December 2020 – The Ukrainian parliament has recently adopted Law No. 3760 "On State Assistance to Investment Projects with the Significant Investments in Ukraine". The so-called "investment nanny" law shall become effective once it is signed by the President and published.
The law is aimed to stimulate large investments exceeding EUR 20 million into the following sectors:
- processing industry (except for the production and circulation of tobacco products, ethyl alcohol, cognac and fruit alcoholic beverages);
- extraction for further processing and / or enrichment of minerals (except coal and lignite, crude oil and natural gas);
- waste management;
- postal and courier activities;
- scientific and technical activities;
- tourism and resort and recreation.
Exclusion: The law does not apply to PPP (public-private partnerships) and concession projects, privatisations and projects implemented under a production sharing agreement.
State assistance to a qualifying investment project may amount to up to 30% of the planned investment value 1 and, subject to execution of the special investment agreement with the Cabinet of Ministers of Ukraine, may include:
- exemption from taxes (VAT, CIT) 2;
- exemption from import customs duty for equipment imported for the purposes of the investment project;
- the preemptive right to lease and buy-out state or municipal land required for the project without a land auction;
- construction of the infrastructure required for the implementation of the project (roads, communication lines, heat-, gas-, water- and electricity-supply networks, utilities, etc.) at the expense of the state or municipal budget;
- assistance connecting built objects to heat, gas, water and electricity supply networks, utilities, etc.;
- assignment of an "investment nanny", a state body appointed by the Cabinet of Ministers of Ukraine to support an investor in the preparation and implementation of an investment project.
Such state assistance will be provided starting from 1 January 2022.
Basis for state assistance:
State assistance is provided on the basis of a special investment agreement, which shall be concluded by the investor, its Ukrainian SPV, the Cabinet of Ministers of Ukraine and the relevant municipality. The term of such an agreement shall not exceed 15 years.
Who may apply for state assistance?
Foreign and/or Ukrainian entities planning to invest more than EUR 20 million into one of the above-mentioned sectors by means of construction, acquisition, modernisation, technical and/or technological re-equipment of fixed assets may apply for state assistance, provided that the investment project meets the following requirements:
- the implementation term shall not exceed 5 years;
- the project creates at least 80 new jobs with salaries exceeding the average salary in the relevant area in the region by at least 15%;
- the project shall be implemented by the Ukrainian SPV, the activity of which shall be limited to the implementation of the project.
To apply for state assistance and execution of the special investment agreement, investors must first develop a feasibility study of the project and confirm its compliance with the qualification requirements.
Among others, the law provides the following benefits and guarantees for large investors:
- Stability of law guarantees (grandfathering provisions) may be included into the special investment agreement, in which case the rights and obligations of the investor will be governed by the Ukrainian law effective on the date of its execution;
- Reimbursement of the investor's losses (except for the lost profit) is guaranteed, if the state's failure to procure the stability of the business environment for the investor is established by a court or arbitrage;
- The special investment agreement may be governed by the foreign law agreed by the parties. Otherwise, Ukrainian law applies by default;
- The parties of the special investment agreement are free to agree on the dispute resolution mechanism, such as Ukrainian courts, mediation, non-binding expert conclusions, commercial or investment arbitrage, including foreign arbitrage, when the investor is a foreign entity.
1. Methodology for the calculation of the amount of the state assistance should be approved by the Cabinet of Ministers of Ukraine within the next six months;
2. Exemption from VAT and CIT (corporate income tax) will become effective upon passing amendments to the tax code of Ukraine envisaged by the draft law No. 3761, submitted by the President of Ukraine and approved in the first reading on 3 September 2020.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.