Premium Conditions for Significant Foreign Investments into Ukraine


  1. Premium solution for significant investments
  2. What projects can qualify for state support?
  3. What state support will be available?
  4. What are practical challenges for foreign investor?

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

Premium solution for significant investments

Ukraine makes a lot of effort to overcome challenges with transparency and stability. Recent solution is the Law of Ukraine “On state support to projects with significant investments”. The legislation is aimed at removing bureaucracy and creating investment incentives. In addition to the state support, the government will provide ongoing assistance to the project by assigning a state liaison (“investment manager”). Investment managers should advice investors, free of charge, and ensure cooperation of central and local governments during the project. These premium conditions will become fully viable on January 01, 2022.

What projects can qualify for state support?

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

The investment should be at least 20 million euros, which can be made only by monetary funds. It may be owned or borrowed capital or mix of both.

An investor will be required to register an SPV for performance of the project. Then Ukrainian SPV can make the investment but only into noncurrent assets. Meanwhile, intangible assets and goodwill are excluded from investment targets. Thus investors can count only on asset deals with immovable property and not stock M&A transactions. Targets could be a land, a real estate, plants and factories with equipment. Investment also can be made into construction of buildings and ancillary infrastructure, such as roads and pipelines.

The investment should be limited to several industries:

  • processing industry;
  • extraction for processing and / or enrichment of minerals;
  • waste management;
  • transport and logistics;
  • warehousing;
  • postal and courier activities;
  • education, science and inventions;
  • healthcare;
  • arts and culture;
  • sports;
  • tourism and recreation.

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

The investment also shall create at least 80 new jobs with salaries exceeding the average salary in the region by at least 15 %.

Last but not least, an investor will have to complete the project in 5 years, while the investment agreement with the government will be concluded for 15 years.

What state support will be available?

First and foremost, sate assistance will cover only up to 30% of the planned investment value. The type of the aid could be agreed with the government. Investor may receive:

  • exemption from taxes and import duty (VAT, corporate income tax)
  • leasehold over state- or communally owned land within special quick procedure;
  • the right to buy-out the land after expiry of investment agreement;
  • ancillary infrastructure, which can be constructed for the project and sponsored by state or municipal budget;
  • connection to electrical grid and utilities, such as heat, gas, and water supply infrastructure.

What are practical challenges for foreign investor?

An investor may require much deeper understanding of Ukrainian regulations to benefit form the new regime. The law is accompanied with several enactments, which may influence a decision to launch the project and success in getting state aid.

Tax benefits have limits

Value of tax reliefs that investor may receive should be within 30% limit of state support. Therefore, once the total of reliefs surpasses that ceiling, the investor will pay all taxes as usual. 

VAT. Relief from VAT and import duty will be provided only until 2035. Exemptions do not cover everything that will be supplied for the project. Exhaustive list of goods with specific commodity codes may be exempted from VAT and import duties. Moreover, imported goods should be new: not older than 3 years old and not been used previously. Also an investor cannot sell the goods for 5 years and cannot use it for other purposes. For any earlier alienation or violation of designated use of an investor will have to reimburse VAT, import duties and pay tax interest. The procedure for import and control of designated use of permitted goods will be set by the government. It practice, it means extra reporting requirements for an investor.

Corporate income tax. Exemptions from the corporate income tax (CIT) have similar limitations. Investors will be relieved of paying CIT until 2035. However, the tax relief becomes effective only after making the investment in full and commissioning of the investment project. CIT exemption will not apply to controlled transactions, if transfer pricing rules apply, and to income of controlled foreign companies.

In effect, an investment project may operate for longer than for the term of CIT exemption and will need optimal tax burden. Investors should analyze their corporate structures for compliance with Ukrainian tax rules and perhaps restructure ownership before making an investment in Ukraine.

Land Tax. The last offered tax relief is for land tax, which will be also temporary, until 2035. Investor can either receive lower rates of land tax or be completely relieved of paying land tax. Investors may also receive lower rent for the land leased from the state or from local council.

Requirements for investor and investment project

Supplementary regulation to the new law prescribes requirements for investor’s financial position. Financials will be assessed according to 3 criteria: sufficient owned capital, cash-flow and source of financing. Investor will need assistance from local advisors to submit package of documents confirming the compliance with criteria. Supporting documentation includes, among others, auditor’s report, ownership structure, statements of lender’s reliability.

Investors should also take local advice in preparation of the investment project along with feasibility studies and draft investment agreement. Investment project will be assessed by few state bodies for environmental risks, antitrust issues and compliance of investment agreement. There is no model investment agreement, so investors will have to prepare drafts without a reference point.

Feasibility study, which investors should submit, will be a complex document. Apart from financial calculations, the regulation requires legal due diligence of the project. This part should include the analysis of applicable Ukrainian laws governing relations with the government and local councils, use of land, environmental law, regulations of relevant industry, required licenses and permits, governing construction and city development.

Clearly, to succeed in getting state support for the project, investors will need professional advice from variety of professionals, including legal counsels. Assigned state liaisons will be useful in handling Ukrainian bureaucracy, but they have limited powers and expertise. For example, they cannot represent client in proceedings, and they cannot be experts in all areas of law like a professional law firm. Qualified lawyers in cooperation with state liaison, on the other hand, will ensure truly premium service for ambitious project of foreign investors in Ukraine.

Practices | Sectors


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