Ukraine introduces state support for large investment projects

Ukraine

On 17 December 2020, the Ukrainian Parliament adopted the draft law No. 3760 On State Support for Investment Projects with Large Investments in Ukraine (the “Law”).  The Law was submitted to the Parliament and adopted as part of the overall investment promotion agenda of the President of Ukraine.

Our previous analysis can be found here on the underlying draft law as it stood in July 2020 when it was passed in the first reading.

Forms of state support

As with the draft Law described in our previous Law-Now article, the newly passed Law sets out that state support can take the form of the following:

  • tax benefits (e.g. tax exemptions);
  • land benefits in relation to state- or municipally-owned land (e.g. special rates of rental fees); and
  • construction at the expense of state or municipal budgets of infrastructure necessary for implementation of an investment project (the latter will only be available starting from 1 January 2022).

The amount of state support is capped at 30% of the expected investment amount.

Eligibility

According to the Law's key criteria, to be eligible for state support an investment project should:

  • be proposed for implementation in the areas of processing industry (except for manufacturing of tobacco and alcohol products), extraction of mineral resources for processing and refining (except for hard coal and brown coal, crude oil and natural gas), waste management, transportation, warehousing facilities, postal and courier services, logistics, education, healthcare, arts, culture, sports and tourism;
  • generate at least 80 new workplaces annually, with the average remuneration for employees being at least 15% higher than the average remuneration for employees working at the same location or area by reference to the previous calendar year;
  • envisage at least EUR 20 million in new investments; and
  • be implemented within five years.

The state support envisaged by the Law should be available to both foreign and domestic investors, and investors will need to establish Ukrainian special-purpose vehicles to implement projects.

At the same time, the following projects are not eligible for state support under the Law:

  • state-private partnership and concession projects;
  • investment projects with product-sharing agreements; and
  • privatisations of state- or municipally-owned property.

Special investment contract

As with the draft Law described in our previous Law-Now article, the newly passed Law states that potential investors will need to formally apply for state support for their projects by submitting relevant documentation.  Such documentation includes a draft of the special investment contract to be entered into with the Cabinet of Ministers and the relevant municipal authorities, which should specify the form(s) of state support and the terms for the project's implementation.  A special investment contract can be governed by foreign law and subject to foreign arbitration.

‘Investment nanny’

The Law states that investors will be entitled to a dedicated state authority (a so-called ‘investment nanny’) to be appointed to support investors at all stages of the project.  This dedicated authority will be responsible for aiding investors in applying for state support under the Law, having the project approved by the relevant state authorities and helping with its successful implementation pursuant to the agreed terms. The assistance of an ‘investment nanny’ can take the form of cooperation with relevant state or local authorities on behalf of an investor, assisting with the preparation or completion of all necessary documentation for approval of the project, information support, etc.

Additional guarantees

Lastly, the Law establishes the state’s guarantee for stable terms of the project’s implementation and sets out, in particular, that investor rights and obligations under the special investment contract should be subject to the laws of Ukraine effective at the time of execution of such investment contract (except for any changes improving the investor’s position, which will (if enacted) apply to the investor).

The Law will enter into force on the day of its promulgation.

For more information on the Law, contact your local CMS advisor or local CMS experts: Tetyana Dovgan, Graham Conlon, Maria Orlyk.

Legislation: the Law of UkraineOn State Support for Investment Projects with Large Investments in Ukraine