On 14 August2014 the Verkhovna Rada of Ukraine adopted the Law “On Tax and Customs Controlin the Free Economic Zone of Crimea and on Peculiarities of Conducting Businesson the Temporarily Occupied Territory of Ukraine,” which stipulates thecreation of a free economic zone in Crimea (further - “FEZ”) for 10 fullcalendar years; sets forth the peculiarities of its legal status and introducesa special procedure for applying the norms of regulatory, tax, customs andcurrency legislation of Ukraine on the territory of Crimea. 

The lawstipulates that the state guarantees do not extend to internal and externallocal loans of the Autonomous Republic of Crimea and the city of Sevastopol aswell as for the entities located (residing permanently or temporarily) there.The procedure for repaying (writing off, selling) the outstanding debts(previously guaranteed by the state) of the AutonomousRepublic of Crimea and the city of Sevastopol and individuals located on theterritory of Crimea in the part that remains unrepaid as at this law’seffective date, will be introduced by the Cabinet of Ministers of Ukraine. 

Licenses andother authorization documents issued by competent authorities of Ukraine beforethis law entered into force remain effective on the territory of Crimea untilexpired. 

A free customszone is created within the FEZ, which by its functional type is a free customszone of commercial, service and industrial nature, and customs formalitiesconnected with the transfer of goods, commercial transportation means andcitizens across the administrative border of the free economic zone are carriedout in the customs control zones of Ukraine. In fact, this means that theimport and export of goods and services to/from Crimea can be carried out onlyacross Ukraine. 

The multicurrencyregime is also allowed—Hryvna and foreign currency, including Russian rubles,are accepted as payment for goods (services, works). Cashless payments(transfers) from the FEZ territory to other territories of Ukraine or backwardsare carried out in Hryvna only or in freely convertible currency. The paymentfor goods (services,works) in theterritory of FEZ in foreign currency does not require an individual licensefrom the National Bank ofUkraine. 

The system ofelectronic payments of the National Bank of Ukraine and internal state paymentsystems and payment organizations that are residents of Ukraine are not used inthe territory of Crimea. The registration of the international payment systemis prohibited in Ukraine if its payment organization has one of the followingelements: 1) has separate divisions in Crimea; 2) has signed agreements onparticipation in its own payment system with banks, other financial institutions,which (or separate divisions of which) are located and/or carry out activity inCrimea; 3) introduced correspondent relationship with banks, other financialinstitutions, which (or separate divisions of which) are located and/or carryout activity in Crimea.

Cash exchangeof Hryvna into Russian rubles and attracting deposits and/or granting loans inRussian rubles are also prohibited activities on the territory of Ukraine. TheNational Bank of Ukraine has the authority to introduce a special procedure forthe importation of Russian rubles and their exchange on the territory ofUkraine. 

A ban is puton the inclusion of Russian rubles and securities in Russian rubles (other debtinstruments) into the currency reserve of Ukraine. 

In addition,the transition provisions of the Law: 1) set forth that the privately, stateand municipally owned property located (situated) in the temporarily occupiedterritory of Ukraine remain the property of the individuals who owned (used )such property before the commencement of occupation; 2) contains the procedurefor evacuating business from thetemporarily occupied territory of Ukraine; 3) oblige the subjects of economicactivity located in the territory of the free economic zone in Crimea toconclude agreements with the subjects of economic activity located in the restof the territory of Ukraine only based on Ukrainian legal norms; 4) subjectdisputes between such subjects to the courts of Ukraine or the InternationalCommercial Arbitration Court and the Maritime Arbitration Commission at theUkrainian Chamber of Commerce and Industry; 5) provides for registration oftransfers of ownership right to private property 2) located in Crimea in otherterritories of Ukraine, transactions on transfers of immovable propertyconcluded not in line with Ukrainian law requirements or persons owned orcontrolled by the Russian Federation are deemed null and void ab initio.

It is worthemphasizing that the law allows gambling business on the territory of FEZ ofCrimea, while this business is prohibited on the rest of the territory ofUkraine. However, anyactivity of the state lottery operators is prohibited on the territory of FEZ. 

Supply ofgoods, services to (from) the free economic zone of Crimea is subject to theLaws of Ukraine on “Prevention of and counteraction to the legalization(laundering) of illegal earnings and financing of terrorism” and on “Statecontrol for international transfer of military and dual-use goods,” but is notcovered by international agreements, which regulate the issues of internationalturnover of goods, in particular (but not limited to) on the free tradingzones, or concluded in terms of GATT (WTO). In fact, the supply of goods andservices to (from) the FEZ territory will be subject to obligatory financemonitoring, and the supply of military and dual-use goods will be subject torelevant permissions. 

The Law On Taxand Customs Control in the Free Economic Zone of Crimea and on Peculiarities ofConducting Business on the Temporarily Occupied Territory of Ukraine will enterinto force upon signing by the President of Ukraine and promulgation, which isshortly.