In the modern world, astronautics has acquired a new quality, and space policy has become a priority of the developed states. More than 250 billion dollars per year is allocated for the space industry (Ukraine’s GDP), and the annual growth of about 10% over the past four years makes experts admit that in 10-15 years this sector will be one of the most crucial for the world economy. Astronautics has ceased to be a monopoly of space giant states. Nowadays, the circle of countries with space programs (about 40) and related technologies is rapidly expanding. Space markets of China and India are rapidly catching up with the ones of space giant states, and in several indicators (for example, training of specialists) they are even ahead.
Ukraine belongs to the pool of space countries and has the status of a space state due to its strong scientific, technical and intellectual potential, experience in the creation of rocket and space technology, thus occupying its rightful place among high-tech countries. In the third quarter of 2019, Ukrainian space industry enterprises manufactured products worth over UAH 3,046 billion. Sales worth over UAH 3 billion has been realized. Production volumes increased by 9.3%. The share of product exports in total sales is 78.8%, which indicates that the industry remains export-oriented.
To ensure development, increase investment attractiveness, and create a competitive environment for the development of the space industry in Ukraine, along with the public sector of private property, the Law 143-IX “On Amendments to Certain Laws of Ukraine on State Regulation of Space Activity” was adopted on 2 October 2019 and will enter into force on 29 January 2020. Consequently, it is expected that private space enterprises, such as the American SpaceX, may appear in Ukraine.
According to Art. 4 (Part 2) of the Law "On Entrepreneurship", activities related to the development, testing, production and operation of launch vehicles, including space launches for any purpose, can be carried out only by state enterprises and organizations. However, with the adoption of the Law, the state monopoly on space activities in Ukraine is cancelled. Thus, the Law states that enterprises, institutions, and organizations of any form of ownership, including international and foreign, carrying out space activities, are deemed to be involved in the space industry. That is, private space companies can now engage in scientific space research, the creation and application of space technology, and the use of outer space.
One of the levers of the state monopoly was the licensing of space activities. It is worth noting that in connection with the entry into force of the Law “On licensing of types of economic activity” in 2015, space industry was removed from the list of types of economic activity subject to mandatory licensing. In 2018, the Resolution of the Cabinet of Ministers abolished the relevant legal acts, including the orders of the State Space Agency of Ukraine, which established the licensing procedure. Law “On Space Activities” still contained licensing provisions, that is, a “dead” norm. The law also abolished the licensing of space activities.
A significant change is the fact that insurance of space objects (ground infrastructure), a list of which is approved by the Cabinet of Ministers on the proposal of the National Space Agency, as well as insurance of space objects (space infrastructure), which are the property of Ukraine, regarding the risks associated with the preparation for the launch of space technology at the spaceport, the launch and operation of it in outer space is optional and carried out voluntarily. However, according to Article 7 (para. 23 and 25) of the Law "On Insurance", insurance of civil liability of the companies involved in space activity and liability concerning the risks connected with the preparation for the launching of space equipment at the spaceport, launching and operating it in outer space, is obligatory.
How to make a successful start?
The first question is the issue of financing. There are several options:
- out-of-pocket financing;
- state financing;
- attracting private investment;
- credit (banking) funds;
- instalment or deferral of funds from the manufacturer of materials and equipment;
- involvement of a guarantor, responsible for fulfilling the debtor's obligations with his funds or property.
It is worth noting that at the beginning of the 21st century, there was a qualitative turning point in the financing of cosmonautics - private capital investments exceeded all state budget investments (including military space), and entire industries (primarily telecommunications) do not earn budget money at all. At present, the share of governments in the aforementioned 250 billion is no more than a third. The significant growth of space programs is driven by the strong inflow of private investment, the development of space tourism, and the first examples of private launch vehicles are the precursors to the boom in space commercialization.
The next important issue is the registration of a legal entity. This issue can be resolved in two ways: the creation of a new legal entity that will carry out activities to conduct scientific space research, the creation, and application of space technology, the use of outer space, or amending the constituent documents of an already created legal entity in terms of supplementing such activities.
A business entity that intends to dive into space technology (including aggregates, systems and their components for space complexes, space launch vehicles, spacecraft and ground segments of space systems) may concern the land to carry out economic activities. Following Article 84 (part 4A) of the Land Code, the lands of the space system are state-owned. However, in this case, private companies can lease such land.
Crazy amount of permits: myth or reality?
Myth! Indeed, as a general rule, no licenses or permits are required to obtain the right to engage in space activities. However, the Law “On Amending Certain Laws of Ukraine Regarding State Regulation of Space Activities” introduced declarations on the implementation of economic activity in the space industry, which in its essence is not a permitting mechanism, but a notification one. Private subjects of the space activity of Ukraine should submit the declaration. By this document, the company informs the National Space Agency about its compliance with the requirements of the legislation for space activities, for example, on the material and technical base, staff qualifications. Such a declaration must be submitted in writing or electronically at least five working days before the start of space activities. National Space Agency publishes declarations on its website.
In other words, the entry ticket to the market is a declaration, that is, a notification document. The ideology of the legislation on the declarative system is aimed at freeing up the entrepreneurial initiative and minimizing the contacts between the entrepreneur and the official.
However, the declarative principle applies only to those types of economic activity that cannot be associated with a threat to the state security, life, and health of citizens. According to Article 10 (Part 2) of the Law “On Space Activities” as amended on 29 January 2020, these types of space activities include launches and tests of launch vehicles and/or spacecraft (except for computer ones), including their units and components and spacecraft; control of spacecraft in near-Earth orbit or space; the return of spacecraft and/or their constituents from near-Earth orbit or outer space. The application for permit (its reissuance, cancellation) is submitted to the National Space Agency. The permit is issued free of charge for the duration of the space activity.
The introduction of a licensing system for the most dangerous types of space industry is a direct fulfilment of international obligations undertaken by Ukraine, namely the provisions of the Outer Space Treaty, the Space Liability Convention 1972, UNGA Resolution 68/74 “Recommendations on national legislation relevant to the peaceful exploration and use of outer space”.
Negotiations coming soon? What you need to know
If an entity plans to hold negotiations with foreign entities on the exploration and use of outer space, the production and operation of space technology, export, import and re-export of space technology, their temporary export outside or to Ukraine, transit through the territory, it is mandatory to submit a written communication to the National Space Agency of Ukraine in writing or electronically not later than five working days before the scheduled date for the negotiation. The National Space Agency issues a permit to negotiate or refuses it, and such refusal may be appealed.
If the result of the negotiations is the conclusion of agreements (contracts), the National Space Agency must be informed of the concluded agreements no later than five working days after their conclusion, but in any case no less than three business days before the date of fulfilment of the obligation under this agreement.
In case a contract is concluded for foreign economic activity, it must be registered with the National Space Agency. Contracts of private space entities of Ukraine performing public procurement with foreign entities of space activity are subject to registration, along with contracts for the exploration and use of outer space, production and operation, sale of space technology and equipment. Registration of contracts is carried out free of charge.
The requirement for permission to negotiate and register FEA treaties (contracts) was introduced to ensure Ukraine's compliance with the requirements of the Missile Technology Control Regime and Wassenaar Arrangements.
Objects of space industry subject to certification and registration
According to Article 12 of the Law of Ukraine “On Space Activity” as of 29 January 2020, space objects produced in Ukraine and intended for operation within the state are subject to mandatory certification for compliance with the operational suitability requirements established by regulatory documents in force along with the issue of the certificate of conformity. However, if space industry objects, including their units and components, are manufactured in Ukraine by international order, at the request of a private company, they may be subject to inspection for suitability for use.
Spacecraft are subject to mandatory state registration in the State Register of Spacecraft of Ukraine. If the spacecraft is created jointly with legal entities of other states or international organizations or for other states, foreign economic entities or international organizations, then the issue of its registration is resolved following concluded international treaties (contracts).
Tax incentives from the state
According to the Transitional Provisions of the Tax Code (subsection 2, subparagraph 3, paragraph 1a), by 1 January 2023, space entities are exempted from paying value-added tax on import operations in the customs regime of import of goods, stipulated in "Final and Transitional Provisions" (section 11, subparagraph 4 paragraph 4) of the Customs Code. This privilege is also applicable to the delivery of the results of research and development work carried out for the needs of space activities in the customs territory of Ukraine.
Besides, Art. 195 (195.1.2в) of the Tax Code provides that operations for the supply of goods for refuelling and the maintenance of spacecraft, space rockets or satellites of the Earth are subject to value-added tax at zero rates.
Another tax relief is an exemption from the payment of land tax for land for industrial purposes. Thus, following of the Tax Code (section 10, subsection 6, paragraph 1), economic entities are exempted from land tax if they participate in the implementation of international treaties of Ukraine on space activities related to the creation of space technology (including aggregates, systems and their components for space systems, space launch vehicles, spacecraft and ground-based segments of space systems).
It should be noted that such privileges are only granted to licensed residents - space entities. However, due to the amendments to some laws of Ukraine, as well as the elimination of the need for licensing, the legislator should review these provisions and extend benefits to private companies.
The abolition of the state monopoly on space activities will contribute to:
- Self-sustainability of the space industry;
- training young Ukrainian astronauts, improving the training program, and launching them into Earth's orbit. At present, Ukraine cannot afford to launch its astronauts into space, since the cost of this service with participation in foreign space programs amounts to about $ 150 million;
- employment of professionals, as well as graduates of relevant specialties, which will prevent the outflow of highly intelligent human resources outside Ukraine, such as, for example, Pavel Tanasyuk, founder of SpaceBit in the UK;
- establishing international relations with foreign private space companies on a parity basis for the implementation of joint projects, as well as attracting foreign investors to the implementation of Ukrainian projects.
To achieve the set goals in the space industry, approximately UAH 25 billion was foreseen by the National Target Scientific and Technical Space Program of Ukraine for 2018-2022. Therefore, the implementation of the Law "On Amendments to Certain Laws of Ukraine on State Regulation of Space Activities" will help to preserve the scientific and technological potential of the Ukrainian space industry and to attract private capital to the latest technological developments.
Author: Alena Vidyuk, lawyer, Banking and Financial Law Practice.