On October 8, 2024, the Verkhovna Rada of Ukraine passed the first reading of a groundbreaking draft law, "On the Basic Principles of State Supervision (Control)" (No. 5837). This marks a significant shift in how business inspections will be handled, with the dual goals of fostering a more favorable business environment and ensuring greater accountability.
This draft law is more than a response to business needs—it’s part of a broader deregulation strategy aimed at rebuilding and modernizing Ukraine’s regulatory framework. The government is committed to improving conditions for small and medium-sized enterprises (SMEs) while simultaneously strengthening the protection of citizens' rights by eliminating unscrupulous schemes businesses may use to evade inspections.
A Collaborative Effort
The development of this draft law was a joint effort between state authorities and public organizations, with input from business associations and industry groups. It reflects the consensus reached at the Interdepartmental Working Group (IWG) on Deregulation, co-chaired by First Deputy Prime Minister Yulia Svyridenko. This level of collaboration ensures that the law addresses the needs of all stakeholders—businesses, regulators, and the public.
The IWG, created in January 2023, has been instrumental in shaping Ukraine's regulatory landscape. The group, which includes experts from various ministries and international organizations like USAID, has reviewed over 1,300 regulatory instruments. Their findings resulted in recommendations to abolish or simplify nearly 1,000 of these instruments. This comprehensive review is part of the broader government-endorsed deregulation plan launched in September 2024.
Key Features of the Draft Law
1. Voluntary Civil Liability Insurance
To incentivize responsible business conduct, the law introduces voluntary civil liability insurance. Businesses with a low-risk profile that opt for this insurance will benefit from fewer scheduled inspections, allowing them to operate with less regulatory interference.
2. Preventive Audits and Risk-Based Approach
The reform aims to shift the inspection system from a punitive model to a risk-based, preventive one. Businesses can voluntarily invite regulators or independent auditors to assess their compliance, allowing them to correct violations without facing immediate penalties. A positive audit reduces the frequency of future inspections, which could be extended to 7.5 years for low-risk businesses.
3. Public Councils and Pre-trial Review
Public participation in the oversight process is another crucial element of this reform. The law establishes public councils within regulatory bodies, allowing for greater transparency and fairness in how inspections are conducted. These councils will help resolve disputes before they reach the courts, easing the burden on the judicial system.
4. Digital Transformation of Inspections
The draft law prioritizes the digitalization of inspection processes. By expanding the functionality of the Inspection Portal, it enables electronic document exchange and introduces an e-cabinet for entrepreneurs. This will significantly streamline inspections and allow businesses to contest or defer them online, saving both time and resources.
5. Accountability for Regulatory Bodies
The draft law holds control body officials accountable for procedural violations. If a court confirms the illegality of their decisions, these officials will face disciplinary measures. This ensures that regulatory bodies operate fairly and within the bounds of the law.
A Step Toward EU Integration
This reboot of the inspection system aligns with Ukraine’s broader goals of European integration. The law reflects key elements of the EU’s regulatory environment, such as the "Think Small First" principle, which prioritizes SMEs. Additionally, the changes respond to the European Commission’s recommendations within the 2023 EU enlargement package and contribute to Ukraine’s alignment with EU standards.
The Road Ahead
The adoption of this draft law is a critical milestone in Ukraine’s post-war recovery and its journey toward EU membership. With nearly 100 tasks and 140 step-by-step measures included in the government’s deregulation plan, this law is just one piece of a much larger reform puzzle. Yet it is a crucial one. By balancing deregulation with enhanced accountability, the law sets the stage for a more transparent, business-friendly environment while safeguarding the public interest.
This reform is not just about making it easier to do business in Ukraine—it’s about fostering a culture of responsibility, fairness, and transparency. For entrepreneurs, it offers the freedom to grow and innovate, while for the state and its citizens, it ensures that economic growth comes with accountability. Together, these changes will help create a business climate where everyone can thrive.
For reliable legal services in Ukraine, feel free to reach out to me at volodymyr.machuskyy@kneu.edu.ua.
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