Law on Foreign Investments

Ukrainian foreign investment legislation has changed frequently since Ukraine's independence in 1991. The current and the fourth of its kind in nearly eight years, the Law entitled "On Foreign Investment Regime” was adopted in 1996. It voided all previous foreign investment legislation but has already been amended several times since.

From a taxation viewpoint, the 1996 law removed the right of all foreign investments after 1996 to the previously applicable five-year tax exemption, when any company with a minimum of US $50,000 in registered "qualified foreign investment" was guaranteed tax privileges and was assured that the relevant regulations would not change for 10 years. Furthermore, the 1997 "Law on Company Profit Tax" cancelled the five-year tax exemption for all companies, thus equalizing the tax treatment of foreign and domestic investors. Meanwhile, Ukraine stated that it would seek to sign special agreements providing large foreign investors with tax and other privileges on a case-by-case basis. For example, on September 19, 1997, Parliament adopted the "Law on Stimulating Auto Production," which grants various customs duties and VAT exemptions, favorable terms for land, and company tax payments to any company investing a minimum of US$150 million into Ukraine's auto production industry.

In addition, the new law removes minimum foreign capitalization requirements and the foreign ownership threshold was lowered to 10% (from 20%) of a company's authorized charter fund to qualify as a foreign investment. Also the $50,000 in-kind or $500,000 in-cash capitalization requirement is no longer necessary. No ceiling currently exists regarding the amount of capital that can be invested into an enterprise in Ukraine by a foreign company.

Foreign companies are allowed to own up to 100% of a Ukrainian company, with the exception of those engaged in audit services, insurance, telecommunications and broadcasting. The restrictions on access for foreign banks were lifted in 1998 and it is envisaged that the different minimum capital requirements for domestic and foreign banks will be adjusted by 2000. The insurance sector still lacks the necessary basic legal framework and remains inaccessible for foreign companies. There are also restrictions in ownership and use of natural resources, including mining, the acquisition of utilities, the acquisition and sale of natural resources, as well as the acquisition and sale of agricultural land and forests, including the brokerage of immovable property.

There are several additional points to note in the current foreign investment law:

  • Registration of foreign investment with local authorities is required;
  • Foreign investment into Ukraine can take the following forms: creation of joint ventures; acquisition of stock in existing enterprises; creation of wholly-owned foreign subsidiaries; acquisition of real estate such as apartments, houses, and land use rights; acquisition of property rights by purchasing securities and stock of enterprises with such property rights; acquisition of intellectual property rights; and entering into various contractual agreements (including import-export contracts, cooperation agreements, or joint production agreements);
  • Foreign investors are guaranteed unhindered and immediate rights to repatriate their profits abroad, but only after the investor pays a 15% repatriation tax and other mandatory payments in Ukraine;
  • Any in-kind foreign contributions imported for a company's statutory fund are exempt from customs duties. All import duties must be paid if an enterprise sells, transfers or otherwise alienates the contributed property for any reason, including the termination of activities;
  • Foreign investors are granted general protection of Ukrainian intellectual property rights, and the right to decide whether to seek patent registrations in Ukraine or abroad;
  • Qualified foreign investors are granted guarantees against nationalization, except in cases of national emergencies, accidents, or epidemics.
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