There are vast possibilities that can be used by businessmen investing in Ukraine. Our country is famous for its natural resources, such as mineral deposits and other sources of energy. The mild climate and fertile soils makes Ukraine attractive for agriculture production. Its geographical position allows international trading with the majority of countries of the world.

Unfortunately, Ukraine) like other countries originating from the former Soviet Union) is associated with corruption, bribery and other obstacles encountering investors on their way. Political and economic instability also has a negative influence on the investment attractiveness of Ukraine. At the same time) recent amendments to investment rules have shown that the Ukrainian legislator recognizes the need to adjust them to the real situation in order to improve the investment climate.

Therefore, despite the existing drawbacks and considering the abundance of the advantages for investments, Ukraine may be rather attractive for those foreign businesses wishing to invest in the Ukrainian economy.

Below is a short overview of the main aspects) which may be interesting for potential investors.

Foreign investment in Ukraine may be carried out in the following forms;

  • Partial or 100% participation in the establishment of Ukrainian companies or the purchase of shares in existing Ukrainian companies;
  • Direct or indirect purchase of movable and immovable property not prohibited by law;
  • Purchase of rights to use land or water independently or together with Ukrainian legal entities or individuals;
  • Purchase of other property rights;
  • Business activity based on production-sharing contract s;
  • Other forms not prohibited by law, including without establishment of companies on the basis of agreements with Ukrainian businesses.

The following assets may be used as objects of investments:

  • money, stocks, shares and other securities (excluding promissory notes);
  • movable and immovable property;
  • intellectual property rights;
  • know-how;
  • rights to use land, water, resources, buildings, equipment and other property rights, etc.

REGULATION OF INVESTMENTS

In addition to the laws of Ukraine common for all business irrespective of their status, there are a number of regulations which deal with the practical aspects of investing in Ukraine. Such regulations include:

  • On Investment Activity Act of Ukraine of 18 September 1991 - is a framework for all forms and types of investment activity and envisages all the main principles for can" ducting investment activity in Ukraine;
  • On Foreign Investment Regime Act of Ukraine of 19 March 1996 - establishes the general background for making investments in Ukraine from abroad, guarantees for investors and their rights, general provisions on registration of foreign investments;
  • On Foreign Investments Protection in Ukraine Act of Ukraine of 10 September 1991j
  • On Economic Competition Protection Act of Ukraine of 11 January 2001 - applied when specific thresholds are reached and there is a need to receive approval of the Antimonopoly Committee of Ukraine prior to the planned merger and acquisition or another transaction;
  • Decree of the Cabinet of Ministers of Ukraine Regulations on the Order of State Registration of Foreign Investments of 7 August 1996, No. 928 - established terms and rules for registration of foreign investments;
  • Decree of the Cabinet of Ministers of Ukraine On the Order of Issuance, Recording and Payment of Promissory Notes Issued at the Import into Ukraine of the Assets as Contributions to the Statutory Fund of the Company with Foreign Investments and under the Agreements (Contracts) of Joint Investment Activity, and also Payment of Customs Duty in case of Alienation of the said Assets of? August 1996 No.93?;
  • Order of the Board of the National Bank of Ukraine Regulation on the Order and Tenns for Trading of Foreign Currency of 1 0 August 2005 - sets the rules for purchase of foreign currency needed for the repatriation of proceeds or the initial investments.

PROTECTION OF INVESTMENTS

State guarantees for the foreign investments are provided in the On Foreign Investment Regime Act of Ukraine of 19 March 1996 and include:

  • National regime or in some cases the priority regime for investments;
  • Ten-year application of the guarantees in force at the moment of the investment being made (at the demand of the investor);
  • Protection from nationalization;
  • Compensation and reimbursement of losses caused by the activity of the State authorities of Ukraine;
  • Right of the foreign investor to repatriate investments within 6 months from the end of investment activity and without payment of custom duties;
  • Right for repatriation of investments made in Ukraine and the proceeds from investment activity.

In case of violation of investors rights envisaged by Ukrainian legislation and international treaties, the legal remedies include applying both to national courts and international arbitrations. After going through Ukrainian courts of all levels the investor may claim reimbursement of losses to the European Court of Human Rights. The court considers cases against the State of Ukraine when the actions of the Ukrainian authorities or the drawbacks in the legislation cause violation of investors rights.

There is a prerequisite that should be adhered to by the investor to be covered by state guarantees - the foreign investment needs to be registered with the respective authorities. Only registered investments may enjoy the guarantees provided by the state.

REGISTRATION OF INVESTMENTS

Registration of foreign investments is voluntary and, at the same time, it is crucial when material assets (property) are imported into Ukraine as a contribution to the Ukrainian joint venture due to certain tax advantages. Property imported into Ukraine as contribution by a foreign investor to the charter capital of a company with foreign investment (except for goods for sale or own consumption) is free from customs duty. Customs duty is not paid if the assets are included in the balance sheet of the company within 30 days and if they are not sold within 3 years from their import.

The authorities involved in the state registration of foreign investments in Ukraine include the State Tax Administration, which confirms that the investment has actually been made after checking of the documents. And the registration itself is made by the relevant state administration after confirmation by the tax authority. The fact of registration is confirmed by an information notice.

Changes have recent1y been introduced to the regulations on the state registration of foreign investments. These are related to certain technical details (e.g. the term for the registration) and do not make any crucial impact on the registration process in particular or the protection of investors' rights in general.

The positive effect of these changes is the fact that the legislator has recognized the need to regulate the procedure of the investments registration in case the initial investor transfers its contribution to another one (e.g. sale of corporate rights in a Ukrainian company from one foreign investor to another).

REPATRIATION OF PROCEEDS FROM INVESTMENT ACTIVITY IN UKRAINE

Ukrainian legislation envisages that in case of termination of investment activity, not later than six months the foreign investor is entitled to repatriate investments in-kind or in monetary form in the currency in which the investment has been made, without paying customs duty, unless otherwise envisaged by the law of Ukraine or international agreements to which Ukraine is a party.

Tax and currency exchange rules should be taken into account when planning payment of profits (dividends) or the return of investments from Ukraine.

Availability and positions of double taxation treaties between Ukraine and the country of the investor should be taken in account in order to find out whether the withholding tax would be levied at the dividends paid to the investor - a non-resident of Ukraine. At present Ukraine is a party to more than 60 double taxation treaties which could be used in order to optimize taxation of investment profits repatriation.

The following aspects should be considered in the purchase of foreign currency to be transferred abroad as the proceeds of investment activity in Ukraine or to be repatriated by the investor:

  • possible need to receive an individual-license of the National Bank of Ukraine
  • the way the investment has been transferred to Ukraine (direct1y or through investment accounts, the use of which is advisable);
  • whether the investment has been registered or not.

Investing in Ukraine requires a thorough review of legislation in force in order to comply with the antitrust, corporate, registration, license, tax, currency exchange legislation and other rules.

Considering certain limitations on foreign investors in Ukraine, namely impossibility for foreign investors or Ukrainian companies with 100% investments to own land in Ukraine, professional legal advice would be essential on the structuring of the transaction to ensure protection of investor rights.

Originally published in www.ukrainianlawfirms.com.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.