Martial law regime

Martial law regime Specifics of doing business in Ukraine during martial law On 24 February 2022, the Russian Federation attacked Ukraine. To date, many Ukrainian cities including Kyiv, Kharkiv, Odesa, Mariupol, and Dnipro are under attack by missiles and airstrikes.

Martial law regime specifics Under the Law of Ukraine “On the Legal Regime of Martial Law”, the following measures may be implemented in case of the imposition of martial law: — forced alienation of property in private or communal ownership, seizure of state enterprise property and state economic associations for the needs of the state; — where the requirements of martial law are violated or in cases of non-compliance with the legal regime of martial law; enterprises can be seized, including institutions and organisations under all forms of ownership. This also includes individual citizens’ electronic communication equipment, television, video and audio equipment, computers, and, if necessary, other technical means of communication; — bans on the trade of weapons, potent chemicals and poisonous substances, as well as alcoholic beverages and related substances as prescribed by the Cabinet of Ministers of Ukraine; — establishment of a special regime in the field of producing and selling drugs containing narcotic or

psychotropic substances and their precursors, as well as other potent substances as determined and listed by the Cabinet of Ministers of Ukraine; — seizure of training and military equipment, explosives, radioactive substances and materials, strong chemicals and toxic substances from enterprises, institutions, and organisations.1

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All the mentioned measures were put into effect for a period of 30 days by Decree of the President of Ukraine № 64/2022 as of 24 February 2022.2

The Civil Code of Ukraine stipulates that under the conditions of martial law or a state of emergency, property may be forcibly expropriated from its owner, followed by full reimbursement of its value (requisition) should such become the property of the state or be destroyed. Upon termination of martial law, the relevant property may be returned to the owner through the courts.3

1

The Law of Ukraine “On the Legal Regime of Martial Law” dated 12 May 2015 No. 389-VIII https://zakon.rada.gov.ua/laws/show/389-19#Text

2

Decree of the President of Ukraine “On the Imposition of Martial Law in Ukraine” dated 24 February 2022 No. 64/2022 https://www.president.gov.ua/documents/642022-41397

3

The Civil Code of Ukraine dated 16 January 2003 No. 435-IV https://zakon.rada.gov.ua/laws/show/435-15#Text © 2022 AA KPMG LAW, a company incorporated under the Laws of Ukraine, a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.

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Force majeure and its certification The general rule established by the Civil Code of Ukraine stipulates that a person who has breached an obligation shall be released from liability for the breach of said obligation if it can be proven that the breach was a result of force majeure.4 However, there are special exclusionary cases for liability as provided by the Civil Code of Ukraine, namely: — if the seller provides guarantees regarding the quality of their goods, the seller is responsible for any defects if they do not prove that such defects arose after its transfer to the buyer because of force majeure; — in case of destruction or damage of a construction object due to force majeure before the expiration of the terms of delivery of the object as established by its construction agreement, the contractor has no right to demand payment from the customer for work or expenses, unless otherwise provided by the agreement; — a contractor who has breached their agreement for the paid provision of services shall be liable for this breach, unless it is proven that proper performance was impossible because

of force majeure, unless otherwise provided by agreement or law; — manufacturers of immovable property and contractors of works (services) are exempt from compensation for damages if it is proven that the damage occurred because of force majeure or breach of the rules of use or storage of goods as a result of said work (services).5 The fact of force majeure is certified by the Ukrainian Chamber of Commerce and Industry which issues a certificate.

The Ukrainian Chamber of Commerce and Industry has recognised the military aggression of the Russian Federation against Ukraine as force majeure circumstances starting from 24 February 2022.6 Therefore, the procedure for certifying force majeure has simplified the process for business entities obtaining appropriate certification that refers to the impossibility of fulfilling their obligations due to force majeure.7 At the same time, please note that contracts usually contain specific conditions for notification procedures regarding force majeure, and as such it is necessary to analyse the relevant provisions of the contract involved in each case.

Labour issues There is no concept of force majeure in Ukrainian labour law.

Although martial law envisages that certain labour rights (including rights to labour remuneration and protection against forced labour) may not be respected, this obviously applies to the state and not to private entities and individuals.

Generally, the introduction of martial law does not exempt an employer from paying wages to employees who continue to perform their work duties.

Remote work can be used to organise work processes during war if an employee’s function allows it.

If a company or its subdivision is temporarily unable to function, providing employees with vacations (paid or unpaid) or introducing downtime can be considered.

If an employee does not perform their duties and is out of reach, it will be necessary to document their absence daily. It is impossible to dismiss such an employee for absence from work before finding out the reasons for their absence, during war it should be presumed that they are absent from the workplace for valid reasons.

Employees who have been called to join military service or are volunteers in Territorial Defence Forces are entitled to statutory guarantees such as preservation of job, position, remuneration.

4

The Civil Code of Ukraine dated 16 January 2003 No. 435-IV https://zakon.rada.gov.ua/laws/show/435-15#Text

5

The Civil Code of Ukraine dated 16 January 2003 No. 435-IV https://zakon.rada.gov.ua/laws/show/435-15#Text

6

Letter of the Chambers of Commerce and Industry in Ukraine dated 28 February 2022 No. 2024/02.0-7.1 https://ucci.org.ua/uploads/ files/621cba543cda9382669631.pdf

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The Law of Ukraine “On the Chambers of Commerce and Industry in Ukraine” dated 2 December 1997 No. 671/97-ВР https://zakon.rada.gov.ua/laws/ show/671/97-%D0%92%D0%A0#Text © 2022 AA KPMG LAW, a company incorporated under the Laws of Ukraine, a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.

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Tax Issues According to Para 112.8. of Article 112 of the Tax Code of Ukraine, force majeure exempts financial liability for committing tax offences.

Taxpayers are therefore released from liability for violating deadlines for the payment of taxes and fees, late submission of tax returns, untimely registration of tax and excise invoices, adjustment calculations, etc.

Penalties for violations of RRO legislation regarding payment transactions are not applied during force majeure.

Moving fuel or ethyl alcohol by vehicle is permitted in the presence of a consignment note and a paper copy of an excise consignment note.

According to the information from the State Tax Service of Ukraine8, tax audits cannot be started and initiated audits are stopped during force majeure.

Ukrainian law9 stipulates that deadlines set by tax law and other legislation for taxpayers and regulatory authorities, the control of which is entrusted to the supervisory authorities, shall be suspended for the period until the termination or cancellation of martial law on the territory of Ukraine. Furthermore, in case a taxpayer does not have the opportunity to fulfil their tax obligation in a timely manner, taxpayers are released from liability under the Civil Code of Ukraine with the mandatory performance of such obligations within 3 months after the termination or cancellation of martial law in Ukraine.

In addition, during martial law the transfer of humanitarian aid from donors across the customs border of Ukraine is carried out at the place of crossing by submitting accompanying documents or a declaration filled out by the person transporting the goods without non-tariff regulation of foreign economic activity.10

Currency limitations Due to the imposition of martial law, the National Bank of Ukraine has introduced certain temporary restrictions on banking system operations11, in particular:

— Issuance / withdrawal of cash in amounts above UAH100,000 and cash in foreign currency in equivalent to above UAH30,000 is prohibited, except for certain specific cases.

— The official exchange rate is set for 24 February 2022.

— A moratorium on cross-border currency payments has been introduced.

— The operation of the currency market is suspended, except for: (i) the sale of foreign currency by customers of banks and non-bank financial institutions and the postal operator; (ii) foreign exchange trading carried out by banks with other banks on a swap basis, including foreign financial institutions, the NBU, and MFIs; (iii) currency transactions between banks on behalf of clients within the first group of the Classifier of Foreign Currencies and Banking Metals; (iv) swap transactions with resident customers if the first part of the transaction envisages the purchase of foreign currency from a resident customer.

— Servicing banks have suspended expenditure operations on accounts belonging to residents of the state that carried out armed aggression against Ukraine, i.e. residents of the Russian Federation and Republic of Belarus, except for transfer of funds for social needs, payment of wages, and payment of tax and other mandatory payments, as well as transferring funds to a special NBU account.

— The issuance of electronic funds by bank-issuers of electronic funds has been stopped, as well as replenishment of electronic wallets by electronic means, and distribution by electronic means.

8

Notification of the State Tax Service of Ukraine dated 27 February 2022 https://tax.gov.ua/media-tsentr/novini/576179.html

9

The Law of Ukraine No. 2118-ІХ “On Amendments to the Tax Code of Ukraine and Other Legislative Acts of Ukraine on the Peculiarities of Taxation and Reporting during Martial Law” https://www.rada.gov.ua/print/220314.html

10

Resolution of the Cabinet of Ministers of Ukraine dated 1 March 2022 No. 174 https://www.kmu.gov.ua/npas/deyaki-pitannya-propusku-gumanitarnoyidopomogi-cherez-mitnij-kordon-ukrayini-v-umovah-voyennogo-stanu-174

11

Resolution of the Board of the National Bank of Ukraine dated 24 February 2022 No.18 https://zakon.rada.gov.ua/laws/show/v0018500-22#Text

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Restrictions on exports of certain goods The Government has established new rules for the export of a number of agricultural products during martial law. Amongst other products, it is forbidden to export oats, millet, buckwheat, sugar, salt, rye, live cattle, meat and cattle offal, frozen brine, and more.

The following products can be exported under declarative licencing: wheat and a mixture of wheat and rye (meslin), corn, chicken meat, chicken eggs, and sunflower oil.

In addition, the Government of Ukraine has temporarily limited the export of blood products for a 30-day period from 25 February 2022.

State registration Since 6 March 2022, the Cabinet of Ministers of Ukraine has established some features of state registration during martial law12 which specifically include: — state registration can be carried out exclusively by persons included in the list approved by the Ukrainian Ministry of Justice. The relevant order of the Ministry of Justice will determine the restrictions following various criteria, according to which the relevant registrar will have the right to conduct state registration; — the right of officials of the Ministry of Justice and its territorial bodies included in the mentioned list can register both public formations and other types of legal entities; — immediate state registration is available in case of submission of appropriate documents in full and

procedures for notifying the applicant of deficiencies in the submitted documents have been simplified; — carrying out of state registration regardless of the location of legal entities, individual entrepreneurs and public organisations, or the location of real estate (if the list does not include restrictions on territoriality); — simplification of the procedure for submitting documents for state registration of legal entities, individual entrepreneurs, and public organisations (via e-mail or other means of communication); — certifying the authenticity of a signature made in the presence of the registrar on documents for state registration of legal entities; — confirming the payment of administrative fees by a screen copy of the payment document.

Work of Ukrainian courts By its Decision No. 9 as of 24 February 2022, the Council of Judges of Ukraine decided that the work of courts cannot be terminated and courts in case of need must promptly decide to suspend proceedings by a particular court until the circumstances that led to the termination of cases are eliminated.13 In addition, certain amendments have been introduced to the Law of Ukraine “‘On the Judiciary and the Status of Judges’ as to the change of jurisdiction

of courts” which provide for the uninterrupted functioning of the judiciary system during emergencies and martial law.

Specifically, it is envisaged that due to natural disasters, military actions, counter-terrorism measures, or other emergencies, the work of the court may be suspended with the simultaneous determination of another court that will administer justice in the relevant territory.

12

Resolution of the Cabinet of Ministers of Ukraine “Certain Issues of State Registration during Martial Law and Amendments to the Resolution of the Cabinet of Ministers of Ukraine dated 28 February 2022 № 164” dated 6 March 2022 No. 209 https://www.kmu.gov.ua/npas/deyaki-pitannya-derzhavnoyireyestraciyi-v-umovah-voyennogo-stanu-ta-vnesennya-zmin-do-postanovi-kabinetu-ministriv-ukrayini-vid-28-lyutogo-2022-r-164-209

13

Decision of the Council of Judges of Ukraine dated 24 February 2022 No. 9 on taking urgent measures to ensure the sustainable functioning of the judiciary in Ukraine http://rsu.gov.ua/ua/news

14

The Law of Ukraine “On introduction of changes to the Law of Ukraine ‘On the Judiciary and the Status of Judges’” (draft law No.7117 dated 1 March 2022) https://itd.rada.gov.ua/billInfo/Bills/Card/39158

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This court should be as close as possible to the court whose work has been terminated or to another court determined by a decision of the High Council of Justice. This decision is made on the proposal

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of the Chairman of the Supreme Court and, in case it is impossible for the High Council of Justice to exercise its powers, by order of the Chairman of the Supreme Court.

Should you have any questions about any new legislation or want to know how these changes may affect you, please contact us.

Contact us Sergiy Popov,

Partner, Head of Tax&Legal,

Yuriy Katser,

Director, Head of Legal Services,

KPMG in Ukraine

KPMG in Ukraine

Е: spopov@kpmg.ua

E: ykatser@kpmg.ua

Т: +380 (63) 6232323, +380 (44) 4929681

Т: +38 (050) 3871576, +380444905507 x34051

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