- International Company Relocation Opportunities Ukraine
- Ukraine’s Investment Regime Negative And Positive Features
- Ukraine’s Major Industries
- Donbas And Crimea Important Watch Items
- Foreign Investment Amenability And Limitations
- Restrictions On Foreign Ownership And Rights To Private Property And Establishment
- Facilitation Of Business
- Legal Administration
- Judicial Independence And The Legal System
- Regulations And Laws On Direct Foreign Investments
- Compensation And Expropriation
- Dispute Settlement
- Foreign Courts And International Business Arbitration
- Policies On Industries
- Requirements On Data Localization And Performance
- Property Rights Protection
- Ip Rights
- Management Of Collections
- Software Piracy
- Online Piracy
- Trademarks And Patents
- Business Community
- Banking System And Currency
- Remittances And Foreign Exchange
- State-Owned Companies
International Company Relocation Opportunities: Ukraine
Sitting at the junction between a successful, progressive democracy, and a remarkable potential muddled by political exploitation is the Republic of Ukraine, a promising European nation borne out of a hard-fought struggle for economic stability, with its government determined to snake its way tediously towards affirmative financial reforms.
Ukraine’s government decided to navigate through several crucial problems in 2017. These include reorganizing both the government and the Verkhovna Rada (dominant parliament alliance), enduring the military and economic assault from Russia, and bargaining for energy resources in order to power its economy.
Ukraine made concentrated efforts to develop the country’s rating in Business Doing Ease by accelerating reforms on deregulation and rejecting several investment promotion firms. Ukraine’s major hindrance to economic prosperity is the inherent government corruption, and abandoning genuine supporters of change in the battle against influential vested interests who stifle the country’s attempts at government transparency and responsibility. Ukraine is determined to obtain European and American support in multiple spheres.
Ukraine’s Investment Regime: Negative and Positive Features
In 2016, Ukraine’s economy had a reported GDP progress of 1.5% and an IMF forecasted 2.5% growth in 2017. But, the country’s government is still dealing with severe structural predicaments, with its currency Hryvnia struggling to maintain stability despite the dismantling of administrative controls by the NBU, imposed at the aftermath of the Euro-Maidan financial crisis.
There is an adequate local production of basic food and sustenance in the Ukraine, notwithstanding imported supplements such as seeds, as the country depends heavily on the importation of consumer products, automobiles, clothing, and gasoline. There was a prevailing annual inflation rate of 14.2% since March of 2017, but it’s predicted to decrease by 9% before the year ends.
In 2015, Russia announced an ongoing ban on Ukraine’s fruits, chocolate, vegetables, and dairy products, compelling Ukraine to perform a critical reorganization of its exports. In 2013, Ukraine’s exported goods to Russia were at 24%, but have decreased considerably and now constitute only 10% of the country’s total exports in 2016, with the EU as Ukraine’s current leading export destination.
Ukraine’s ongoing battle with Russian backed separatists in its eastern region, coupled with a derelict infrastructure policy in disarray, have led to the pivotal economic devastation that impacted its industrial facilities (centered historically in the Luhansk and Donetsk regions), mines, and freight rail. The damage consequently crippled Ukraine’s exportation of heavy industry, the country’s major source of vital middle-class labor force and foreign currency.
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Ukraine’s industry and consumers have initially depended on industrial and coal inputs from territories controlled by separatists in its eastern region, but in March of 2017 the Ukrainian government decided to ban commercial business with these territories in spite of continued conflict. Ukraine entered the European Union’s Association Agreement, and set forth the Free Trade Comprehensive Area on the 1st January 2016.
As recently as September 2016, Ukraine received three billion USD loan guarantees from the United States, which was initiated two years prior. The IMF signed in March of 2015 a 17.5 billion USD four-year program to facilitate Ukraine’s struggle to implement painful but significant reforms for the next two years which consist of vital rehabilitation on pensions, land reforms, the privatization of SOEs, and additional measures to combat corruption.
Rada has drafted or approved key legislation for a sustained reform of the energy industry, and has signed the Energy Regulator Bill in November of 2016. This led to the eventual creation of an autonomous commission on energy regulation, albeit wrestling to implement the necessary legal measures to enable the rotation of politically designated regulatory administrators.
A long overdue reform was established by the Department of Finance on the 1st April 2017: a digital VAT refund database which promises to make Ukraine’s VAT refund system more efficient and transparent. Rada approved a recent Electric Market Bill as well, which will help nurture Ukraine’s power generation industry once approved and executed.
Ukraine’s Major Industries
After the EU and the United States, Ukraine is one of the world’s leading producers of grain, making it an agricultural dynamo and an attractive market for international investors. Ukraine’s construction sector, along with its overall local industry, has historically been a magnet for FDI in comparison to its manufacturing and exports sector.
However, Ukraine’s manufacturing industry is the 11th biggest producer of steel, food processing, and metallurgy, enticing financiers more than the chemical and machine building industry. Despite sustained progress in revoking oppressive laws and implementing anti-corruption measures, Ukraine is largely considered a problematic region for international trade, although a number of large U.S. enterprises have marked representation in Ukraine’s consumer goods, technology, and agricultural industry.
Ukraine’s Software Research, IT Service, and Development industry are particularly notable, as they have repeatedly demonstrated massive growth year after year. United States tech companies have performed r&d operations in Ukraine, while various types of domestic IT outsourcing firms of all sizes currently service clients from all over the world.
In 2016, Ukraine’s exports business of software development services became a promising economic sector. At present, it is considered the third-largest export industry, with a 15% reported growth in exported volume in 2016 (2.5 billion USD in 2015), powered by Ukraine’s massive, highly skilled workforce.
Donbas and Crimea: Important Watch Items
Russia had illegally occupied Crimea and several Donbas districts during the second quarter of 2014. Investors should note of the extreme devastation in these regions that persists to this day. Both areas have inferior investment systems, represented by incompetent governance and instability. They are devoid of transparency and regulations.
Certain Crimean transactions are subject to authorizations granted by the 13685 Executive Order promulgated on the 9th of December 2014. U.S. businesses are generally forbidden from engaging in such transactions in the region, as media reports indicate Crimean “authorities” have zero respect for property rights. They’ve conducted massive nationalization of financial resources.
After imposed electricity cut off on the Crimean peninsula in December of 2015, Crimeans have since endured scheduled blackouts as a result of the power generation shortage. Local “law enforcers” have been reportedly making commercial conditions in the area particularly oppressive for entrepreneurs and their employees, as ‘authorities” have started to foist foreign policies that require the submission of Russian documents.
Russian-funded separatists wreaked havoc in Donbas (parts of Donetsk and Luhansk oblasts), with companies reporting unlawful taxation, work blockades, and employee kidnappings by separatists, making the current situation in the area intractably hostile. Local banking institutions have discontinued their enterprises in the districts, and the government is simply incapacitated in providing fundamental services.
Volunteers have begun to block operations in separatist-controlled regions, initially funded by Ukraine’s government in January and subsequently supported in March, which led to the eventual stoppage of all operations in the area. Businesses used to employ very limited or expensive methods in order to move products or obtain inputs due to Donbas’ previously damaged railway systems and roads, but since the state-funded blockade has been enforced, all movement and activity of goods and services has stopped completely, including the distribution of coal necessary to sustain Ukraine’s thermal and steel power plants.
Separatists have confiscated energy, metallurgical, and steel assets registered with the Ukrainian government in March. They have conducted operations in non-state-controlled regions, compelling Ukrainians to lay off staff to stay compliant with Ukrainian policies. Water and power deficits are reported by Ukrainians residing in non-state regulated territories as a result of the prevailing conflict, as well as electricity cut offs due to non-payment, and diminishing coal supplies for power generation plants.
Foreign Investment: Amenability and Limitations
Regulations of the FDI: The Ukrainian Government is moving forward and aiming to develop the business and investment climate through a reform agenda. Ukraine is ranked 80th among 190 countries in doing business ease reported by the World Bank. It has improved 3 ranks since 2015.
Under the Ukraine-European Union Association Agreements, public procurement was ameliorated by the Ukrainian government to make it accessible to economic operators, either domestic or foreign, with parity. There is a website run by the MEDT of Ukraine that offers information regarding imminent public procurement.
On the 1st of August 2016, public procurement was introduced and became mandatory. The government sustained the reduction of state regulations and implemented significant CGRs to shield the rights of minority shareholders. There is an exemption to exportations of 50 groups of goods from the Ukrainian List of goods with dual use from manipulation or extreme control measures.
Authorities eradicated illegal restriction on construction licenses’ terms of validity and lessened by 3 times the procedure length for distributing them. The Ukrainian government negated 360 obsolete regulations, orders, instructions, and normative acts to streamline real property lease procedures, to eliminate several notary services fees, and to automate procedures for land evaluation.
The Ukrainian legislation provision of national treatment to FDI is in accordance with its WTO commitments. It has been challenging to prosecute cases in the courts of Ukraine and people frequently pursue adjudication abroad due to inconsistencies in the legislation that administrates investment and business activities in the country, according to foreign investors.
The absence of improvement in reforming the country’s judiciary weighs heavily over the FDI climate of Ukraine. The Ukrainian judicial system and its judicial branch has a lack of autonomy and has always been dependent on other legislative branches. The parliament and the president have been regularly using courts for their encounters or confrontations.
One reason for Ukraine’s Revolution of Dignity in 2014 was the absence of the rule of law. Civil society in Ukraine continues to request penalty to judges that are consciously associated with making unlawful decisions, the assured judicial system independence, and solutions to end corruption. The procedure on judicial reform in the country is ongoing, and the 2016 enactment of amendments to the Ukrainian Constitution on the bench was a big step forward, while the appointment of Supreme Court judges is still ongoing.
However, a major judicial overhaul may take some more years. Media and political analysts define the present Rada as pro-reform and pro-European, having made great strides on reforms that are much needed, including the plan for strengthening the local integrity system, suggested reforms to political party finances, and several sets of rules to pass IMF requirements. Furthermore, the parliament has enacted laws to lessen regulations that impede businesses, boost PPP, entail transparency of media ownership, and develop farm land policies.
Restrictions on Foreign Ownership and Rights to Private Property and Establishment
Apart from agricultural land ownership, domestic and foreign investors have the same regulatory system for operation and business establishment in the country. However, the accreditation and registration of offices and branches of foreign businesses are lagging behind the streamlined registration processes for business in Ukraine.
Accreditation by the Ministry of Economic Development and Trade takes sixty days and normally costs $2,000. In reference to the Cabinet of Ministers of Ukraine Order No.779 date 10.10.13, to be able to start a business or a legal entity, foreign investors are required to obtain an Ukrainian company registration from the Immigration Office in the MFA. A TIN can be obtained from the SFS.
The registration of foreign investments is regulated by the Foreign Investment Act No.139 dated 03.06.13. Domestic and foreign private entities could own and establish business enterprises as well as participate in all types of remunerative works.
Every enterprise should be established accordingly, based on procedures set by the law, as well as listed with the right authorities of the state. Foreign businesses are limited from owning farmland, carrier rocket manufacturing, bio-ethanol production, and publishing activities. Furthermore, the law of Ukraine permits the administration to set restrictions on foreign investments in strategic sectors. However, the wording of the constitution is unclear and the rule is rarely exercised. In general, these restrictions control the maximum allowable percentage of FDI into Ukrainian companies in the energy and defense sectors.
Evaluations of other investment policies: UNCTAD has never organized any formal reviews or evaluations of the investment policy of Ukraine. The OECD and WTO have organized formal evaluations in 2016. The first review of the trade policy of Ukraine as a member of the WTO was organized in 04/2016.
Facilitation of Business
The Central Bank of Ukraine revoked the requirement where three fourths of all assets coming into Ukraine as FDI must be changed into Ukrainian Hryvnia. The bill that ended the mandatory foreign investment state registration was ratified by the President on June 2016.
The government adopted an act that orders a notarial certificate on forms that present modifications to those that are contingent to registration and permits, regardless of the individual entrepreneurs’ and legal entities’ registered address. The law was implemented on 11.02.16.
The Ukrainian government correspondingly abridged the time needed for the registration of VAT and abolished business registration charges in 2016. In the early 2017, the government espoused legislative amendments eliminating the requisite for physical and legal economic entities to use emblems. It made improvement in stimulating protections on minority investors by obliging to go through an external review of the transaction that takes place between parties by presenting solutions in cases of detrimental related-party disclosures, as well as clarifying control and ownership structures.
Contract enforcement was also strengthened by presenting a structure that lets firms make electronic payments for court fees. Commercial disputes concerning foreign firms in courts are still based on monetary authorities confirming the legality of agreements and business partners of foreign firms organizing business in the country. Companies can submit their documents online.
Ukraine is ranked 80th with regards to doing business ease and ranked 20th in terms of the ease with which one may start a business, reported by the World Bank.
Outbound investments: The country’s investments abroad are approximately $6.2B, as of Oct. 2016.
Bilateral investment and taxation agreements: There are seventy BITs signed by Ukraine. The BIT between Ukraine and the U.S is enforced since 1996. Ukraine has also signed BITs with the following nations: Austria (1996), Albania (2004), Armenia (1994), Argentina (1995), Azerbaijan (1997), Belgium (2001), Belarus (1995), Bulgaria (1994), Bosnia and Herzegovina (2002), Brunei (2006), Chile (1995), Canada (1994), Cuba (1995), Czech Republic (1994, revised 2010), China (1992), Croatia (1997), Estonia (1995), Equatorial Guinea (2005), Denmark (1992), Egypt (1992), France (1994), Finland (2005), Georgia (1995), Gambia (2006), Ireland and Great Britain (1993), Germany (1993), India (2001), Greece (1994), Iran (1996), Indonesia (1996), Italy (1995), Israel (1995), Jordan (2005), Japan (2015), Kazakhstan (1994), Hungary (1995), Korea (1996), Congo (2010), Kuwait (2002), Korea (1996), Latvia (1997), Libya (2001), Lebanon (1996), Macedonia (1998), Lithuania (1994), Moldova (1995), Morocco (2001), Nigeria (2010), Mongolia (1992), OAE (2003), Netherlands (1994), Panama (2005), Oman (2002), Portugal (2003), Poland (1993), Saudi Arabia (2009), Russia (1998), Singapore (2006), Slovakia (1994), Syria (2002), South Korea (1996), Slovenia (1999), Spain (1998), Switzerland (1995), San Marino (2006), Turkey (1996), Turkmenistan (1998), Vietnam (1994), Uzbekistan (1993), Yemen (2002) and Yugoslavia (2001).
Regulating government sectors: Ukraine has been struggling to establish a legal body which monitors interactions with foreign communities.
Business organizations, NGOs, and foreign business groups such as the Europe Business Group and the US Commerce Chamber were given the chance to deliver their legal opinion, challenge amendments to regulations, and draft the legislation. The law-making body has overlooked some opportunities to monitor the administrative policies. Because of this, some provisions were not implemented.
Ukraine has been particular about transparent policies. It promotes fair competition and clear rules. Recent developments include the enforcement of the ProZorro approach for government financial assistance, and the promotion of electronic government services.
In August 2016, Ministers ratified a Plan for Business Events in the country from 2016 until 2017. The approach was strategically aiming at national regulations in compliance with EU standards and foreign best provisions. The Plan includes about 110 measures on improving business communities in different areas like telecommunication, agriculture, infrastructure, tax, construction, changes to customs policies, veterinary control and sanitary matters.
The remaining action plans were simplified:
- The electronic processing of forms, like submissions of applications, obtaining permits and storing data;
- The cancellation of some permits in the telecommunications industry;
- The competition agency is mandated to provide transparent policies in business communities;
- The ease of the registration process for foreign investors;
- Engineering and construction activities comply with the EU standards;
- An impressive reduction of legal or controlling authorities.
License processes have been made easy. The Business Promotion Office started as an office to promote and attract investors. However, developments in tax reforms for the past years have gained bigger tax transparency which made the administration more efficient in many aspects.
Regulatory institutions in Ukraine are described as having a high level of influence in terms of government agencies' decisions, the poor judiciary system, poor security of minority shareholders and property rights, irregularities in compensations and bribes, weak government regulation, the inefficient legal system in resolving disputes and poor ethics in some major firms.
In 2016 and 2017, Ukraine has ranked 85th against 138 nations in regards to Government regulations, and placed 99th over 138 countries in regards to Government's Transparency associated with establishing policies. This information was based on Global Competitiveness Ratings.
Ukraine's top 10 issues when doing business have been identified by the World Economic Forum. They are political instability, corruption, inflation, financing, bureaucracy, tax rates, government instability, tax regulations, foreign currency matters, and inefficient government.
Foreign regulatory considerations: Ukraine has been trying to meet the standards of the EU in terms of facilitating trades or businesses aimed to penetrate the EU community. Ukraine is a member of WTO which is committed to follow clear provisions relating to trade and industry.
Judicial Independence and the Legal System
Ukraine's legal system is in accordance with the codes and laws approved by Rada, its parliament. In terms of business disputes, a foreign businessman may ask for assistance from different agencies.
The Foreign Business Law states that an issue between the state and an investor must be resolved using Ukraine's judicial proceedings, unless there are exceptions stipulated in their foreign treaties. The judicial system in Ukraine is composed of general courts and the Constitutional Court. An exclusive jurisdiction on matters regarding the constitution is given to the Constitutional Court. It also acts as a final decision-making body on constitutional matters.
General jurisdiction courts perform their duties according to specialty and territory, which include appellate courts, local courts, special high courts for criminal and civil cases, and the Supreme Court. District or local courts may be considered as general jurisdiction courts or a specialized court. Local business courts have jurisdiction on corporate and commercial matters, while administrative judicial courts focus on legal matters concerning municipalities and state, excluding military disputes.
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As for commercial courts, they have jurisdiction on legal entities' matters, which include Ukraine's legal entities, international legal bodies and common entrepreneurs. Modification, conclusion, performance of business agreements and termination are part of their duty.
These courts are tasked to administer recovery cases and specific proceedings initiated by Ukraine's Committee of Antimonopoly and the Chamber of Accounting. Based on Ukraine's Constitution, the office responsible for heading the judicial system and designated to evaluate the decisions of the courts’ different branches is the Supreme Court.
The judicial office works independently. However, corruption issues still exist within courts, and the judicial system acts as an independent body to oversee these problems. One of the biggest opportunities in Ukraine's judicial system is the lack of competency.
Another issue is the influence of prosecutors on judges, which still exists. Ukraine has ranked 129th from 140 nations in terms of judicial independence from 2016 to 2017. It went 3 spots higher compared to the previous year.
Generally, provisions may be appealed. However, it still depends on some criteria, like the origin and nature of regulation, to see if they are potentially appealable to the next level of the court system.
Regulations and Laws on Direct Foreign Investments
In 1991, Ukraine formed different regulations and laws on investments. Some of the basic principles associated with foreign direct investments are as follows:
- Foreign Business Regime (1996)
- Foreign Investment Protection (1991)
- Foreign Investment Registration Procedure (1996)
- Production-Sharing Provisions (1999)
- The Land Provision (2001)
- Foreign Investment Regulations (2005)
- Amendments of Laws to Overcome Financial Crisis in Ukraine (2009)
- Tax Provision (2010)
- Private and Public Partnerships (2010)
- Implementation and Preparation of Business Projects According to Registration Window (2012)
- Customs Provision (2012)
- Industrial Parks Policy (2012)
- Amendments of Laws to Increase Security of Investors' Rights in Ukraine (2015)
Anti-trust and competition laws: An office called the Committee of Anti-Monopoly in Ukraine is assigned to review transactions related to competition activities.
Compensation and Expropriation
Based on the present legislation, legal acquisition of properties is allowed in some criminal cases or instances where there is a failure in fulfilling investment obligations while in the process of privatization. Private properties may be acquired legally by the government for military use, as long as there is a need in that designated area.
In 2013, Ukraine formed Amendments on Law to Criminal and Procedural Codes which introduced a special ruling. It was meant to be applied over third party individuals in proceedings, over both legal and physical entities. Enforcement of the “special” confiscation has created issues which contradict current legislative policies and make room for abuse during proceedings.
New York conference and ICSID seminar: Ukraine is part of the ICSID and a part of the 1958 New York Conference. In 2015, Ukraine sent an official communication to the UN indicating the country's ability to enforce their obligations based on the NY Convention relating to occupied areas of Donetsk, Luhansk, and Crimea.
The enforcement and recognition of foreign dispute settlement awards in the country is mandated by these laws:
- Ukraine's Law on "Foreign Commercial Arbitration" (1994)
- The Civil Code Procedure (2004). Courts in Ukraine must implement foreign court rulings as long as the enforcement and recognition are under a foreign treaty approved by the Ukraine Parliament.
State-investor dispute settlement: US Investors have established claims before the Ukraine-US Bilateral Business Treaty. Ukraine's Embassy only records disputes upon the demand of United States individuals or businesses who are part of the case. It does not provide comprehensive details to all business disputes which involve foreign investors in the country for the past decade.
Investment cases are considered a major issue. Ukraine's Embassy has been aware of about 30 ongoing cases, some of which were extended for a longer period, which involved US individuals and businesses. In the last decade, Ukraine's Embassy has recorded about 100 cases which involved US individuals or businesses. Most of them were associated with tax and customs concerns, as well as corporate issues.
ICAL restricts the authority of foreign arbitration courts to civil legal cases that are usually from foreign economic activities, cases between enterprises and foreign organizations with foreign businesses in the country, and other cases between companies within the Ukraine. ICAL entertains no cases relating to foreign dispute settlement against Ukraine's government.
Out of court actions committed by government officials against foreign entrepreneurs and illegal acts initiated by private entities have been rampant in the country. At present, Ukraine has focused more on improving the economic aspect, particularly foreign investments, but the progress is not consistent.
Foreign Courts and International Business Arbitration
Ukraine assumed the policy on "Dispute Settlement Courts" which is used as another option to resolve disputes.
Article 1 and Article 5 include the agreement of parties which they can use as reference to any of their civil or commercial cases to courts that are not considered state bodies. As for Article 51, it states that resolutions of the arbitration courts are final. Article 57 states that the ruling is subject to enforcement through a state court. Ukraine's Embassy does not have knowledge of the restrictions on arbitration which involve the business industry.
The Foreign Business Arbitration Court of Ukraine and the Commission of Maritime Arbitration at Ukraine's Chamber of Industry and Commerce are both aligned to ICAL, which is similar to that of UNCITRAL law. ICAL assigns arbitration functions like supervision and assistance among the local courts and the CEO of Ukraine's Chamber of Industry and Commerce for both institutional and ad hoc dispute settlements.
Local arbitration is the only process governed by Ukraine's "Arbitration Courts" Law (2004). District courts are mandated to enforce and recognize foreign dispute settlements under CPC and ICAL, as per the country's obligations under the 1958 NY Convention and the ICSID. However, the consistency, timeliness, and reliability of enforcement are not known. Ukraine's Embassy is not informed about disputes relating to investments which involve state owned enterprises.
Bankruptcy regulations: Ukraine placed 150th in terms of resolving bankruptcy based on the Doing Business report. It dropped from the previous position of 141st in 2016. It takes almost 3 years to resolve bankruptcy based on its average and it costs around 42% of the debtor's property (since 2015). The recovery average rate is 7 centavos compared to around 8 cents from the previous year.
Ukraine's government did not meet 2 consecutive deadlines in its commitment to enact reforms concerning insolvency cases, which the International Monetary Fund has addressed as one of the priorities to improve the country's business climate. The bankruptcy process does not need to be approved by creditors in cases that there is an appointment or selection of a bankruptcy representative as well as an approval of creditors for selling the debtor's assets.
Creditors do not have the rights to get details from the bankruptcy representative. Debtors have the option to appeal to decisions like rejection or acceptance on creditors' claims.
Policies on Industries
Investment incentives: Investments from foreign nationals are exempted from paying customs charges of any kind when importing goods to the country if it involves the company's processing of legal documents. There are limitations which are implemented and import charges need to be paid whenever the business transfers, sells, or disposes their property.
From 2013 up to the first quarter of 2018, Ukraine has provided a 0% Corporate Profit Duty on revenue from programs which aim to generate jobs in certain industries that involve high technology, manufacturing, eco-friendly and export-related businesses. This benefit is given to new programs including the upgrades or reconstruction to present enterprises, with certain provisions related to its investment's value, salary levels, and the generation of employment. Ukraine is lenient in providing rates of depreciation to all fixed assets which include plants, equipment, and property for both domestic and foreign investors.
Trade facilitation / free ports / foreign business zones: Ukraine has no free or special economic areas.
Requirements on Data Localization and Performance
Ukraine has not forced localization rules for foreign Information Technology providers when transferring backdoors or source code into software applications or hardware. The IT's overall regulation in Ukraine in terms of ISP and IT infrastructure is unregulated and free. However, piracy on the internet is common and unlicensed software use is rampant in the country.
Ukraine's regulatory framework is aligned with the Security of Individuals Convention in line with Electronic Personal Data Processing (1981) which has been practiced by Europe's Council. Ukraine also adopted the personal data protection law in 2011.
The policy was based on EU standards on protecting individuals in terms of personal information processing. However, this process is more detailed in terms of legislation for data security in the country.
The basic principle applicable to data processing includes all processes in storage and data collection. Personal information may be moved to foreign data processing provided the countries involved have a high level of security in terms of data protection and have relevant permission, comparable to 95/46/EC Directives. The receiving party must use the personal information for the similar purpose indicated before it was obtained.
Personal Data Protection Law forbids personal data processing of the following:
- Ethnic origin, race, and nationality;
- Religious, political, and philosophical beliefs;
- Affiliations in political party and other related organizations;
- Sexual preference;
- Genetic data;
- Biometrical data.
The law allows certain cases where sensitive data are permitted like:
- Party gives consent to process sensitive data;
- Sensitive data processing is a requirement within the guidelines of labour relations;
- Party made the sensitive date available to public.
Additional provisions on personal information security is comprised of Law on Information, Ukraine's Constitution, Information and Telecommunications System Protection, and other laws which are normative and have a legal basis.
Government Offices working on data protection services are:
- Ukraine's Commissioner of Human Rights (takes control on personal data processing);
- Ukraine's State Service on Personal Data Security (was stripped of the authority to control functions and presently works on general advisory tasks);
- Ukraine's Special Communications and Protection of Information (focuses on the security of encrypted information and e-signatures);
- The Commission of Information and Communications (works on concerns related to internet access regulation).
Property Rights Protection
Real property: Ukraine’s legal system provides security for property interests, liens, and mortgages. It maintains a generally creditable record system managed by the Department of Justice. However, judicial rehabilitation is still necessary to guarantee competent property rights implementation.
The launch of the 2012 Land Cadaster Bill, signed into law and executed in 2013, established a singular land database and started crucial amendments in protecting land proprietorship. The Department of Agrarian Regulations embarked upon an extensive land examination due to the LC law being only 20% utilized. Local media groups reckoned 5% of Ukrainian land is lacking a definite title. Ukraine’s Doing Business rating in property registration dropped in 2017 from 62 the previous year to 63 according to the World Bank report.
Because of its arrested development in the following matters, the USTR conducted a Special 301 report in 2013 and designated Ukraine a Priority Foreign Country. However, this classification progressed to the list of Priority Watch in 2014 and continued until 2016.
Ukraine has displayed modest progress on matters of IPR reforms, yet it continues to struggle in alleviating major IPR challenges. Ukraine is plagued by large online pirate websites, and numerous swindlers operate extravagantly online, collecting royalties and refusing to distribute them to valid rights holders.
Deputies of industry approximate a large portion of public performance. Broadcast markets are not licensed. Additionally, the proliferation of digital piracy has nurtured numerous open-air marketplaces that thrive by selling illegally copied entertainment software, films, and music.
Ukraine’s government itself made small attempts to authorize its business operating system. It confesses government firms and ministries use roughly forty to eighty-percent unlicensed computer software.
Management of Collections
Ukraine acknowledges the massive challenges posed by freely operating societies of rogue collectors, unauthorized organizations fraudulently collecting royalties that refuse to reimburse their legitimate rights holders. These societies often conduct their illegal business without sufficient transparency, and the Ukrainian government has yet to prosecute anyone involved, not oven organizations the state has determined to be lawfully collecting royalties.
Fifteen rogue CMOs have been carrying on with their illegal enterprises despite government attempts to terminate them. The MPAA believes over ninety percent of public performance and broadcast markets in Ukraine operate without a license, and government officials state this is due mainly to broadcasters not paying into the presently corrupt royalty collections system.
WIPO, in collaboration with the MEDT, has redrafted a new Ukrainian legislation in order to create a new system of collection management and keep it in line with the country’s international responsibilities. MEDT predicts the international community will conduct a draft review in 2017, and until the draft is approved, the current CMO law will continue to be in effect.
Ukraine is fully aware its government exploits a large percentage of unlicensed computer software and understands the need to utilize legitimate programs, as evidenced by the repeated official dispatches it has issued since 2002 reiterating the urgency to legalize such software. Recent industry analysis indicates Ukraine has a high rate of software piracy compared to the vast majority of nations.
Generally, Ukraine’s massive problem continues to persist, with very little development. Its government has declared accumulative software legalization done on several public offices and agencies during the previous year, legalizing nearly 20,000 programs and systems in the process.
The U.S. has reiterated its robust opinions on the critical battle against increasing copyright and online piracy, the latter having devastated not only Ukraine’s market but causing lasting negative consequences to international commerce as well. In 2016, despite existing anti-piracy regulations, Ukraine failed to prosecute even a single individual in connection with an online piracy crime.
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The Parliament approved the passing of “On State Support to Cinematography” in March of 2017, consequently granting ISP accountability and establishing a process of notification and closure. Once signed by Ukraine’s president, the law would greatly improve the tumultuous, lawless online climate in the country.
Trademarks and Patents
A guaranteed security of copyrighted and trademarked goods is only granted until the rights holder has accomplished a paid registration on the Customs Service database. The majority of fake goods originate from outside of Ukraine.
Counterfeit products, especially apparel, remain extremely common, and are readily available and openly sold in tangible marketplaces even while advertised as trademarked. The volume of fake pesticides, for instance, constitutes a large market percentage based on industry reports, and persists in its unhindered growth.
Industry analysis concluded the systematic criminal prosecution of counterfeit violators is slow and ineffectual, and confiscated items are rarely promptly released or disposed of. Until recently, plant patents have specifically been targeted for fraud, with industry reports looking into possible infringement of breeder rights and illegally sequestering plant resources originating in Ukraine.
The legal system for protecting IPR: Civil IPR litigation cases are uncommon due to both a lack of judges versed in IPR legislation, as well as the public’s general distrust of the Ukrainian judicial system. Industry administrators and law enforcement criticize that the vast number of IPR cases simply culminate in small penalties which fail to discourage criminality. There have been instances of infringing entities that have achieved positive court determinations through suspicious means and may have violated other companies’ trademark and patent rights.
Portfolio investments and capital regime: Ukraine has a small, relatively inconvertible market for capital portfolio investments, while its local government investment industry, which includes private pension investments, is prosaic at best. For international financiers planning to establish portfolio investments in Ukraine, it is necessary to open a Ukrainian bank account or transact with a local entrepreneur.
The NBU approved a bill in September 2014 that will indefinitely restrict Ukrainian issuers from transferring receipts of securities sale, with the sole exception of traded securities at stock exchanges. This measure remained in effect until the 1st April 2017, despite its expected expiration in June of 2016.
Ukraine sustained nine of its 10 privatized, operational stock exchanges, four of which traded in large volumes. These stock exchanges operate in adherence to international business guidelines, which subsequently created increased competition in the industry.
Transactions with state bonds constitute 89.15% of traded securities, with the rest being corporate bonds, investment certificates, derivatives, shares, and NBU depository vouchers. The overall volume of traded shares failed to reach 1% of GDP revenue in 2016, with the rest of stock exchanges serving mainly as “pocket exchanges” depending on profits garnered from the sales of SOEs.
The growth of factor and product markets is independent on the financial industry’s flow of resources, which is not encumbered by any legal limitations. Foreign investors are permitted to obtain credit and exploit numerous credit instruments on the domestic market, where credit is primarily appropriated based on market conditions. However, both foreign and local investors are still subject to a profound uncertainty, as Ukraine’s commercial market shows very little signs of transparency, handicapped by inept laws enforcing and equally inept regulations.
Banking System and Currency
The NBU enforced a critical reorganization of Ukraine’s banking system during the years following the Maidan banking industry crisis, shutting down over eighty banks for money laundering charges or bankruptcy. PrivatBank is Ukraine’s leading deposit holder and lender. It was the direct result of the NBU’s successful intensive sterilization of the banking sector carried until 2016, eventually culminating in its nationalization before the year’s end and propelling Ukraine on its voyage towards financial security.
The year 2014 saw 163 banks active in Ukraine’s financial system, which decreased to 96 in 2016. Ukraine’s total banking industry investments are approximately 52B USD, with the leading twenty banks accounting for 88% of the industry’s assets.
After PrivatBank’s nationalization, Ukraine’s four government-owned banks gained control of 52% of total banking investments, 59% of individual securities, 60% of the government banks’ branch networks, 46% of legal companies’ funds, 48% of credits granted to legal companies, 76% of state bonds, 29% of credits issued to individuals, and 74% of all payment cards.
A total loss of 160 billion UAH (6 billion USD) has been recorded by Ukraine’s banks in 2016, which hindered credit availability to local businesses and households. The portfolio composed of loans given to individuals per bank decreased by 3 billion UAH (111 million USD) in loans dominated by Hryvnia, and by 600 million USD in loans dominated by foreign currency.
There was a lending portfolio increase of 75 billion UAH (2.8 billion USD) on businesses dominated totally by Hryvnia and a decrease of 4.2 billion USD on loans led by foreign currency. The NBU stress analysis suggests that NPL shares constitute 50% of Ukrainian banks’ loan portfolio at present. The NBU is committed to strengthening the industry’s prudential capital prerequisites and continues working on unwinding associated party lending posts.
Banks with foreign licenses may proceed with transactions managed by local banks, and no restriction is imposed for participating in the banking industry, such as conducting business through subsidiaries. Foreign entities may establish a Ukrainian bank account for investment operation purposes, and if unable to, the business is required to apply for a representative agency in the country. Foreign nationals are permitted to open an Ukrainian bank account.
Ukraine’s legislation provides protection for both foreign and local businesses against “raids” or violent takeovers.
Remittances and Foreign Exchange
Ukraine's National Bank gradually updated its currency controls in 2016 into lesser restrictions, particularly on dividends, to help strengthen it after the global economic crisis. Ukraine allowed the flow of dividends from foreign investments in 2014 to 2015. It amounted to about 1 million USD or 10% of dividends (whichever is higher) each month, with a maximum amount of 5 million USD if 10% of dividends exceeds the amount.
The National Bank of Ukraine gave permission to the dividend flow for prior years to 2014 until 2016. Based on the bank's management, the CB is responsible for evaluating amounts based on inputs from financial institutions to decide the schedule for upcoming repatriations.
There was a reduction of sharing foreign currencies from overseas which was subject to an immediate conversion to UAH from 75% to 65%. The mandatory process was applicable only to the biggest convertible currencies involved, like EUR, USD, CHF, and GBP. Currencies credited to bank accounts that have joint ventures with any Ukraine bank are subject to an automatic conversion.
The policy did not have any classification of transfers (which includes foreign investments), any proceeds sent to the state, loans from international banks, correspondent account funds, and foreign bank deposits in the Ukraine. In 2017, the National Bank of Ukraine informed that mandatory foreign exchange sales shares are going to decrease from 65% to 50% and will be removed soon. Currency restrictions and other changes include the following details:
- A maximum daily withdrawal amount of 100,000 UAH is allowed by the bank whether it is bank metals or foreign currency.
- Individuals may purchase precious metals or foreign currency with a maximum of 12,000 UAH in cash.
- The withdrawal restriction was lifted from bank accounts in Hryvnia. It has a previous daily limit of 500,000 UAH.
- There was an increase in the limit for firms which purchase currency ranging from 10,000 USD to 25,000 USD. It was raised to 100,000 USD in 2017.
- For currency purchases over 50,000 USD, individuals need to obtain approval from the NBU which is also subject to evaluation until the transaction is completed.
- In 2016, Ukraine's government removed the 2% pension tax applied on foreign currency exchanges.
The National Bank of Ukraine has decreased the number of terms for advanced applications for foreign currency purchases from 2 days to a day. The process still requires approval from the bank to prevent any mismanagement of the capital.
Certain limitations were still in effect, like prohibiting an early repayment of loans in cross-borders, a complete ban on the sale of Ukraine's shares in LLC by foreign businesses, and a prohibition of purchasing foreign currencies of an amount exceeding 500,000 USD when taking a loan in Hryvnia (which requires a letter including credit information).
Sovereign wealth fund: Ukraine's administration does not have sovereign wealth funds.
Among the 3,350 listed SOEs in the country, the government has 1,832 operational SOEs with a production amounting to 10% of the GDP. State services are one of the biggest in Europe, according to the MEDT.
The state employs 900,000 individuals and holds 50%+1share of state-owned enterprises described as companies. State-owned enterprises are dynamic in areas of infrastructure, energy, and machine-building. Companies consist of turbine manufacturer (Turboatom), power generator (Centerenergo), as well as Oil and Gas Company (Naftogaz) and its branches, such as Ukrnaffa and UkrGasVydubuvannia, the local oil producers that hold considerable stocks of their own markets.
There has been no common available record of all state-owned enterprises in the country. Every single Ministry issues the record of state owned enterprises under its administration. The sector has been incompetent and frequently unprofitable.
The increasing loss of top 100 SOEs declined from 119B UAH ($5.5B) in 2014 to 42.6B UAH ($1.95B) in 2015, according to the Ministry of Economic Development and Trade of Ukraine. On 02.18.16, the parliament accepted a law to increase the standards of corporate governance of SOEs, as long as they have obligatory independent audits. Also, all results must be published.
The government ministries of Ukraine espoused measures for the formation of an independent board of directors in SOEs on 03.10.17. Measures are designed to form an independent board of directors. This board will autonomously create longstanding strategies for state-owned enterprises, assign management officers, assess work, designate an independent accountant, and lessen interference in SOEs’ operations from various political forces.
Based on these measures, the independent board of directors should be formed in economic entities and SOEs with more than 50% state ownership, more than 2B UAH ($74M) in assets and 1.5B UAH ($55.5M) net profit produced in the preceding year. Other businesses and unitary companies can form an independent board of directors with their management’s discretion.
State-owned enterprises procure and supply amenities to private and foreign firms. Fair procurement by state-owned enterprises has improved noticeably after revisions of the public procurement legislation, in April of 2014, which required state-owned enterprises to adhere to procurement guidelines. Ukraine approved the World Trade Organization Agreement on Government Procurement on 03.16.16.
Most state-owned enterprises depend on subsidies from the government to operate, and are unable to vie directly with private companies. Among those that have the ability to make profits, many have been privatized already.
The Ukrainian government has profoundly subsidized its SOEs (particularly in the communal heating, gas, rail transportation, and coal mining sectors) and has sustained debts of several state-owned enterprises with sovereign guaranteed loans. The government tautened its implementation and enhanced the budgetary discipline of several SOEs.
The access of state-owned enterprises to tax extension deadlines is still non-transparent, mainly where state owned enterprises are instructed to vend their merchandise at predatory prices. SOE senior executives typically report straight to the pertinent ministry that has the right to assign the management of a company.
The law of Ukraine stipulates ministries are forbidden to impede SOEs regular economic activities. However, there are reports that this curb is frequently disregarded. Ministries can adjudicate the liquidation, reorganization, and creation of state-owned enterprises, espouse and impose SOE charters, cancel and conclude agreements with state-owned enterprise executives, authorize forming business entities with the government, and organize tenders to split state property into municipal and national levels.
Revisions to the Joint Stocks Companies Law, effective March 2015, permitted holders with 50%+1 shares in a firm to call a special meeting of shareholders. This lets the state increase its management control system over certain state-owned enterprises, where minority shareholders gained managerial control, particularly at UkrNafta (a local oil producer). Ukraine’s judicial reform is behind time, and an effective protection system for the rights of investors is absent. There are disputes concerning state owned enterprises.
The Ukrainian government is planning to expand the company list lined up for privatization aiming to boost the efficiency of management. The amendment of the present legislation in 2016 permits the SPF to employ foreign consultants. It increments fair value accounting, eradicates the obligatory requisite to sell 5% to 10% of privatized entities through a security exchange, and interdicts Russian as well as companies offshore from joining privatization in the country.
The SPF supervises privatizations. Privatization laws are applicable to both domestic and foreign investors, and theoretically a comparable state of equality exists.
Spectators state several occurrences of previous privatizations altered in the pre-qualification bidding process. There are statements made by the present government of not having to revise any previous privatizations. However, several legal cases have appeared in which private firms are encouraging earlier privatization.
The Ukrainian government has established a list of state-owned enterprises for privatization in 2017. However, there are several reasons why the State Property Fund is unable to begin preparations for privatizations. These include:
- Several state-owned enterprises prioritized or eligible for privatization,
- A store and forward delay of state-owned enterprises from their respective Ministries to the State Property Fund,
- Poor state-owned enterprise conditions,
- An absence of demand regarding minority shareholdings,
- A delayed adaptation of rules that would escalate privatization in line with international standards.
Nonetheless, the State Property Fund, the Ministry of Economic Development and Trade of Ukraine, and its international partners have established a new rule on privatization that would substitute the present 7 laws. It involves punishment for stalling transfers of assets by Ministries to the State Property Fund, and curbing bid security deposits from 5-25% to 5%.
The time limit for application and due diligence is stretched to 180 days. Based on the new rule, there should be only 2 types of privatization, small and large. Roughly 50 firms with at least 2B UAH assets and 1.5B UAH in cash are included in large privatization.
An advisor will outsource the trading of large companies and will offer the base price, due diligence, and documentation to the State Property Fund. The Tender Commission formed by the SPF, including the representatives from the organization and Ministries, will then receive the package.
Only the State Property Fund may regulate the Commission and not the Council of Ministers or law. The Commission may discontinue the process of privatization. It may approve a base price by a majority of votes and forward the result to the Council of Ministers for the next step. It can increase the base price, but it cannot lessen it.
The budget gained from privatization in 2014 was around 447M UAH ($37.6M), in 2015 it was 167M UAH ($65M), and 189M UAH ($7.39M) were recorded in 2016.
Effective Business Management
The Ukrainian public is increasingly becoming aware of corporate social responsibility (CSR) and other internationally approved guidelines for responsible business conduct (RBC). This initiative for public awareness was driven primarily by Ukraine’s dynamic civil society, along with international investments and entities. Efforts were made by a variety of corporate entities such as Europe’s Business Association and the United States’ Chamber of Commerce.
Non-government organizations, such as the United States Chamber of Commerce, have established general guidelines on business conduct applicable to all companies who are members of the organization (roughly 900). They also fortified RBC protocols. The United Nations Global Compact Initiative and East Europe Foundation, on the other hand, succeeded in educating Ukrainian entrepreneurs on the possible long-term advantages of CSR.
The Ukrainian government announced it will prioritize the establishment of a more comprehensible investment climate that is more conducive to businesses and grounded on internationally approved standards, which will include consumer protection, labour rights, environmental protection, and other RBC-supported protocols.
The government’s ability to carry out and execute the regulatory and legal system remains a challenge. Despite setting forth a business management framework to protect investors and shareholders, these are voluntary corporate decisions rather than obligatory ones.
Ukraine entered into an agreement with the OECD on the 27th of March 2017 to bolster the investment environment. On the 15th of March, it succeeded in becoming the 47th nation to comply with the OECD’s Decisions and Declarations on Multinational Enterprises and international Investment.
A number of independent worker unions, business associations, investment funds, and NGO’s have monitored or promoted the RBC. Any instances of restrictions or sanctions on such ventures are unheard of.
Ukraine joined EITI. However, Ukrainian companies’ participation remains voluntary. The parliament, by a small number of votes, agreed to turn down a recent legal initiative and consequently postpone the required engagement with EITI.
It is not expected to be approved or voted again by the Parliament any time soon. Ukraine is not a member of the Voluntary Principles on Human Rights and Security.
The following is a list of major legislation and determinations that comprise the anti-corruption regulation in Ukraine:
- Ukraine’s constitution;
- 13th of June 2000 Resolution No. 950 by the Cabinet of Administrators – upon approving the process of implementation of official inquisition on local and / or state officials;
- 29th of April 2015 (2015 to 2017) Resolution No. 265 by the Cabinet of Administrators – post-approval of Ukraine’s project on the government’s Anticorruption strategy;
- 11th of February 2016 Resolution No. 65 by the Cabinet of Administrators – post-approval of Rules on Ethics for public administrators;
- Ukraine’s Criminal Code, Chapter XVII – criminal activity within professional and public spheres in connection to public services’ supply;
- Ukraine’s Procedural and Criminal Code;
- 30th of June 1993 No. 3341-XII, as stated in Ukraine’s policy on legal and organizational foundations of the battle against organized criminality;
- 18th of April 2013 No. 221- VIII, with amended articles 370, 369, 368, and 354 of Ukraine’s Criminal Code – on certain amended Ukrainian laws in relation to setting forth a nationwide legislation to compel adherence to the Criminal convention’s guidelines on anti-corruption;
- 7th of April 2011 No. 320- VI – on amending specific Ukrainian laws involving accountability for anticorruption strategies;
- Resolution No. 1380/5, 23th of June 2010 – post approval of legal drafts and their anti-corruption procedure and expertise;
- Ukraine’s bill on public services, Resolution No. 3723-XII, 2nd of December 1996 ;
- Ukraine’s Law on citizens’ appeals, No. 393/96- VR, 2nd October 1996;
- Ukraine’s Law on public information access, No. 2939-VI, 13th January 2011;
- Ukraine’s law on fundamentals of government anti-corruption policies 2014 to 2017, No. 1699-VII, 14th of October 2014;
- Ukraine’s Law on prevention of corrupt practices, No. 1700-VII, 14th October 2014;
- Ukraine’s law on the country’s National Anticorruption Ministry, No. 1698-VII, 14th October 2014;
- Ukraine’s Law on the amendment of specific Ukrainian legislation concluding the absolute beneficiaries of politically vulnerable persons and legal entities, No. 1701-VII, 14th October 2014.
Despite Ukraine’s success in reducing government corruption in procurement and establishing law enforcement offices to combat corrupt practices in the public sector, its economy remains burdened by systemic corruption. Among 178 countries analysed by Transparency International in their 2016 Corruption Perception Database, Ukraine occupied the 131st place and scored 29 out of one hundred in the public’s perception of corruption levels in the government.
This is a 2-point progress from the country’s score in 2015, which TI associated with Ukraine’s initiative in the e-declaration process allowing citizens to view and access assets information on senior public officials and politicians.
Ukraine has implemented a number of recent anti-corruption firms indicated in a prior review: SAPO, NAPC, and NABU. NABU is notorious for its autonomy. However, negative perception is burdening the NAPC. It is believed to be politically inflexible and poorly supervised.
NABU’s initial results consist of 25 recent criminal offenses referred or turned over to local courts, 245 cases pending investigation, and one hundred people informed of their suspected involvement in corruption related violations. Reports suggest Ukraine lost a total of 75.45 million USD, 41 million UAH, and 7.1 million Euros through seizure.
Additionally, two property networks, 50 commercial buildings, 94 land plots, 35 automobiles including 2 aircrafts, and 37 apartments were confiscated as well. Roman Nasirov, the government’s Fiscal Service deputy, has been arrested by NABU and is currently being investigated.
Despite public officials assuring the public of their engagement in anti-corruption programs, anti-corruption advocates bemoan Ukraine’s incompetent prosecutorial agencies and their failure to prosecute even one major corruption litigation since the Revolution of Dignity in 2014.
Ukraine introduced the “e-asset declaration” scheme mandating government officials to submit a declaration of electronic assets and permitting the Ukrainian public to access such information on a public online site, including senior civil administrators and political figures. Almost one million Ukrainian public officials, virtually all executive parliament members and major leaders, have turned in their 2016 e-declarations by the 1st of April 2017. NABU, in January, undertook the inquisition of twenty-five state administrators based on e-Declarations submitted in 2015.
On 27th of March, President Poroshenko approved a vague legal modification to the “Law on Prevention of Corruption” that mandates program beneficiaries and non-governmental supporters of anti-corruption to submit e-Declarations of their own, spurring fear among activists and government attempts to debilitate anti-corruption support and undertake politically-motivated investigations.
To secure the extensive progress of anti-corruption efforts, Ukraine initiated several methods to reform the organizational functions of agencies most vulnerable to corruption, such as public procurement, SOEs, and the judiciary, among others. In 2015, Ukraine launched a pilot program called ProZorro, the country’s public e-procurement scheme. This made public procurement more transparent and efficient.
In July of 2016, public offices such as the police, energy, infrastructure, defence, health, and customs, have received over 85,000 tenders as awards via the ProZorro scheme, and since the 1st August 2016, all contacting firms are required to utilize e-procurement for every transaction, regardless of the attained threshold.
Ukraine cooperates in foreign campaigns against corruption activities. Ukraine approved the European Civil Law Council on Corruption in 2005 and also became one of the members of Europe's States Group against Corruption. GRECO decided to publish its report about the 1st and 2nd Rounds of Ukraine's Evaluation, 3rd Round Report in 2011, and 4th evaluation published in 2012.
Ukraine's administration participated in campaigns against corruption and joined up with Central Asia and Eastern Europe through the OECD. Its government passed policies to approve the European Council of Criminal Law Conference against Corruption in 1999 as well as the UN's Anticorruption Conference in 2003. These conferences are expected to take effect when additional legislation is implemented. However, Ukraine did not join the Campaign against Foreign Public Officers with Bribery Cases in an International Business Setting.
References to corruption cases: Starting with 2014, the Bureau of Anti-Corruption is where such cases are filed or submitted.
Political Environment and Security Measures
Ukraine and Russia's conflict in Luhansk and Donetsk continued until 2016. Citizens who resided in rebel-controlled territories were prone to violence. There were civilian casualties whenever there were attacks in their area.
Ukraine does not have control of its border, specifically in Luhansk and Donetsk, which gives Russia easy access for its soldiers and weapons. Russia continues to occupy Sevastopol City and Crimea's Republic illegally.
Protests were witnessed against the administration in 2016 as a result of an economic condition which affected most businesses and individuals in Ukraine. Generally, protests ended peacefully and only a few violent incidents were reported which involved a controversial journalist and one previous Russian public official.
In politics, Ukraine's leading coalition remained the authority but somehow needed the support of the opposition to achieve the necessary votes in aiding legislation. The opposition continued to form new movements in 2016 but the agenda was not aligned to the present coalition, in a ruling which may compromise the country's political stability.
Labour Practices and Policies
Ukraine has produced a highly skilled and well-educated labour force of approximately 26 million individuals. It has a close to 100% literacy rate. As of 2016, the rate of unemployment of people aged 15 to 70 years old had an average of 9.2%, and the rate of unemployment for working individuals had an average of 9.5%.
In some areas, the unemployment rate was higher, specifically in central and western Ukraine. In December 2016, the Employment State Service documented about 390,000 jobless individuals and an estimate of 320,000 unemployed who received financial assistance from the government.
Based on statistics, the number of people who registered to get financial benefits should have only been 1.5% during the last quarter of 2016. Ukraine's unemployment benefit has allocated 75 USD for each individual. However, as the unemployment issue continues, it affected eastern regions.
This was evident because a lot of big firms were reducing the number of employees during the economic crisis, which led to losing connection to Russian markets as one of the results. For the record, there were companies which were reported to be robbed, destroyed, and moved to Russia.
In terms of compensation, Ukraine has low standards compared to Western countries. During the last quarter of 2016, the average monthly salary of an employee was increased by almost 24%, amounting to 240 USD or 6475 UAH, while the actual average of the compensation was increased by almost 12% in the same year.
Employees who have the highest compensation can be found in the aviation and financial industries while the lowest compensation comes from government health employees and agricultural workers. In 2017, the total salary arrears in the country were reported at 1.80 billion UAH or 66.30 USD, about 74% of it pertaining to the industrial sectors and about 10% from the storage, transportation, courier, and postal services. More than half of the salary arrears were from the eastern part of Ukraine, particularly in Luhansk (23%), Kharkiv (12.9%), and Donetsk (14.7%).
Minimum wages: Ukraine's minimum monthly wage was 1,378 UAH or 51 USD from January up to April 2016. It increased to 1,450 UAH or 54 USD during the same year in May until December. Starting with 2017, private company employee’s minimum wage was increased to 3,200 UAH or 119 USD. The hourly rate was 8.29 UAH (0.31 USD) in January to April 2016. It increased to 8.69 UAH (0.32 USD) on May 2016 and further to 9.29 UAH (0.34 USD) before the year ended.
Some workers were reportedly receiving below the minimum wage in informal sectors. Poverty levels increased during the same year, people earning 1,330 UAH (49 USD) to 1,399 UAH (52 USD). Based on the 2017 national budget, the expected wage of each individual per month in January 2017 was 1,544 UAH (57 USD). In May, it was 1,624 UAH (60 USD) and in December 1,700 UAH (63 USD).
Labour relations: Ukraine enforces laws which allow workers to form and organize unions, which is common to most companies. These laws include their rights to join unions and have collective bargaining agreements without the authorization of the government.
Agreements are usually completed within their regions. Based on statistics, almost 80% of workers were under the collective bargaining agreement in 2014.
On the other hand, the liberation of unions from employer or government control was disputed. Liberated labor unions suspected the Federation of Progressive Unions of having a comfortable relationship with members and employers of several political parties.
These independent labor unions renounced a share of unclear labor union assets that the FPU inherited from the Soviet Union era. Some workers who rejected affiliation to the FPU and merged with a new union are facing redundancy, pay cuts, and unwanted work assignments.
The law defined a minimum age of 16 for regular employment. Light work may be performed by children with the age of 15 only with parental consent. However, the term was not clearly defined by law.
According to the law, children 14 years of age are allowed to work as apprentices in vocational training settings. The most common labor law violations for minors are: dangerous conditions, long working days, delayed wages, and inability to uphold work records.
Throughout 2016, labor laws were enforced by the State Labor Inspectorate, the State Employment Service and its precursor. Examiners were tight in number as well as in funding.
In 2016, the Ukrainian government rehabilitated labor inspections, both unplanned and planned. The total number of finished inspections is decreasing, and experts consider it to be insufficient compared to the economic size of Ukraine.
The right to strike was provided by law in order to protect one’s social and economic interests. In general, the government respects this right, so strikes should not compromise national security, public health, liberties, and the rights of others. People of the Prosecutor General’s Office, armed forces, transportation sector, law enforcement agencies, security services, as well as public servants have no right to strike. Labor force striking in forbidden sectors may be imprisoned for up to 3 years.
The NMRS was established by law to resolve employment disputes. Based on an official statistic in 2016, the Service settled 106 employment disputes, such as:
- 1 national,
- 2 territorial,
- 103 Enterprise-Level, including 2.1M workers and 11,465 economic entities, 16.7% associated with salary arrears disputes, 11% associated with dismissal and employment process violations, 6% regarding employment safety, etc.
The NMRS resolved 139 social strike movements and 4 strikes that had generally economic demands in 2016.
Insurance Investment Programs and OPIC
The United States-Ukraine OPIC Treaty was ratified in 1992 in Washington. In 2009, OPIC mediated a long overdue dispute and reestablished its agendas in the country after a prolonged interval. It established a treaty allowing the UDN to function as an instigator for an evolving coalition with the private sector intended to sustain SMEs growing into developing markets abroad, in 2010.
At present, OPIC offers political risk insurance to some American companies functioning in the country and is capable of insuring other qualified American investors if insurance was requested. The Export-Import Bank of the United States Board opened services for a short / medium term for sub-sovereign and commercial projects in 2002.
The country is an affiliate of MIGA. There is an active OPIC project pipeline across several sectors. OPIC’s project pipeline from Fiscal Year 2016 & 2017 included some projects amounting to $865M, with several possible projects in the initial stages.
Statistics of Foreign Portfolio and Foreign Direct Investments
In January 2017, Ukraine's total number of stocks of Foreign Direct Investment were 47.77 billion USD or around 1,121 USD per capita, which is 17% growth based on UkrStat official statistics. Most of Ukraine's FDI in 2016 was coming from foreign parent firms reinvesting some financial institutions in the country.
Foreign direct investment by country: Ukraine's has a few major business players. 70% of accounted investments include: Cyprus (9.7%), Federation of Russia (37.8%), Great Britain with 9.2%, Austria (5.7%), the Netherlands with 5.8%, Italy with 4.8%, Hungary with 4.3%, Switzerland with 2.5%, the British Virgin Islands with 3.2%, and Turkey (with 2.3%).
US investment was 1.9% of Foreign Direct Investment in 2016. Some Russian and Ukrainian companies opted to make room for investments through the help of Cyprus, since there was a previous bilateral treaty with this country.
Cyprus and Ukraine ratified the Double Taxation Conference in 2012 in replacement of a bilateral treaty dated 1982. With regard to the new agreement, approved by the government in 2013, the highest income achieved by Cyprus was taxed with approximately 5 to 15%. This reduced the tax discrepancy between Ukraine and Cyprus. While Ukraine previously informed its intentions to implement a 12% tax on companies which have offshore locations (intending to generate an increase of tax collections to benefit the Pension Fund), it did not include Cyprus among those countries.
Foreign direct investment by sector location: About 64% of Foreign Direct Investment in the country is into insurance and financial sectors to help foreign banks in recapitalization. 11% of it was into automobile repairs and the trading industry, while 10% was intended for other industries.
Ukraine's foreign direct investments: In 2016, the Foreign Direct Investments of Ukraine amounted to about 6 billion USD. 93% of Ukraine's investments, 5.8 billion USD, was reported to be significant through the help of Cyprus.
Russia was the main destination of Ukraine's FDI. It has 2.2% FDI coming from Ukraine, 1.1% from Latvia, the British Virgin Islands with 0.8% and Poland with 0.8 %.
Macroeconomic Indicators of Ukraine (GDP):
- 2016- 93.2 billion USD (9.8%)
- 2015- 90.62 billion USD (-31%)
- 2014- 131.8 billion USD (-28%)
- 2013- 182 billion USD (3%)
- Per Capita in 2015- 2,081 USD (-29%)
- Per Capita in 2014- 2,964 USD (-24%)
- Per Capita in 2013- 3,900 USD (4%)