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A Practical Guide by Honcharuk Partners: Protecting Assets in Advance, Recovering Losses After an Attack, and Key Tax Considerations<\/em><\/p>\n Furniture manufacturing is one of the industries most vulnerable to the effects of war. Large production facilities, warehouses filled with finished goods, expensive woodworking equipment, stocks of timber, panels, and fittings \u2014 a single strike can result in losses amounting to millions of hryvnias.<\/p>\n This guide addresses three issues at once: how to protect your assets in advance, how to recover losses if your business is hit, and how to avoid additional tax liabilities in the process. The first point is relevant to every manufacturer today. A comprehensive overview applicable to any business is available in the article How Businesses Can Recover War-Related Losses<\/em><\/a>.<\/p>\n The main mistake many manufacturers make is starting to think about asset protection only after an attack has already occurred. In reality, the groundwork needs to be done beforehand. Here are five steps worth taking now, while your assets remain intact.<\/p>\n Step 1. Conduct an inventory<\/strong><\/p>\n Prepare a complete list of equipment, including inventory numbers, year of manufacture, and value, as well as up-to-date records of finished goods and raw materials in stock. Photograph every significant piece of equipment.<\/p>\n This creates an evidence base in advance: if the property is subsequently damaged or destroyed, you will already have documentation showing exactly what was lost and its value.<\/p>\n Step 2. Put your accounting and records in order<\/strong><\/p>\n The amount of any future compensation directly depends on the quality of your records. Warehouse and accounting systems should make it possible, at any time, to establish what was held in the warehouse and at the production facility: finished goods supported by invoices, raw materials reflected in trial balance records, and work in progress.<\/p>\n Poorly maintained records may ultimately result in lower compensation.<\/p>\n Step 3. Obtain war-risk insurance and recover part of the insurance premium from the state<\/strong><\/p>\n This is one of the most underused protection mechanisms. A business enters into a war-risk property insurance agreement with a Ukrainian insurer covering risks such as missile and drone strikes, artillery shells and fragments, air-defence debris, fire, explosions, and blast waves, and pays the insurance premium.<\/p>\n The state, through the Export Credit Agency (ECA), may reimburse part of the premium paid, up to UAH 3 million. An application for reimbursement may be submitted as early as the 31st day after the insurance agreement is concluded, and the mechanism is available to businesses throughout Ukraine, not only in frontline regions.<\/p>\n In practical terms, the state reduces the cost of insurance, while the insurance itself provides a direct route to compensation without litigation or years of waiting if the insured property is damaged.<\/p>\n Step 4. Join the state programme under CMU Resolution No. 1541<\/a> if your business is located in a frontline region<\/strong><\/p>\n Separate from insurance, a state direct-compensation programme is available for ten frontline regions: Dnipropetrovsk, Donetsk, Zaporizhzhia, Mykolaiv, Odesa, Poltava, Sumy, Kharkiv, Kherson, and Chernihiv.<\/p>\n The mechanism also operates similarly to insurance: an agreement must be concluded and a contribution equal to 0.5% of the amount of the probable loss must be paid before<\/strong> the damage occurs.<\/p>\n If the property is subsequently damaged, the state may compensate losses of up to UAH 10 million, while micro and small businesses may be eligible for compensation of up to UAH 30 million under certain ECA<\/a> programmes.<\/p>\n If your production facility is located in one of these regions, it is worth joining the programme in advance.<\/p>\n Step 5. Prepare a complete set of supporting documents<\/strong><\/p>\n Keep copies of all essential documents both in one physical location and in cloud storage: documents confirming title to property, equipment purchase agreements, technical passports, lease agreements, and copies of accounting records.<\/p>\n Following an attack, access to physical archives may disappear together with the production facility. Keeping digital copies in advance is, in effect, insurance for your insurance.<\/p>\n There are several ways to recover war-related losses, and they are not mutually exclusive. Below is the full picture, from the fastest route to the longest-term option.<\/p>\n A detailed explanation of each route is available in separate materials: on the programme under CMU Resolution No. 1541<\/em><\/a>, on the RD4U Register<\/em><\/a>, and on claims against the Russian Federation<\/em><\/a>.<\/p>\n Once property has been damaged, the first few days are critical. Follow these steps in order.<\/p>\n 1. In the first hours: call the police and the State Emergency Service of Ukraine<\/strong><\/p>\n The police enter the relevant information into the Unified Register of Pre-Trial Investigations under Article 438 of the Criminal Code of Ukraine and issue the relevant certificate. The State Emergency Service prepares an official damage report.<\/p>\n Documents issued by these authorities form the evidentiary basis for all subsequent compensation procedures, as well as for tax write-offs.<\/p>\n 2. Document everything with photographs and video<\/strong><\/p>\n Record everything, starting with a general view of the site and moving down to the details of each individual piece of equipment, with reference to its inventory number.<\/p>\n The files should retain their metadata, including the date, time, and geolocation. Do not remove debris or alter the site before the inspection and before everything has been properly documented.<\/p>\n 3. Document inventory and production assets<\/strong><\/p>\n Separately record everything that was present in the warehouse and production facility: finished goods, raw materials, and work in progress, based on the relevant accounting records.<\/p>\n These losses can be particularly difficult to prove if they are not documented immediately.<\/p>\n 4. Register the property and obtain an independent valuation<\/strong><\/p>\n Register the damaged property in the State Register through the Diia application and then commission an independent valuation from a certified valuer.<\/p>\n The valuation must be carried out in accordance with the official Methodology \u2014 Joint Order of the Ministry of Economy and the State Property Fund of Ukraine No. 3904\/1223 \u2014 and should cover three components: actual losses, restoration costs, and lost profits during the period of business interruption.<\/p>\n 5. Pursue all available compensation routes<\/strong><\/p>\n Seek an insurance payout if the property was insured, apply for state compensation, register the claim with RD4U, and, where appropriate, bring a claim against the Russian Federation.<\/p>\n The more available mechanisms are properly pursued, the greater the chances of recovery.<\/p>\n More details on this stage are available in the article Documenting War-Related Damage: The First 72 Hours<\/em><\/a>.<\/p>\n The quality of the evidence often determines whether a compensation claim succeeds or fails. The following factors are particularly important:<\/p>\n One of the first questions business owners ask is whether destruction of property can result in additional tax liabilities. The good news is that, for the duration of martial law, Ukrainian legislation provides relief from certain additional taxes in respect of assets lost through circumstances beyond the taxpayer\u2019s control.<\/p>\n However, these rules apply only where the loss is properly documented.<\/p>\n The conclusion is straightforward: destroyed property should not lead to additional tax assessments. But this works only where the business obtains the Chamber of Commerce and Industry force majeure certificate in a timely manner and collects the required official documents.<\/p>\n This is yet another reason not to delay documenting the damage.<\/p>\n Several years ago, bringing a claim against another state was effectively impossible because of the doctrine of state immunity. This has changed.<\/p>\n In its judgment of 14 April 2022 in case No. 308\/9708\/19<\/a>, the Supreme Court of Ukraine held that an aggressor state does not enjoy jurisdictional immunity in cases concerning compensation for damage caused by armed aggression. This position was subsequently confirmed by the Grand Chamber of the Supreme Court (case No. 635\/6172\/17)<\/a>.<\/p>\n Since then, Ukrainian courts have considered claims against the Russian Federation on their merits.<\/p>\n There are already examples of judgments in favour of businesses: Ukrainian commercial courts have upheld claims brought by companies against the Russian Federation for compensation of losses, including lost profits, with the amount awarded determined on the basis of proven losses.<\/p>\n International arbitration is also available to large businesses. For example, Naftogaz Group was awarded more than USD 5 billion against the Russian Federation in connection with assets in Crimea, and such awards may be enforced abroad through the attachment of Russian assets.<\/p>\n It is also important to acknowledge the practical challenge: obtaining a judgment today is easier than enforcing it. Russia does not pay such judgments voluntarily, while Ukraine currently has no direct mechanism for compulsory recovery.<\/p>\n The principal value of a court judgment, therefore, is that it formally establishes the amount of the loss and may serve as a basis for compensation within a future international compensation mechanism. Those who already have a judgment and a registered claim will be in a stronger position when such compensation becomes available.<\/p>\n 1.Where should I start if my business has not been affected yet?<\/strong><\/p>\n Start with preparation: conduct an inventory, put your accounting and records in order, and obtain war-risk insurance with partial reimbursement of the insurance premium by the state. This is one of the most cost-effective ways to protect the business and is available regardless of the region in which it operates.<\/p>\n 2.Our production facility and equipment have been destroyed. What should we do first?<\/strong><\/p>\n Call the police and the State Emergency Service of Ukraine, obtain the relevant official reports, photograph the equipment with reference to inventory numbers, and immediately document the goods and materials that were held in the warehouse based on your accounting records.<\/p>\n This evidence forms the foundation for all subsequent compensation claims.<\/p>\n 3.Will we have to pay taxes on destroyed property?<\/strong><\/p>\n If everything is properly documented, no. Compensating VAT liabilities do not arise, and the value of the destroyed assets may be recognised as an expense.<\/p>\n For goods and raw materials, a key condition is obtaining a force majeure certificate from the Chamber of Commerce and Industry and maintaining a complete set of supporting documents.<\/p>\n 4.Can we recover the value of finished goods, raw materials, and losses caused by business interruption?<\/strong><\/p>\n Yes. Finished goods, work in progress, and inventory constitute recoverable losses if they are supported by proper accounting records.<\/p>\n Lost profits resulting from business interruption may also be claimed, but they must be substantiated with documentary evidence rather than simply stated as expected profit.<\/p>\n 5.We lease our premises. Who is entitled to compensation?<\/strong><\/p>\n The owner may have grounds to claim compensation for the building itself, while you, as the tenant, may claim compensation for your own equipment, finished goods, raw materials, and other materials.<\/p>\n Leasing the premises does not deprive you of the right to seek compensation for assets that belong to you.<\/p>\n 6.Our production facility is not located in a frontline region. Are there still measures available to us?<\/strong><\/p>\n Yes \u2014 several. War-risk insurance with reimbursement of part of the premium, registration of a claim with RD4U, and a claim against the Russian Federation are available throughout Ukraine.<\/p>\n Only the direct state compensation programme under CMU Resolution No. 1541 is geographically restricted.<\/p>\n 7.How much compensation can we receive?<\/strong><\/p>\n It depends on the mechanism used and the proven amount of the loss.<\/p>\n Under the state programme established by CMU Resolution No. 1541, compensation may reach UAH 10 million, and up to UAH 30 million for small businesses under the relevant programmes. Reimbursement of the insurance premium may reach UAH 3 million. In a claim against the Russian Federation, the amount is determined by the losses that can be substantiated with evidence.<\/p>\n Ultimately, the amount recoverable depends on the quality of the documentation and accounting records.<\/p>\n Before a potential attack<\/strong><\/p>\n \u2192 Conduct an inventory If damage has already occurred<\/strong><\/p>\n \u2192 Document the damage promptly and correctly Proper records and insurance today can translate into real financial recovery tomorrow.<\/strong><\/p>\n About the authors.<\/strong> This material was prepared by the lawyers of Honcharuk Partners, who advise and represent businesses in matters relating to compensation for war-related losses \u2014 from preparation and documentation of damage through to actual recovery, including related tax matters.<\/p>\n Legal advice for furniture manufacturers:<\/strong> +38 (095) 560 39 77, office@honcharukpartners.com<\/a>.<\/p>\n This material is provided for informational purposes only and does not constitute legal advice. The legislation referred to is current as of the date of publication.\u00a0<\/em><\/p>\n <\/p>\n\n\t\t<\/h2>\n
Part 1. How to Protect Your Assets in Advance<\/strong><\/h4>\n
Part 2. What Compensation Options Are Available?<\/strong><\/h4>\n
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Part 3. If an Attack Has Already Occurred: What to Do<\/strong><\/h4>\n
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Part 4. What Is Critical When Documenting Damage<\/strong><\/h4>\n
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Part 5. Taxes: Will You Have to Pay Tax on Destroyed Property?<\/strong><\/h4>\n
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Part 6. Common Mistakes That Can Cost You Compensation<\/strong><\/h4>\n
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Part 7. What the Case Law Says<\/strong><\/h4>\n
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Frequently Asked Questions<\/strong><\/h4>\n
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The Key Rule: Act Before It Is Too Late<\/strong><\/h4>\n
\u2192 Put your asset records and documentation in order
\u2192 Insure your production facility against war-related risks<\/p>\n
\u2192 Prepare the required tax documentation
\u2192 Submit claims through all available compensation mechanisms<\/p>\n