Foreign investments in Ukraine (brief)

Foreign investments in Ukraine. This is very important issue for Ukraine as far as from one hand Ukraine needs a lot of investments in order to develop its economy up to the level of progressive European and World countries, i.e. to be successful in the process of World and European integration, and from the other hand it is rather good place for investments, as far as Ukraine has rather weak domestic competitive environment for most types of business, which is the good benefit for any investor, but has rather developed infrastructure (automobile roads, railways, airports, good communications, well-developed financial and banking sector), good availability of resources, premises, land areas and of course well qualified personnel.

From the legal point of view there are three main possibilities to invest into Ukraine:

- using separate contracts of investment nature;

- using separate contracts for cooperation, collaboration and join activities with Ukrainian companies;

- founding a corporate entity in Ukraine and investing money into this company (which is solely owned by the foreign investor or owned together with a Ukrainian investor or performer or other friendly Ukrainian corporate entity or natural person).

As it was shown by our experience, the best way to invest in Ukraine is to have full and continuous supervision of whole investment process. In past years here in Ukraine we had a lot of negative experience of foreign investments, when the foreign investors have lost their money due to some mistakes initially made through the investment process mainly trusting too much into Ukrainian partners.

Therefore we do not recommend investing into Ukraine using uncontrolled and unsupervised forms of investments. The main principle of investing in Ukraine is to keep continuous supervision and control of the investment, but not giving these responsibilities to your Ukrainian partners. In most cases it is impossible to honor this principle through cooperation with either Ukrainian entity. Therefore in order to make a secure investment into Ukraine one can invest into certain property in Ukraine (land, premises, intellectual property, etc.) or to establish a company on the territory of Ukraine in order to invest into certain business process. Any way in order to do this in the right and secure way such investor should have good support from a reliable Ukrainian law firm. From one hand any investment activity requires good legal coverage and from the other hand it is always wise to have certain local specialist, who can help evaluate the investment proposal itself and to provide actual evaluation of the investment object (as far as price of the proposed property, services, etc. can be significantly higher then the reasonable price of the same for local customers and investors).

The Law of Ukraine "On the Regime of Foreign Investments" effective as of April 25, 1996, specially covers foreign investments into Ukraine and Ukrainian economy. Earlier the above law together with other Ukrainian regulations has provided foreign investors with special tax preferences, but later on the law was amended as far as such preferences were discriminative in relation to the Ukrainian corporate entities and private persons. So now the only preference for foreign investors is the possibility to make investment into the authorized capital of an existing or new Ukrainian corporate entity in form of certain industrial equipment or other property (i.e. import such property into Ukraine) without paying any import taxes and duties (VAT, customs duty, etc.). Therewith there are also established limitations for disposal of such property in Ukraine (i.e. if the property will be sold in Ukraine within 3 years starting from the moment of importing the same into Ukraine, the VAT and customs duties related to import of the same into Ukraine are to be paid by such investor in full). However in order to use such benefit the foreign investor has to register his investment at Ukrainian authorities (such registration is not free and requires paying certain state duties).

The Law of Ukraine "On the Regime of Foreign Investments" provides various methods of making foreign investments, which need corresponding agreements. Therefore there are different types of investment agreements, namely:

- agreements on establishment of corporate entities;

- agreements on joint investment activity;

- acquisition contracts.

The above Law provides that the foreign investments can be made in the form of ownership interest of foreign investors in entities, which are being established jointly with Ukrainian corporate entities and natural persons, or acquisition of shares of existing corporate entities, as well as in the form of establishment of corporate entities wholly owned by the foreign investor, subsidiaries and branches of foreign legal entities or full acquisition of existing entities.

Contracts for acquisition of the real estate including buildings, apartments, premises and other real property by direct acquisition of property and proprietary complexes or in the form of stocks, bonds and other securities refer to the investment contract as well.

Foreign investments also can be made in the form of the acquisition of the rights to use land and/or concessions for use of the natural resources within the territory of Ukraine by foreign investors, independently or jointly with Ukrainian corporate entities or natural persons.

The Law also provides possibility of assignment of rights as concerning the mining and development of the renewable and nonrenewable natural resources, carrying out economic activity connected with use of the state owned items, which cannot be given to the entities, institutions, organizations into the complete ownership or operational management, on the grounds of concession contracts drawn up with the foreign investors by the Cabinet of Ministers of Ukraine or other state body authorized to act so in accordance with Ukrainian legislation. Validity of the concession contract is determined depending on the type and conditions of concession, but anyway cannot exceed 99 years.

If concession contracts include conditions, which are not stipulated by the legislation of Ukraine, then they are to be approved by Ukrainian Parliament (Verkhovna Rada Ukrayiny).

Foreign investors as well have the right to enter into agreements (contracts) on joint investment activities (production cooperation, joint production, etc.), which is not connected with establishment of a corporate entity. Parties of such agreements (contracts) should keep separate accounting and draw up reports on operations connected with fulfillment of the terms and conditions of these agreements as well as open separate accounts in bank institutions of Ukraine in order to effect payments under these agreements (contracts).

Profits collected in the result the investment activity on the territory of Ukraine are taxed in accordance with Ukrainian laws. Also should be noticed that Ukraine has rather big network of double tax treaties with numerous countries of the World.

The above information is provided herein in educational and informative purposes only. It is provided that you have to get appropriate legal advice as regarding the legal and other issues of your interest in Ukraine in order to have the exact, extensive and up-to-date legal and other related information.

Do not hesitate to contact us if you have any questions or issues of legal nature, our Law Firm is working for you and our experienced legal specialists are always ready to help providing the client with appropriate legal consultations, legal reports and summaries, reasonable legal advices and all the other required legal support, assistance, coverage and protection.

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