian efforts to be integrated to the world market were, over the first three years, very reticent and did not realize the national potential.

Prior to independence, more than 80 percent of total ‘exports’ and ‘imports’ were accounted for by inter-republic trade. As well as being tightly integrated with the economy, Ukraine accounted for a major share about 25 percent of the Net Material Product (NMP) for the former Soviet Union.

Needless to say, at independence the severance of the inter-republic links had a particularly disruptive effect on Ukrainian enterprises and on the national economy as a whole.

The foreign trade linkages of Ukraine will no doubt play a key role in the recovery of the Ukrainian economy in this transition period.

Upon gaining independence in 1991, Ukraine has become an equal member of the international community. There is little doubt that the economic, scientific, and human potential of Ukraine is one of the most promising in Europe and offers many business and investment opportunities.

Attraction of new investments in the Ukrainian economy, including foreign investments, is one of the effective ways of overcoming this situation.

ABOUT FOREIGN INVESTMENTS

What kinds of investments can be invested in Ukraine?

All kinds of values invested by the foreign investors into objects of enterprise activity and other kinds of activities for obtaining profit (income) or achieving social effect are considered to be foreign investments in Ukraine.

Values which can be used for making foreign investments include currency, in particular the currency used on the territory of Ukraine, movable and real property, securities, rights of intellectual property, rights to carry out economic activity, paid services, and other values.

Into what objects can values be invested?

Above-mentioned values can be invested into joint ventures with membership of Ukrainian businessmen, private enterprises, movable or real property, securities, rights for lend-tenure and concessions for exploitation of natural resources, and other property right.

If the foreign investments are no less 20 percent of the authorized fund of the enterprise and reach the specified amount the size of which is differentiated according to kinds of investment, the enterprise gets the status of the enterprise with foreign investments.

In what currency can an investment be made?

Assessment of foreign investments including payments to the authorized fund of enterprises with foreign investments is made, according to a desire of a foreign investor, in the foreign hard currency or in the national currency of Ukraine.

What is the legal basis for activities of foreign investors?

Relations associated with foreign investments in Ukraine are regulated by a number of Ukrainian laws, Decrees of the Cabinet of Ministers, and other legal Acts of the State.

Adoption of these Decrees by the Supreme Rada forms the legal basis for activities of foreign investors on the territory of Ukraine and proves protection of their interests, gives the amount of authority no less than that of state enterprises. It must contribute to the primary investment in the priority industries and territories.

If other rules are established in the international treaties with participation of Ukraine, which are different from the rules stipulated in existing laws of Ukraine, then the rules of the international treaties will be applied.

By whom are the directions of the national policy in the field of foreign investments worked out?

Directions of the national policy in the field of foreign investments and the state programs for attracting foreign investments are worked out by the Cabinet of Ministers of Ukraine together with the National Bank of Ukraine and are adopted by the Supreme Rada of Ukraine.

How are foreign investments protected by state?

Laws of Ukraine include a number of measures of protecting of foreign investments. First of all, the investors are guaranteed stability of laws on protection of the foreign investments. If the future modify protection rules, on request of a foreign investor, there must be applied the laws which were used at the time of registration of the investment.

Foreign investments are not subject to nationalization and requisition losses, including lost profit and moral injury as the result of actions or inactions of the state organs of Ukraine and its officials, and also as the result of inadequate fulfillment of their duties, must be compensated. The compensation is to be quick, adequate, effective and must be determined at the moment of actual realization of a decision as to compensation of losses in the currency in which investments had been made or in any other currency acceptable for the investor. Compensation of losses is made at the

expense of the state budget of other sources in accordance with the order established by the Ukrainian Government.

In case of cessation of the investment activities the investor is guaranteed the return of his investment no later than in 6 months, as well as the return of revenues obtained from these investments.

An investor has the right to transfer abroad the revenues, incomes, and other earnings in foreign \currency received as the result of his business activity or to invest these earnings in Ukraine.

The Government and the National Bank of Ukraine guarantee the credits given by foreign banks, financial and other international organizations to the subject of the foreign economic activities according to the interstate and inter government agreements. The guarantee payments are provided at the expense of State Currency Fund of Ukraine and other state property.

How are foreign investments registered by state?

Foreign investments are subject to registration in the Ministry of Finance according to its regulations of the registration of foreign investments in Ukraine. For registration an investor submits an application and information (in two copies) as to the general size, form, term of realization, object of investments, juridical name (company) and procedure for sharing of revenues and losses, information on citizenship of founders and other data.

The charter and other documents are registered in the local bodies at the place of location of the enterprise. The state registration is carried out no later than 15 days after the day of submission of the application and other documents. After registration, the enterprise with foreign investments is granted the right of a legal person.

Refusal in registration of the enterprise with foreign investments is possible only in case of violating the legal procedure of establishing the enterprise and in case if inadequacy of the registered documents with regard to the laws. Other reasons for refusal in the state registration are illegal.

If the refusal in registration is groundless or if was not done in due time, the investor may apply to court and obtain compensation for losses caused by these factors.

In case of modifications of the main points of the statutory documents or kind of enterprise it is subject to re-registration.

Cessation of activity of the enterprise with foreign investments is carried out in accordance with a procedure based on existing laws and only after the decision of owners, after expiration of the term of an agreement on establishing the enterprise, and after the court decision.

The enterprise with foreign investments can create subsidiary enterprises enjoying the rights of a legal person, as well as branches and offices on the territory of Ukraine and abroad, under the conditions of complying with the requirements specified by the laws of Ukraine and the legislature of the corresponding foreign countries.

What type of activities may an enterprise with foreign investments carry out?

The enterprise with foreign investments may carry out an activity specified in the statutory documents with exception of those forbidden by the laws of Ukraine. In accordance with the law of Ukraine “on enterprise activity”, production and sale drugs, arms, explosives, fabrication of securities and banknotes are prohibited.

The following kinds of activities can be performed on the basis of special permission (license):

- search (prospecting) and exploitation of mineral resources;

- repair of sports, hunting or other kinds of arms;

- to quotas and licensing, as well as regulations for allocating quotas and granting licenses for export products. Granting quotas for export is approved by the Cabinet of Ministers of Ukraine, while their realization and licensing by the ministry of Foreign Economic Relations Ukraine. Products (works, services) within the quota limits are exempted from duties. Export of products

exceeding the granted quotas is carried out on condition of payment of duty. This order is not valid for export of products having special export regime through the authorized agents.

How are the rates of export duties determined?

Rates of export duties are determined for separate groups of products depending on the kind of product.

Customs taxing of products imported into Ukraine is made according to the Unified Customs Tariff of Ukraine.

All objects subjected to customs control are classified in the Unified Customs Tariff of Ukraine, which contains 21 sections and 97 chapters, 1241 commodity items and 5019 commodity subitems, names and number codes of which are unified in accordance with the Harmonized System.

The United Customs Tariff of Ukraine has three kinds of rates according to the size of import duty:

Preference rates are used for goods and other articles imported from the countries which together with Ukraine form special zones: rates are also applied for goods and other articles imported form developing countries (145 countries).

How are rates of import duties determined?

Import customs duties are not charged at transporting of goods across the border for operations in accordance with sate contracts and state order; in case of importing children’s goods the rates of duty are reduced by 50 percent.

There are some peculiarities for regulation import and export operations of the enterprises with foreign investments. They have the right to export production, works and services of their own make without any license and quotas. Confirmation of goods, works and services belonging to the enterprise’s own production is made on the basis of the Confirmation Certificate of enterprise’s own productions, issued by the Ukrainian Chamber of Commerce and Industry. Property imported into Ukraine as a contribution of a foreign investor whose contribution to the authorized fund is from 10000 to 50000 US dollars during one year after the date of payment of the specified amount, the privileged conditions of taxation are used which are similar to the conditions of taxation of the enterprises with foreign investments.

The income tax is paid through non-cash transactions in the national currency of Ukraine in evaluation of profit subjected to taxation, the earnings received in foreign currency are converted into the national currency of Ukraine according to the official exchange rate on the date of receiving the income.

The object of value-added taxation is the turnovers from sale of goods (works, services) excluding their sale for hard currency.

The object of taxation of imported goods (works, services) purchased for hard currency is the difference between prices of their sale for the national currency of Ukraine and their purchase value, converted according to the exchange rate determined by the rate on the day of submitting a declaration (purchasing of goods, completing work, rendering of services).

Export of goods (works, services) except barter (goods exchange) operations, coal, coal bricks and electric power, as well as some other goods, works and services is free from value-added tax.

Peculiarities of taxing barter operations in the field of foreign economic activity are determined by the corresponding Decree of the Cabinet of Ministers of Ukraine given in Appendix 8.

The VAT is included in the price (tariff) of goods (works, services) at the arte of 28 percent of a turnover subjected to taxation, that does not include value-added tax. The sum of tax is determined as

the difference between the sum of tax obtained from the buyer for sold goods (works, services) and the sum of tax paid out by supplier for carried out works, services and purchased material resources.

NEW RULES FOR JOINT INVESTMENT

Joint investment activities in Ukraine will be conducted within a new structure and under specific legal protection with the adoption of the new law on joint investment institutions.

The new law provides for specific types of entities through which persons may be engaged in joint investment activities and contains detailed provisions regarding how those entities must operate. This law supersedes the 1994 presidential decree on investment funds and investment companies. Investment funds and mutual funds of investment companies established under the presidential decree generally must be liquidated or reorganized into entities under the new law by April 24, 2003. Certain existing closed funds may continue to operate until their stated term has ended and then either liquidate or reorganize.

NEW INVESTMENT FUND CLASSIFICATIONS

Joint investment activities will now be carried out through a “joint investment institution,” which can be either a “corporate investment fund” or a “share investment fund.” A corporate investment fund is an entity created in the form of an open joint stock company that is engaged exclusively in joint investment activities. A share investment fund is formed by an asset manager. The asset manager sells to investors investment certificates representing interests in the assets to be owned by the investors and managed by the asset manager. A share investment fund is not an actual legal entity.

Either type of fund may be an “open” or “interval” fund, where investors generally do not have the right to have shares repurchased until the fund liquidates. All open and interval funds must be “diversified”, with limitations on the amount of securities not publicly traded that they may hold. Closed funds may be “non-diversified” and not be subject to those types of limitations. Open and interval funds may have an indefinite duration, but closed funds must have a staled duration.

INTERNAL STRUCTURE AND GOVERNANCE ACTIVITIES

The new provides for extensive regulation of the structure and governance of investment funds. For corporate investment funds, their governing documents must contain specific provisions relating to the various classifications and activity limitations set forth in the new joint investment law. The new law also establishes the shareholders as the highest governing group of corporate investment fund and specifically grants them authority regarding specific investment fund items, in addition to matters reserved for shareholders under the law on joint stock companies. Most significantly, shareholders are required to approve agreements with the manager and the custodian of the fund’s assets and any termination of those relationships. Each corporate investment fund is required to have a supervisory board that meets at least quarterly and has responsibility, for supervising the company hired to manage the fund’s assets. No member of the supervisory board may be related in any way to the company managing the fund’s assets, an entity selling the fund’s securities or a custodian, registrar, auditor or appraiser furnishing services to the fund.

For share investment funds, the company desiring to manage the fund’s assets is the primary participant in the establishment and operation of the fund. It creates the fund’s governing regulations, which must contain specific provisions regarding the classification and internal governance process of the fund. It also enters into required agreement with a custodian, auditor, appraiser and registrar for the fund of and organizes the process of issuing investment certificates to investors in the fund. Holders of investment certificates do not have the same level of power as shareholders in corporate investment funds. Although supervisory board may be created for share investment funds under specific circumstances, these boards have significantly fewer responsibilities in the context of share investment funds. The company managing the assets of a share investment fund may be replaced only by the State Commission on Securities and the Stock Market, in accordance with circumstances specified in the new law.

REGISTRATION AND ISSUING OF SECURITIES

Both corporate investment funds and share investment funds are required to be registered with the Sate Commission on Securities and the Stock Market.

In the case of corporate investment funds, shares ate sold by public “subscription,” and for open and interval fund, the offering period is continuous except for brief periods associated with holding general shareholders meeting.

For share investment funds, investment certificates are issued by the company managing its assets, either by public subscription (continuous for open and interval funds), or through private sale to specified investors.

Sales of shares or investment certificates, as well as repurchases of those instruments by a corporate investment fund or the asset manager of a share investment fund, are accomplished at the net value of the assets of the fund.

RELATED REGULATION

The new law contains detailed provisions regarding companies that mange assets of joint investment funds. Assets managers must be licensed by the Commission and their fees are subject to regulation by the Commission. Under certain circumstances, they can be liable for losses incurred by the fund.

The new law regulates the permitted composition of assets of joint investment funds and the valuation of those assets. There are provisions that place limitations upon investment in certain types of securities, such as foreign and non-traded securities, and these limitations vary depending upon the classification of the fund.

The new law also requires that an independent custodian provides custodian services for securities held by a fund, as well as is engaged in ongoing activities related to the sale and purchase of fund shares or investment certificates and verification of assets valuations made by the asset manager. The requirements of custodial agreements are to be approved by the Commission. The custodian has an obligation to report the Commission actions of the asset manager that are not consistent with the fund’s governing documents or the applicable law.

Finally, the new law contains extensive requirements on the issuance and circulation of shares or investment certificates of investment funds. This includes a disclosure prospectus that must be used when selling shares or investment certificates and is registered with the Commission as described in the new law. The Commission also closely regulates the repurchase of shares by a fund or investment certificates by an asset manager, and the new law details various required processes for this. The new law also provides for annual updating of the disclosure prospectus used by open or interval funds as well as other periodic reporting requirements. All joint investment funds are to be audited annually by an independent audit firm.

The new law represents a comprehensive regulation of joint investment activities, in that it covers all major areas important to ensuring that those activities are conducted in an objective and independent fashion. The guiding principle of the new law appears to be protection of investors, which generally is viewed as the bedrock of modern investment fund regulation. As such, the new law should serve to promote confidence in the joint investment fund industry in Ukraine.

BUDGETS

Probably the oldest and the most widely accepted control technique is the budget. A budget is an itemized estimate of expected revenue (income) and expense, and thus it expresses the plans and objectives of the organization. There are budgets of time, space, and materials, but most budgets are expressed in financial terms. The most common type of budget is an operating budget, lasting expected receipts and expenses for the coming year, based on the experience of the past year and adjusted for expected changes. For a private company, the principal source of revenue is sales, but operating expenses may be listed in extensive detail, under headings such as labor, materials, heating, and travel. Plans for new capital expenditures call for special capital expenditure budgets. Still another kind of budgets is the cash budget, or cash flow analysis, to help management maintain a sufficient supply of cash to meet obligation without tying up funds that could be more profitably invested elsewhere.

A private enterprise with revenue chiefly from sales may not be able to predict its income with confidence and therefore may be unable to plan expenses reasonably. One answer on this problem is to set up two or more alternative budgets for different levels of income and then to use the one that agrees with actual income. If seasonal variation in revenues can be expected, then a similar variation in expenses can also be budgeted. But the most common solution to the need for variability is the flexible or variable budget. In this system, some operating expenses are considered to be mixed (varying slightly) – for example, personnel cost, since employees cannot be hired, trained and released several times a year. Then every month subordinate managers are informed of the latest estimates of output for that month, so that expenses can be adjusted accordingly.

When department heads estimate their budget needs for the coming year on the basis of the past year, there is always a danger that they will fail to reduce their estimate for needs that are no longer real. This problem has caused the development of zero-base budgeting, in which all costs are calculated from base zero, without regard to the previous year’s budget. This forces managers to explain and justify every item in their budgets and helps to eliminate unnecessary expenditures.

After budgets have been prepared for all the departments in an enterprise, they are all added together in what is called a budget summary. If the separate budgets have been calculated carefully and in accordance with objectives, the budget summary will give the top executives an excellent picture of overall sales, earning and return on capital. Thus, the budget summary is perhaps the most widely used device for overall control, in that it shows exactly what the organization’s objectives are and how they are to be realized.

Дата добавления: 2015-07-20