Legal aspects of foreign investments in Ukraine


Legale aspects of foreign investments in Ukraine. From one hand foreign investors can be considered as foreign corporate entities or natural persons acting on the territory of Ukraine (regardless the purpose of such activities) and accordingly having the equal rights with Ukrainian corporate entities and natural persons and having the same protection of their rights and interests on the territory of Ukraine from Ukrainian state authorities as the Ukrainian corporate entities and natural persons (however with some additional formalities required).

From the other hand Ukraine has special legal regulations covering foreign investments, namely the Law of Ukraine "On the Regime of Foreign Investments" effective as of April 25, 1996, which 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 dispose 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). Therewith in order to use such benefit the foreign investor has to register his investment in Ukrainian authorities (such registration is not free and requires paying certain state duties).

Clause 2 of the Law of Ukraine "On the Regime of Foreign Investments" provides the following possible types of foreign investments in Ukraine:

- foreign currency, which is recognized by the National Bank of Ukraine to be the hard currency;

- currency of Ukraine – while reinvesting into the initial object of investment or into any other object of investment in accordance with laws of Ukraine on condition that the profit (income) tax has been duly paid in Ukraine from the reinvested amount;

- any movable and immovable assets and related to the same property rights;

- stocks, bonds, other securities and also corporate rights, which are appraised in the hard currency;

- monetary claims and rights to claim for the fulfillment of contractual obligations guaranteed by the first class banks and having value in the hard currency, confirmed in accordance with the laws (procedures) of the investor's country or international trade procedures;

- any kind of intellectual property and related rights including copyright, patents, trade marks (marks for goods and services), industrial samples, know-how, and others, which value has been expressed in the hard currency and confirmed in accordance with laws (procedures) of the investor's country or international trade procedures and by the expert's evaluation in Ukraine;

- rights to conduct business activities including the right of exploration and exploitation of natural resources granted according to the legislation or contracts, which value is confirmed in the hard currency according to the laws (procedures) of the investor's country or international trade procedures;

- other valuables in accordance with Ukrainian legislation in force.

Clause 3 of the Law of Ukraine "On the Regime of Foreign Investments" provides the following possible forms of foreign investments in Ukraine:

- partial participation in the authorized capital of corporate entities, which are being established jointly with Ukrainian corporate entities and natural persons, or acquisition of shares of the existing corporate entities;

- establishment of corporate entities completely owned by foreign investors, subsidiaries and branches of foreign corporate entities or full acquisition of the existing corporate entities;

- acquisition, which is not prohibited by the laws of Ukraine, of movable or immovable property (the real estate) including buildings, apartments, premises, equipment, transportation facilities and other property, by direct acquisition of the property and proprietary complexes or in the form of stocks, bonds and other securities;

- acquisition of the rights to use land and/or concessions for use of the natural resources on the territory of Ukraine by foreign investors, independently or jointly with Ukrainian corporate entities or natural persons;

- acquisition of other property rights;

- other types of investments, which are not prohibited by Ukrainian laws, including those based on agreements with agents of business activity in Ukraine without establishing a new corporate entity.

In other words, as it is also declared in clause 4 of the Law of Ukraine "On the Regime of Foreign Investments", foreign investors can invest into any objects, which aren't prohibited by Ukrainian laws.

Clause 5 of the Law of Ukraine "On the Regime of Foreign Investments" provides rules for evaluation of foreign investments in Ukraine. Namely it provides that the foreign investments and the investments of Ukrainian partners, including contributions to the authorized capital of the corporate entity, shall be appraised in the hard foreign currency and in Ukrainian currency as well according to the understanding reached by the parties, on the basis of prices at the international markets or at the market of Ukraine.

Foreign currency for investment shall be converted into the currency of Ukraine at the official rate set by the National Bank of Ukraine.

The profits, income, and other funds, received in the currency of Ukraine as the result of foreign investments, and which are being reinvested, shall be converted according to the official rate of the National Bank of Ukraine at the date of actual reinvestment.

As it was mentioned earlier above, the Law of Ukraine "On the Regime of Foreign Investments" provides some tax and duty exemptions for the foreign investors as well as some guarantees for the foreign investments. Therewith such exemptions and guaranties are provided only for investments, which were duly registered in Ukraine.

Clause 13 of the Law of Ukraine "On the Regime of Foreign Investments" provides that the state registration of foreign investments shall be made by the Government of the Autonomous Republic of Crimea, regional, Kyiv and Sevastopol City State Administrations within 3 working days after their actual contribution according to the procedure determined by the Cabinet of Ministers of Ukraine.

Clause 18 of the Law of Ukraine "On the Regime of Foreign Investments" provides that the property imported to Ukraine as contribution of the foreign investor to the authorized capital of a corporate entity with foreign investment (except for the goods for sale or personal consumption) shall be exempt from the customs duty.

Customs bodies shall permit entry of such property onto the territory of Ukraine on the grounds of a promissory note issued by such corporate entity for the amount of duty with a postponement of payment for a period of no more than 30 calendar days from the date of issue of the import customs declaration.

The note is redeemed and import duty is not imposed if within the postponed period of payment aforementioned property is included to the balance sheet of the corporate entity and tax inspection at the place of the registration of the corporate entity have made appropriate mark about this at the note.

Procedure of issuing, discounting and redeeming the promissory notes is determined by the Cabinet of Ministers of Ukraine.

If during three-year period from the moment of inclusion of the foreign investment into the balance sheet of the corporate entity with foreign the investments are alienated in any manner (except for the cases of redemption of the foreign investment abroad), the corporate entity with foreign investments is to pay the import duty calculated on the grounds of the customs value of the property converted into the national currency of Ukraine using the official exchange rate set by the National Bank of Ukraine at the day of alienation of such property.

Clause 19 of the Law of Ukraine "On the Regime of Foreign Investments" provides that the corporate entity with foreign investments solely determines terms and conditions of selling its production (works, services), including price of the same unless other rule is stipulated by Ukrainian legislation in force.

Production of corporate entities with foreign investments is not subject for licensing and quotation on the condition that such production was certified as the production manufactured by such corporate entity in accordance with procedure defined by the Cabinet of Ministers of Ukraine.

Clause 20 the Law of Ukraine "On the Regime of Foreign Investments" provides that the corporate entities with foreign investments are taxed in accordance with Ukrainian legislation in force. 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. Also should be noticed that Ukraine has rather big network of double tax treaties with numerous countries of the World.

Clause 21 of the Law of Ukraine "On the Regime of Foreign Investments" provides that protection and execution of rights of the intellectual property by the corporate entities with foreign investments are secured according to the Ukrainian legislation in force. Corporate entities with foreign investments solely and independently make decisions on foreign patenting (registration) of the inventions, industrial samples, trademarks and other intellectual property objects, which belong to them in accordance with Ukrainian legislation in force.

Investment relations implemented on the grounds of contract of the investment nature are regulated by the V section of the Law of Ukraine "On the Regime of Foreign Investments", namely by clauses 22 to 24 of the same.

Thus, clause 22 of the Law of Ukraine "On the Regime of Foreign Investments" provides that assignment of rights to the foreign investors as to mining and development of the renewable and nonrenewable natural resources, carrying out economic activity connected with use of the state owned items or municipal items can be made on the grounds of concession contracts (agreements).

Clause 23 of the Law of Ukraine "On the Regime of Foreign Investments" provides that the foreign investors have the right to make agreements (contracts) for the joint investment activity (production cooperation, joint production, etc.), which are not connected with establishment of a corporate entity in Ukraine.

Clause 24 of the Law of Ukraine "On the Regime of Foreign Investments" provides that the parties of such agreements (contracts) should keep separate accounting and draw up reports on operations connected with fulfillment of terms and conditions of such agreements (contracts) as well as open separate accounts in bank institutions of Ukraine in order to effect payments under these agreements (contracts).

Such contracts (agreements) of the investment nature are to be duly registered in accordance with Ukrainian legislation in force.

Property (except for goods for sale or consumption by such corporate entity), which was imported to Ukraine by the foreign investor with purpose of investment for not less than 3 years under the registered agreement (contract) is exempted from customs duty according to the procedure stipulated by clause 18 of this Law.

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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