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Ukraine Introduces New Law to Attract Significant Foreign Investment

Ukraine Introduces New Law to Attract Significant Foreign Investment

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On February 13, 2021, the Law of Ukraine No. 1116-IX “On State Support for Investment Projects with Significant Investments in Ukraine” dated December 17, 2020 (the “Law”) entered into force. This Law aims to attract high-value foreign investment to Ukraine and defines the principal rules and guarantees for the implementation of investment projects (the “investment project”).

In what sectors can an investment project be implemented?

A Ukrainian or foreign investor can implement an investment project in the following industry sectors:

  • Processing industry (except for the production and circulation of tobacco products, alcohol and alcoholic beverages)
  • Extraction for the purpose of further processing and/or treatment of mineral resources (except for coal, oil and gas)
  • Waste management;
  • Transport, warehousing;
  • Postal and courier activities, logistics;
  • Education, scientific and research and technical activities;
  • Healthcare;
  • Arts, culture, sports, tourism and resort and recreation

An investment project can be carried out by means of providing construction, modernization, technical and/or technological re-equipment of the investment target, purchasing the necessary equipment and component parts thereto, and it can also provide for the construction of ancillary infrastructure facilities.

What are the criteria of the investment project?

The investment project and the subsequent special investment agreement (the “Agreement”) shall comply with the following requirements:

  • The amount of investment shall exceed €20 million.
  • The implementation period of the investment project shall not exceed 5 years from the date of entering into the Agreement.
  • The total value of the state support to implement the investment project shall not exceed 30% of the amount invested in the project.
  • The investment project must create at least 80 new jobs, in which the average salary is at least 15 percent higher than the average salary paid for the relevant activity across the region.

What does the state support of the investment project envisage?

The state support of investment projects can take the following forms:

  • Tax benefits such as: (i) exemption from customs charges and VAT for the equipment imported by an investor to Ukraine for implementation of the investment project and (ii) exemption of an investor from corporate income tax for five years. The draft law with respect to the exemption from the income tax and VAT is pending before the Verkhovna Rada of Ukraine and is expected to be passed at one of the upcoming sessions.
  • Exemption of equipment and component parts thereto from import duties.
  • The right to use (lease) a state- or communally owned land plot in order to implement the investment project, as well as the investor’s right to purchase said land plot upon the expiry of the term of the Agreement.
  • The construction, at the expense of the state, of ancillary infrastructure facilities (motorways, communication lines, heat, gas, water and electricity supply facilities, utility supply lines) necessary to implement the investment project.

What is the procedure for the implementation of the investment project?

To apply for support for a qualifying investment project, the investor must submit an application and supporting documents to the special state body or local self-governmental authority (for regional projects). If the  investment project is approved, the Cabinet of Ministers of Ukraine or the local council shall enter into  the agreement that establishes the terms and conditions and the procedure for the project’s implementation. The investment agreement can only be concluded with an investor that has a legal entity registered in Ukraine. If a foreign investor will implement the investment project, it needs to establish a legal entity in Ukraine with 100% of participation interests (shares) belonging to such foreign investor.  

The government has a period of three to six months to consider the application and conclude of the Agreement.

What are the restrictions?

An application for the implementation of the investment project cannot be filed by

  • Ukrainian or foreign legal entities, which:
  • Are registered or controlled by residents of the Russian Federation or countries included in the FATF list
  • Are subject to special economic or other restrictive measures (sanctions) in Ukraine
  • Are undergoing bankruptcy proceedings, liquidation or reorganization
  • Have tax arrears as of the date of the application
  • Are registered in countries (or territories) classified as offshore zones
  • Non-profit enterprises, institutions, and organizations;
  • State and municipal enterprises, in which more than 50% of shares (participation interests) in the charter capital are owned by the state or territorial community

The Office of the President of Ukraine believes that this Law will help to resume investment activity in Ukraine after the crisis of 2020.

By Oleg Batyuk, Managing Partner, and Valeria Tarasenko, Tax Consultant, Dentons

Ukraine Knowledge Partner

AVELLUM is a leading Ukrainian full service law firm with a key focus on Finance, Corporate, Dispute Resolution, Tax, and Antitrust.

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