Why Invest in Ukraine?
Ukraine has turned into a rapidly developing country again. Considerable losses in 2014-2015 have partly been overcome in recent years. With the introduction of state support for projects with significant investments Ukraine aims to attract new investments, both locally and foreign based.
The following type of projects can qualify for the new state aid programme:
- Value: Exceeding EUR 20 million. The thresholds calculations will be done based on the local currency equivalent, whereas potential foreign currency discrepancies may appear (application date and actual implementation).
- Term: Implementation period 5 years or less.
- Employment: The project implementation process must ensure the creation of at least 80 new jobs with an average salary at least 15% higher than the average salary in the relevant industry in the region for the previous calendar year.
- Irreversible investment: The project should provide for construction, modernization, technical and/or technological re-equipment of investment objects, and the purchase of necessary equipment.
- State Support: Shall not exceed 30% of the total amount of investments into the project.
Is it worth it?
Definitely so. State support could be provided in the form of e.g. tax and customs incentives, assistance with necessary utilities and transport connections or land lease on special terms based on the needs of the investor for the specific investment project. The investor will also get facilitation on the highest governmental level for the implementation of the project, including an allocation of land plots and the creation of infrastructure.
Who is eligible?
Foreign and national applicants, individually or jointly, may apply for state support for new projects with significant investments in Ukraine. In general, applicants should be predominantly private, transparent, profit oriented companies with trustworthy origin and a good reputation including its control relationships.
The investment project must be implemented on the territory of Ukraine and in the industries specifically prescribed by the law, in particular:
- Process manufacturing (except for tobacco and alcohol)
- Extraction for the processing and/or enrichment of minerals (except for coal and lignite, crude oil and natural gas)
- Waste management
- Transport
- Warehousing
- Postal and courier services
- Logistics
- Education
- Science and research
- Healthcare
- Arts
- Culture
- Sports
- Tourism
- Resort/recreational sphere
Investments into public-private partnerships as well as privatizations of state and municipal property are excluded and do not fall under the regulation of the Ukrainian law “On State Support for Investment Projects with Significant Investments in Ukraine”.
How does it work?
Ukraine offers state support on a non-monetary basis, the total amount hereof shall not exceed 30% of the amount of the actual investment during the implementation of the project. The applicant estimates the amount of such support by means of a feasibility study for the project based on the instructions adopted by the Government of Ukraine.
Once the special investment agreement is approved, the applicant shall incorporate a new company in Ukraine for the implementation of the investment project, which will be treated as investor. This company will become a contractual party to the special investment agreement. Ukraine requests strict ownership criteria applicable to the investor to ensure its transparency and the compliance with legal restrictions for applicants.
It is worth mentioning that during the evaluation of the investment project not only the transparency of the applicant or calculations will be reviewed, but also the trustworthiness of third parties involved such as audit companies or banks.
- Audit companies shall confirm that they meet the qualifying criteria in their country of residence (Ukraine, EU countries or any other country).
- Banks shall meet the reliability criteria based on national or internationally recognized rankings, with a different approach described for national or foreign banks (i.e. Standard and Poor’s, Fitch or Moody’s international rankings). Banks shall provide the applicant with confirmation letter(s) for creditworthiness with a validity period for 24 months and bank statements (or equivalent) on floating assets.
Will the investor be protected?
While Ukraine is a rapidly developing country and thus a promising one for investments, it is also known for the associated risks. Ukraine is currently harmonizing its national legislation with the legislation of the European Union. The depth of this process allowed Ukraine to improve its official ranking on the world scale of doing business.
Ukraine is also known for its diligent implementation of the European Court for Human Rights and other international institutions including awards of arbitrations in investment disputes.
The law “On State Support for Investment Projects with Significant Investments in Ukraine” also envisages guarantees for investors that will corresponding realise projects. Besides that, the special investment agreement may be governed by the law of another country chosen by both the Ukrainian government and the investor. Additionally, the parties to the special investment agreement may choose place and type (either commercial or investment arbitration) of forum and envisage mediation procedures. All of the above unprecedented legislative changes show that the government of Ukraine values foreign investors and aims to protect their investments.
How many projects have received the described state support?
Based on publicly available sources first applications are currently undergoing the evaluation procedures with the Ministry of Economy. The last supporting bylaws were finalized by the end of summer 2021 and previously qualified applications were undergoing amendments to the complex set of the documents according to the approved guidelines. In the final stage the Government will decide upon execution of the investment agreement. Thus, it can be assumed that pioneer projects with significant investments will be effectively launched in Ukraine next year.
The above-mentioned law and bylaws implement a new system to attract both national and foreign investments into Ukraine’s economy. With additional investment-oriented services and state support, Ukraine hopes to gain, amongst others, a stronger position as a production hub in Europe by improving its economic, social and legal environment.
