On 10 February 2020, the President of Ukraine signed the Law of Ukraine "On State Support of Investment Projects with Significant Investments in Ukraine" ("Law").
The Law should enter into force on the day after its official publication. Certain aspects of state support in the form of tax and customs incentives would be introduced by amendments to the Tax Code of Ukraine and the Customs Code of Ukraine. The Parliament of Ukraine has already adopted relevant bills (No. 3761 and No. 3762) in the first reading.
The final text of the Law and the mentioned bills have not been published yet. Thus, this legal alert is based on the latest texts of the bills available.
Key takeaways
According to the Law, state support would be provided to projects with investments exceeding EUR 20 million. To receive state support, investment projects, as well as investors and applicants, should meet a list of criteria, in particular regarding the industry of the project's implementation.
The total amount of state support would not exceed 30% of the amount of investments in the project.
In addition, the Law envisages guarantees for investors that will implement investment projects with significant investments.
In more detail
The key highlights of the Law are as follows:
1. Eligibility requirements for receiving state support
Requirements applicable to investment projects
- The amount of investment in the project exceeds the UAH equivalent of EUR 20 million.
- The project should be implemented in the territory of Ukraine and in the industries specifically prescribed by the Law (in particular, healthcare, transport, sports, waste management, extraction for the processing and/or enrichment of minerals (except for coal and lignite, crude oil and natural gas), etc.).
- State support would not be granted to investment projects that meet the criteria of a public-private partnership, or are implemented according to production sharing agreements or in the course of privatization of state and municipal property.
- The project should provide for construction, modernization, technical and/or technological re-equipment of investment objects, and the purchase of necessary equipment.
- The project implementation process must ensure the creation of at least 80 jobs with an average salary at least 15% higher than the average salary in the relevant industry in the region for the previous calendar year.
- The project implementation period should not exceed five years.
Requirements applicable to investors and applicants
- Investor: a legal entity incorporated in Ukraine, whose activities are performed exclusively for the purpose of implementing the investment project and:
- which is 100% controlled by the applicant
- change-of-control relations are carried out with prior approval by the Cabinet of Ministers of Ukraine
- Applicant: a legal entity incorporated in Ukraine or in a foreign country; the following entities are not allowed to be applicants:
- state, municipal enterprises, institutions, organizations or business entities, in which more than 50% of the shares (interest) in the authorized capital belong to a state or other such entity
- non-profit enterprises, institutions and organizations
- legal entities, information on the ultimate beneficial owners of which is not disclosed in violation of the law
- legal entities registered in the jurisdictions listed by the Cabinet of Ministers of Ukraine as offshore jurisdictions, or legal entities in which more than 50% of shares (interest) in the authorized capital directly or indirectly belong to such legal entities
- legal entities registered in the aggressor state or having beneficial owners of shares (stakes) that are residents of the aggressor state
- legal entities blacklisted by the Financial Action Task Force, as well as legal entities in which 10% or more of the authorized capital directly or indirectly belongs to such entities
- legal entities subject to sanctions in accordance with the legislation of Ukraine or international law, as well as their affiliated entities.
- Forms of state support
- Exemption from customs duties
- Until 1 January 2035, there would be an exemption from import duties for equipment imported by the investor to perform obligations under a special investment agreement.
- The exemption would apply provided that the relevant equipment (1) was manufactured no earlier than three years before its import and (2) was not in use before.
- In the case of alienation of such equipment earlier than five years from the date of its recognition on the balance sheet or in the case of early termination of the special investment agreement, the import duty would be paid on general grounds.
- Such an exemption does not apply to equipment imported from the Russian Federation or temporarily occupied territories of Ukraine.
- Tax benefits (exemption from certain taxes and fees)
- Until 1 January 2035, the equipment that is exempt from customs duties would also be exempt from value added tax (VAT) (on the same terms).
- It is also expected that, until 1 January 2035, the investor's income received as a result of the implementation of a special investment agreement would be exempt from corporate income tax for five years after applying for such benefits, but not before the object constructed within the framework of the investment project begins to function (the period for the application of such exemption may not exceed the term of the special investment agreement). However, the profits of the investor determined under transfer pricing and controlled foreign companies (CFC) rules may be subject to tax.
- The investor would not be eligible for these benefits in the case of early termination of the special investment agreement due to the non-fulfillment of obligations regarding the amount of investments and project implementation period (except for cases regarding the non-fulfillment of state support obligations by the state or force majeure).
- Granting the right to use the land for the implementation of the investment project on special terms; it is expected that until, 1 January 2035, local governments would be able to:
- set land tax rates and rent for state-owned or municipal-owned land in an amount less than the one prescribed in the decision of the relevant local government for a certain category of land in the relevant territory
- exempt investors from paying land tax
- Providing transport and utilities infrastructure (highways, communication lines, heat, gas, water and electricity supply, utilities, etc.) by building such infrastructure at the expense of the state (starting from 1 January 2022)
- Separately, the state also undertakes to help the investor connect to heat, gas, water and electricity supply systems, utility supply lines, etc.
- Amount of state support
The total amount of state support should not exceed 30% of the amount of investments in the project.
4. Procedure for receiving state support
The following procedure has been set out in relation to receiving state support:
- preparing the application, draft special investment agreement and other related documents and submitting them to the authorized authority
- evaluating an investment project with significant investments
- obtaining a decision on the feasibility of implementation of the investment project with significant investments
- concluding a special investment agreement
- Guarantees
- The following guarantees have been provided:
- stability of conditions for the performance of commercial activities during the implementation of investment projects with significant investments
- the rights and obligations of an investor, as set forth under a special investment agreement, are governed by the legislation of Ukraine as of the date on which the special investment agreement is concluded
compensation for losses caused to the investor as a result of decisions made by state bodies or local governments in violation of the investor's rights
