UKRAINE WELCOMES BIG INVESTORS

11/02/2021

 

Ukraine has recently made a new step towards the attraction of big foreign investments. Yesterday, President Zelenskyi signed a new law "On State Support for Investment Projects with Significant Investments" (the "Law") which introduces state support to large investors who are ready to invest over EUR 20 million in the following sectors:

• processing industry (except for alcohol and tobacco products);
• extraction of mineral resources for further processing (except coal, oil and gas);
• waste management;
• transport;
• warehousing;
• postal and courier services;
• logistics;
• education;
• healthcare;
• arts and culture;
• sports;
• tourism, resort, and recreation.

Under the law, foreign and domestic investors intending to develop certain significant investment projects in Ukraine may now apply for special state support. The support will be provided on the basis of a special agreement executed between the state of Ukraine, represented by the Cabinet of Ministers, and the investor, a legal entity incorporated under the laws of Ukraine specifically for the implementation of the significant investment project (the "Investor").

Who may apply for state support?

Foreign or domestic investor, planning to invest more than EUR 20 million into any of the abovementioned sectors, may apply for state support if the investment project meets the following criteria:

• the project contemplates for the construction, modernization, or re-equipment of the property in the mentioned sectors;
• the implementation term of the project shall not exceed 5 years;
• the project shall create not less than 80 new jobs with average salaries of at least 15% above the regular regional salary for equivalent jobs.

What kind of support State can offer to eligible Investors?

Under the Law, eligible Investors may gain indirect financial support from the State in the amount of up to 30% of the planned investment either through tax benefits or through financing construction of outside infrastructure. In particular, state assistance may include:

• exemption from individual taxes;
• exemption from import duties for new equipment;
• pre-emptive right to lease and acquire state or municipal land required for the implementation of the investment project;
• construction of infrastructure required for the implementation of the investment project at the expense of the state or municipal budget (except for the iron-ore dressing sector), which will be available from 1 January 2022;
• assistance with connection to supply networks, if required.

Additionally, the State will assign a so-called "investment nanny" (state body) to support the Investor during the preparation and implementation of the investment project.

Other "investment-friendly" clauses

The investment agreement may, inter alia, include the following clauses:

• stabilization clause which will provide the Investor with a guarantee that its rights and obligations will be in any case governed by the Ukrainian law effective on the date of agreement execution; and
• reimbursement clause which will allow the Investor to claim damages from the State if the court or arbitration tribunal establishes that the latter failed to ensure the stability of the business environment for the Investor.

The Investor will also be free to choose the governing law (Ukrainian or foreign) of the investment agreement as well as the dispute resolution mechanism (Ukrainian courts, mediation, non-binding expert conclusions, commercial or investment arbitrage, including foreign arbitrage, when the Investor has at least 10% of its shares owned by a foreign person or legal entity).

Exemptions

Notably, the Law does not apply to privatizations, PPP, and concession projects, as well as to projects, implemented under a production sharing agreement.

Entry into force

The Law will enter into force the next day after its official publication.

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This document provides general information on the subject and does not constitute a legal opinion or recommendation. Consulting a specialist is recommended before taking an action. No claim arising from the content of or relating to this document can be asserted against NAZALI.