We are pleased to present a brief overview of the main regulatory changes affecting the business environment in Armenia, Belarus, Kazakhstan, Poland, Russia and Ukraine influenced by the Coronavirus COVID-19 outbreak in April – June 2020.
Our experts give their opinion on the main legislative changes made in these countries during the adverse epidemiological period.
Amendments to the law “On Joint Stock Companies”: remote participation in shareholders’ meetings
The Law of the Republic of Armenia “On Joint Stock Companies” was amended by the Parliament of Armenia in March 2020 to allow adopting the decisions of the General Assembly via remote voting. At the same time, decisions of the General Assembly may be made at a meeting during which the General Meeting may communicate with one another by telephone, television or other means of communication, including by e-mail, software and application platforms (including mobile applications) in real-time. These meetings and assemblies shall not be considered to be held remotely.
This amendment will be of significant help to foreign shareholders that, due to the situation with COVID-19, had the problem when shareholders’ meetings, board sessions, and general assemblies were impossible to conduct due to restrictions on movement and people, especially foreign shareholders, were not able to come and participate in meetings. Moreover, there was no possibility to conduct remote meetings via voting ballots, because of the restrictions set under the law (the Annual General Assembly, as well as the special General Assembly assembled in the case stipulated by the law may not be held in a remote manner (by means of a survey)). Due to this amendment, joint-stock companies with foreign shareholders will conduct shareholders’ meetings on time and with no breach of the deadlines under the law.
Tax legislation changes: amendments to corporate tax calculations
The Parliament of the Republic of Armenia adopted amendments to the Tax Code of the Republic of Armenia regarding the profit tax prepayment system on June 16, 2020.
|Two methods to make profit tax prepayments:||
|Main method, when the prepayment is calculated from the previous year’s profit tax (the basis for calculation is 20% from the previous year’s profit tax),||Main method, when the prepayment is calculated from the previous year’s profit tax (the basis for calculation is 20% from the previous year’s profit tax) is still in force.|
|Alternative method, when the prepayment is calculated from the previous quarter’s turnover (the basis for calculation is 2% from the previous quarter’s turnover). To use the 2nd method the taxpayer should have given an announcement to the tax authorities before 20th of March for each year.||The taxpayers will not have to give an announcement to the tax service for choosing the alternative method. Instead, the taxpayers are free to choose the model that suits them best and use either the main method or the alternative method without any limitations.
|In addition to that, considering the COVID-19 consequences, for the 2nd quarter 2020 no prepayment of profit tax is requested and the taxpayers are exempt from making profit tax prepayments for 2nd quarter 2020.|
This amendment is of significant help for the taxpayers, especially those who suffered losses due to the COVID-19 situation. It is the first tax incentive provided by the Government since March 2020 (starting from lockdown of the economy since the beginning of the pandemic).
Amendments to the Law “On Copyright and Related Rights”
On May 27, 2020, the amendments to the Law of the Republic of Belarus dated 17.05.2011 № 262-Z “On Copyright and Related Rights” (hereinafter – “the Copyright Law”) entered into force.
The main changes affected the following spheres:
- The introduction of “open licenses”, which is a simplified mechanism for concluding a license agreement for the right to use objects of copyright and related rights. An open license is an adhesion agreement.
- Nonproprietary rights of authors: the new edition of the copyright law provides supplementary grounds for restriction of the right to disclosure and right to revocation regarding audiovisual works. Audiovisual works are cinema films, telefilms, video films, and other cinema- and teleworks, regardless of the method of their original or subsequent recording.
- The provision regarding the free use of works for the blind, visually impaired, and other persons with visual disabilities is brought into line with the Marrakesh agreement on facilitating access to published works for the blind, visually impaired, or other persons with visual disabilities (dated 27.06.2013).
- The possibilities of free use of legally published works for educational and research purposes are extended.
- Works that have passed into the public domain can be freely used by any individual or legal entity without paying remuneration to the authors. At the same time, the right of authorship, the right to a name, and the right to inviolability of the work must be respected.
- The rights of organizations for collective management of property rights (the State Institution “National Center of Intellectual Property”, the Public Association “Belarusian society of authors, performers and other right holders”) were improved.
- The concept and content of the agreements used in creation and use of objects of copyright and related rights were modified. Changes were made to the content of the license agreement, of the agreement on the creation and use of an object of copyright and related rights, of the property rights management agreement, and others. More detailed overview is available here.
Changes to the licensing of medical services
With the Regulation № 307 dated May 25, 2020 the Government of Belarus adopted the list of procedures (examinations, manipulations) related to works (services) comprising licensed medical services (hereinafter – “the List”) which will come into force on August 28, 2020 and replace the existing one.
The list amends the existing procedures (examinations, manipulations), for example, all types of electromezotherapy are now licensed, some of them, such as visible, infrared radiation, noncontact hydromassage, mechanical hardware massage, and hardware thermotherapy are licensed, if they are carried out with medical equipment. The list amends the existing types of surgery operations, adding thread implantation and changing the existing types of surgery corrections, for example.
The list provides for new types of procedures such as hand massage using specialized massage techniques with use of specialized equipment. This type of massage can be performed by medical staff employed in the company in which the procedure is carried out or recruited by private entrepreneurs in the order prescribed by law.
Measures of state support for business operating in Belarus
In order to minimize the influence of the worldwide epidemiological crisis on the economy the President of Belarus signed Decree № 143 dated April 24, 2020 “On Economy Support” (hereinafter – “the Decree”), which sets forth the measures of state support for business in tax relations, labour relations, payment of lease allowance and installment payments for real estate, and the pharmaceutical sector. The Decree also introduced a moratorium on the increase of basic lease allowance until September 30, 2020. State bodies under the Decree are allowed to conduct unscheduled inspections of legal entities and private entrepreneurs, as well as conduct inspections within 2 years from the date of state registration of legal entities (their separate divisions) and of private entrepreneurs, if their activities relate to trade and public catering. The Decree also provides for the possibility of recalculating debt for energy resources taking into account the official exchange rate of the Belarusian ruble to the foreign currency used for payments for energy resources set by the National Bank of Belarus on December 31, 2019. More detailed overview is available at the following link.
The President of Belarus also signed the Decree dated May 28, 2020 № 178 “On Temporary Measures of State Support of Employers and Certain Categories of Citizens” in order to minimize the influence of the worldwide epidemiological crisis on the economy and to maintain social stability. The companies under the Decree are empowered to receive subsidies from the Social Security Fund of Belarus to make additional payments for employees, who did not work from May 1, 2020 to July 31, 2020 due to downtime outside the employee’s fault and to those who the employer set part-time work for the amount of the minimum salary (BYN 375, approx. USD 160), to make contributions to the Social Security Fund of Belarus. Before submitting the application, companies should open a bank account on balance account 3605. Afterwards, the company may apply to the local authorities on its place of registration not later than the last day of a month following the month for which the salary is calculated with the following documents:
- an application with indication of the amount of additional payments and mandatory contributions
- a copy of the bank statement on the account opening
- a certified copy of the management order on downtime or on installment of part-time work
- calculation of the amount of additional payments and mandatory contributions
Within 10 days local authorities consider the application documents and adopt corresponding decisions. In case the decision is positive, the local authorities should send such a decision to the corresponding departments of the Social Security Fund and the latter should, within 5 days, maintain transfer of additional payments and payments of mandatory contributions by withholding 1% of the sum to transfer. In turn, the employer following the first working day after the money receipt should fully transfer additional payments to employees. For simplification of such process the Social Security Fund published templates of the application, calculation of the amount of additional payments, and of mandatory contributions on its official site. This amendment will be of significant importance due to the negative effect of COVID-19 on the financial situation of various companies.
Amendments to the Rules on currency transactions
In accordance with the Decree of the Board of the Kazakhstan National Bank dated March 19, 2020 № 25, amendments to the Rules on currency transactions in Kazakhstan have been introduced.
As from March 23, 2020, Kazakhstani legal entities (except for the authorized banks) (hereinafter – the “Legal Entity”) may purchase non-cash foreign currency for purposes, not connected with fulfilment of obligations in foreign currency, in one authorized bank during one business day in an amount not exceeding the equivalent of USD 50,000 (previously the amount was USD 100,000 equivalent).
The purposes not connected with fulfilment of obligations in foreign currency include the following:
- transfer of foreign currency to the legal entities’ own accounts in foreign banks
- voluntary transfers of money in foreign currency
- placement of foreign currency in the accounts of authorized banks
In case of applying to purchase non-cash foreign currency for the national currency in an amount exceeding the equivalent of USD 50,000 the legal entity should indicate the purpose of the purchase and enclose to the application a copy of the agreement and an invoice or another payment document used as a basis of purchasing foreign currency.
The application should also be accompanied with an instruction to the authorized bank to sell that currency for the national currency within 3 days, if the purchased foreign currency is not used within 10 business days. This requirement does not apply to distribution of net profit or a part of it by the resident legal entity among its shareholders / participants.
Changes to the legislation on personal data and digital documents
On June 25, 2020, the President of the Republic of Kazakhstan signed the Law of the Republic of Kazakhstan “On Amendments and Additions to Some Legislative Acts of the Republic of Kazakhstan on the Regulation of Digital Technologies” (hereinafter – the “Law”) in order to ensure the strengthening of statutory safeguards in protecting personal data of citizens, improving the existing legislative acts in the field of digital technologies.
The Law provides the definition of the authorized body in the field of personal data protection (hereinafter – the “Authorized Body”) and its competence. The collection and processing of personal data shall be approved by the rules specified by the Authorized Body, which within its competence shall have the following authorities:
- to participate in the implementation of state policy in the field of personal data protection
- to consider appeals of the subject of personal data on the conformity of the content of personal data and methods of their processing to the purposes of their processing and make an appropriate decision
- to develop a procedure for the owner and/or operator, as well as for third parties to take measures to protect personal data
- to carry out other actions stipulated by the legislation
The Law introduces a new type of voluntary insurance as cyber insurance, which provides for the possibility of compensation for property damage caused to the subject of personal data, to the owner and (or) operator, and to third parties.
In addition to that, the Law provides for amendments and additions to the Code of the Republic of Kazakhstan on Administrative Offences, which foresees administrative liability for the use of electronic information resources containing personal information of individuals in order to cause them property and/or moral harm or to restrict their exercise of rights and freedoms guaranteed by the laws of the Republic of Kazakhstan.
Government support during the pandemic
The world is facing a big problem of COVID-19. During this dangerous time, many economic processes have stopped and economic collapse has begun. Every country is trying to help its people and businesses, with the main priority to keep businesses afloat so that people do not lose their income and work.
Kazakhstan did not change its position about people and business. The virus came in the first half of March 2020, and the Government of Kazakhstan hastily declared a state of emergency and closed the country from external relations.
The most important support was the allocation of KZT 300 billion to support entrepreneurs and create new jobs. The total package of allocated funds will amount to KZT 4.4 trillion.
The main incentives provided by the Government for the taxpayers classified as micro, small, or medium-sized enterprises, were as follows:
- An extension was provided for payment of all taxes and other obligatory payments to the budget, as well as social payments until June 1, 2020.
- An adoption of measures regarding the application of methods to ensure the fulfillment of unfulfilled tax obligations and the enforcement of tax and customs debt and social payments, with the exception of taxpayers of a high level of risk, was suspended until June 1, 2020.
- The deadline for the execution of a notification provided in accordance with subparagraph 10) of paragraph 2 of Article 114 of the Tax Code of Kazakhstan that occurs during a state of emergency (from March 15, 2020 till April 15, 2020), with the exception of taxpayers with a high level of risk, was extended until June 1, 2020.
- Tax audits carried out by the State Revenue Authorities for the period of state of emergency are suspended, while the suspension period is not included in the tax audit period.
- Until October 1, 2020, VAT is set at 8% for sales and import of goods included in the list of the socially significant food products.
Along with the above, the Government of Kazakhstan made additional tax incentives for businesses, industries, and populations defined as most suffering from the pandemic. The Government of Kazakhstan granted a correction coefficient of “0” to the payroll taxes, including:
- Personal income tax withheld at source of payment
- Personal income tax, paid independently by a person engaged in private practice (lawyers, notaries, professional mediators, private enforcement agents)
- Social tax, obligatory pension contributions, obligatory professional pension contributions, social contributions, obligatory social medical insurance contributions and payments, with the exception of those paid by individual entrepreneurs for themselves.
These measures show that the Government is sensitive to business issues, both financially and morally. The state of emergency was withdrawn as of May 11, 2020 and economic recovery has begun, but risks of infection are still great because the quantity of the deceased is increasing day by day.
The possibility of remote participation in the shareholders’ meetings in a limited liability company
In order to counteract the decision-making paralysis in capital companies, the Parliament of Poland, in the framework of the so-called “anti-crisis shield”, introduced amendments to the Commercial Companies Code to facilitate remote work of their bodies with the Act of March 31, 2020.
The previously binding provision of Article 2341 of the Commercial Companies Code provided for the possibility of holding shareholders’ meetings in a limited liability company using electronic communication only, if it was expressly stipulated in the articles of association.
However, after the amendment not only voting but also participation in the meeting of the company’s body is possible via direct remote communication, unless the articles of association provide otherwise. Thus, at present, the possibility of remote participation in the meeting is the default solution.
Remote participation in the shareholders’ meeting is decided by the entity convening the meeting. In general, it will be the management board and in some cases the supervisory board or shareholders.
Detailed rules of participation in meetings using electronic communication must be included in the special rules of procedure determined by the supervisory board, or in the absence thereof, by the shareholders. The rules of procedure should primarily contain requirements for identifying participants and ensuring the security of electronic communication. The regulations may be adopted by resolution of the shareholders without holding a meeting, if the partners representing the majority of votes agree in writing to the content of these regulations.
It is worth adding that remote voting will not be able to be used for secret ballots. Under the existing regulations, it has been assumed that some resolutions in secret ballots cannot be adopted in this manner. The Anti-Crisis Shield does not change in this respect.
Thus, in the case of ordinary meetings, the partners participating in them remotely will not be able to take part in votes concerning, among others:
- election of board members
- discharge the members of the bodies for the non-performance of their duties
- if any partner requests a secret ballot on a resolution which, as a rule, is adopted in an open ballot
The changes introduced to the Code of Commercial Companies are of a permanent nature, which means that they will also apply after the end of the pandemic.
Extended deadlines for preparing and submitting financial statements
The Polish Minister of Finance, by the Ordinance of March 31, 2020 issued on the basis of the Anti-Crisis Shield, extended the deadlines for submission and approval of annual financial statements under the Accounting Act by 3 months. For entities which are the subject of the supervision of the Polish Financial Supervision Authority (KNF) (e.g. listed companies, banks), the deadline was extended by 2 months.
Typically, according to the Accounting Act, companies entered in the Register of Entrepreneurs of the National Court Register (KRS) are obliged to prepare financial statements within three months from the balance sheet date. If the financial year coincides with the calendar year, the deadline for drawing up the report is 31 March. Then it should be approved within 6 months of the balance sheet date, i.e. by 30 June. Afterwards it should be submitted to the National Court Register within 15 days of approval of the annual accounts.
Under the new regulation, companies may prepare the financial statements for 2019 by the end of June and approve them by the end of September 2020.
Deadlines for the companies which are the subject of the KNF’s supervision are the end of May and the end of July for approval, respectively. The same dates apply to consolidated financial statements of capital groups.
The documents should be submitted to the National Court Register no later than October 15, 2020 and, in the case of entities which are the subject of KNF’s supervision, by September 15, 2020.
Measures of state support for business
On April 2, 2020 the Government of the Russian Federation issued Decision No. 409 “On Measures to Ensure the Sustainable Development of the Economy”, which provides for the implementation of measures to support enterprises in facing the crisis.
It should be noted that most support measures will affect small and medium-sized enterprises (SMEs), as well as enterprises working in industries affected by the crisis. The list of industries was approved by the Government of the Russian Federation by Resolution № 434 dated April 3, 2020. At the same time, support will be provided on the basis of information on the main activities by codes OKVED 2, which is contained in the Unified State Register of Legal Entities as of March 1, 2020.
For ordinary organizations, the deadlines for submission of reports are postponed, while the deadlines for payment of taxes remain the same. Therefore, if an organization does not pay the tax in full according to the term of tax payment, which will become clear only on the date of submission of the tax return, the organization should pay the unpaid amount of tax and penalties simultaneously with the submission of the tax return in order to avoid penalties.
More detailed information on state support measures is available at the following link.
Possibility to postpone lease payments
On April 1, 2020, Federal Law No. 98-FZ “On Amendments to Certain Legislative Acts of the Russian Federation on the Prevention and Liquidation of Emergency Situations” was published and came into force (hereinafter – “Law No. 98-FZ”).
SCHNEIDER GROUP experts reviewed and commented on the provisions of Law № 98-FZ concerning the possibility of tenants of real estate to receive a deferred payment or reduction of rent. In contrast to the Order of the Government of the Russian Federation from 19.03.2020 № 670-r “On Measures to Support Small and Medium-Sized Businesses”, which provides for the introduction of deferred payment of rent for tenants of state property, Law № 98-FZ does not limit the possibility of its application to only state or municipal property. Accordingly, the provisions of Law № 98-FZ may apply to property of any form of ownership, including private property. You can find out what it means for your business in this article.
Change of the law enforcement practice regarding the possibility of concluding fixed-term employment contracts
The Ruling of the Constitutional Сourt of the Russian Federation of May 19, 2020 № 25-P changed the current implementation of the law in practice. The conclusion of an employment contract for a certain period in connection with the performance of work in pursuance of the civil law contract of the employer is in question.
The Constitutional Court of Russia judged that paragraph 8 of the first part of Article 59 of the Labor Code of the Russian Federation:
- does not imply the conclusion of a fixed-term employment contract (including the multiple conclusion of an employment contract for the same position) in order to ensure the fulfillment of the obligations of the employer under civil contracts for the provision of services related to his statutory activities;
- does not allow determining the urgent nature of labor relations exclusively by the limited duration of the civil law contracts of the employer.
In this regard, SCHNEIDER GROUP recommends revising the company’s approach to hiring employees for a certain period of time to implement projects under civil law contracts. Moreover, it is also recommended to study existing employment contracts with the view of making the necessary adjustments or additions to them. More detailed analysis of the Ruling is available here.
Implementation of the Controlled Foreign Company (CFC) concept in Ukraine
Law 466-IX dated January 16, 2020 introduced the concept of controlled foreign companies, which is new to the Ukrainian legislation. According to the named law, a controlled foreign company is any legal entity registered in a foreign state or territory, which is under the control of a resident of Ukraine (hereinafter – a “CFC”).
In some cases, a CFC may be equated with a foreign entity without the status of a legal entity, such as partnerships, trusts, funds, and other institutions and organizations established under an agreement or law of a foreign state (territory). Non-resident entities whose organizational and legal form is included in the special list of the Cabinet of Ministers are equated to entities without the status of a legal entity.
The controlling person is an individual or a legal entity – a resident of Ukraine, who is a direct or an indirect owner (controller) of a CFC.
The taxpayer, in respect of the profits of a CFC, is the controlling person (individual or a legal entity). That is, the latter will pay income tax in proportion to the share they own in a CFC.
The object of taxation for personal income tax or corporate income tax of a controlling person is part of the adjusted profit of a CFC, proportional to the share owned or controlled by such natural or legal persons.
The adjusted income of a CFC is not included in the total taxable income and does not increase the pre-tax financial result in some cases, for example, if the total aggregate income of all CFCs of one controlling person from all sources does not exceed the equivalent of EUR 2 million at the end of the reporting period or a CFC is a public company whose shares (stakes) are traded on a recognized stock exchange. The basic rate of 18% is applied to such profit. Such provision is valid starting from 01.01.2021.
Three-tier transfer pricing documentation: requirements and procedures
One of the most important innovations is a new way of disclosing information – a three-tier structure for transfer pricing documentation. In particular, starting from 2021, in addition to the Report on Controlled Transactions (must be submitted in case there are controlled transactions) and Notification on participation in the international group of companies (in case of participation in such a group and if the total income of the group exceeds the equivalent of EUR 50 million) the set of documentation will consist of:
- Master file (global documentation), which describes the composition of the international group, the functionality of its members, commodity and cash flows between group members (must be submitted within 90 days of receipt of the request of the tax authority) and accompanied by consolidated financial statements of the international group. The obligation to submit arises, if the aggregate consolidated income of an international group of companies is equivalent to more than EUR 50 million. Filed for the first time for year 2021 in 2022.
- Transfer pricing documentation (local file), which describes the actual controlled transactions, functional risk analysis of participants in such transactions, and contains economic analysis to determine the market range and conclusions on compliance / inconsistency of pricing in controlled transactions with the arm’s length principle (submitted not more than 30 days from the date of receipt of the request of the tax authority) and is accompanied by financial statements of the taxpayer. The obligation for submission arises, if the payer has controlled transactions.
- Country-by-country report, which details the economic contribution and the level of tax burden of each member of the international group of companies in all jurisdictions where such a group is present. Submission is required, if the aggregate consolidated income of an international group of companies exceeds the equivalent of EUR 750 million. Filed by the parent company or the authorized payer – a member of the international group for the first time for 2021 in 2022.
We hope you find this newsletter useful. SCHNEIDER GROUP is ready to provide professional support in our countries. We contribute our experience and knowledge for the growth of your business. Should you have any questions or would like our assistance, please contact our experts.