Ukraine: Customs And Import Duties: Dealing With Today's Problems

Last Updated: 15 November 2012
Article by Alex Frishberg

Import-export basically involves a signed contract and having a partner in Ukraine. Your goods are shipped to Ukraine and, hopefully, you will eventually get paid for it, per terms of your duly executed agreement. That is the simple legal essence of all import-export transactions. From a timing standpoint, when setting up your import-export transactions in Ukraine, you can either go slowly or you can go fast.

Alex Frishberg: Thank you very much for attending. We are going to try to be fairly comprehensive about import-export in Ukraine. Here is how: I will very briefly provide you with a theory of import-export in Ukraine under existing law. Next, Ms. Anastasia Dokuka will tell you about how import-export actually works because at one time she was a very serious customs broker. In that capacity Ms. Dokuka faced all kinds of problems, which she resolved in a very efficient manner. And after Ms. Dokuka, our senior lawyer, Mr. Vladimir Lukovich, will describe specific aspects of import-export transactions, including VAT, customs duties, etc.

The rest of the time I believe will be most useful to you, the question and answer series – a kind of a roundtable session. If you have any questions or comments, please feel free to speak up at that time. We will try to answer them as honestly as possible. As you all know, import-export is a combination of both law and practice. And today we will cover both aspects. I will cover the law and everyone else will talk about the practice. With this in mind, I will quickly go through my presentation in 30 seconds or less, leaving more time for our distinguished speakers.

Import-export basically involves a signed contract and having a partner in Ukraine. Your goods are shipped to Ukraine and, hopefully, you will eventually get paid for it, per terms of your duly executed agreement. That is the simple legal essence of all import-export transactions. From a timing standpoint, when setting up your import-export transactions in Ukraine, you can either go slowly or you can go fast.

What do I mean "go slowly"? The whole trick in import-export is trying not to get ripped off, because debt collection can be a real pain without any results. So, going slow may be a good idea if you want to get paid for your goods and you don't know the market very well. First, you should do background research on your partner. Background research will tell you if your partner has cheated anyone in the past; whether they have debt collection problems; who they really are; who are your partner's connections (which can be with the government, the criminals or no one). Once you do background research, you find out who you are dealing with, whether it is worth dealing with your partner and, if so, how.

Another piece of advice would be as follows. Instead of doing one big contract for one million dollars, do several contracts for lesser value (for example, ten contracts for one hundred thousand dollars each). If you do several contracts, you can test your partner's reliability, trustworthiness and ability to come through on his word. Sometimes, your partner will pay in the beginning, but will fail to pay on the back end. This happens because this is not a full-proof system.

In doing import-export in Ukraine, you will often find that Ukrainians do need a product and they do have the money and they actually do make payments to your home country. Your business may become so wildly profitable that you will need several agents, registered as subjects of entrepreneurial activity, and you will be able to pay them from abroad to their entrepreneur accounts here in Ukraine. Alternatively, you may find that you need to register a representative office because the volume of transactions requires a larger presence or structure here in Ukraine. This is quite common.

If you find that you need to firstly employ the representative office avenue, then this is effectively "going fast". If you first come here and you already find out that you have a big market, I would recommend opening a representative office thereby foregoing the slow route. But remember that when you open a representative office, you will also have to hire an accountant, you will need to find a legal address, which means signing a lease agreement, and you will also need to hire staff (at least one person to head the representative office).

There are two types of staff from a legal viewpoint – full-time staff and subcontractors. In case of subcontractors, you will not have to withhold social insurance benefits on salary, as they are registered as private entrepreneurs, who have a very low personal income tax rate (or they simply enjoy the benefits of the relative low unified tax).

You will also need to deal with warehouses to store your products if you are importing at a high volume. There are two types of warehouses – customs bonded warehouses and regular warehouses. We will go over all other related issues in detail with our two experts because that's where the problems start. We're speaking about customs duties, VAT, excise taxes, certification problems.

This is in a nutshell everything you needed to know about import-export in Ukraine, but were afraid to ask. The real key is always to keep your eye on the ball. If you have a debtor, who owes you for goods, you are in already trouble because there are not that many effective debt collection remedies in Ukraine. And now, without further delay, I would like to introduce Ms. Anastasia Dokuka, who is a true hands-on practitioner. After Ms. Dokuka, we will hear from a veteran lawyer, Vladimir Lukovich, who will speak about several legal aspects of import operations, before we move into the question-and-answer series.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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