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The new law on business deregulation was adopted in Ukraine

11 March, 2015 Newsletters

 with updates as of April 20, 2015

On April 05, 2015 the new law No. 191-VIII “On Amendments to Certain Laws of Ukraine regarding Simplification of Conditions of Business Activity (Deregulation)” dated February 12, came into force.

In the following article we would like to draw your attention to the most interesting novelties of this law amending 37 Ukrainian laws on business activity.

Amendments to the legislation in the area of agriculture and land relations

The declared purposes of amendments in legal regulations of agro-industrial complex include encouragement of the efficient use of agricultural lands and simplification of lease relations, as well as approximation of the laws on production and trade of organic agricultural products into compliance with the EU regulations.

  • Land Lease relations

First of all we should highlight the significant reducing of the list of substantial conditions of land lease agreement (the Law of Ukraine “On Land Lease”). Only three substantial conditions are left out of 10, which are: object of lease, duration of the lease agreement and lease payment. The requirements on mandatory additions as an integral parts of land lease agreement are also cancelled.

We welcome such changes as they should eliminate the practice of declaring of land lease agreements as void on the basis of absence of “substantial” conditions and requisites, which are actually unnecessary. For example, the conditions of pledge and introduction to chartered fund of the lease right to the land plot were earlier considered as substantial ones. There is direct prohibition on pledge and introduction to chartered capital of the lease rights to state and municipal land plots. However, in agreements on lease of state or municipal land the parties should have duplicated the mentioned condition or risked declaring their agreement void.

The new law establishes exclusively monetary form of lease payment. Settlements of lease payments may be carried out in kind upon agreement of the parties (it is not applicable to the lands of state and municipal property). Labor rent, which has been available before, is prohibited.

The legislative division of land lease for short-term (no more than for 5 years) and long-term (no more than for 50 years), which for long time did not have any practical importance (a decade ago there were differences in mandatory notary certification of lease agreements depending on their duration), is also cancelled.

It has been also suggested to amend the regulation stipulating that the Cabinet of Ministers of Ukraine elaborates recommended draft land lease agreement instead of model land lease agreement, but these regulations were not included into the final text. What is important to notice is that in any case this regulation would not solve the legal collision as far as the Cabinet of Ministers approved the Model Land Lease Agreement in violation of the law’s requirements in 2004 (according to definition of the model agreement its conditions are mandatory and agreement which does not comply with them is not valid), while the law stipulates to approve recommended form of land lease agreement (which contains recommended but not mandatory conditions). We consider that the issue shall be solved exactly by the Cabinet of Ministers by cancellation of the Model Land Lease Agreement and by approving the recommended form.

  • Lands of private agricultural household

The Land Code of Ukraine was amended with the following provision: “land plots designated for private agricultural household may be transferred by the citizens (owners) into lease to legal entities of Ukraine for purposes of marketable agricultural production and farming without change of designated purpose of the leased land plots.” This provision replaced the previous version of the article stipulating that the Ukrainian citizens can possess and lease land plots of private agricultural household.

Apparently, cancellation of previous provisions does not mean that the citizens lose the rights to possess or lease land plots of private agricultural household, or that foreign citizens and stateless persons cannot lease land for private agricultural household (it appears from other provisions of the Land Code and other legislation). The introduced provision cancels necessity to fulfill complicated procedure of change of designated purpose of use of the mentioned land plots leased by legal entities.

At the same time the question arises whether ownership of legal entities of Ukraine to land plots of private agricultural household is legitimate. At present a lot of legal entities own such land plots which were legally purchased from individuals due to the fact that there were no restrictions on purchase of lands of personal agricultural household (under condition that they were privatized on an individual basis but not received in result of parcelling).

In the absence of expressed legislative prohibition ownership of legal entities of Ukraine to lands of personal agricultural household was considered possible (though it was recommended to transfer such land plots into lease to individuals, for their use according to designated purpose).

Today introducing direct conditions on lease of such lands by the legal entities while omitting reference to their ownership rights, increases risks that ownership of legal entities to lands of personal agricultural household (without change of their designed purpose of use) would be considered illegal.

  • Crop rotation and land management

The new law cancels mandatory development and approval of technical documents regarding ecological and economic grounds of crop rotation and proper land management, which was applicable to owners and tenants of the land plots for marketable agricultural production (para 4 Article 22 of the Land Code of Ukraine).

We would like to recall that pursuant to Transitional Provisions of the Land Code of Ukraine abovementioned requirements applied only to land plots more than 100 hectares, however starting from the 1st of January, 2015 they became obligatory for all other land plots for marketable agricultural production.

Instead there is being introduced the requirement to conclude land lease agreement for the period not less than 7 years that now concerns marketable agricultural production lands as well as lands for farming and private agricultural households. Thus, to the opinion of legislator, the lessee, while leasing a land plot, will comply with crop rotation and other land protection requirements having personal interest in maintenance of the soil fertility.

It shall be mentioned that according to the earlier existed rule of the law of Ukraine “On Land Lease” duration of the agreement on lease of marketable agriculture land should be defined on the ground of the crop rotation periods in accordance with the technical documentation on land management. Thus, the amendments essentially determine minimal term of such rotation period (7 years) and extend these requirements on lands for farming and private agricultural households.

An interesting fact is that currently there are no obligatory requirements in regard to land management and crop rotation for the owners of the agricultural lands (in particular, lands for private agricultural households) who use their land plots by their own (do not transfer it into lease).

At the same time, normative standards for optimal proportions in crop rotations in different agricultural regions are cancelled as well as mandatory state expert examination of land management projects that ensure ecological and economic justification of crop rotation and land accomplishment.

  • Organic products

The new law cancels state supervision (control) on production and turnover of organic products (including raw materials) as well as introduces measures for state and scientific support of production and turnover of organic products and raw materials. There was also introduced the regulation conditioning that products (raw materials) certificated in countries of the European Union as organic can be distributed on the market of Ukraine as organic products (raw materials) with no additional certification.

Changes in legislation on construction

Substantial reforms were planned in construction industry aimed to decentralization of state administration, in particular concerning transfer of powers to the local level authorities (including municipal bodies), which would have included issuance of permissive documents, performance of architectural and building control and putting of constructed objects into operation. Simultaneously, there was established centralized architectural and building supervision over the activity of such authorities. However, those norms hadn’t been included to the final version of the law.

  • Replanning of living premises

Positive and long-expected legislative novelty in construction industry became changes to the Housing Code which clearly determined that no authorization documents are required for the performance of works on re-equipment and replanning of residential building and living premise if they do not imply interference into the major bearing constructions and/or engineering systems of common use. Upon the completion of abovementioned works formal permission on putting into operation is not required. Such changes are applied both to the premises of private, state, or public housing funds.

Please be reminded that earlier replanning of living premises not only had caused the risks of recognition of construction works (it means the necessity to receive corresponding permits for construction and putting object into operation) but also required obtaining a permit from executive committee of the local council (according to the provisions of the Housing Code). Taking into account “interference into engineering systems of the building” even the replacement of heating or water supply systems in the apartment could be interpreted as construction works. After signing of the new law abovementioned risk was eliminated.

Changes in legislation in the field of registration services (registration of legal entities and individual entrepreneurs, registration of rights to real estate)

  • Additional chargeable services and involvement of private agents

One of the most important novelty in regulation of state registration of rights to immovable property and registration of legal entities and individual entrepreneurs, which are proposed by the authors of the law were norms that should have enable providing of “other chargeable services” (the list of services should be defined by the Cabinet of Ministers of Ukraine) in the field of state registration as well as payment for the shortened terms of registration. At the same time, there was proposed the possibility to transfer powers of state enforcement officer on issue and acceptance of documents not only to executive officers of local public authorities, administrators of centers of administrative services but also to other persons determined by the Cabinet of Ministers of Ukraine.

Suggesting the abovementioned initiative the legislator envisaged the permission for transfer of part of services concerning state registration of real estate “for outsourcing” to private agents. Such step was expected to improve the quality of commercialized registration services, as well as to protect from unreasonable rejections of state registrars to accept documents (documents for registration shall be transferred via independent agents).

However, in the final version of the new law transferring of some registration services to the private agents was not approved. And the additional paid services as well as payments for the shortened terms of registration were approved only in respect to registration of rights to immovable property.

Prices for the shortened terms of registration of rights to immovable property were already established by the Regulation No.190 adopted by the Cabinet of Ministers of Ukraine as of 08.04.2015 (it comes into force 22.06.2015). The list of other additional paid services has not been published yet.

We should express some concerns on high risk that business and individuals may be imposed with such additional chargeable services, as well as registration procedure may be boosted with “consulting” services and “assistance upon arrangement of documents”.

Amendments in legislation in the field of permissive system and other amendments

  • State registration of franchise (commercial concession) agreements is canceled.
  • Cancelled provisions concerning obligatory bioethanol concentration in petrol produced and/or realized on the territory of Ukraine.

According to earlier legislation adopted few years ago there was introduced mandatory concentration of bioethanol in petroleum products with gradual increase of its concentration. In particular bioethanol concentration in 2014-2015 had to be not less than 5%, and starting from 2016  had to be increased up to 7%. Taking into account great number of reasonable obstacles to comply with set norms by market participants, such changes are positive.

  • Other canceled permissive documents:
    • permission to commercial tests of scientific and experimental samples of mining equipment and materials that are used in mines and diggings;
    • permission to install and construct cogeneration units in the framework of existent energy facilities;
    • certification of pesticides and agrochemicals;
    • certificate of compliance and state sanitation and epidemiological conclusion on packaged drinking water;
    • certification of production of enterprises that carry out processing, recycling or disposal of withdrawn from circulation defective or hazardous products;
    • mandatory examination on compliance with labor protection legislation  of working draft or working documents on introduction of a new technologies in the workplace;
    • operational permit for facilities (objects) on fishing products processing, and also certificate of manufacturer on quality of fishing products obtained during a special use of fish and other aquatic resources;
    • operational permit for facilities (objects) issued by relevant Chief State Inspector of Veterinary Medicine for production as of the following – “Production of milk, raw milk and dairy products (including milk products for special dietary consumption (use), products for baby foods, nutrition for athletes and the elderly people)”;
    • conclusion for commodity exchanges regarding compliance with provision of services on execution and registration of transactions of agricultural products and foodstuffs for state and regional needs, repayment of tax debts, as well as execution and registration of international business contracts.

The above commentary presents the general statement for information purposes only and as such may not be practically used in specific cases without professional advice.

Kind regards,

© WTS Consulting LLC, 2015

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