Investment legislation of Ukraine

1. General assessment of the investment climate in Ukraine (regions, sectors, risks).

Priority sectors for investment activity in Ukraine include:

Mechanical engineering; food industry; ferrous and nonferrous metallurgy; light industry; chemical industry; production of construction materials. These sectors are developed mainly in eastern and southern regions. A higher rate of investments flow into agriculture (central and western regions) and construction (central region). The main risks are connected with political instability which could result in a change of legal regulation.

2. Legal regulation of investment activity.

Investment activity in Ukraine is regulated by internal legal regulatory acts and international agreements intended on encouragement and reciprocal protection of investments (signing over 50 agreements of this kind with other countries).

An investment includes all kinds of property (including intellectual property) invested in business facilities and other kinds of activity intended on making a profit (revenue) and achieving a social impact. Investment activity is a set of practical actions of citizens, legal persons, and the state regarding the conduct of investing.

Foreign investors in Ukraine must follow established national rules of investing or other entrepreneurial activities. That is, conditions are not less favorable than for a domestic legal person. Investors must be governed by the legislation of Ukraine and not by the laws of countries of their origin. For some businesses that conduct investment projects and other economic activities with the assistance of foreign investments, there may be preferential treatment.

3. Procedures and forms of investment.

According to article 4 of the Law “on investment activity,” objects of investment activity can comprise of any property (including fixed assets and working capital in all industries and sectors of the economy), securities, trust funds, scientific and technical products, intellectual properties, other property, and property rights.

Investments in securities can be made by purchasing shares of public and/or private joint-stock companies, corporate bonds, municipal bonds, government securities of Ukraine, mortgage certificates, mortgage bonds, certificates of real estate funds, promissory notes, investment certificates etc.

Public Joint-Stock Companies’ shares can be freely disposed of and listed on the stock exchange. Private Joint-Stock Companies’ shares can be assigned to third persons provided that there is no demand on the part of shareholders. Purchase of stock in a Limited Liability Company, notably the most common business form, and in a Double Liability Company can be purchased provided that other participants do not exercise their preemption rights. Unless otherwise provided by articles of association, it is possible to dispose of the shares of a Private Joint-Stock and Limited Liability Company by other ways as opposed to selling. Assignment of a share in a Full Liability Company or Special Partnership can be conducted if approved by all participants thereof.

A company with a foreign investment of not less than 10 per cent shall be recognized as a company with foreign investments. A company shall acquire a status of a foreign investments’ company upon admission of foreign investments on the balance sheet. Property imported into Ukraine as an authorized capital contribution to a company with foreign investments is exempted from customs duty. Production of companies with foreign investments shall not be subject to licensing and quotas provided that production certified as domestically manufactured.

A foreign company is an undertaking, established according to the legislation of Ukraine, acting solely on ownership of foreign legal or natural persons, or an operating undertaking, fully acquired into ownership of the aforementioned entities. Foreign companies cannot be established in the sectors, according to the legislation, of strategic importance to national security. Otherwise, the legal rules of a foreign company differ little from a company with foreign investments.

Foreign companies which provide foreign economic activity in Ukraine are entitled to establish their representative offices. A representative office is not a legal person; it is a duly authorized institution or person which represents the interests of a foreign economic entity in Ukraine, indicated in the representative office registration certificate.

Apart from being acquirers of companies, investors can act as creditors thereof. Investment loans can support capital investments and working capital.

Investing in and financing of housing projects’ construction can be conducted through:

• construction financing funds;
• real estate transactions’ funds;
• collective investment schemes;
• issuance of targeted bonds, a liability which is backed by the immovable property as collateral.

Investing in other kinds of property shall be conducted according to the general order.

According to article 22, paragraph 5 of the Land Code of Ukraine, agricultural land cannot be transferred into the ownership of foreign or stateless persons, foreign legal persons, and foreign states. Foreign citizens, foreign legal persons, and joint ventures are entitled to acquire ownership of non-agricultural land, and, moreover, to use both agricultural and non-agricultural land on the conditions of a lease contract. Sale of land, held by the state, to foreign states and foreign legal persons shall be conducted by the Cabinet of Ministers of Ukraine in coordination with the Parliament of Ukraine. Sale of land, owned by municipalities, to foreign states and foreign legal persons shall be conducted by the corresponding local councils in coordination with the Cabinet of Ministers of Ukraine.

4. Investments’ protection.

According to article 19 of the Law of Ukraine on Investment Activity, Ukraine guaranties protection of investments regardless of their ownership, including foreign investments. Investors, including foreign investors, shall be provided equal treatment which eliminates the use of discriminatory measures which could preclude investments’ management, their use and liquidation, and, moreover, shall be provided with conditions and procedure to withdraw invested assets and investments’ profits.

Investments cannot be nationalized and seized without payment, or they cannot be subject to measures similar in consequences. In the case of termination of investment activity, an investor shall be entitled to withdraw its investment payment in kind or in the currency of investment no later than 6 months from the moment of termination of the investment activity without payment of a due, and, moreover, to withdraw profits from such an investment, according to the actual price. After payment of taxes, foreign investors are guaranteed to freely and immediately transfer profits abroad in foreign currency, which are legally received as a result of investment activity.

Judicial protection shall be conducted in:

• national courts (Ukrainian as a rule);
• the European Court of Human Rights;
• International center for settlement of investment disputes;
• arbitration institutions (including ad-hoc arbitration).

5. Establishment of an investment account in the national or a foreign currency.

In order to establish an investment account, it is required to submit the following documents:

• an application on establishment of a current account, which must indicate that the account is being established for the purpose of investments in Ukraine;
• a copy of legalized or certified, by adherence of an Apostille, extract from a commercial, bank or court register, or notarized certificate on registration of a legal person, issued by the local authorities of foreign state registration of a legal entity. A foreign investor – natural person is not required to submit such a document;
• a copy of legalized or certified, by adherence of an Apostille, notarized power of attorney in the name of a person who is entitled to establish and manage the account. If such a power of attorney is issued by the foreign investor in Ukraine, a notarized copy of this power of attorney shall be submitted. If the account is being established personally by a foreign investor, such a document is not required;
• a notarized card with a non-resident - investor’s signature.

Additionally, a document shall be submitted certifying registration of a non-resident – investor at the State Tax Service, certified by the issuing authority, a notary or by the signature of an authorized officer of the bank if the non-resident investor is a participant of a production sharing agreement according the Law of Ukraine on Production Distribution Agreements. Persons which establish accounts are required to present a passport, or document which substitutes it, and a document which confirms their authorities.