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Does the property imported into Ukraine as contribution of a foreign investor to the charter fund of enterprises with foreign investments subject to customs duties?

Should the property imported into Ukraine as contribution of a foreign investor to the charter fund of an enterprise with foreign investment be levied a customs duty on?

Article 4 of the Law of Ukraine ON UNIFIED CUSTOMS TARIFF reads: “Goods and other items that enter/exit the customs territory of Ukraine are subject to customs duties unless otherwise stipulated by this Law.”

Article 19 of the Law, which envisages a number of customs duty exemptions, doesn’t exempt the property imported into Ukraine as contribution of a foreign investor to the charter fund of an enterprise with foreign investment from customs duty. Nevertheless, Article 18 of the law of Ukraine reads:

“ Property imported into Ukraine as contribution of a foreign investor to the charter fund of enterprises with foreign investments (except for the goods for realization or own consumption) is exempted from duties.

The customs authorities make clearance for entry of such property into the territory of Ukraine based on a promissory note, issued by the enterprise, in the amount of the duty with deferment in payment not more than for 30 calendar days from the date of customs clearance of the import cargo customs declaration.

The promissory note is discharged and import duty is not levied if within the period, assigned for deferment in payment, the above property has been credited to the balance sheet of the enterprise, and the Tax Administration at place of location of the enterprise has made the relevant note on a copy of the promissory note.

If within three years from the time of crediting of the foreign investment to the balance sheet of the enterprise with foreign investments, the property, imported in Ukraine as contribution of the foreign investor to the charter fund of the said enterprise, is alienated including in connection with termination of activity of this enterprise (except for exportation of the foreign investment abroad), the enterprise with foreign investments pay import duty calculated on the basis of the customs value of this property, translated into the currency of Ukraine at the official exchange rate of Ukraine established by the National Bank of Ukraine at the date of alienation of the property.”

Procedure of issue, recording and discharging of the promissory notes is established by the Cabinet of Ministers of Ukraine namely by the Instruction of the Cabinet of Ministers of Ukraine N937 dated the August 7 1996 On the ratification of the procedure of issuance, recording and discharging of the promissory notes issued during the importation of property into Ukraine as contribution of a foreign investor to the charter fund of enterprises with foreign investments as well as under the agreements (contracts0 on joint investment activity and payment import duty in the case of alienation of the property.

Under Clause 2 of the Instruction, the maker shall submit all compulsory information required by law on the form of a promissory note.

A maker shall make out a promissory note in foreign currency recognized by the National bank of Ukraine in the amount of the duty with deferment in payment not more than for 30 calendar days from the date of customs clearance of the import cargo customs declaration.

It should be fixed in the import cargo customs declaration that the property is imported into Ukraine as contribution to the charter fund of enterprises with foreign or for joint investment activity under the agreement (contract) with a foreign investor.

The amount of payment of a promissory note should be written in figures and words and it also must signed and sealed.

On contribution of the imported Property to the charter fund of enterprises with foreign investments and registration of the property as a foreign investment for payment of the promissory note (according to the Instruction N 937), a maker (an enterprise with foreign investments taking the imported property to its charter fund as contribution of a foreign investor) shall apply to the Tax Administration in writing to mark its copy of the promissory note.

The following documents shall be adjoined to the application:

- copy of the promissory note;

- copy of the import cargo declaration;

- documents to certify crediting of the property to the balance sheet of the enterprise with foreign investments. If necessary, the state Tax Administration shall be entitled to examine if the maker’s property is available.

- Certifying state registration of a foreign investment.

If the property is actually credited to the balance sheet of the enterprise with foreign investments, the State Tax Administration shall indorse the maker’s promissory note by “Credit to the balance” with date, signature of the head (his deputy) and the seal of the State Tax Administration (Clause 8 of the Instruction N 937).

In accordance with Clause 9 of the Instruction dated the 7th of August 1996, the maker shall submit the mentioned copy of the promissory note to note-holder (a custom authority making clearance for entry of such property as a foreign investment into the territory of Ukraine ).

A note-holder shall discharge a promissory note by indorsing on the face side “Discharge” and the date, which must be signed and sealed by the head (his deputy) of the customs authority.

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