On 28 March 2021 the package of tax benefit laws for major investment projects ("Projects") entered into force.
In general, state support of Projects is regulated by Law of Ukraine "On State Support for Investment Projects with Significant Investments" No. 1116-IX, dated 17 December 2020 ("Law"), which became effective on 13 February 2021.
Besides the tax benefits, state support also includes granting rights to use state and municipal land plots and/or construction of related infrastructure facilities by the state or municipality.
State support will be granted for Projects, which satisfy the following conditions:
- Projects must be implemented in the specified industries (processing, mining (except for coal, oil, and natural gas), infrastructure, logistics, education, tourism, healthcare, arts, etc.)
- Projects must envisage construction, modernisation, or technical (technological) re-equipment
- in the process of Project implementation, at least 80 jobs must be created with an average salary at least 15% higher than that of the relevant industry
- the amount of capital investment per Project may not be less than EUR20 million
- Project implementation period may not exceed five years
- Projects should be implemented through a special purpose vehicle established in Ukraine and 100% owned by the investor ("SPV")
Tax benefits include:
- exemption from VAT and customs duty for the import of new equipment and parts
- 5-year exemption from CIT for the income received as a result of Project implementation
- exemption from land tax (or reduced rate) for the land plots used in Project by the decision of local authorities
The investor can take advantage of tax benefits until 1 January 2035.
The amount of state support (including tax benefits) may not exceed 30% of the overall amount of investments in Projects. The Law also establishes a special institution that will support the implementation of Projects (a so-called "investment nanny").
State support will be granted based on a special investment contract ("Contract"). Contract must determine the terms of Project implementation and must be concluded between the Cabinet of Ministers of Ukraine (or a local authority), SPV, and the investor. The parties may choose the governing law of Contract and the dispute resolution venue. In case of non-fulfillment or improper fulfillment of Contract by the investor or SPV, the Cabinet of Ministers may unilaterally terminate it. In this case, the investor must reimburse the whole amount of the provided state support, including unpaid taxes.
The state support will be granted to Projects starting from 1 January 2022.
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.