Customs regulations in Ukraine
The general principles of customs regulations in Ukraine of the movement of goods (products) across the customs border of Ukraine as well as the procedures for customs clearance, control and other related issues are regulated by, the Customs Code of Ukraine (the “Customs Code”), dated 11 July 2002. In addition to the Customs Code, the applicable Ukrainian legislation on customs consists of the Law of Ukraine On Customs Tariffs of Ukraine, dated 5 April 2001, the Law of Ukraine On the Unified Customs Tariff, dated 5 February 1992. The principal law governing import and export VAT as well as export VAT refund, applicable to the import/ export of goods (products) through the customs territory of Ukraine is the Section V of the Tax Code of Ukraine dated 2 December 2010 (the “Tax Code”). The most recent changes to and developments of, the Ukrainian customs legislation were made in furtherance of the accession of Ukraine to World Trade Organization (WTO) in order to harmonize the Ukrainian customs legislation with WTO principles, rules and procedures. The main changes related to the simplification of the customs procedures; customs valuation rules; protection of IP rights; customs control procedures. Currently Ukraine is changing its customs legislation to harmonize it with international customs rules. On November 3, 2011, Verkhovna Rada (the Parliament) of Ukraine adopted the Law of Ukraine “On Amendments to the Customs Code of Ukraine and Other Legislative Acts of Ukraine” (the “Draft Customs Code”). President vetoed the Draft Customs Code, thus, the adoption of the Draft Customs Code may be suspended until January 1, 2013. The Draft Customs Code is designed to, inter alia, harmonize the customs legislation of Ukraine with the International Convention on the Simplification and Harmonization of Customs Procedures, the Convention on Temporary Admission, as well as to implement the World Customs Organization SAFE Framework for Standards to Secure and Facilitate Global Trade into the national legislation. Set forth below is a brief overview of the main provisions related to customs regulations in Ukraine
1. Registration procedure 2. Customs clearance 3. Customs regimes 4. Certification and control 5. Customs valuation rules 6. In-kind contribution 7. Customs control
1. Registration procedure In order to conduct import/ export operations, a business entity must be accredited entity or representative office (in case of a foreign business entity) with the customs office at the location of such business entity. The procedure for the registration and list of documents are established by the Order of Kyiv Regional Customs On Launching of the Technological Scheme on Registration of Subjects of Foreign Economic Activity, Located in the Activity Zone of Kyiv Regional Customs, dated 9 December 2004 (the “Procedure”) and the Order of the State Customs Committee of Ukraine On Launching of the Procedure for the Registration of the Subjects of the Foreign Economic Activity with the Customs Bodies (the “Order”).
2. Customs clearance The customs clearance of goods (products) is certified by a special stamp of the customs authorities, placed on a customs declaration, after which the goods (products) may be legally released for free circulation into the customs territory of Ukraine. The main document required for the customs clearance of the goods (products) is a customs declaration filled by an importer of record (or by a customs broker acting on his behalf ). It should be noted, that under the Customs Code the importer of record is required to submit additional
documents specified by applicable legislation and the list of the required documents is not exhaustive and may be expanded due to the declared customs regime, or, at the request of the customs authorities. After the Ukrainian customs authorities have obtained all documents, the customs clearance of goods (products) should be completed within 1 day.
3. Customs regimes The following customs regimes would apply depending on the purpose of the transfer of goods (products) through the customs border of Ukraine:
3.1. Import Import regime contemplates free circulation of goods imported to the Ukrainian territory upon: Submission of all necessary documents, certifying the purposes and conditions for bringing of goods (products) into the customs territory of Ukraine; Payment of all applicable taxes and duties in accordance with the laws of Ukraine; Compliance with the requirements of the non-tariff regulation and other restrictions.
Re-import is the regime when goods (products) originating from Ukraine and shipped through the customs border of Ukraine under the export customs regime, re-enter the customs territory of Ukraine in the terms specified under the law for their free circulation within the territory.
(3) export; (4) re-export; (5) transit; (6) temporary import (export); (7) bonded warehouse; (8) special customs zone; (9) customs free trade store;
Re-import of goods (products) is subject to VAT and excise tax. Re-import of goods (products) in most cases exempt from import customs duties, if Ukrainian origin of such goods (products) would be duly substantiated. The exemption should not apply to certain product groups (e.g., chocolate, sugar, syrups), as well as to products manufactured on the territories with the special customs regime, or in the processing regime on the customs territory of Ukraine.
(10) processing on the customs territory of Ukraine;
(11) processing outside the customs territory of
Export of goods (products) is the main customs regime for definitive exportation of the goods (products) outside the customs territory of Ukraine. Export of goods (products) is allowed, upon completion of the following formalities:
(12) destruction; (13) abandonment to State. The importer of record may choose the customs regime for the goods (products), shipped through the customs border of Ukraine in accordance with the purposes of their transfer, upon provision of all necessary documents to the customs body for customs control and clearance.
Submission of appropriate documents for the export of such goods (products); Payment of export customs duties with respect to certain types of goods (products); Application of 0% VAT to exported goods (products). No excise tax would apply to exported goods (products).
3.4. Re-export Re-export is the type of customs regime when the goods (products) initially delivered into Ukraine may be carried out from the territory of Ukraine without application of any economic restrictions provided by the Ukrainian laws. Re-export of goods (products) is allowed, upon completion of the following formalities: Submission of appropriate documents for the export of such goods (products); Payment of customs duties with respect to certain types of goods (products); Application of 0% VAT to exported goods (products). No excise tax would apply to exported goods (products).
Full conditional exemption provides for the exemption from VAT; Partial conditional exemption – contemplates payment of 3% from the amount of VAT to be paid in case of delivery of goods in the import customs regime for each month.
3.7. Bonded warehouse Under the bonded warehouse customs regime goods (products) imported into Ukraine are stored at special places (bonded warehouses) under customs control without an obligation to pay import customs duties and taxes, and without regard to domestic quota restrictions or other economic measures. The full conditional exemption from VAT should apply to goods placed in the regime of bonded warehouse.
3.8. Special customs zone
Goods (products) may be moved across the territory of Ukraine under the transit regime, without an obligation to pay import customs duties and taxes, and without regard to domestic quota restrictions or other economic measures, provided that all applicable customs fees are paid and the appropriate documents are submitted to the customs authorities.
The special customs zone regime applies to goods (products) which are imported to or exported from the special economic zones throughout the territory of Ukraine. Under this regime, no tariff or non-tariff measures should apply unless otherwise stipulated by law.
3.6. Temporary import Under the Customs Code, goods (products) that are imported to or exported from Ukraine on a temporary basis are exempt from import/ export duties, provided that such goods (products) are imported/ exported for a period that does not exceed one year, in the same condition (e.g., without having been in any way used or modified) except for their natural wear and tear. The maximum one-year term may be extended by a written application of the person concerned. Commodities specified by the Customs Code may be imported in a temporary import regime. Additionally, commodities identified in the Appendixes B.1-B.9, C D and E of the Convention on Temporary Import (the “Istanbul Convention – 1990”), if satisfied the criteria of Istanbul Convention – 1990, are allowed for temporary import into Ukraine. The full conditional exemption or partial conditional exemption should apply to goods imported into the customs territory of Ukraine in the temporary import customs regime.
3.9. Customs-free trade store Under the customs free trade store regime, goods (products) and their supplements that are not intended for consumption on the customs territory of Ukraine are permitted to be sold without the payment of any import taxes or customs duties or the application of any tariff or non-tariff measures, provided that such goods (products) are sold within special areas under customs control, such as points of admission on the customs border of Ukraine intended for international connections, and other relevant areas.
3.10. Inward processing customs regime Under the regime of inward processing on the customs territory of Ukraine, goods (products) originating from other countries may be temporary brought into the customs territory of Ukraine with conditional relief from customs duties and taxes and without the application of any tariff or non-tariff measures to such goods (products), provided that such goods (products) will be exported outside the customs territory of Ukraine.
The general term for inward processing regime of goods (products) on the customs territory of Ukraine is 90 days. In exceptional cases the term may be extended by the Cabinet of Ministers of Ukraine, with the view to the specifics of the processing operation. An obligation to pay import customs duties, taxes and excise would depend on the type of processing operation. In certain cases customs duties, taxes and excise tax should be paid in full as of the moment of the shipping the goods (products) into the customs territory of Ukraine, while in other cases, the tax note should be issued in the amount of customs duties, taxes and excise due. In most cases, if within the processing term, as a result of the inward processing on the customs territory of Ukraine, the goods (products) are exported, the tax note should be cancelled, or, if upon expiration of the processing term the commodities remained on the customs territory, the tax note should be actually paid.
3.11. Outward processing customs regime Under the regime of processing outside the customs territory of Ukraine, goods (products), not subject to any restrictions for circulation within Ukraine, may be taken out of Ukraine without the application of any tariff or non-tariff measures to such goods, provided that such goods will be imported back into Ukraine. The goods (products) that are re-imported after manufacturing, processing or repair abroad are declared for home use with the payment of all customs duties, taxes and excise tax as collected in connection with the import of goods.
3.12. Destruction Destruction is the customs regime whereby goods (products) brought into the customs territory of Ukraine are subject to the destruction under customs control, without payment of any import taxes or the application of any tariff or non-tariff measures. Waste generated as a result of destruction should be subject to customs clearance requirements and customs duties and taxes depending on the claimed customs regime. The full conditional exemption from VAT should apply to goods placed in the regime of destruction.
3.13. Abandonment to state Under the regime of abandonment of goods (products) for the benefit of the state, the owner of the goods (products) may abandon the goods (products) in favor of the state without the payment of any import taxes or the application of any tariff or non-tariff measures. The VAT should not apply in case placement goods into the regime of abandonment to state.
4. Certification and control Certification of goods (products) is the activity designed to confirm the compliance of goods (products) with Ukrainian local statutory requirements on quality of products, their consumer’s characteristics.
4.1. Sanitary and epidemic certification According to the Law of Ukraine On Provision of Sanitary and Epidemical Protection of Citizens, dated February 24, 1994 (the “Sanitary Protection Law”), the importation of goods into Ukraine is subject to sanitary and epidemical expertise and is allowed if the sanitary and epidemic certificate which certifies the safety of products for human health is issued by the Department of Sanitary and Epidemic Supervision of the Ministry for Protection of Health. If the sanitaryepidemic expertise was performed in the state of export, and the sanitary and epidemical certificate was issued in such other foreign state, the results of the expertise may be recognized in Ukraine based on the agreement on mutual recognition of the expertise results. According to the most recent changes to the customs legislation, state control functions at the border, in particular, sanitary and epidemiologic, veterinary and sanitary, phyto-sanitary and ecologic control, which were performed by various state authorities, are delegated to the customs authorities and performed according to the “single window” principle in the form of preliminary documentary control. This novelty is aimed at simplification and acceleration the control procedures at the border.
4.2. Radiological control Imported products, brought into Ukraine are subject to radiological control. In most cases, the radiological control is performed on the customs points.
Reduced rates of customs duties are applied to goods originating from countries and economic unions which have been granted most-favorable regime in Ukraine.
4.3. Certificate of origin
Customs duties are payable in full in respect of all other goods and products not covered in the two categories described above.
The certificate of origin of goods may be required in case when the full, reduced or preferential customs duty rate may be applied with respect to the imported products, depending on the state of origin (and importation) of goods.
Import customs duties should apply to the customs value of imported goods and may be deducted for the corporate profits tax purposes.
5. Customs valuation rules The customs value of goods imported into Ukraine is a basis for the calculation of the import custom duties and taxes and normally includes the cost of goods, insurance costs and transportation costs of the goods until the Ukrainian customs border. Depending on the actual circumstances, including contractual arrangements, a Ukrainian importer of record in addition to the aforementioned costs may be required to include royalties (payable for the right to use the trademarks and other IP rights) into the customs value of those goods, provided that the Ukrainian importer must directly or indirectly (e.g., via third parties) pay those royalties, other license fees and/ or other income as a condition/ direct consequence of importation of the goods being valued at customs.
5.1. Import and export customs duties The customs duties are imposed on top of the declared customs value of imported goods confirmed and accepted by the customs. Rates of import customs duties in Ukraine normally range from 0% to 60% according to the Ukrainian Customs Tariff. Ukrainian customs legislation establishes three levels of rates for the payment of customs duties in respect of imported products. A preferential rate of customs duties (as well as an exemption from the payment thereof) is applied to: products originating from countries with which Ukraine has entered into a customs union; products originating from countries with which Ukraine has created special customs zones; or upon the establishment of a special â€œpreferentialâ€? customs regime pursuant to an international agreement of Ukraine.
Export duties are levied only with respect to certain limited categories of products (e.g., livestock, materials, oil seeds, waste and scrap of ferrous metals, gas etc.).
5.2. Import VAT As established under the Tax Code, generally import of goods is subject to Ukrainian VAT at the rate 20%, 17% rate should apply as of 1 January 2014, levied on top of the taxable base of imported goods. For the purpose of VAT, the taxable base of the goods imported into Ukraine should be determined based on their contract price, but not lower than their customs value. The excise tax, import customs duty, and other mandatory payments if any, except for the value added tax, should be added to the customs value of imported goods for the purpose of determination of the taxable base for VAT. The cost thus determined shall be translated into Ukrainian hryvnia at the National Bank of Ukraine exchange rate effective as of the end of the operation day, proceeding the day, when the imported commodities were subject to the customs control regime. Import VAT may be generally offset against output VAT collected from the local customers.
5.3. Export 0% VAT Export of goods and ancillary services is subject to 0% VAT. The ancillary services are services, which value is to be included into the customs value of the exported goods according to the requirements of the Customs Code.
Export VAT should be determined based on the contract price, but not lower than the customs value. For the VAT purpose, the goods are viewed to be exported if and when their export is evidenced by the customs cargo declaration.
6. In-kind contribution Importation of property as an in-kind charter capital contribution by a foreign investor is exempt from customs duty in Ukraine. The rule, however, does not apply if the importer disposes such property within a 3-years period. There is a position of Ukrainian customs authorities that the rule would apply not only to asset deal but also to share deal, as the sale of shares of a foreign participant is equalized by Ukrainian customs authorities to the sale of such assets. If share or asset sale took place within a 3-year term after the importation of the assets, the company is obliged to accrue and pay to its local customs an exempted amount of import duties applied to such imported property, plus additional VAT.
7. Customs control The customs authorities are allowed to carry out customs control of the accuracy of the determination of the customs value of imported goods. The customs control procedures may be executed at the moment of the customs clearance of goods and their transfer through the customs border of Ukraine and after the completion of the customs clearance procedures (the “post-audit”) and admission goods across the customs border of Ukraine (e.g., the post audit procedure). During the customs control procedure the customs authorities verify the fact of release of imported goods and the accuracy of information stated in the customs declaration and other documents submitted to the customs authorities for customs clearance. When the customs authorities would reveal inconsistencies in respect of the reported customs value of imported goods, the customs authorities may issue a decision where the new customs value of imported goods would be reported. This should be subject to recomputation of the tax liabilities and financial penalties as well as application of additional customs
duties to the importer, unless the importer would decide to challenge the decision with a customs authority of the higher level and/ or the court.
7.1. Responsibility Based on the results of the customs inspection the customs authorities may hold the inspected company administratively responsible for the breach of the customs rules. Chapter 56 of the Customs Code provides for the following administrative sanctions for the violations of the customs rules and regulations: Warning; Fine; Confiscation of imported goods, subject to violations of customs rules and regulations. Depending on the type of violation committed the sanction against the companies could amount to a fine of 5 to 1,000 times the non-taxable minimum monthly income (currently UAH 17, i.e., US$ 2.1 or EUR 1.5), i.e., currently UAH 85 – 17,000 or approximately US$ 10.5 - US$ 2,100) and include a confiscation of those goods. Ukrainian law does not have a concept of a corporate criminal liability. Under Ukrainian law, any action under the Criminal Code, may only be initiated against an individual before the common courts. According to Article 201 of the Criminal Code, which stipulates criminal liability for smuggling, the maximum liability for smuggling is 12 years of imprisonment with the confiscation of smuggled goods and confiscation of property. Please, however, note that the Draft Customs Code decriminalizes the smuggling of goods, except for smuggling cultural valuables, weapons, poisons, narcotics and explosives etc. The most recent position of state authorities with respect to criminal liability for smuggling violations may lead to decriminalization of the respective articles of the Customs Code and the Criminal Code, and the importer of records, accused in smuggling, may be subject to significant administrative penalty, not to imprisonment.
All of the information included in this document is for informational purpose only, and may not reflect the most current legal developments, judgments, or settlements. This information is not offered as legal or any other advice on any particular matter. The Firm and the contributing authors expressly disclaim all liability to any person in respect of anything, and in respect of the consequences of anything, done or omitted to be done wholly or partly in reliance upon the whole or any part of the contents of this brochure. No client or other reader should act or refrain from acting on the basis of any matter contained in this document without first seeking the appropriate legal or other professional advice or the particular facts and circumstances.