Legislative Changes During Wartime – Yurii Kornaha, Axon Partners

During the war, the state decided to support businesses by swiftly adopting a number of regulatory acts aimed at creating more favorable conditions for entrepreneurship. Yurii Kornaha, a partner and head of the Corporate Law and Taxation practice at Axon Partners, as well as a mentor for CfE UCU startups, discussed the details of these changes.

How Does the Simplified Taxation System Work During Wartime?

One of the key changes was a significant adjustment to the tax rate, which was previously available in the third group of the simplified taxation system only for small businesses. With the full-scale war, the state decided to support all businesses by reducing the tax rate from 5%, previously applied to the third group, to 2%. To take advantage of this opportunity, businesses must meet certain criteria, the main one being that their annual revenue should not exceed UAH 10 billion within one calendar year.

Additionally, the law reduced the number of business types that were previously ineligible for the simplified taxation system. This includes businesses involved in gambling, currency exchange, excise goods, foreign companies, etc.

Tax Audits and Responsibility During Wartime: Accounting and Reporting Features

During martial law, taxpayers are fully exempt from responsibility for late tax payments or failure to submit reports. However, it is important to note that if a business has not paid taxes while its account was active, meaning it had profits and funds available to pay taxes, tax authorities may question the appropriateness of using this exemption.

Nonetheless, the law is clear in stating that you can refrain from paying taxes or submitting reports during martial law.

If you can pay taxes on time, it’s advisable not to postpone this, as it supports the country’s economic front in the fight against the occupiers. This is more of a moral and ethical issue than a strictly legal one.

Regarding violations, it’s worth mentioning that during martial law, tax audits are generally not conducted. Only two types of audits are currently possible:

• Desk audits: These do not require your participation and are carried out by tax authorities based on the declarations you submitted.
• On-site audits: These relate to issues such as cash circulation, cash register operations, licenses, certificates, and labor contracts.

As for liability, throughout the entire period of martial law and for three months after it ends, no severe penalties will be imposed for violations occurring during or before this period. Additionally, no fines are imposed for the non-payment of the unified social tax (UST), and any previously accrued fines are written off. If any regular employees have been mobilized into the Ukrainian Armed Forces, you are exempt from paying UST for those employees. The introduction of cash register requirements is also frozen, and there are legal exemptions regarding the use of cash registers.

All tax deadlines are suspended during martial law. It’s important to understand that this suspension applies to both taxpayers and the tax authorities. So, if the tax office owes you or is reviewing one of your requests and hasn’t responded on time, you’ll have to wait, as this is how the law functions.

Regarding reporting, you are not required to file reports for the duration of martial law and 90 days after its conclusion. There are also numerous VAT-related exemptions for companies that have switched to the simplified taxation system.

Changes in Labor Legislation: Working Hours, Payroll Deadlines, etc.

There have been several changes in labor law as well, though it’s important to remember that labor law governs relations exclusively between business entities (such as individual entrepreneurs or LLCs) and their employees. Relations between individual entrepreneurs and contractors are governed by commercial and civil law.

One of the major changes allows employers to terminate contracts with employees due to the liquidation of a business. However, the employer must have valid reasons for this, such as the destruction of business property as a result of military actions. Employees can also now resign on the same day they submit their resignation if there are objective reasons for doing so.

Another important change permits the transfer of employees to different work roles to help mitigate the effects of military actions. However, given the current circumstances, many people are already working together to address the consequences of destruction, often without strict legal requirements.

During martial law, an employer can terminate employees under almost any circumstances, except for maternity leave and childcare leave, which is especially relevant for public sector employees.

Additionally, the length of the working week has been extended from 40 to 60 hours if necessary. However, due to the decline in economic activity, not many businesses currently require this. Moreover, employees can now be required to work on holidays and weekends, though this is limited to the martial law period.

A further significant change allows for delays or suspensions in salary payments due to military actions. Under the current conditions, businesses are not criminally liable for such delays, provided there are valid reasons, such as an inability to issue salaries on time due to a lack of funds rather than a cessation of operations.

One more key change is the legal permission to employ women in physically demanding jobs. This measure is likely more relevant for critical infrastructure, such as hospitals and public utilities, rather than entrepreneurial activities.

Additional Business Support Measures

Not many concrete business support measures have been implemented aside from the changes mentioned earlier. There are numerous initiatives, but unless they are enacted into law or government decrees, they remain only initiatives. We hope they will be adopted soon, but for now, here are some of the measures already in place:

• Employment of internally displaced persons (IDPs): This allows employers to receive compensation from the state in the amount of two minimum wages for the first two months of employment, which is currently UAH 6,500 per month.
• Temporary relocation of businesses from war-affected regions: This includes free relocation, assistance in finding suitable premises, and support in hiring employees at the new location. However, specific mechanisms for all these points are not yet in place, and the relevant legal provisions are not detailed.
• Loans for businesses under the “5-7-9%” program: This provides the possibility of obtaining loans for refinancing, with a maximum term of five years.

You can watch the webinar recording via the link provided.