Business in times of war: what you need to know

The war in Ukraine has presented entrepreneurs with complex challenges, forcing them to adapt to the new realities. Despite the difficulties, many companies not only continue to operate, but also find new opportunities for development. In this article, we will look at the key aspects of doing business during the war and give recommendations on how entrepreneurs should act in conditions of instability.

1. Legislative changes and new regulations

In the context of the war, the Ukrainian government has introduced a number of legislative changes aimed at supporting the economy and business. The main changes include:

• Simplification of the tax system. A number of incentives for entrepreneurs have been introduced, including the possibility of switching to a simplified taxation system. This allows businesses to focus on operating activities, reducing the tax burden.

• Moratorium on inspections. The government has temporarily restricted tax and other types of inspections, allowing businesses to focus on adapting to new conditions

• Introduction of special economic zones. Special regimes providing tax breaks and other preferences for businesses have been introduced in the regions most affected by the war.

On 18 June 2024, the Verkhovna Rada adopted the Law of Ukraine ‘On Amendments to the Tax Code of Ukraine regarding the peculiarities of tax administration during martial law for taxpayers with a high level of voluntary compliance with tax legislation’, by which for legal entities and individuals-entrepreneurs p. par. 69.41.3. pts. 69.41. The Tax Code of Ukraine establishes such peculiarities of tax administration, in other words, a number of advantages, namely:

• a moratorium on documentary audits (subject to certain exceptions)
• reduced period of desk and documentary audits (5 and 10 working days, respectively);
• provision of COE to the taxpayer within 15 calendar days, without extending the period of consideration of the application;
• assigning a compliance manager to the taxpayer;
• receipt by a taxpayer, upon request, within 5 days, of information on the availability of tax information that may indicate tax risks in the activities of such a taxpayer.

Law No. 3813-IX of 18.06.2024 defines a list of requirements that taxpayers - legal entities and physical persons - entrepreneurs must meet in order to be included in the List of taxpayers with a high level of voluntary compliance with tax legislation. It should be noted that inclusion in this List is possible only if the taxpayer meets all the requirements specified in par. 69.41.1 p.p. 69.41.1 of the TC of Ukraine.

As to simplification of conditions for business, the Verkhovna Rada of Ukraine supported in the second reading and as a whole Draft Law No. 7331 ‘On Amendments to Certain Laws of Ukraine Concerning Simplification of Conditions for Conducting Business Activities during the Period of Martial Law in Ukraine’, which transfers permits and licences to the declarative principle for the period of wartime, thus significantly simplifying business activities.

According to this draft law, during the period of martial law the declarative principle will apply to business entities whose activities require licences and permits. In terms of status, the declaration is equal to licences, permits and other results of public services and has a number of advantages, such as: the possibility of filing the declaration in any place regardless of the legal/actual address of the business; no need to change the information in the declaration and other permits during the period of martial law, etc.

2. Risk management and security

Doing business in times of war requires special attention to security and risk management. The main aspects to be addressed are:

• Employee safety. Companies must provide their workers with a safe working environment, taking into account possible hazards. This may include evacuation to safe regions, provision of personal protective equipment and psychological support. Employers must also organise a process for employees to receive briefings and training on safety measures during air raids and first aid to victims of shelling. Managers of enterprises should provide workers with a workplace in a building with mandatory shelter, which, if possible, should be equipped to perform work in order to ensure continuous operation of the enterprise.

• Asset protection. Businesses should take steps to protect their assets by, among other things, insuring property, providing physical security and utilising modern technology to monitor facilities remotely.

• Financial risk management. Economic instability requires careful cash flow management, planning financial reserves and utilising instruments to hedge currency risks.

For proper risk management, businesses need to implement a risk management system at enterprises, which consists of building a strategy and making decisions to minimise losses that may arise due to the impact of negative and unpredictable circumstances, as well as to reduce such impact on the activities of the business entity.

3. Changing the business model and adapting to new conditions

In the context of war, many businesses are forced to rethink their business models. The main approaches to adaptation include:

• Diversification. Expanding product or service lines, entering new markets, changing suppliers are just a few ways to minimise risk and remain competitive.

• Digitalisation. With the constraints of physical mobility, the importance of going online has increased significantly. This can include developing online shops, implementing CRM systems and other measures to optimise business processes. With regard to document management in the enterprise, the process of digitising paper documents related to the enterprise's activities and the introduction of digital document management is important. To implement electronic document management at the enterprise will be the use of document management systems such as M.E.Doc and ‘Vchasno’, which greatly simplify and accelerate the exchange of documents between counterparties, as well as give the opportunity to maintain primary documentation in electronic form. Thus, it is especially important to ensure the digitisation of primary documentation, as under martial law there is an increased risk of its loss, and the process of restoring such documents is both difficult and sometimes even impossible. It should also be noted that signing contracts and other documents with EDS is equal to signing them in paper form and has the same legal effect.

• Relocation. Under martial law, there was a need to preserve the capacity and protect the employees of enterprises in order to ensure their proper functioning. In this regard, managers, in order to protect enterprises, often make decisions to relocate the main facilities of the business to safer territories where there is no active hostilities and business operations are possible. Sometimes enterprises do not carry out full relocation of business, if it is possible, taking into account the situation in the territories where the legal entity is located, but partial relocation of facilities, if the enterprise is not in the territory of active hostilities, but still in the zone of greater risk.

• Co-operation with the government and international organisations. The government and international donors offer various business support programmes, including financial grants, credit lines and advisory assistance. Active participation in such programmes can help a business not only to survive, but also to find new opportunities for growth

• Entering the international market. For many companies - representatives of big business, it became an incentive to scale up - to move to the next stage and enter the international market. To enter the international market, a company needs a comprehensive approach and mandatory development of a strategy and step-by-step plan to ensure proper functioning of all processes, study of local legislation in terms of regulation of business and tax relations in a foreign country.

4. Social responsibility and community support

The concept of social/corporate social responsibility is particularly relevant in war conditions, as during the martial law period business plays an important role in supporting society and the economy. Many companies actively participate in volunteer projects, provide support to the Armed Forces of Ukraine, help migrants and other vulnerable categories of the population.

Such economic activities are carried out mainly by companies that belong to large businesses, but it should be noted that increasingly small and medium-sized businesses are also actively joining initiatives for social support of society.

5. Legal aspects and recommendations

In war conditions, there are many legal issues faced by entrepreneurs, as legislation in such conditions is particularly dynamic and subject to change in response to the current situation in the country. In this regard, it is extremely important to monitor current changes in legislation and take them into account when conducting business activities. Here are some recommendations:

• Consultation with a legal professional. Consult with legal counsel regularly to understand current legislative changes and their impact on your business.

• Document preparation. Ensure that all transactions, particularly contracts with at-risk counterparties, are properly documented.

• Labour law compliance. Ensure that workers' rights are respected, particularly regarding pay, holidays and safe working conditions.

• Military records at the enterprise. Keeping military records is mandatory for business entities; this obligation is enshrined at the legislative level. Business managers need to ensure proper maintenance of military records at the enterprise, preparation of necessary documents and control over compliance with the legislation, as violation of the rules of military registration and mobilisation is punishable by fines, the amount of which can reach up to UAH 59,500.

Conclusion

Doing business in times of war is a complex process that requires entrepreneurs to be flexible, think strategically and adapt quickly to change. However, by taking into account all challenges and opportunities, companies can not only survive these difficult times, but also emerge from them stronger and more competitive.