Foreign direct investments in Ukraine

An Expert's View about Business Environment in Ukraine

Last updated: 21 Feb 2011

General overview.


At present, Eastern Europe countries are one of the most attractive direct and portfolio investment destinations with exciting opportunities for business development and expansion. Among these countries Ukraine for sure is one of the leaders due to a number of reasons:
- Ukrainian soil is the richest in the world (great opportunities for agricultural business);
- Ukraine has very tender and agro-friendly climate (no tornado, tsunami, deserts, dangerous insects, natural disasters);
- Ukrainian workers are skilled and lower-paid comparing to highly developed countries;
- Ukrainian market is huge – around 50 million consumers;
- Ukraine has extensive well-developed infrastructure (transportation, communication, hotels, etc);
- Ukraine is a net exporter of electricity (entrepreneur may save a lot on electricity though);
- Ukraine enjoys great discount on gas from Russia (gas price in Ukraine is much lower than in the EU);
- Ukraine enjoys very favourable location (between Europe and Asia, North and South Europe) and geographical proximity to the EU market;
- Ukrainian income and corporate taxes are the lowest in Europe (you can also switch to flat tax);
- Ukrainian environmental protection laws are very liberal comparing to highly developed countries;
- Ukrainian economy is steadily growing up to 6% from year-to-year;
- It is expected that Ukraine will join the WTO at the beginning of 2008.

When President Yushchenko took office in January 2005, he made improving the investment climate one of his top economic policy goals. This led to a number of new government initiatives, such as creation a State agency for investment and innovation and a number of investor councils chaired by the President. Over the past few years, Ukraine has liberalized its markets, reduced regulation, eliminated most licensing requirements, eliminated most restrictions on foreign exchange and begun the transformation of the agricultural sector from state-run farms to private agriculture. After years of hyperinflation and plummeting currency values, the national currency, the hryvnia, has been stable against the U.S. dollar for over four years.

Investment legislation
Ukrainian legislation provides that (with some few exceptions), foreign investors are authorized to carry out their investment activity in Ukraine on the same basis as Ukrainian domestic investors (national treatment).
Ukraine has modern and up-to-date investment legislation in line with international standards (Ukraine ratified and transposed the WTO Agreement on Trade-Related Investment Measures (TRIMs), Convention On The Settlement Of Investment Disputes Between States And Nationals Of Other States (Washington, 1965) and International Centre for the Settlement of Investment Disputes agreement (Seoul, 1966).
All foreign investors are entitled to the following guarantees provided that their investments have been duly registered with the appropriate local state authorities (national treatment to all investors, 10-year protection against legislation change, ban to nationalize, confiscate or seize investment by governmental authorities, reimbursement of all damages caused to investor, a right to wind up your business and repatriate profits, etc).
As of 1 July 1997, all enterprises with foreign investment are taxed on their profits at a par with other Ukrainian domestic enterprises. However, certain residual benefits remain, including state guarantees for foreign investments. In addition, current Ukrainian legislation provides for the establishment of free economic zones. The legal status of foreign investments into such zones is regulated by separate legislation on free economic zones, under which foreign investors may be granted additional privileges and benefits.
Pursuant to the applicable Ukrainian legislation, certain types of business activity may be pursued only by state-owned enterprises (e.g. production of ammunition, banknotes, blank forms of securities in certificated form, etc).
The second category relates to certain restrictions applicable only to foreign investors. Principally, such restrictions represent legally established thresholds of the maximum permissible percentage of foreign investments in the charter funds of Ukrainian enterprises doing business in certain industries. Currently restrictions apply to broadcasting (radio and TV), and publishing. Certain indirect limitations apply to banking and auditing activities. In addition, foreign citizens and legal entities are prohibited from owning agricultural land in Ukraine, and are authorized to own only land designated for non-agricultural use.

Investment Registration Procedure
The foreign investment should be registered with the regional (oblast) state administration, the state administration of the Cities of Kyiv or Sevastopol, or the government of the Autonomous Republic of Crimea. In order to have a foreign investment registered, an investor or its authorized representative is required to submit to the following documents to the relevant registration body: an informational notification of the foreign investment confirmed by the local state tax administration; documents certifying the form of the foreign investment (e.g. copies of the constituent documents of the Ukrainian company or a copy of a joint activity agreement); documents evidencing the value of the foreign investment; and documents evidencing the payment of the state registration fee.

Dispute Resolution
In the event of a dispute arising with respect to a foreign investment, a foreign investor may seek recourse through a number of institutions. As a general matter, the Foreign Investment Law provides that a dispute arising between a foreign investor and the state of Ukraine must be settled in the Ukrainian courts, unless otherwise provided by international treaties, while all other disputes involving a foreign investor must be settled in the Ukrainian courts or in courts of arbitration (including international arbitration courts).

Marketplace UkrRos LLC – www.kpl.net.ua


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Posted: 19 February 2011, last updated 21 February 2011

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