30 August 2018 by Jakub Plewka, Agnes Szucs and Yana Shchepalova
Changing regulatory environments within Poland, Hungary and Ukraine see the countries feature at both ends of the complexity scale for subsidiary management
Poland’s legal and regulatory system is punctuated by frequent changes. Many of them are in line with global moves to combat economic crime and tax avoidance. However, the process of change is not swift or straightforward and the resulting lack of clarity contributes to Poland’s ranking as the ninth (out of 84) most complex country globally for compliance in TMF Group’s Compliance Complexity Index 2018 (CCI).
New legislation on the horizon for Poland includes the introduction of the latest anti-money laundering, anti-bribery and anti-VAT extortion regulations. The existing laws were deemed to be inefficient and the latest approach emphasises the responsibility of legal persons as collective entities, particularly in light of Polish multinational European Union/OECD membership liabilities.
“New legislation on the horizon for Poland includes the introduction of the latest anti-money laundering, anti-bribery and anti-VAT extortion regulations”
Whistleblower regulations common to other jurisdictions are also set to be introduced to Polish law. However, when – and in what form – these regulations will take is yet to be determined.
Additional rules that did come into force this year for Polish entities relate to the increasing required use of information and communication technology systems. Reporting to the tax authority and registry court using dedicated systems now applies and it is necessary for companies to have an electronic signature or authenticated login credentials to fulfil these obligations.
More recently, Poland applied the European Union’s General Data Protection Regulation (GDPR), which impacts all departments of a business where personal data is used. And since 1 July 2018, the Multilateral Convention (MLI) to Implement Tax Treaty Related Measures to prevent Base Erosion and Profit Shifting (BEPS), of which Poland is a signatory, came into force.
Occupying 76th position in the CCI and firmly placed at the simpler end of the complexity spectrum is Hungary. Efficiency in company establishment is enhanced by the fact that it can all be conducted electronically.
Subsidiary management in the country is largely set to become easier for compliance departments. This is through the Hungarian government's efforts to further streamline key areas, such as its tax administration, by rolling out further electronic reporting processes. An automated VAT calculation system is a current priority project – and in a significant step towards it, taxpayers are now required to disclose their invoice data automatically, in real time.
“Efficiency in company establishment is enhanced by the fact that it can all be conducted electronically”
In line with other EU countries, Hungary adopted GDPR in late May and the resulting obligations impose a heavier administrative burden on companies.
However, in direct contrast to this, 1 July 2018 saw several new features of the reform of Act V of 2006 on Public Company Information, Company Registration and Winding-up Proceedings come into force. These features include a simplified dissolution procedure for limited liability companies, which can now report changes with future effect.
In recent years, Ukraine has been on a mission to make its business procedures less time-consuming and demanding. The result of its efforts is a very favourable compliance complexity ranking of 79th, or sixth-simplest globally in the TMF Group report, just behind Ireland and Denmark in Europe.
Ukraine’s governance approach can be summarised as ‘direct’, as it sheds its obsolete Soviet legal system and progressively adopts European law-making principles.
The biggest difficulties that do remain in Ukraine are linked to corruption, but here again the government has taken responsibility in front of European partners for achieving some clear goals. Steps already taken in this regard include the requirement for civil servants to electronically declare their assets and the elimination of corrupt civil servants from government institutions.
More recently-adopted legal acts in Ukraine relate to:
Ukrainian court reform, launched by a combination of several laws, namely Law No. 1401-VIII ‘On amendments to the Constitution of Ukraine (on the system of justice)’ outlining the new procedure for representation of legal entities in courts and Law No. 1402-VIII ‘On the judicial system and status of judges’ settling the reorganisation of the judicial system.
On 7 June 2018, the Superior Anti-Corruption Court was established to provide rulings on criminal cases related to corruption.
In effect since 17 June 2018, the Limited and Additional Liability Companies Law introduces fundamental changes in the regulation of business activity and procedures for Limited liability companies (LLCs). These procedures include the review of articles of association within one year (before 17 June 2019). Incorporating LLCs must draft their articles of association more thoroughly and foresee internal regulations for all possible issues that might arise in the course of company business activity.
The law is advantageous for investors, allowing for a more flexible approach to Ukrainian entity supervision. For instance, it is possible to establish a supervisory board with foreign representatives.
In effect from 7 February 2019, Law No. 2473-VIII ‘On currency and currency transactions’, will liberalise the procedure related to currency control of cross-border transactions – including the cancellation of loans, registering with the National Bank of Ukraine, the improvement of export/import operations and so on.
Ukrainian subsidiaries must also now keep and maintain HR records more thoroughly, due to new audit regulations. The fines for hidden employment relations (unconcluded employment contracts), salary payment delays and other labour law breaches have significantly increased.
Total electronic document flow (based on electronic signatures) – throughout courts and all government institutions – is envisaged by the Ukrainian government and the country is well on track to achieving this; tax offices and some other reporting institutions having already gone digital.
Like Poland, Ukraine has also recently signed the MLI on BEPS and will now implement steps six and 14 of the OECD plan, among four mandatory steps for Ukraine (along with steps five and 13).
With more legal acts in the pipeline, further liberalisation and simplification of corporate compliance in Ukraine is expected in the future.