New investment law in Ukraine

Background

On 17 December 2020 the Ukrainian Parliament adopted the draft law No. 3760 On State Support for Investment Projects with Significant Investments in Ukraine (the “Law”), which entered into force on 13 February 2021.[1]

The Law is part of a package of draft laws seeking to incentivise high-value foreign investment.[2]   This investment promotion strategy is looking to secure around USD 7.7 billion in foreign investment starting this year.[3]

 

The Law

Investments qualifying for state support under the Law will be able to obtain benefits of up to 30% of the expected investment amount in relation to: (i) tax benefits and exemptions; (ii) land benefits in relation to state/public owned land; and (iii) from January 2022, construction expenses in relation to infrastructure necessary for implementation of an investment project.[4]

In order to qualify for state support under the Law, investments are required to: (i) generate at least 80 new workplaces annually (with remuneration in excess of at least 15% of the average salary in the specific area); (ii) entail an investment of at least EUR 20 million; (iii) be implemented within a period of 5 years; and (iv) be established through a Ukrainian special purpose vehicle.[5]

Among the industry sectors that will benefit from the Law are the processing industry (with exception of tobacco and alcohol product manufacturing), extraction of mineral resources for processing and refining (excluding hard coal and brown coal, crude oil and natural gas) waste management and transportation.[6]

Public-private partnerships, concessions, investment projects under product-sharing agreements and privatisations will not be covered by the Law.[7]

Application for state support requires potential investors to enter into special investment contracts with the Cabinet of Ministers and the relevant municipal authorities by way of the respective Ukrainian special purpose vehicle (the “Special Investment Contract”).

The Law determines that investors are entitled to a dedicated state authority to provide assistance throughout the project.  This figure, dubbed the ‘investment nanny’, will assist potential investors in matters including the application for state support under the Law as well as investment project approval and the implementation pursuant to the agreed terms.[8]

The Special Investment Contract, the term of which may not exceed 15 years, will set the form of state support and the terms for the project’s implementation.[9]  Of special relevance to investors is the inclusion within Special Investment Contracts of dispute resolution and governing law provisions that will allow the contract to be governed by foreign law and be subject to international arbitration.  Further guarantees being provided to investors include stabilisation clauses, that will allow the Special Investment Contract to be governed by Ukrainian laws in effect at the date the of execution (with exception of the application of latter laws that improve the investor’s position)[10], and reimbursement of investors’ losses (save for loss of profits) arising from the state’s failure to procure a stable business environment.[11]

 

 

 

[1]              See Ukraine Invest, The President of Ukraine signed the Law on State Support of Investment Projects with Significant Investments, 10 February 2021 [Last accessed 11 March 2021], available here. See Ukraine Inform, Zelensky signs law on state support for Ukrainian and foreign investors, 11 February 2021 [Last accessed 11 March 2021], available here.

[2]             See Ukraine Invest, Package of draft laws on promoting the attraction of invesments via privatization is registered in the Verkhovna Rada [Last accessed 10 March 2021], available here.

[3]             See Bloomberg, Ukraine Eyes Investments as Virus Shakes Up Supply Chains, 5 February 2021 [Last accessed 10 March 2021], available here.

[4]             See Verkhovna Rada of Ukraine, Adopted the Law of Ukraine “On State Support for Investment Projects with Significant Investments”, 17 December 2020 [Last accessed 11 March 2021], available here (Google translation).  See Lexology, Ukraine to support significant investment projects, 1 March 2021 [Last accessed 11 March 2021], available here.

[5]             See Lexology, Ukraine to support significant investment projects, 1 March 2021 [Last accessed 11 March 2021], available here.

[6]             See Verkhovna Rada of Ukraine, Adopted the Law of Ukraine “On State Support for Investment Projects with Significant Investments”, 17 December 2020 [Last accessed 11 March 2021], available here (Google translation).  See Lexology, Ukraine to support significant investment projects, 1 March 2021 [Last accessed 11 March 2021], available here.

[7]              See Mondaq, “Investment Nanny” Law Adopted By Ukraine’s Parliament, 5 January 2021 [Last accessed 11 March 2021], available here.

[8]             See Forbes, Ukraine Announced It Will Have ‘Nannies’ For Foreign Investors. How Will They Work, 28 January 2020 [ Last accessed 10 March], available here. See Verkhovna Rada of Ukraine, Adopted the Law of Ukraine “On State Support for Investment Projects with Significant Investments”, 17 December 2020 [Last accessed 11 March 2021], available here.

[9]             See Verkhovna Rada of Ukraine, Adopted the Law of Ukraine “On State Support for Investment Projects with Significant Investments”, 17 December 2020 [Last accessed 11 March 2021], available here (Google translation).  See Lexology, Ukraine to support significant investment projects, 1 March 2021 [Last accessed 11 March 2021], available here.

[10]            See BlackIron, Black Iron Welcomes Ukraine’s New Investment Law, 11 February 2021 [Last accessed 10 March 2021], available here.

[11]             See Mondaq, “Investment Nanny” Law Adopted By Ukraine’s Parliament, 5 January 2021 [Last accessed 11 March 2021], available here. See Verkhovna Rada of Ukraine, Adopted the Law of Ukraine “On State Support for Investment Projects with Significant Investments”, 17 December 2020 [Last accessed 11 March 2021], available here (Google translation).