Development of efficient tax and corporate structures from the shareholders' and potential investors' perspective are key issues in a business restructuring. Each cross-border restructuring usually involves several jurisdictions. Below are some of the most frequently asked questions (and answers) on the cross-border restructuring of Ukrainian business:
1. Which jurisdiction should be chosen for the Holding?
The most commonly used jurisdictions for the Holding are Cyprus, Luxembourg and the Netherlands. Each jurisdiction has its own advantages and disadvantages and the choice of a particular jurisdiction will depend on several factors, including, in the case of an IPO, the stock exchange where the Holding's shares will be listed. For instance, to be included in the FTSE index on the London Stock Exchange, the group should have a UK public company as the holding structure. Ferrexpo plc is an excellent example of this structure.
2. How should the beneficial owner's ownership of the holding structure be structured?
Depending on the person's readiness to disclose his/her identity as a beneficial owner of the business, such ownership may be either personal or through a trust. In either case, the beneficial owner's identity will need to be disclosed to the servicing banks and, in the case of an IPO, to public investors. We usually recommend that for tax efficiency purposes the beneficial owner should own (personally or through a trust) the Holding indirectly – through a separate company (Subholding), which is often established in Cyprus or BVI.
3. Which of the business' companies should be included in a post-restructuring group?
It is usually a commercial decision as to which companies are core for the business and which companies should be excluded as non-core. All of the core companies must be controlled by the Holding in order to avoid any leakage of funds from the group that will be outside the control of prospective investors.
4. What consents are necessary for the corporate restructuring?
Usually the restructuring requires the obtaining of an individual licence of the National Bank of Ukraine, an approval of the Antimonopoly Committee of Ukraine, and lenders' consents and waivers.
5. At which price should the Ukrainian companies be purchased by the foreign Holding?
If the Holding (directly or indirectly – through special companies) purchases the core companies (non-purchase options may also be available) such purchases need to be made at the market value in order to avoid the risk of the restructuring being challenged by the tax authorities.
6. How long does the restructuring take?
Generally, the restructuring takes from three to six months, depending on the size of the group, the number of involved jurisdictions and the necessity to obtain regulatory approvals.
7. Are there any peculiarities for certain industries?
Corporate restructuring may differ for various industries. Some groups have active trade operations in international markets and they need special trading vehicles within their corporate structures. Popular jurisdictions for trading companies include Switzerland and the UK, as well as BVI and Panama. For instance, Ferrexpo and Kernel have Swiss trading companies in their groups.
Real estate companies also have their specifics. Real estate developers build office centres and shopping malls with a view to selling them in the future, one by one. Thus, each asset must be separately owned by a vehicle (SPV), which has a favourable tax regime for capital gains: this is important if the SPV sells the asset locally. If the developer sells the SPV (not the asset), then its holding company jurisdiction should favourably treat capital gains from the tax perspective. For this purpose, Cyprus remains the best option, not because of its Double Tax Treaty with Ukraine (USSR), but rather due to its favourable internal tax regime. XXI Century and KDD Group are good examples of developers who use Cyprus in their corporate structures.
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.
