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General aspects of investment climate in Ukraine

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General aspects of investment climate in Ukraine 06.05.2016 16:38

Ukraine remains attractive for investors in terms of geographical position, which allows developing better trade relations with European and Asian countries.

We cannot but mention about one more positive change in market expanding. That is the Association agreement with EU, the economic part of which, as many say, allowed Ukrainian business to join the EU market. Nonetheless, the discursive character of this statement remains. Ukrainian industrial facilities still do not mainly meet the standards of EU market and the reducing export payments is not enough to make our business change the outage fixed assets.

The parties agreed on a significant liberalization of import duties on products, and more than 90% of the final rates are zero. The most significant reduction of tariff barriers for Ukrainian producers will be in areas such as: automobile industry, chemical industry, engineering, food industry, which will improve access Ukrainian manufacturers on the relevant markets. The establishment of tariff quotas is allowing zero exports to the EU under quota, creating opportunities for Ukrainian business to conquer the market. That is why investments in these industries will appear much more attractive for foreign businessmen.

The draft law «On amendments to some legislative acts of Ukraine concerning the abolition of mandatory state registration of foreign investments» to the number 2763 was registered in the current session of Ukrainian parliament. Instead of state registration of enterprises with foreign investments it was offered to submit a report on foreign investments. These amendments will create the same legal guarantees for the free movement of capital which exist in member states of the EU instead of the bureaucratic procedure that creates opportunities for corruption.

Another field for the further development of investment activity, including foreign investments, is public-private partnership relations. The recent legislation changes from November, 24 2015, were aimed at improving the mechanism of such relations, removing the obstacles of free access of private business representatives to the industries and activities that constitute public interest. It should be noted that the supplemented areas where PPP could be applicable constitute a not exhaustive list now, authorizing the public partner to expand that list. The other changes include additional types of state support under the PPP:

  • paying the private partner other payments under the contract concluded in the framework of public-private partnerships;
  • supplying goods (works, services) required for the PPP;
  • кight to appeal to international arbitration and / or arbitration to resolve disputes;
  • зrovisions of the stability of law;
  • the right of a private partner to suspend the fulfillment of investment obligations if prices (tariffs) for goods (works, services) are the subject of state regulation, and are not economically justified, and do not provide a proper compensation.

The other positive tendency is a growing interest of investor in segmental parts of Ukrainian economic. Although the reputation of Ukraine in the matter of investment opportunities is not highly-appreciated because of the general crisis, several branches, like IT-start-ups can change the situation, as it opens to investors certain advantages. This is especially favorable tax climate for the industry. According to the Tax Code of Ukraine from January 1, 2013 to January 1, 2023 IT companies are exempt from paying value added tax and income tax that from 2015 is paid at the rate of 18%. Also, the benefits could be found in a significant number of higher education institutions that provide high quality education in this field, and low average wages of the programmers in Ukraine.

Today foreign business shows only pointed interest in the projects separate branches - the sphere of IT, pharmacy, energy, medicine and agricultural sector. However, creating a positive image of the whole domestic market requires more actions.

Under such circumstances several mechanisms of protection the investors’ pecuniary and non-pecuniary interests had to been developed in Ukrainian legislation in order to increase the attractiveness of our industrial facilities.

  1. In case of termination of investment activity a foreign investor is guaranteed the return of it investment without paying fees and incomes from investments. The state also guarantees the free and prompt remittance abroad of profits and other sums in foreign currency obtained as a result of foreign investments.
  2. Guarantees in case of change of legislation. If special legislation on foreign investments will change guarantees to protect foreign investment (Chapter II of the Law), then within 10 years after the enactment of such legislation according to the request of a foreign investor the government guarantees are used to protect foreign investments referred to in Law «On foreign investment».
  3. Foreign investments in Ukraine are not subject to nationalization and cannot be requisitioned by state authorities. Requisition can be carried out by authorized bodies only in the case of emergency measures in the event of natural disasters, accidents, epidemics, etc. Under these conditions, an adequate and effective compensation payable to a foreign investor is guaranteed.
  4. To improve the protection of foreign investments Law of Ukraine from 16.03.2000 number 1547 ratified the Washington Convention 1965 on the Settlement of Investment Disputes between States and Nationals of Other States.
  5. In order to properly implement national foreign policy and foreign economic priorities, promote the release of Ukrainian exporters in foreign markets, protect of their economic and trade interests abroad and foreign direct investment in Ukraine, in April 2013 MFA established The Council of exporters and investors in Ukraine.
  6. Also, in 2015 the Parliament of Ukraine adopted the Law «On amendments to some legislative acts of Ukraine on the protection of investors», which entered into force since May, 2016. This Law, in particular, is expected to increase the level of investor protection through:
  • the establishment of derivative suit (the minority shareholders sue in the interests of the company for damages);
  • implementation responsibility of companies’ officials in the case of causing damages to legal entity by their unlawful actions;
  • the establishment of «independent directors» who will represent the interests of minority shareholders in public companies;
  • the detailed regulation of transactions of interest, which will take into account the interests of all shareholders.
  1. The other amendment to the legislation deals with taxation.  The Law «On amendments to the Tax Code of Ukraine» from May 22, 2015, has relieved non-residents’ income earned on government bonds, municipal bonds or loans secured by state or municipal guarantees from taxation comparing to previous 15% from 1 January 2015.
  2. The Law №2931 «On the amendments to Tax Code» from May,22 2015 included new changes, such as income tax exemption for foreign investors from transactions with state and local securities and income arising from guaranteed by the state or local council borrowings. According to the authors of the bill it will reduce the cost of borrowing for Ukraine and positively perceive foreign investors.

Thus, providing a favorable investment climate in Ukraine remains a matter of strategic importance, implementation of which depends on the socio-economic development and acquisition performance in the global division of labor, the possibility of upgrading of the basis of the national economy. The legislation on this issue is quite complicated considering ongoing changes and amendments. Still, «APC» provides a professional support for foreign investors willing to enter Ukrainian market. Our law firm services include concomitance of investment projects and representation of investors in the relations with other parties, including state authorities.

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