Ukraine's foreign investment climate is now more lucrative, thanks to the Law on "State Support for Investment Projects with Significant Investments in Ukraine." The government passed this law on February 13th, 2021. Its objective is to create a conducive business environment for high-value foreign investment in Ukraine. Foreigners will now invest in various sectors of the Ukrainian economy as partnerships, joint-stock companies, or wholly-owned subsidiaries.
Specified Areas of Investment Project Implementation
Foreign investment projects include providing technical and technological (re-)equipment, modernization, and construction of the investment target. It also involves the provision towards the construction of ancillary infrastructure facilities.
The following industry sectors have been selected for foreign investment projects:
1) Education, scientific research, and technical activities
2) Arts, culture, sports, tourism and resort, and recreation
3)The Processing Industry (except for the production and circulation of alcohol and alcoholic beverages as well as tobacco products)
4) Healthcare
5) Extraction for further processing and treatment of mineral resources (except for gas, coal, and oil)
6) Transport
7) Postal and courier activities
8) Warehousing
9) Logistics
10) Waste management
Requirements of the Investment Project
The investment project and the subsequent Special Investment Agreement must comply with the following criteria:
✓ The creation of a minimum of 80 new jobs must come out of the investment project. Of these new jobs, the average salary should be 15 percent or more, higher than the average salary paid for the relevant activity across the region.
✓ The investment project has an implementation period of precisely five years or less from the date of entering into the Agreement.
✓ The amount of investment must exceed €20 million.
✓ The total value of the state support to implement the investment project must not exceed 30% of the amount invested in the project.
Restrictions
The implementation of the investment project cannot be applied for by:
1) Non-profit organizations, enterprises, and institutions
2) State and municipal enterprises where more than 50% of shares (participation interests) in the charter capital are owned by the state or territorial community.
3) Ukrainian or foreign legal entities, which:
▪︎Are registered in countries (or territories) classified as ▪︎offshore zones
▪︎ Are subject to special economic or other restrictive measures (sanctions) in Ukraine
▪︎Have tax arrears as of the date of the application
▪︎Are registered or controlled by residents of the Russian Federation or countries included in the FATF list
▪︎Are undergoing bankruptcy proceedings, liquidation, or reorganization
State Support
The state shall support foreign investment projects in the following ways:
1) State-paid construction of ancillary infrastructure facilities. These include but are not limited to utility supply lines (motorways, communication lines, heat, gas, water, and electricity supply facilities, utility supply lines) necessary to implement the investment project.
2) Tax benefits such as:
(i) Exemption from customs charges and VAT for the equipment imported by an investor to Ukraine. This imported equipment must be for the implementation of the investment project.
(ii) Exemption from corporate income tax for five years. The draft law for the exemption from the income tax and VAT is pending before the Verkhovna Rada of Ukraine. It is expected to be passed shortly at one of the upcoming sessions.
3) The investor's right to lease a communally or state-owned land plot for implementing the investment project. And, additionally, the right to buy the land plot upon the expiry of the term of the Agreement.
4) Exemption of equipment and parts thereto from import duties.
Implementation of the Investment Project Procedure
Note that an investment agreement is agreed upon only with an investor that has a legal entity registered in Ukraine with 100% of participation interests (shares) belonging to such foreign investors. The investor applies for support for a qualifying investment project (for regional projects) by submitting an application and supporting documents to the special state body or local self-governmental authority. If approved, the local council or Cabinet of Ministers of Ukraine then enters into the agreement that establishes the procedure for the project’s implementation and the terms and conditions that apply.
Conclusion
Three decades after Ukraine gained its independent status; the government transitioned from an autonomous economic state to an open market. The new law for foreign investment is one such measure of improving an open market for investors. In addition to Ukraine offering great potential to foreign investors through resources and an educated labor force, the government has provided substantial incentives to attract foreign capital and established a comprehensive foreign investment law through the Law of Ukraine No. 1116-IX “On State Support for Investment Projects with Significant Investments in Ukraine."
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