On 14 August 2014 the Verkhovna Rada of Ukraine adopted the Law “On Tax and Customs Control in the Free Economic Zone of Crimea and on Peculiarities of Conducting Business on the Temporarily Occupied Territory of Ukraine,” which stipulates the creation of a free economic zone in Crimea (further - “FEZ”) for 10 full calendar years; sets forth the peculiarities of its legal status and introduces a special procedure for applying the norms of regulatory, tax, customs and currency legislation of Ukraine on the territory of Crimea.

The law stipulates that the state guarantees do not extend to internal and external local loans of the Autonomous Republic of Crimea and the city of Sevastopol as well 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 Autonomous Republic of Crimea and the city of Sevastopol and individuals located on the territory of Crimea in the part that remains unrepaid as at this law’s effective date, will be introduced by the Cabinet of Ministers of Ukraine.

Licenses and other authorization documents issued by competent authorities of Ukraine before this law entered into force remain effective on the territory of Crimea until expired.

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

The multicurrency regime 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 backwards are carried out in Hryvna only or in freely convertible currency. The payment for goods (services, works) in the territory of FEZ in foreign currency does not require an individual license from the National Bank of Ukraine.

The system of electronic payments of the National Bank of Ukraine and internal state payment systems and payment organizations that are residents of Ukraine are not used in the territory of Crimea. The registration of the international payment system is prohibited in Ukraine if its payment organization has one of the following elements: 1) has separate divisions in Crimea; 2) has signed agreements on participation in its own payment system with banks, other financial institutions, which (or separate divisions of which) are located and/or carry out activity in Crimea; 3) introduced correspondent relationship with banks, other financial institutions, which (or separate divisions of which) are located and/or carry out activity in Crimea.

Cash exchange of Hryvna into Russian rubles and attracting deposits and/or granting loans in Russian rubles are also prohibited activities on the territory of Ukraine. The National Bank of Ukraine has the authority to introduce a special procedure for the importation of Russian rubles and their exchange on the territory of Ukraine.

A ban is put on the inclusion of Russian rubles and securities in Russian rubles (other debt instruments) into the currency reserve of Ukraine.

In addition, the transition provisions of the Law: 1) set forth that the privately, state and municipally owned property located (situated) in the temporarily occupied territory of Ukraine remain the property of the individuals who owned (used ) such property before the commencement of occupation; 2) contains the procedure for evacuating business from the temporarily occupied territory of Ukraine; 3) oblige the subjects of economic activity located in the territory of the free economic zone in Crimea to conclude agreements with the subjects of economic activity located in the rest of the territory of Ukraine only based on Ukrainian legal norms; 4) subject disputes between such subjects to the courts of Ukraine or the International Commercial Arbitration Court and the Maritime Arbitration Commission at the Ukrainian Chamber of Commerce and Industry; 5) provides for registration of transfers of ownership right to private property located in Crimea in other territories of Ukraine, transactions on transfers of immovable property concluded not in line with Ukrainian law requirements or persons owned or controlled by the Russian Federation are deemed null and void ab initio.

It is worth emphasizing that the law allows gambling business on the territory of FEZ of Crimea, while this business is prohibited on the rest of the territory of Ukraine. However, any activity of the state lottery operators is prohibited on the territory of FEZ.

Supply of goods, services to (from) the free economic zone of Crimea is subject to the Laws of Ukraine on “Prevention of and counteraction to the legalization (laundering) of illegal earnings and financing of terrorism” and on “State control for international transfer of military and dual-use goods,” but is not covered by international agreements, which regulate the issues of international turnover of goods, in particular (but not limited to) on the free trading zones, or concluded in terms of GATT (WTO). In fact, the supply of goods and services to (from) the FEZ territory will be subject to obligatory finance monitoring, and the supply of military and dual-use goods will be subject to relevant permissions.

The Law On Tax and Customs Control in the Free Economic Zone of Crimea and on Peculiarities of Conducting Business on the Temporarily Occupied Territory of Ukraine will enter into force upon signing by the President of Ukraine and promulgation, which is shortly.