On 1 July 2020, Ukraine abolished its state monopoly on the production and distribution of ethyl alcohol. On this day, the law on liberalization of the ethyl alcohol market came into force following its adoption last year.
The main changes introduced by the law are the following:
1. Abolition of the state monopoly on ethyl alcohol production and privatization of state distilleries
Prior to this change, only state-owned factories had the right to produce almost every type of ethyl alcohol (ethanol (including medicines), ethyl alcohol rectified from grapes, ethyl alcohol rectified from fruit and ethyl alcohol rectified from grain). Due to the lack of competition, state-owned alcohol producers used outdated technologies and were extremely inefficient in comparison with international competitors. Moreover, the monopoly resulted in the creation of a black market in spirits and widespread corruption in the factories administered by the state.
The monopoly has now been abolished, and the network of state-owned distilleries is set for privatization. The distilleries will be transferred to the State Property Fund of Ukraine. As of today, the first batch of 12 distilleries is set to be sold in the coming months.
2. Allowing production of ethyl alcohol by business entities regardless of their form of ownership
From 1 July 2020, private businesses have been allowed to produce ethyl alcohol. However, the state maintains tight control over the industry as private producers will have to obtain a special license issued by the State Fiscal Service of Ukraine.
A license requires, inter alia, round-the-clock video surveillance of the production and distribution processes.
A business entity which produces both ethyl alcohol and alcoholic beverages has the right to use its own ethyl alcohol to produce alcoholic beverages. In this case, the business entity must have a license for the production of ethyl alcohol, a license for the production of alcoholic beverages and a license for the wholesale trade of alcoholic beverages.
Finally, the new legislation allows the construction of new distilleries.
3. Export, import, and wholesale trade of certain ethyl alcohol products
The law allows private businesses to export and engage in the wholesale trade of ethanol, ethyl alcohol rectified from grapes and ethyl alcohol rectified from fruit.
However, these products can only be imported after 1 January 2024. Until this date, the import of ethanol, ethyl alcohol rectified from grapes and ethyl alcohol rectified from fruit will be conducted by state-owned entities, specially authorized by the Cabinet of Ministers of Ukraine.
In order to export these products, a business entity must obtain a license for the production of ethyl alcohol.
For the import and wholesale trade of these products, a business entity must obtain a license for the wholesale trade of alcoholic beverages.
4. Necessity to obtain a license for import and export of alcoholic beverages
Until the new law came into force, business entities could import and export alcoholic beverages without any licenses.
From 1 July 2020, business entities must obtain a license:
- for import – a license for wholesale trade of alcoholic beverages;
- for export – a license for production of alcoholic beverages or a license for wholesale trade of alcoholic beverages.
Relevant legislation: Law of Ukraine No. 318-IX “On Amendments to the Law of Ukraine “On state regulation of production and circulation of ethyl alcohol, cognac and fruit alcohol, alcoholic beverages, tobacco products and fuel” regarding liberalization of activities in the field of production and circulation of ethyl alcohol”, dated 3 December 2019.
Should you have any questions about opportunities or compliance requirements arising from the new legislation, please contact Taras Tertychnyi, Associate Partner, by email tertychnyi@hillmont.com.ua or by phone +380 44 277 2447.
Authors: Taras Tertychnyi, Associate Partner at Hillmont Partners, Oleksandr Smishko, Associate at Hillmont Partners.
