Foreign investment in Ukraine
1. STATUTORY GUARANTEES AND INCENTIVES FOR FOREIGN INVESTORS Foreign investors are entitled to certain privileges and guarantees under the Foreign Investment Law, provided that their investments have been duly registered with the appropriate local state authorities.
Guarantees: PROTECTION AGAINST NATIONALIZATION
GUARANTEE FOR COMPENSATION AND REIMBURSEMENT OF LOSSES
Foreign investment may not be nationalized or expropriated (with the exception of emergency measures such as national disasters, accidents, epidemics, etc.).
Foreign investors are entitled to reimbursement of their losses in connection with failure of the state or municipal agencies to properly discharge their obligations to foreign investors or enterprises with foreign investment.
GUARANTEE IN THE EVENT OF THE TERMINATION OF INVESTMENT ACTIVITY
GUARANTEE OF REPATRIATION OF PROFITS
Foreign investors can repatriate their revenues and investments from Ukraine free from export duties during six months upon the termination of the investment activity.
Foreign investors can freely and immediately repatriate their profits and proceeds from investment activities after payment of taxes, duties and other mandatory payments.
PROTECTION AGAINST CHANGES IN LEGISLATION Foreign investors are guaranteed protection against any legislative changes affecting guarantees described above for a period of ten years. This guarantee does not apply to legislative changes on matters relating to national security and defence, protection of public order and environment.
Incentives: NATIONAL REGIME
ENTERPRISES WITH FOREIGN INVESTMENT
Provides foreign investors with the same rights and possibilities as for Ukrainian residents
Ukrainian companies, with foreign investor’s contribution in their charter funds amounting at least 10%
Enterprises with foreign investment or foreign enterprises are taxed on their profits on a par with other domestic enterprises
May found subsidiaries, affiliates and branches in and outside Ukraine in order to conduct their economic activity
IN-KIND INVESTMENTS In-kind contributions to the charter fund of an enterprise with foreign investments (except for goods for sale or goods provided for such company’s own consumption)
In-kind investments are exempt from import duties
2. PERMITTED OBJECTS OF FOREIGN INVESTMENT An object of foreign investment is any type of property or property rights in all sectors of national economy, which can be transferred to the investor in consideration to his foreign investments. Foreign investors are permitted to invest in the following types of assets in Ukraine:
Assets – are tangible or intangible economic resources of a company that are capable of being owned or controlled to produce value and are held to have positive economic value: Fixed Assets
– property (mostly immovable) which cannot be easily converted into cash, and/or objects not directly sold to company's consumers.
Current Assets – cash, its equivalents or objects that can either be converted to cash or used to pay current liabilities within 12 months.
Equity – a shareholders' capital, which represents
the remaining interest in assets of a company, spread among individual shareholders of common or preferred stock:
Securities – financial instruments which vouch financial and other rights, represent financial value and provide the fulfilment of certain obligations under such securities. Securities in Ukraine may include shares, debt securities, mortgage securities, privatization securities, derivatives and securities of title. Participation interest/corporate rights –
participation in the share capital of a company and the rights to receive a share of its profits, mange its activity and enforce other types of rights. Applies to the limited liability companies, joint stock companies, general partnerships, limited partnerships additional liabilities partnerships, cooperative organizations, private, joint and other types of enterprises.
Property Rights – rights to own, to possess and to use any kind of property, the right to obtain income from such property, or to enforce the property rights:
Movable and immovable property rights (including real estate). Intellectual property rights, etc.
Other Objects of Investment: Special purpose contributions – financial or other property, non-property contributions of a cooperative organization member, effectuated besides obligatory shares to provide statutory activity of the organization. Research and development solutions – completed research, design, construction and engineering works and services, creation of prototypes or batches of products necessary for conducting research and development works. 3. FORMS, MODES AND MECHANISMS OF FOREIGN INVESTMENT Forms of investment Foreign investors can invest in the following forms:
Acquisition of assets: Direct purchase (acquisition of ownership title).
Investment in Equity: Foundation of a new legal entity; Acquisition of shares or participation interest in a Ukrainian company; Joint business activity by creation of a legal entity; Foundation of branches of foreign investor.
Other forms of investment: Business (entrepreneurial) activities pursuant to production sharing agreements; Joint business activity without creation of a legal entity; Joint business activity without merging funds; Public-private partnerships.
Modes of investment Foreign values:
Investment
in
currency
Currencies permitted: UAH and foreign currencies comprising the 1st Group of Currency Classifier (USD, EUR, GBP, JPY, CFH); Precious metals are regarded as currency values. The followings types of precious metals are permitted for making foreign investment: XAU (gold), XPD (palladium), XPT (platinum), XAG (silver) or Special Drawing Rights.
In-kind investments: real assets – subject to official evaluation and estimation in UAH if contributed to a company’s charter fund;
in-kind investments to the charter fund of a company with foreign investment – exempt from import duties (except goods for sale or goods provided for such company’s own consumption); intangible assets – i.e., intellectual property, goodwill and property rights – subject to obligatory evaluation in case of formation of the company’s charter fund on the basis of state or municipal property. Intellectual property is likely to be used for charter fund increase and not for founding companies because the rights to such property may be transferred only to the existing company; restrictions on in-kind investments (contributions) – applicable to formation of charter investments in banks, credit unions and loan associations, leasing companies, insurance companies, trusts and investment funds;
4. MECHANISM OF JOINT (VENTURE) INVESTMENT ACTIVITY: "Joint Venture activity" provides for a mutual obligation of the parties to act jointly for reaching the common purpose, with or without creation of a legal entity.
JOINT ACTIVITY By creating a legal entity Foreign investors may create a foreign company under law of Ukraine if 100% of its capital is foreign property. In certain industries, which have strategic importance for national security, such companies may not be created.
Without creating a legal entity
Foreign investors may transfer funds in foreign currency from abroad or funds in foreign currency and in UAH from their investment account to a joint venture account in Ukraine
By merging funds ("simple company") Participants may decide to allocate losses pursuant to the amount of contribution of each of participants
Each participant may defend its rights on equal terms, without advantaging any other of participants
Contributions of participants are considered equal unless otherwise defined by them
Company’s activity may be conducted either by one or all of its participants
Without merging funds
Such activity may be conducted for a common purpose but generally without intent to make profit
No additional tax liabilities or additional accounting consequences
transfer of UAH or foreign currency from the Investment Account of foreign investor to the account of the joint venture.
5. MECHANISM OF MAKING THE FOREIGN INVESTMENT IN CASH: In case of not opening an Investment Account in Ukrainian bank: direct transfer of foreign currency from the investor's foreign account to the resident’s current account in Ukraine. In case of opening an Investment Account Ukrainian bank:
in
cross-border transfer of foreign currency on the Investment Account; placing of foreign currency (brought in and declared to the customs authorities by the owner or representative of the owner of the investment account) on the Investment Account; transfer of foreign currency or UAH from current account of a non-resident individual to his Investment Account; exchange of foreign currency on the investment account into UAH for its further investments; transfer of foreign currency or UAH from the Investment Account of foreign investor to the current account of a resident or Investment Account of other non-resident. In case of placing the Investment Deposit with the Ukrainian bank:
6. REPATRIATION OF FOREIGN INVESTMENT General Rules: Foreign investors can repatriate from Ukraine (in foreign currency only): funds comprising the foreign investment; profits and proceeds from the foreign investment, and other funds received by foreign investor as a result of investment activity in Ukraine. Foreign investor has a right to make a cash repatriation of in-kind and joint venture foreign investment (fully or partially, subject to international treaties of Ukraine). Any repayment to repatriate the foreign investment or related proceeds/profits is subject to applicable currency control regulations and may require individual currency license of the National Bank of Ukraine. Ukrainian regulations establish specific sets of documents to be provided for purchase of foreign currency for repatriation of foreign investment or related proceeds/profits and making relevant payments;
cross-border transfer of foreign currency funds by foreign investor to its foreign currency Investment Deposit with the Ukrainian bank;
as a general rule, no individual currency license of the National Bank of Ukraine is required for the crossborder payment by foreign investor or Ukrainian resident or manager of joint investment activity to foreign bank account of a foreign resident.
transfer of UAH or foreign currency from Investment Account of foreign investor to its Investment Deposit (in UAH or foreign currency, respectively);
Exceptions apply: for example, an individual license of the National Bank of Ukraine would be required to pay abroad for securities (shares) of Ukrainian issuers.
restrictions apply: the Investment Deposit should be placed for at least one calendar year and its early repayment or change of the deposit amount may be restricted.
Procedure for cash repatriation of foreign investment:
In case of Joint Venture Investment Activity without creation of legal entity: cross-border transfer of foreign currency funds by foreign investor to the account of the joint venture;
Repatriation of foreign investment on Investment Account of foreign investor: transfer of foreign currency or UAH by Ukrainian resident from its current account;
transfer of foreign currency or UAH by another foreign investor from its Investment Account; transfer of foreign currency or UAH from Investment Deposit of a foreign investor; transfer of foreign currency or UAH by manager of joint investment activity from account of such joint investment activity. Repatriation of foreign investment on foreign bank account of foreign investor: cross-border transfer of foreign currency by foreign investor from its own Investment Account or Investment Deposit; transfer of foreign currency by Ukrainian resident from its current account; transfer of foreign currency by manager of joint investment activity from account of such joint investment activity.
7. LIMITATIONS AND RESTRICTIONS ON FOREIGN INVESTMENTS General restrictions on investment activity applicable to any (both foreign and domestic) investments: Certain types of business activity may be pursued only by state-owned enterprises: rocket industry; printing of banknotes; printing of blank forms of securities certificates. Certain types of business activity may be pursued only by state-owned enterprises or require prior consent of state bodies: railway transport industry (including the foundation, privatization or reorganization of railway enterprises, the layout of railway bed etc.); commercial forestry.
Foreign enterprises may not conduct their activity in certain industries with strategic importance for state security: mining – there exists a vague requirement that company which extracts mineral resources of state importance may no be fully owned by non-residents; electric power transmission and distribution – there exists a vague requirement that company which transmits electric power or provides electricity distribution services may not be fully owned by nonresidents.
Special restrictions on investment activity applicable only to foreign investment: Certain thresholds on the maximum permissible percentage of foreign investment in the charter fund of a Ukrainian enterprise in the following industries: publishing – the size of shareholding in a printing house for non-residents must not exceed 30 %; water distribution – companies providing water distribution services may not be fully owned by non-residents; media – broadcasting organizations may be founded exclusively by Ukrainian residents. Land related restrictions: agricultural land – may not be conveyed to nonresidents; forestry land – may not be transferred to nonresidents for permanent possession. Restriction on financing forms: housing projects provides special procedures or forms of financing such as construction financing funds, collective investment schemes, etc.
8. Tax TREATMENT OF FOREIGN INVESTMENTS General rules for taxation of foreign investment:
Special tax regime for certain industries:
No special taxes for the foreign investments or enterprises with foreign investments (i.e., national regime).
Ukrainian legislation provides total exemption from taxation until 1 January 2020 for the following sources of profit:
Any incomes of a foreign investor in Ukraine are taxable in accordance with the special rules established by the Tax Code of Ukraine. any payment by a Ukrainian resident or the permanent representative office of non-resident to the non-resident which constitutes profit of such nonresident (foreign investor) with the source in Ukraine is subject to 15% withholding tax (deductible by the respective payers, subject to certain exceptions). withholding tax may be reduced or eliminated as a result of existing double taxation treaties between Ukraine and the country of residence of the foreign investor.
The profit of biofuel producers derived from the sale of biofuels; Companies’ profit derived from their activities of simultaneous production of electricity and thermal energy and (or) heat production using biofuels; and Companies’ profit derived from their economic activity of production and use of gas (methane) coal deposits. Ukrainian legislation provides for the total exemption from taxation until 1 January 2021 for the following industries: Light industry (except for companies with production based on customer-owned raw materials); Ship-building industry, and Machine building for agro-industry.
9. DISPUTE RESOLUTION Disputes arising with respect to foreign investments may be resolved in different forums.
Disputes between foreign investors and enterprises with foreign investments themselves and third parties
Disputes between any parties regarding foreign economic activities
Dispute between a foreign investor and the state of Ukraine
Ukrainian courts or international commercial arbitral tribunals
Ukrainian courts, the International Commercial Arbitration Court or the Maritime Arbitration Commission of the Chamber of Commerce and Industry of Ukraine, or by dispute resolution bodies chosen by the parties to dispute
Ukrainian courts, unless otherwise provided by international treaties
Ukraine is party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”). Consequently, a foreign arbitral award obtained in a state which is party to the New York Convention should be recognised and enforced by a Ukrainian court (under the terms of the New York Convention). The courts of Ukraine will not recognise or enforce any judgment obtained in a court established in a country other than Ukraine unless such enforcement is envisaged by an international treaty to which Ukraine is a party providing for enforcement of such judgments, and then only in accordance with the terms of such treaty. In the absence of an international treaty providing for enforcement of judgments, the courts of Ukraine may only recognise or enforce a foreign court judgment on the basis of the principle of reciprocity. Unless proven otherwise, reciprocity is deemed to exist in relations between Ukraine and the country where the judgment was rendered. Ukrainian law does not provide any clear rules on the application of the principle of reciprocity and there is no official interpretation or court practice in this respect. Accordingly, there can be no assurance that the courts of Ukraine will recognise or enforce a judgment rendered by the courts of the United Kingdom or the United States on the basis of the principle of reciprocity. Furthermore, the courts of Ukraine might refuse to recognise or enforce a foreign court judgment on the basis of the principle of reciprocity on the grounds provided in the applicable Ukrainian legislation.
• United States of America; • Russian Federation; • China; • France; • Germany; • Brunei; • Italy; • Spain; • Finland; • United Kingdom; • Netherlands; • Canada; • India; • Argentina; • Sweden; • Korea; • UAE.
Ukraine is presently a signatory the Treaty on Partnership and Cooperation with European Union, and to Treaties on the Mutual Protection of Foreign Investments with various countries, including, among others:
All of the information included in this document is for informational purpose only, and may not reflect the most current legal developments, judgments, or settlements. This information is not offered as legal or any other advice on any particular matter. The Firm and the contributing authors expressly disclaim all liability to any person in respect of anything, and in respect of the consequences of anything, done or omitted to be done wholly or partly in reliance upon the whole or any part of the contents of this brochure. No client or other reader should act or refrain from acting on the basis of any matter contained in this document without first seeking the appropriate legal or other professional advice or the particular facts and circumstances.