Foreign investments

Premium conditions for large foreign investments in Ukraine


  1. Premium solution for large investments
  2. Which projects can benefit from state support?
  3. What state support will be available?
  4. What are the practical challenges for foreign investors?

Investors looking for long-term opportunities in emerging markets always value the political, economic stability and transparency of government institutions. These factors determine the viability of the project: whether a company will attract debt financing or purchase real estate or obtain the necessary licenses and permits in a timely manner.

01 – Premium solution for large investments

Ukraine is making great efforts to overcome the challenges with transparency and stability. The recent solution is Law of Ukraine “On State Support for Projects Involving Large Investments”. The legislation aims to eliminate bureaucracy and create incentives for investment. In addition to state support, the government will provide ongoing assistance to the project by appointing a liaison officer (“investment manager”). Investment managers should advise investors free of charge and ensure the cooperation of central and local governments during the project. These premium conditions will become fully viable on January 01, 2022.

02 – Which projects can benefit from state support?

The new legal framework is not a public-private partnership and it does not cover the privatization of state-owned assets and enterprises. The law facilitates state support to the private sector under a special agreement with the government but without its participation in the project. However, a project and an investor must meet certain state requirements.

The investment must be at least 20 million euros, which can only be achieved by money market funds. It can be capital held or borrowed or a mixture of the two.

An investor will be required to register an SPV for the execution of the project. Then the Ukrainian SPV can invest, but only in non-current assets. At the same time, intangible assets and goodwill are excluded from the investment objectives. Thus, investors can only rely on real estate asset transactions and not on equity mergers and acquisitions. The targets could be land, real estate, factories and factories with equipment. Investments can also be made in the construction of buildings and ancillary infrastructure, such as roads and pipelines.

The investment must be limited to several sectors:

  • processing industry;
  • extraction for the treatment and / or enrichment of minerals;
  • Waste Management;
  • Transport and logistics;
  • storage;
  • postal and courier activities;
  • education, science and inventions;
  • health care;
  • Arts and culture;
  • sports;
  • tourism and recreation.

There are exceptions to this list, such as: the production and distribution of tobacco products and alcoholic beverages; extraction and further processing of coal, oil and gas.

The investment should also create at least 80 new jobs with salaries above the region’s average salary by at least 15%.

Finally, an investor will have to complete the project in 5 years, while the investment agreement with the government will be concluded for 15 years.

03 – What state support will be available?

First, state aid will only cover up to 30% of the value of the planned investment. The type of aid could be agreed with the government. The investor can receive:

  • exemption from taxes and import duties (VAT, corporation tax)
  • lease on state or municipal land under a special rapid procedure;
  • the right to repurchase the land after the expiration of the investment agreement;
  • ancillary infrastructure, which can be built for the project and financed from the state or municipal budget;
  • connection to the electricity grid and to public services, such as heat, gas and water supply infrastructure.

04 – What are the practical challenges for foreign investors?

An investor may need a much deeper understanding of Ukrainian regulations to benefit from the new regime. The law is accompanied by several texts, which can influence the decision to launch the project and the success in obtaining state aid.

Tax benefits have limits

The value of the tax breaks that the investor can receive should be within the limit of 30% of state support. Therefore, once the total relief exceeds this cap, the investor will pay all taxes as usual.

VAT The exemption from VAT and import duties will only be granted until 2035. The exemptions do not cover everything that will be supplied for the project. An exhaustive list of goods with specific commodity codes may be exempt from VAT and import duties. In addition, the imported goods must be new: they are not more than 3 years old and have not been used before. In addition, an investor cannot sell the property for 5 years and cannot use it for other purposes. For any prior alienation or violation of designated use, an investor will have to reimburse VAT, import duties and pay tax interest. The procedure for importing and controlling the designated use of authorized goods will be set by the government. This is convenient, it means additional reporting requirements for an investor.

Corporation tax. Corporate tax (CIT) exemptions have similar limits. Investors will be exempt from paying corporate tax until 2035. However, the tax break does not come into effect until after the investment has been fully realized and the investment project is commissioned. The CIT exemption will not apply to controlled transactions, if transfer pricing rules apply, and to income of controlled foreign companies.

Indeed, an investment project can operate longer than the period of exemption from corporate tax and will require an optimal tax burden. Investors should analyze the compliance of their business structures with Ukrainian tax rules and possibly restructure the property before investing in Ukraine.

Property tax. The latest proposed tax relief concerns the property tax, which will also be temporary, until 2035. The investor can either benefit from lower property tax rates or be completely exempt from paying property tax. Investors may also receive a lower rent for land leased from the state or local council.

Requirements for the investor and the investment project

An additional regulation to the new law prescribes requirements relating to the financial situation of the investor. The financial elements will be evaluated according to 3 criteria: sufficient equity capital, cash flow and a source of financing. The investor will need the help of local advisers to submit a set of documents confirming compliance with the criteria. Supporting documents include, among others, auditor’s report, ownership structure, lender’s statements of reliability.

Investors should also take local advice in the preparation of the investment project as well as feasibility studies and a draft investment agreement. The investment project will be assessed by a few public bodies for environmental risks, antitrust issues and investment agreement compliance. There is no model investment agreement, so investors will have to prepare projects without a benchmark.

The feasibility study, which investors must submit, will be a complex document. In addition to the financial calculations, the regulations impose legal due diligence on the project. This part should include the analysis of the applicable Ukrainian laws governing relations with government and local councils, land use, environmental law, regulations of the relevant industry, required licenses and permits, governing construction and urban development.

Obviously, in order to successfully secure state support for the project, investors will need professional advice from a variety of professionals, including legal advisers. Affected state links will be useful in managing the Ukrainian bureaucracy, but they have limited powers and expertise. For example, they cannot represent the client in proceedings, and they cannot be experts in all areas of law like a professional law firm. On the other hand, qualified lawyers in cooperation with State Liaison will provide a truly high-end service for the ambitious project of foreign investors in Ukraine.

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