By the end of the year, accountants in Ukraine will spend 1,5 times less time to procedures, associated with taxation.

This was announced by the Head of the State tax service of Ukraine (STSU) Olexander Lkymenko during the joint pres conference with PricewaterhouseCoopers.

«We set the goal of transforming our agency from fiscal control to service provider. Gradually, with the assistance from international experts, we are moving from the idea to specific workplan that will become a guide for each employee – from Head to inspector», – Mr. Klymenko said.

In accordance with PricewaterhouseCoopers recommendations, which is preparing the STSU development strategy, the service functions shall become a basis for transformation of tax administration. As of today, taxation takes on average 657 man-hours per year, and, because of it, Ukraine is on the 175th position of the World Bank’s Paying Taxes ranking.

«Unfortunately, this is our starting position. We are not hiding this problem and not decorating the reality. All our efforts are directed towards fixing the situation. One of the primary tasks is to decrease the time spent by business on administering taxes», – Mr. Klymenko has added.

Mr. Klymenko has also expressed hopes that improving Ukraine’s position in international ratings will improve investment attractiveness of the country.

«When implementing recommendations of international auditors, we are forming the clear signal for business community: budget revenues ‘at any cost’ – is not the main goal of tax authorities. This is only the result of provided services. Our main focus is on tax payers – our main client and employer», – Olexander Klymenko has stressed.

Source: State tax service of Ukraine.

The estimated investment in the fields will amount to at least USD 370 million with number growing significantly should the gas reserves prove to be commercially viable. Notably, Ukraine exempted companies that would produce shale gas in the country from equipment import tax and shale gas export duty.

Industrial extraction of gas at the sites will begin in 2018-2019. Ukrainian state geological service estimated the amount of both conventional and unconventional, as well as condensed gas deposits at 6,000 square kilometer Oleske at three trillion cubic meters. As for Yuzivske field, it may offer up to four trillion cubic meters of gas.

Ukraine announced the public bid for the development of the prospective seven trillion cubic meters gas in the fields in February 2012. Exxon Mobil, Shell, and TNK-BP placed their bids for the right to develop Yuzivske field in eastern Ukraine (Donetsk oblast), while Chevron and Eni competed for the right to establish gas production at Oleske, Lviv region.

The U.S. Energy Information Administration assessed the total of Ukrainian gas resources at 1.2 trillion cubic meters. This secures Ukraine the third spot among the European countries (after France and Norway) that have largest shale gas reserves, reported Reuters.

Ukraine began reforming its energy system adopting the State Program on Energy Efficiency 2010-2015. According to the document, Ukraine will reduce domestic energy consumption through increasing energy efficiency, as well as developing domestic gas reserves, introducing green energy production technology, and diversifying gas import.

Previously, the Minister of Energy and Coal Industry of Ukraine Yuriy Boyko stated that Ukraine planned to set up domestic shale gas extraction in five years. Comparatively, it took the U.S. 20 years to accomplish similar goal. By 2020 Ukraine plans to extract four to five billion cubic meters of shale gas annually. The country prospects to consume 53.7 billion cubic meters of gas with 26 billion of total domestic consumption.

Source: Worldwide News Ukraine, Ukranews.

This opinion was presented by the Bleyzer Foundation Executive Director Oleg Ustenko during the press-conference in Kyiv, as reported by UKRINFORM.

«On my opinion, agrarian sector represents a huge interest for investors. It has a number of advantages: land, good infrastructure, qualified labor force, and almost absent modern technologies» – said the expert.

On his opinion, small investments can result in significant returns. “Taking into account that our yielding capacity is 2,5 times lower than in Europe, the potential is enormous”, – Mr. Ustenko added.

On its turn, the financial analyst Erik Naiman acknowledged that the priority sector is not exactly the agriculture, but rather food processing.

«We shall sell not the grain, but sublimated products, and pay more attention to processing. Ukraine is currently a source of row materials for large American grain traders, while Ukraine can itself process a large amount of food», – the expert has stressed.

The experts have also acknowledged energy and IT sectors as attractive for investors.

Source: UKRINFORM.

In March 2012, the BOP surplus was $375 million, while in previous month it was negative $55 million. A year ago, in March 2011, the balance was negative $511 million.

These data were published by the National Bank of Ukraine on the 27th of April.

«Improvement in the balance of payments is caused, on the first place, by the decrease in the current account deficit to the level of $313 million in March (comparing to $1,3 billion in February). It is explained by the decrease in goods trading deficit ($893 million, comparing to $1,8 billion in February), and also by the inflow of significant dividends from foreign investments abroad», — says the Bank’s statement.

In general, current account deficit in the first quarter was relatively low – $1,2 billion.

The National Bank also informs that the net capital inflow in March 2012 was $688 million (in March 2011 – net outflow was $102 million), in the first quarter – $640 million (the first quarter 2011 – inflow of $2,453 billion).

The net inflow of the foreign direct investments (FDI) to Ukraine in March was $127 million (in February – $832 million). The net FDI inflow to Ukraine in the first quarter of 2012 was $1,4 billion (January-March 2011 – $0,9 billion), which is 1,6 times higher comparing to the same period of the previous year.

Credit and bonds balance in March was negative at the level of $132 million: similar to previous periods, the real sector of economy was actively attracting external resources (net inflow – $389 million), while the banking sector has decreased external debt by $476 million.

Source: Dzerkalo Tyzhnya.

Among discussion participants: Head of InvestUkraine Serhiy Yevtushenko, Director of SigmaBleyzer Vadym Bodaev, Head of investment policy and PPP department of the Ministry of economic development Oleg Gnatcov, Deputy director of business taxation of State tax authority of Ukraine Lyudmyla Vorontsova, Senior associate at Baker&McKenzie Yuriy Zaluskiy, Head of labor law practice of «Sayenko Kharenko» Svitlana Hyeda, Senior lawyer of «Squire Sanders» Olena Bilozir, Head of department of tax and legal consulting of KPMG Tetyana Zamorska, Investments and competition advisor of USAID LINK project Dusan Kulka, Heads of foreign companies in Ukraine, representatives of mass media. The event took place with the support from the U.S.-Ukraine Business Council (USUBC).

Yuriy Zaluskiy from Baker&McKenzie presented the foreign companies taxation issues, in particular:

«The situation is that the notion of “representative office” and “foreign investments” has appeared before our public authorities could understand how foreign investors shall operate and how they shal be taxed in Ukraine».

«Unfortunately, in Ukraine we do not have a corporate distinction between representative offices which perform commercial activity, and which do not perform such activity. Non-commercial representative offices do not exist in Ukraine. For tax purposes, only representative and permanent representative offices exist. Why there is no such differentiation, and where is the line between commercial and non-commercial representative office – legislation gives no answer. It I important, because the latter is not taxed. For investors, who come to Ukraine, it is very important».

«In general, tax code does contain types of activity which are not taxed, but they described very briefly. What is the essence of this exception? It is not defined when it shall be used or not. For example – the Tax code contains such tax exception as service provision, including consultative services. The idea is when investor provides services on the territory of Ukraine during up to 6 months within single project, or linked projects – such representative office is not taxed in Ukraine. But on practice this exception creates more questions than answers: what shall be considered as a ‘single project’? When does the 6-month period start and finish: when investor has arrived, or when the contract is signed? What if the dates of contract signing and start of service provision are different? What are the linked projects?»

Olena Bilozir from «Squire Sanders» has explained practical issues of opening of representative office in Ukraine.

Dusan Kulka from USAID LINK Project drew attention to multinational companies, which could have worked in Ukraine. Using the example of one multinational company, which already works in neighboring countries, Mr. Kulka made the point that taking care of representative offices is important, because in has direct impact on the decision either to further invest into the country or to leave. He has also noted that efforts to attract such investors shall be made on the top governmental level.

Tetyana Zamorska from KPMG has indicated in her speech more than 10 major legal and tax issues which arise during the tender projects of foreign companies representative offices in Ukraine.

Oleg Gnatcov form the Ministry of economic development gave the following answer:

«Today we have heard those problems that need to be solved. I can see that the civil society is emerging, which was missing to resolve these social and professional problems. This professional gathering proves that our society starts to understand problems it faces, and what shall be done for investment projects development.»

Lyudmyla Vorontsova from State tax authority has said:

«Let me thank all participants. Only one issue – issuing of VAT certificates – is indeed caused by possible subjective reasons on the part of State tax authority. The State tax service operates within existing legislation, defined by the Tax code and other legal acts. With regard to issuing of VAT certificates – on my opinion, this problem was resolved since December last year. There was a decree, which made this procedure completely automated. If some of the local tax authorities are not complying yet – we do enforce it with administrative decisions.»

«Even before starting its activity, investor receives a number of negative impressions», – Serhiy Yevtushenko has summarized the speakers.

He has also explained why foreign companies, when planning to invest into Ukraine, each time are hesitating regarding the form of starting the business.

On practice, a lot of foreign companies start with opening a representative office, which has a number of advantages:

• it is not a legal entity, there is no need to form a statutory capital;
• director is acting based on the power of attorney from the foreign company, therefore there is no need to get employment permit for foreign citizens in Ukraine.

But there is a number of disadvantages:

• gaps if representative offices tax legislation, which make it hard to finance the office;
• gaps in registration procedure for representative offices, which complicates the process;
• very long registration period – 60 days (comparing to 3 days for limited liability companies);
• very high registration fee – 2 500 USD (comparing to 170 hryvnia for limited liability company).

All these factors create negative impressions already at the beginning stage of deciding on the form of company’s presence in Ukraine.

General conclusion is that there is a need for legislative change, and that InvestUkraine will initiate such a change.

For reference: InvestUkraine is a structural unit of the State agency for investment and national projects of Ukraine, responsible for investment promotion.

Roundtable materials, available for download:

Gaps in foreign companies representative offices taxation – Yuriy Zaluskiy, Baker & McKenzie (PDF, English).

Opening representative office. Practical problems – Olena Bilozir, Squire Sanders Ukraine (PDF, English).

Are the MNEs’RepOffices worth being treated nicely? – Dusan Kulka, USAID LINK Project (PDF, English).

«Even before the launch of its activity, investor gets negative experience in Ukraine», -  told Serhiy Yevtushenko.

«For example: improper regulation of foreign companies branches creates problems with financing of such branches. If foreign company has opened representative office in Ukraine and transferred some money for its activity, Ukrainian tax authority considers it as taxable profit. This approach is unclear for investors. Another example – regulation of opening procedures for foreign companies’ representative offices. Duration of registration procedure is 60 days, its cost – 2500 USD. In the same time, opening of limited liability company in Ukraine takes 3 days and costs 170 hryvnya (about 21 USD)» , – explained Serhiy Yevtushenko.

He has also noted that the goal of the roundtable is not only raise the issues of representative offices activity in Ukraine, but also to discuss possible solutions, and, if there is an interest, to created a working group, jointly with business representatives, to draft legislative proposals.

The roundtable “Current issues of foreign companies representative offices in Ukraine”, which took place on 19th of April, launched a series of events with foreign companies, who work in Ukraine, and potential investors, to discuss existing problems of activity in Ukraine.

Among participants of the roundtable – Serhiy Yevtushenko, head of InvestUkraine, Vadym Bodayev,director of SigmaBleyzer, Oleg Gnatcov, director of investment department at the Ministry of economy and trade of Ukraine, Lyudmyla Vorontsova from State tax authority,  Yuriy Zaluskiy, tax lawyer from Baker&McKenzie, Svitlana Heda from «Sayenko Kharenko», Olena Bilozir, lawyer from «SquireSanders», Tetyana Zamorska from KPMG, Dushan Kulka from USAID technical assistance project, and also representatives of foreign companies, experts and media.

InvestUkraine – a structural unit of State agency for investment and national projects of Ukraine, responsible for investment promotion.

Source: press-service of the State agency for investment and national projects of Ukraine.

“The current macroeconomic conditions allow maneuvering room for possible further stimulating measures,” the Kiev-based Natsionalnyi Bank Ukrainy said in a statement on its website today. Central bank Governor Serhiy Arbuzov said the bank will assess a possible rate cut after reports on economic growth and the March current account, the bank said.

The central bank cut the key discount rate to 7.5 percent from 7.75 percent in March, the first reduction since 2010 after the inflation rate fell to a nine-year low.

The central bank has bought about $500 million since March as situation on the currency market improved, the regulator said in today’s statement. The bank was not selling dollars to support the hryvnia in this period, according to the statement.

The currency inflow from non-residents in the first quarter exceeded payments to non-residents by 3.4 times, the central bank said.

Source: Bloomberg.

Investment activity index in Ukraine in April 2012 was 4,23 out of 10. According to UNIAN, results of the study were presented during the press-conference by Yevhen Kopatko – founder of Research & Branding Group, which studied investment activity in Ukraine.

«This is an average number, it correlates with data from other companies who also measure investment activity indexes», – told Mr. Kopatko.

According to Mr. Kopatko, the survey was conducted among large American, European and Ukrainian companies. Research method – questionnaire, geography – all territory of Ukraine, number of respondents – 290. «The research was initiated by State tax authority of Ukraine, the field study was performed by Research & Branding Group», – says Mr. Kopatko.

The research was based on 5 key indicators – assessment of investment climate, changes in climate during the past 6 months, expected changes during the next 6 months, correspondence of government’s economic policy to existing challenges, and company’s plans to invest in Ukraine.

The investment climate was assessed at 4,1 points (out of 10). 4,5% of respondents think that investment climate in Ukraine is good, 8,3% – very poor, 35,5% – close to very poor, and about 50% think that Ukraine’s investment climate is neutral.

Changes in investment climate during the last 6 months were assessed as follows: 35,8% – negative, 51,4% think there were no significant changes, 12,8% think there were positive changes.

Regarding the expectations for the next 6 months – 17,6% of respondents think that investment climate will be improving, 51,7% – do not expect any changes, 27,7% think that the situation tend to deteriorate.

27,9% of respondents think that the current government’s economic policy does correspond to economic realities, while 33,1% think that it does not correspond.

And finally, 31,1% of companies, participating in the survey are planning to invest into Ukraine’s economy during the next year, 25,6% – have not decided yet, 20,1% – are not planning to invest, 23,2% could not answer the question.

«In the numbers that we heard today (Investment activity index – UNIAN) I see significant amount of work to be done by us», – commented Mr. Olexander Klymenko, Head of the State tax authority of Ukraine.

Mr. Yevhen Kopatko has also presented investors’ opinion regarding what needs to be done to improve the investment climate: simplify document submission requirements, streamline the Tax code regulations, and reduce the number of taxes.

Source: UNIAN, Research & Branding Group.