The legal system of our state has been passing through the process of radical reformation. In particular, the rules of legal support for business transactions have been changing. Significant innovations are observed in the tax system. Maksym Lavrynovych, Managing Partner of “Lavrynovych & Partners” Law Firm has informed the FD about the main trends and directions of this reform.
When the “Law Firm Lavrynovych & Partners” was set up?
– Law Firm «Lavrynovych & Partners» was founded in 2004. The main legal partnership consists of Arthur Andersen law firms employees (from 2002 – Ernst & Young) as well as of “Shevchenko, Ditkovsky & Partners”. We began to work with that base of clients that had possessed the partners of this newly established law firm.
Then, every satisfied client used to activate new clients for us. Nowadays, the company unites more than 50 professionals in Ukraine and Austria. Clients of “Lavrynovych & Partners” are the multinational corporations and financial and industrial groups of Ukraine, banks, mobile communication operators and agro-industrial enterprises.
What can you say about such activity as tax aspects of tax optimization by using a foreign residence or obtaining citizenship of other countries? Do you provide legal support for such optimization?
– Tax practice, including international, is one of our main areas of activity. We offer our clients advice in all types of the international structuring, both in personal and in corporate taxation. In recent years, among the leaders in optimizing taxation is a scheme that provides the possibility for the citizens of Ukraine to get the citizenship of Cyprus. In accordance with the legislature, the new Cyprus citizens are exempt from taxation of income earned outside of Cyprus.
In order to take advantage of this opportunity, citizens of Ukraine that have a Cypriot nationality need to live in Cyprus for at least 60 days a year, while not living in any other country for more than 183 days and not being a tax resident of another country. There are also additional minor requirements related to anchoring in Cyprus – this could be, for example, working at a Cypriot company and obtaining a minimum wage.
Cyprus is a good option for jurisdictional tax optimization, but not for every business. Before final choice of foreign tax jurisdiction, the goals of the company and the specifics of your business should be analyzed. For the citizens that have gained certain money in Ukraine in the past 5–10–20 years, using off shore structures, this scheme is going to be the ideal one. Citizens of Cyprus have the opportunity to pay dividends or to receive income from the profits that their companies had received in the past. Nowadays, the keeping of the funds on the accounts of off shore companies has been becoming more and more difficult deal. The banks themselves ask clients to close the accounts of such companies.
One can say that there is a war with the off shore worldwide and new rules on disclosure and publicity of tax payments are being adopted. For those who are accustomed to such structures, the worst thing is that banks do not open their accounts any more, and also ask them to close the existing ones, if such an off shore company cannot confirm its substance (the presence of a company, the presence of an actual office and employees, goods and services that they provide and sell). In connection with this, assets should be withdrawn and transferred, for example, to the companies in EU with moderate tax burden or companies of other jurisdictions with a tax burden of not less than 10% of the income tax.
Our clients most often choose the option of transferring funds to the accounts of the final beneficiaries-individuals. In the future, it could enable to invest in the newly created companies under more attractive and reliable jurisdictions.
In which aspects of commercial law, in addition to the aspects of tax optimization, do you provide your activity?
– The firm provides a wide range of legal support services and shapes its specialization according to the client’s sphere of activity. Key practices include dispute resolution, investment support, banking and finance, corporate law and M & A, antitrust and competition law, bankruptcy and debt restructuring, international arbitration and much more.
How do you assess the legal basis in the Ukrainian legislation aimed at protecting of the foreign investment? What is the main disadvantage, and what is the advantage? How can this part of Ukrainian legislation be reformed in order to improve the investment inflows?
– The legal basis in Ukraine is quite good. Particularly important in the context of foreign investment is the existence of bilateral treaties and conventions that deal with the protection of foreign investments.
Due to this, according to the results of litigation, those investments that had been lost then can be returned to a foreign investor. That is why Ukrainian entrepreneurs tend to create international structures for their own business, by opening a holding in the EU and by transferring of the ownership of their assets to a newly formed holding. If entrepreneurs have the opportunity thus they invest the money, they try to invest in Ukraine from abroad just to get a guarantee of investment protection. Problems that may arise with foreign investors that enter Ukraine are due to noncompliance with the law and due to corrupted officials.
They may face different types of fraud, raider scheme that in one or another way are aimed at depriving of property rights and to the requisition of property. In Ukraine, these things are fought with. Almost every day, legislation strengthens the protection of property rights, sanctions for arbitrariness against the rights and freedoms of individuals are becoming more severe.
The key issue is that both the authorities and citizens, including foreigners should honestly comply with the legislation, and the case of violation could be punished in accordance with the law.
Do you deal with the issues related to the restitution of Ukrainian property in the occupied territories?
– No, we are not dealing with issues related to the occupied territories. Our clients are international companies, foreign and Ukrainian individuals and, of course, domestic businesses that does not face such issues.