The Law of Ukraine №2217-IX “On Amendments to Certain Laws of Ukraine on Regulation of the Legal Regime in the Temporarily Occupied Territory of Ukraine”, which deputies voted for on April 21, 2022, has recently entered into force. It introduces significant changes in the legal regime of economic activity on the temporarily occupied territory of Ukraine.

Experts from an advisory center “Smart Country”, with the support of the USAID Agricultural and Rural Development Program - AGRO, analyzed the Law №1207-VII with changes in the regulation of economic activity in the temporarily occupied territory. https://zakon.rada.gov.ua/laws/show/1207-18#Text

The main provisions of the document:

1. All restrictions provided for in this Law shall apply only to the temporarily occupied territories officially recognized by the National Security and Defense Council. Prior to the adoption of such an act by the National Security and Defense Council, activities in such territories is carried out in accordance with the general procedure without the restrictions provided for by this Law.

2. The official recognition or non-recognition of territories temporarily occupied does not affect the possibility of prosecution for "Collaborative activities" (if there is an appropriate corpus delicti).

3. The following features will be applied to the temporarily occupied territories approved by the National Security and Defense Council:

• carrying out economic activity is allowed only after changing the tax address to another ("controlled") territory of Ukraine;
• all agreements where the business entities are parts, and the locations (residence) of which are on the temporarily occupied territories, are is not taking into account (do not create legal consequences);
• licenses and permits do not valid on the temporarily occupied territories, but remain valid on another "controlled" territory, after a change of tax address;
• the law prohibits legal entities to import/export to/from the controlled territory of Ukraine goods produced in the temporarily occupied territory. The Cabinet of Ministers may determine the situation when this will be possible, but such an act has not yet been adopted by the Cabinet of Ministers.

Detailed analysis of changes in the regulation of certain issues of the legal regime in the temporarily occupied territory of Ukraine

On May 7, 2022, the Law of Ukraine “On Amendments to Certain Laws of Ukraine Concerning the Regulation of the Legal Regime in the Temporarily Occupied Territory of Ukraine” of April 21, 2022 № 2217-IX, which introduced significant amendments to the Law of Ukraine "On Ensuring the Rights and Freedoms of Citizens and the Legal Regime in the Temporarily Occupied Territory of Ukraine" (hereinafter - the Law № 1207-VII).

Among the main changes there are the following:

1. Significant changes have been made to the procedure for determining the territories as temporarily occupied.

Thus, according to Article 1 of Law № 1207-VII:

«2. The date of certain territories of Ukraine that are temporary occupied by the Russian Federation is February 19, 2014.

Certain oil and gas production facilities within the continental shelf of Ukraine have been occupied by the Russian Federation since February 19, 2014. The list of such facilities is determined by the Cabinet of Ministers of Ukraine.

The Autonomous Republic of Crimea and the city of Sevastopol have been temporarily occupied by the Russian Federation since February 20, 2014.

Certain territories of Ukraine, which are part of Donetsk and Luhansk regions, have been occupied by the Russian Federation (including the occupational administration) since April 7, 2014. The boundaries and list of districts, cities, towns and villages, parts of their territories temporarily occupied in Donetsk and Luhansk regions from this date were determined by the President of Ukraine on the proposal of the Ministry of Defense of Ukraine prepared on the basis of proposals of the General Staff of the Armed Forces of Ukraine¹.

3. The date of the temporary occupation of the territories provided for in paragraph 3 of part one of Article 3 of this Law is determined by a decision of the National Security and Defense Council of Ukraine enacted by decree of the President of Ukraine."

Paragraph 3 of Part 1 of Article 3 of this Law provides for:

3) other land territory of Ukraine, internal sea waters and territorial sea of ​​Ukraine, recognized under martial law as temporarily occupied by the decision of the National Security and Defense Council of Ukraine, enacted by decree of the President of Ukraine."

Thus, the official recognition of the territory currently occupied after February 24, 2022 as temporarily occupied within the meaning of Law № 1207-VII (determination of the date of commencement of temporary occupation) requires a decision of the National Security and Defense Council of Ukraine, enacted by Presidential Decree. As of today (May 12, 2022) there is no such a decision.

That means, for the purposes of this Law, without a relevant decision of the National Security and Defense Council, even the territories actually occupied after February 24, 2022 are not temporarily occupied and are not subject to regulations and restrictions established by the Law № 1207-VII (including the movement of goods) which will be listed below.

However, we consider it is necessary to note that the official recognition or non-recognition of the territories temporarily occupied does not affect the possibility of applying Article 111-1 of the Criminal Code of Ukraine "Collaborative Activities"² (if there is a relevant corpus delicti).

2. Changes in goods movement.

The new version sets out the second-sixth parts of Article 13-1 of the Law № 1207-VII, which regulates the peculiarities of goods movement to/from the temporarily occupied territory.

Thus, according to part two of this article:

For the period of temporary occupation, goods (works, services) movement from the temporarily occupied territory to another territory of Ukraine and/or from another territory of Ukraine to the temporarily occupied territory by all modes of transport, including road, rail, air and pipeline transport, as well as power lines and hydraulic structures, is prohibited, except as provided in parts three and four of this article.

…

Entry-exit control is carried out by authorized officials of the State Border Guard Service of Ukraine in order to detect and prevent goods movement to/from the temporarily occupied territory within the entry-exit checkpoints, as well as outside the entry-exit checkpoints.

Thus, a ban on the movement of goods is established, but with the exceptions provided for in parts three and four of this article. These are the following exceptions:

1) The third part of Article 13-1 states:

The good movement by individuals across the administrative border may be carried out in the case provided for in part three of Article 3³ of this Law, through entry-exit checkpoints, where temporary border control is carried out.

Individuals are allowed to move with personal  hand luggage and accompanied luggage across the administrative border to/from the temporarily occupied territory.

Citizens, in case of evacuation from the temporarily occupied territory to another territory of Ukraine, have the right to export from the temporarily occupied territory to another territory of Ukraine through the administrative border of personal belongings and property that were used, which, in their opinion are necessary for new place of residence, including furniture, appliances and other household items.

The procedure for entry of persons, goods movement to the temporarily occupied territory of Ukraine and departure of persons, goods movement from such a territory is approved by the Cabinet of Ministers of Ukraine.

The list and volumes (value/weight/quantity) of goods restricted or prohibited for movement across the administrative border, as well as goods that can be classified as personal belongings, are approved by the central executive body that ensures the formation and implementation of state policy on temporarily occupied territories.

2) Part four of Article 13-1 of the Law provides for the right of an individual to evacuate personal belongings and property from the temporarily occupied territory to another territory of Ukraine via the line of contact along the humanitarian corridor.

Analyzing these rules, we can note their significant imperfections, which do not allow to speak about full legal certainty regarding the regulation of goods movement from the temporarily occupied territory. Especially if it concerns goods movement not by individuals but by legal entities.

Thus, according to the above mentioned norms, there is a general prohibition on goods exports, and the exceptions, which are enshrined in parts three and four, directly means only individuals. However, the third part refers to the Procedure approved by the Cabinet of Ministers of Ukraine and the List and volumes of goods approved by the Ministry of Reintegration of the Temporarily Occupied Territories.

Nowadays, the Cabinet of Ministers of Ukraine has approved only the Procedure for entry of persons, goods movement to/from the temporarily occupied territories in Donetsk and Luhansk regions (Resolution of July 17, 2019 № 815).

This Procedure (paragraph 24) also prohibits economic entities from moving goods (cargo) to/from the temporarily occupied territories, but establishes exceptions for:

• food that are transported as a part of humanitarian goods;
• medicines and medical devices that are transported as a part of humanitarian goods;
• goods and products (including those that provide operation and maintenance or are necessary in the production process) of the metallurgical, mining, coal and energy generating industries, critical infrastructure facilities in terms of list and volume (cost, weight, quantity) that are approved by the joint decision of the Ministry of Reintegration and the Ministry of Economy.

Thus, nowadays, the Cabinet of Ministers of Ukraine, in fact, has not updated and has not determined the procedure for moving goods from the temporarily occupied territory of Ukraine, which is not included in the territory of Donetsk and Luhansk regions.

We would also like to draw your attention to the fact that the “Enterprise Relocation Program” has been introduced in Ukraine https://me.gov.ua/Documents/Detail?lang=uk-UA&id=3e766cf9-f3ca-4121-8679-e4853640a99a&title=ProgramaRelokatsiiPidprimstv). To be able to transfer production capacity, the company must submit an application for relocation, indicating the specialization, number of employees, production capacity, production facilities’ needs, raw materials, staff location, and method of transportation.

The Cabinet of Ministers of Ukraine by Resolution of March 17, 2022 № 305 approved the features of the joint-stock company "Ukrposhta" in martial law, which, in particular, established the possibility of free transportation of property of domestic entities according to the list formed by the Ministry of Economy and transferred to Ministry of Infrastructure.

3. Changes in the conducting economic activity procedure.

The Law № 1207-VII was also slightly amended to conduct business in the temporarily occupied territories, and largely left the regulation previously provided for in this law, and below its main aspects will be outlined in more detail.

We will remind once again that the official status of the temporarily occupied territory is introduced only by the relevant decision of the National Security and Defense Council, enacted by the decree of the President of Ukraine.

The second part of Article 13 of Law № 1207-VII, which prohibits economic activity, remained unchanged:

2. Carrying out economic activity by legal entities, individuals - entrepreneurs and individuals engaged in independent professional activity, whose location (place of residence) is the temporarily occupied territory, is allowed only after changing their tax address to another territory of Ukraine.

However, the second paragraph establishes that the right to which the business entity is a part, the location (residence) of which is the temporarily occupied territory, is not taking into account. Such rights are not subjects to the provisions of the second paragraph of the second part of Article 215 of the Civil Code of Ukraine (on the possibility of a court to recognize such a right valid).

Part six of Article 13 of Law № 1207-VII prohibits the transfer of funds between the temporarily occupied territory and another territory of Ukraine.

Part nine of the same article establishes the peculiarities of regulating issues related to licenses:

9. Licenses issued to business entities before the entry into force of this Law (and for the territories of Ukraine that were temporarily occupied by the Russian Federation after the entry into force of this Law - before the temporary occupation of this territory of Ukraine) in accordance with the law on licensing (including certificates) issued in accordance with the law before January 1, 2018, and documents on compliance provided in accordance with the Law of Ukraine "On Technical Regulations and Conformity Assessment", permit documents provided in accordance with the Law of Ukraine "On Permitting System in Business":

1. are considered invalid in the temporarily occupied territory;
2. can be used to conduct economic (business) activities in another territory of Ukraine before their expiration, in case of re-registration of such entities in another territory of Ukraine, in the manner prescribed by the central executive body that ensures the formation and implementation of state tax policy;
3. may not be extended in accordance with the legislation of Ukraine, except in cases when before the expiration of such licenses (permits) relevant temporarily occupied territory has been liberated from occupation.

It is also separately established that a certificate of Ukrainian origin cannot be issued for goods produced in the temporarily occupied territory.

Thus, business entities registered in the temporarily occupied territory have the opportunity to carry out economic activities within the Ukrainian legislative field only in the case of a change of their location to another territory of Ukraine.

Under martial law, given the need to ensure the accuracy of the Unified State Register of Legal Entities, Individual Entrepreneurs and Public Associations, the Ministry of Justice of Ukraine has implemented the possibility of registration actions through separate registration bodies (entities providing administrative services). The list of such bodies with contact details is posted on the official website of the Ministry of Justice of Ukraine (https://minjust.gov.ua/news/ministry/onovleno-perelik-subektiv-yakim-v-umovah-voennogo-stanu-provoditsya-derjavna-reestratsiya-yuridichnih-osib-ta-fop-30363).

It should also be noted that the law establishes criminal and administrative responsibility for violating the order of entry/exit from the temporarily occupied territory of Ukraine.

Thus, according to Article 332-1 of the Criminal Code of Ukraine

"Article 332-1. Violation of the procedure for entering and leaving the temporarily occupied territory of Ukraine

1. Violation of the order of entering and leaving the temporarily occupied territory of Ukraine in order to harm the interests of the state – is punishable by restriction of liberty for a term up to three years or imprisonment for the same term, with vehicles confiscation.
2. The same acts committed repeatedly or by prior conspiracy by a group of persons or by an official using official position - are punishable by restriction of liberty for a term of three to five years with deprivation of the right to hold certain posts or to be engaged to certain activities for up to three years and with vehicles confiscation.
3. The actions provided for in part one or two of this article, committed by an organized group - are punishable by restriction of liberty for a term of five to eight years with deprivation of the right to hold certain posts or to be engaged to certain activities for up to three years and with vehicles confiscation"

It should be noted that criminal responsibility can occur only if there is a purpose - to harm the interests of the state.

Without this purpose, a person may be prosecuted according to the Article 204-2 of the Code of Administrative Offenses of Ukraine "Violation of the order of entry into/exit from the temporarily occupied territory of Ukraine":

Article 204-2. Violation of the order of entry into/exit from the temporarily occupied territory of Ukraine - entails the imposition of a fine of 1-3 hundred non-taxable minimum incomes or administrative arrest for up to fifteen days."

The same actions committed by a group of persons or a person who during the year was subjected to administrative penalties for an offense under part one of this article - entail the imposition of a fine of 3-5 hundred non-taxable minimum incomes;

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¹Approved by the Decree of the President of Ukraine of February 7, 2019 № 32/2019

²This is due to the fact that the provisions of Article 111-1 of the Criminal Code of Ukraine are not directly linked to the territory where the relevant actions take place, the objective side of the crime does not depend on the place of commission, but on the range of entities with which cooperation is taking place. At the same time, such a circle is defined quite broadly: "aggressor state", "armed or paramilitary formations of the aggressor state", "illegal authorities established in the temporarily occupied territory, including occupational administration".

³It should be noted that the third part of Article 3 of this Law, which should determine the cases of possible goods movement by individual across the administrative border, does not contain such rules, but only determines that the line of contact between the temporarily occupied territory and another territory of Ukraine is determined by the Cabinet of Ministers submission of the Ministry of Defense of Ukraine, prepared on the basis of proposals of the General Staff of the Armed Forces of Ukraine.