New opportunities for foreign investment projects in Ukraine
Law on state support of significant investments
On 13 February 2021, the Law of Ukraine “On State Support of Investment Projects with Significant Investments” (the Law) entered into force. The Law, adopted by Parliament in December, was signed and actively promoted by the President. The Law provides benefits for investors investing into key sectors.
To qualify for investment benefits, an investment project must meet the following criteria:
- investment in excess of EUR 20 million
- creation of at least 80 new jobs with a 15 per cent higher salary than the average in the respective activity in the region; and
- investment must be carried out through a special purpose vehicle registered in Ukraine exclusively for the implementation of the investment project
The Law applies to the following sectors:
(1) Excluding production and circulation of tobacco products, ethyl, cognac and fruit alcohol, alcoholic beverages.
(2) Excluding hard and brown coal, crude oil and natural gas.
Qualified investment may be eligible for the following types of support:
- exemption from certain taxes and duties (value added tax and the basic rate 18 per cent income tax) for up to 5 years;exemption from import duty on new equipment imported for the implementation of the investment project for up to 5 years
- pre-emptive right to lease state or communal land with the right of further buy-out
- construction of the related infrastructure facilities (roads, communication lines, means of heat, gas, water and electricity supply, utilities, etc.) at the expense of the state or local budget
- assistance with connection to heat, gas, water and electricity supply networks, utility systems, etc. and
- support of the investor by a specially created body (“investment nanny”) at all stages of the investment project
State support will not apply to projects involving concessions, production sharing agreements and privatisation of state or municipal property. The total state support may not exceed 30 per cent of the planned investment.
Investors may also count on the following guarantees:
- the Ukrainian legislation in force as of the date of the investment agreement will continue to apply to the investor (except for legislative changes improving the investor’s position)
- a right to compensation for losses in case the state does not fulfil its obligations
- flexible dispute resolution mechanisms, which may include not only national courts but also mediation, non-binding expert assessment, national or international commercial or investment arbitration
By a separate decision of the Government, the Investment Promotion Office (UkraineInvest) has been designated as the authorised institution to support investors in the preparation and implementation of projects with significant investments.
State support for projects with significant investments will commence on 1 January 2022. The mechanism for such support shall be specified by regulations to be adopted during this year.
Some practical considerations
The above benefits are only available to investors who meet transparency requirements for their ownership structure, including eligibility of country of investors’ origin, and have confirmed the source of funds.
An investor’s beneficiaries are also required to be jointly and severally liable under the investment agreement with the project company. Alienation of shares of the project company without obtaining prior consent of the Cabinet of Ministers of Ukraine is prohibited (change of control rule).
Given the above, the beneficiaries of a project company should carefully plan their investment project to meet all conditions provided by the Law. Special attention should be given to the ownership structure and the instruments for contractual limitation of liability. A comprehensive and balanced approach to structuring the investment project and the profile of the investor company is not just a recommendation, but a guarantee of the successful implementation of an investment project.
In addition to comprehensive legal and tax support, GR-support throughout the entire process of supporting investment projects pursuant to the new Law is highly advisable. For example, the Law provides an opportunity to receive confirmation from the state authorities on overall possibility and timing of conclusion of an investment agreement prior to registration of a project company. The purpose of such forecast is twofold: to avoid costs until there is an official confirmation that the business idea can be developed in an investment project and to get the assurance of the prospects of doing business in Ukraine.
Comprehensive support of investment projects
For over 16 years, Sayenko Kharenko has assisted more than 1,800 clients from 60 countries: from international corporations to IFI’s, NGOs, and non-profit organisations. The firm has assisted in bringing brought over USD 80 billion of investment into Ukraine. Sayenko Kharenko has handled over 200 M&A deals worth more than USD 57 billion.
When targeting innovative transactions or strategic investment projects in Ukraine, clients turn to Sayenko Kharenko’s government relations (GR) practice to help shape policy, legislation and regulations to communicate their interests to the government authorities at every level. Sayenko Kharenko combines its unmatched legal knowledge and advocacy skills with strategic experience in advising international and local clients in numerous industries on large-scale investment projects and a full range of legislative, regulatory, and policy issues. Our experience allows to evaluate and predict how Ukraine’s policy and strategy may affect the business of our clients.