Tax and Legal news (10.12.24)

Below, you will learn about:

The Government has updated the procedure for reservation from mobilization;
The Law has been signed to increase taxes from December 01;
The NBU has issued an advisory letter on financial monitoring;
Amendments have been made to the existing currency covenants.

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The Government has updated the procedure for reservation from mobilization

On November 22, 2024, the Government adopted the Resolution "Some Issues of Reservation of Persons Liable for Military Service for the Period of Mobilization and for Wartime" (hereinafter – the "Resolution"), which amended the Procedure for Reservation of Persons Liable for Military Service during Martial Law (hereinafter – the "Reservation Procedure") and the Criteria and Procedure for Determining Companies, Institutions and Organizations Critical to the Functioning of the Economy and the Life of the Population in a Special Period, as well as Critical to the Needs of the Armed Forces of Ukraine and Other Military Formations (hereinafter – the "Criteria and Procedure").

Key aspects of the Resolution:

The Resolution enters into force on December 01, 2024, except for certain items that entered into force on November 23, 2024.
Reservations from mobilization granted by decisions of the Ministry of Economy or through the Diia portal before November 23, 2024, are valid until their expiration date, but no longer than February 28, 2025. Therefore, companies will need to update their reservations from mobilization.
Decisions on the recognition of companies as critical, which are valid as of November 23, 2024, but expire before November 30, 2024 (inclusive), are extended until December 31, 2024.
Decisions on the recognition of companies as critical that are in force as of December 01, 2024 remain in force for the period for which they were made, but not longer than February 28, 2025.
Relevant ministries, military administrations, etc.:
- within 10 days from November 23, 2024, should update the criteria for critical companies, having agreed them with the Ministry of Economy and the Ministry of Defense;
- within 3 months should review the decisions taken to determine the company as critical. According to the information posted on the official website of the Ministry of Economy, companies should confirm their criticality with the amendments by February 28, 2025. From December 01 and until the date of confirmation of compliance with the updated criteria, critical companies will be able to reserve employees from mobilization for the period up to February 28, 2025.

Key aspects of amendments to the Reservation Procedure:

Electronic form: from December 01, 2024, the reservation from mobilization is carried out exclusively through the Diia portal.
Reservation quotas:
- 100%: for ultimate beneficial owners of critical companies who are not their employees;
- up to 50%: for critical private sector companies;
- up to 50% (instead of 100%): for representative offices of donor agencies, implementers of international technical assistance projects. Employees directly involved in the implementation of project tasks are subject to reservation from mobilization in accordance with internal documents (order, job description, etc.). The number of persons liable for military service who can be reserved from mobilization for more than 50% may be increased by a separate decision of the Ministry of Defense.
Reservation criteria:
- employees included in the reservation lists should be paid a monthly salary during the period for which the reservation from mobilization is granted, not lower than the minimum wage in the country multiplied by a coefficient of 2.5 (currently it is UAH 20 thousand), except for state and municipal companies, residents of Diia City;
- when determining the quota, persons liable for military service who have deferrals are considered, but women liable for military service are not considered;
- the number of employees liable for military service is determined as of May 18, 2024, in case of an increase in the number – as of the date of submission of the lists.
Unified list:
- in order for a critical company to have access to reservation from mobilization through the Diia portal, the authority that made the decision on criticality should include the company in the Unified List;
- the list is marked with a note on compliance with the requirement that: the accrued salary in each month of the last quarter is not less than the coefficient of 2.5 of the minimum wage.
Additional data in the statements:
The register of persons liable for military service will now display information on:
- a sign of military register (special or general);
- the expiration date of the deferral;
- being on a special military register.
Special features for donor agencies:
- reservation from mobilization of employees of representative offices of donor agencies, executors of international technical assistance projects (in the absence of a USREOU code, it is carried out through the Diia portal) for this purpose, the Ministry of Economy forms lists based on a substantiated submission from the Government Secretariat.
The transfer of a person liable for military service to special registration and the granting of the reservation from mobilization is carried out automatically within 72 hours from the moment the list is formed, if he:
- is registered with the military;
- is in an employment relationship with a critical company;
- clarified personal data in accordance with the Law of Ukraine of April 11, 2024. No. 3633-IX. This refers to the clarification of the data in general, including the current date, and not only until July 16, 2024;
- is not wanted.
New grounds for canceling the reservation from mobilization:
- deprivation of the status of a critical company;
- a reasonable submission by the head of a critical company, but not more than once a month through the Diia portal;
- non-compliance with the requirement for accrued wages for each month of the last reporting period (quarter) not lower than the minimum multiplied by a coefficient of 2.5.
Other amendments:
- information on deferral (reservation from mobilization) is displayed in the electronic military registration document;
- eliminated the requirement to submit a quarterly report on the number of employees reserved from mobilization and to inform the Territorial Center for Recruitment and Social Support (TCRS) about the reservation from mobilization.

Key aspects of the amendments to the Criteria and Procedure:

executive authorities, other state bodies, public administration bodies whose jurisdiction extends over the entire territory of Ukraine, by the sphere of their management or sector of the national economy, or regional, Kyiv and Sevastopol city state administrations (military administration, if established) determine their own criticality criteria, which are agreed with the Ministry of Economy and the Ministry of Defense;
the criterion of the average salary for business has been amended: it should not be lower than the minimum wage multiplied by a coefficient of 2.5 for the last calendar quarter, as confirmed by a certificate of the company. This criterion is mandatory for privately owned companies;
the criterion for the absence of unified social tax arrears was amended to the following: absence of tax and unified social tax arrears, which is confirmed by a certificate of absence of arrears or an extract from the State Tax Service system on the status of the payer's settlements with the budget and trust funds, certified by the head of the company. This criterion is mandatory for privately owned companies;
the authority that made the decision on criticality will monitor the activities of critical companies for the reporting tax period, in particular, the fulfillment of the requirement for the average salary of the employee reserved from mobilization multiplied by a coefficient of 2.5 and, if necessary, conduct an audit;
companies that have had their criticality status revoked due to failure to meet the requirement for the average salary of the employee reserved from mobilization multiplied by a coefficient of 2.5 cannot be recognized as critical again earlier than 6 months after the revocation of this status.

^Sources:^{Government Resolution "Some Issues of Reservation of Persons Liable for Military Service for the Period of Mobilization and Wartime" of November 22, 2024 No. 1332}^;^{Government Resolution "Some Issues of Implementation of the Provisions of the Law of Ukraine "On Mobilization Preparation and Mobilization" on Reservation of Persons Liable for Military Service for the Period of Mobilization and for Wartime" of January 27, 2023 No. 76}^;^{Government Resolution "On Amendments to the Resolutions of the Cabinet of Ministers of Ukraine dated January 27, 2023 No. 76 and November 22, 2024 No. 1332"}^.

The Law has been signed to increase taxes from December 01

On November 28, 2024, the President of Ukraine signed the Law of Ukraine "On Amendments to the Tax Code of Ukraine and Other Laws of Ukraine on Ensuring the Balance of Budget Revenues during the Period of Martial Law" (Draft Law No. 11416-d).

This Law shall enter into force on the day following the day of its publication. The Law was published on November 30, 2024. Effective from December 01, 2024.

Key aspects:

Increase and introduction of the military duty rate from December 01, 2024:
- up to 5% –for hired employees (the rate for military personnel of the Armed Forces of Ukraine (AFU), Security Service of Ukraine (SBU), Foreign Intelligence Service of Ukraine (FISU), Main Intelligence Directorate (MID), State Service of Special Communications and Information Protection (SSSCIP), the National Guard of Ukraine (NGU), border guards, parole officers and the State Protection Department (SPD) remained at 1.5%, while the exemption for those performing combat missions was preserved);
- 10% of the minimum wage as of January 01 of the reporting year –for private entrepreneurs of the I, II and IV groups of the single tax;
- 1% of income for private entrepreneurs and legal entities of the third group of the single tax.

As of the date of this news release, the introduction of the military fee for the said single taxpayers from December 01, 2024 has not been confirmed and is to be introduced by additional amendments to the signed text of the Law. As the published text of the Law indicates, the date of entry into force of these amendments for single tax payers is October 01, 2024.

Establishment of monthly advance payments of income tax (if the owner is a legal entity) and personal income tax (if the owner is an individual) for each gas station in the amount of UAH 30 to 60 thousand starting from January 01, 2025.
The introduction of monthly (instead of quarterly) unified reporting on personal income tax, military duty and unified social contribution. This innovation will start on January 01, 2025.
Increase in the corporate income tax rate for banks to 50% in 2024.
Increase in the corporate income tax rate for financial institutions (except for insurers) to 25% from 2025.

^Source^:^{The Law of Ukraine "On Amendments to the Tax Code of Ukraine and Other Laws of Ukraine on Ensuring the Balance of Budget Revenues during the Period of Martial Law" of 10.10.2024, No. 4015-IX}^.

The NBU has issued an advisory letter on financial monitoring

On November 01, 2024, the NBU provided banks and non-banking institutions with recommendations on identifying tax evasion mechanisms that involve the artificial distribution of a legal entity's business through other business entities, in particular, the involvement of individual entrepreneurs who are entitled to apply the simplified taxation system. Such mechanisms are characterized by certain signs that indicate the relationship between the legal entity and the private entrepreneur.

Key aspects:

According to the NBU, the existence of a relationship between a legal entity and a private entrepreneur may be confirmed by the following signs:
- cases when one person submits a package of documents to a financial institution to establish business relations with a legal entity and an individual entrepreneur, including simultaneously;
- joint address of the location of the legal entity and the private entrepreneur;
- common place of sale of goods and services (address of the store, website);
- the legal entity and / or private entrepreneur have common owners, representatives, accountants, trustees etc.;
- the private entrepreneur usually does not have the necessary resources to conduct business, including business with a legal entity;
- other signs may also indicate the relationship between a legal entity and the private entrepreneur, in particular, the nature of transactions, including their volume, regularity and purpose.
Additional signs may include:
- significant receipts to the accounts of the private entrepreneur from a legal entity or other business entities of the Group;
- payment by a legal entity for the services of the private entrepreneur, the cost of which is difficult to estimate (rent, marketing, information services, advertising, etc.);
- a significant volume of financial transactions on the accounts of the newly created private entrepreneur;
- provision of financial assistance by a legal entity tо the private entrepreneur;
- financial transactions by private entrepreneurs within a short period of time (2-3 months) for a total amount that reaches the maximum amount of income per year in accordance with the selected group of taxpayers;
- consistent performance by a group of private entrepreneurs of the activities specified in the previous paragraph;
- use of one payment terminal of a financial institution by several business entities.
The list of signs is not exhaustive, and also:
- financial institutions have the right to determine independently other signs that may indicate relevant connections;
- financial institutions should not be limited to finding out the list of activities of customers belonging to the Group by CEA, which in fact does not disclose the real / actual nature of each of them.

^Source:^{Letter of the NBU "On Recommendations for Financial Monitoring" dated November 01, 2024}^.

Amendments have been made to the existing currency covenants

The NBU amended its Resolution No. 136 "On Amendments to the Resolution of the NBU Board of February 24, 2022 No. 18" dated November 19, 2024, which entered into force on November 20, 2024.

Key aspects:

Transfer of funds to fulfill obligations under import contracts. Ukrainian companies now have the opportunity to pay for imports of goods without limiting the term of their delivery to Ukraine, provided that the funds are transferred to:
- a foreign export credit agency (ECA) / a foreign state through a person authorized by it / a foreign person whose shareholders include a foreign state or a foreign bank (provided that a foreign state is a shareholder of this bank);
- other non-residents, provided that they participate in import operations (through lending, insurance, guarantee, surety) of a foreign ECA / foreign state through an authorized person / a foreign entity whose shareholders include a foreign state or a foreign bank (provided that a foreign state is a shareholder of this bank).
  The monthly limit for such transfers is set at 10% of the amount of overdue debt under the contract for the import of goods (as of November 01, 2024).
Payments under international technical assistance projects. It is possible to transfer foreign currency abroad to make payments under international technical assistance projects, regardless of which state or organization finances such a project.
Repatriation of dividends abroad. Ukrainian companies may use the possibility of partial repatriation of dividends on corporate rights or shares only if the following conditions are met:
- the period of the issuer's activity from the date of state registration to the date of the relevant transaction is at least 12 months;
- at least 6 months have passed since the foreign investor / non-resident acquired ownership of the corporate rights / shares of the issuer paying the dividends before the date of the relevant transaction.
Use of foreign currency loans to purchase securities denominated in foreign currency. A ban on the use of foreign currency loans for the purchase of securities denominated in foreign currency is established.