On 21 July 2020, the Ukrainian Parliament passed in the first reading the draft law No. 3760 On State Support for Investment Projects with Large Investments (the “Draft Law”), which was submitted to the Parliament for consideration as part of the overall investment promotion agenda of the President of Ukraine.

Forms of state support

According to the Draft Law, state support can take the form of:

• tax benefits, including tax exemptions such as from corporate income tax, and exemption from duties on the import of equipment necessary for implementation of an investment project (the “Project”);
• land benefits related to state- or municipally-owned land (e.g. special rates of rental fees, expedited procedure for obtaining usage (lease) rights for land necessary for implementation of the Project, and preferential rights to acquire land following the successful implementation of such Project);
• construction or refurbishment of infrastructure necessary for implementation of the Project (including roads, communications, heat, gas, water, electricity supply, utilities), which construction/refurbishment is to be carried out at the expense of state/municipal budgets.

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

Eligibility

The Draft Law sets out the following key criteria (among others) for the Project to be eligible for state support under the Draft Law:

• the Project should be proposed for implementation in the areas of processing industry, infrastructure, logistics, household waste management, tourism, healthcare, education and sports. At the same time, the Draft Law specifically excludes areas as renewable energy, mining, crop production and the financial sector;
• the Project should generate at least 150 new workplaces annually, with the average remuneration of employees being at least 15% higher than the average remuneration of employees working at the same location or area by reference to the previous calendar year;
• the Project should envisage at least EUR 30 mln of new investments; and
• such Project should be implemented within 5 (five) years.

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

Special investment contract

The Draft Law sets out that potential investors will need to formally apply for state support for the Project by submitting relevant documentation, which includes documents confirming investor eligibility, a Project feasibility study and a draft of the special investment contract to be entered into between the investor, the investor’s Ukrainian special-purpose vehicle, the state of Ukraine represented by the Cabinet of Ministers and the relevant municipal authorities (the “Special Investment Contract”). Importantly, such Special Investment Contract should specify the form(s) of state support to be provided to the investor and the Project implementation terms. Pursuant to the Draft Law, such Special Investment Contract can be governed by foreign law and be subject to foreign arbitration.

‘Investment nanny’

The Draft Law provides that investors should have a dedicated state authority (a so-called ‘investment nanny’) to be appointed to support investors at all stages of their Projects. Such dedicated authority will be responsible for using a variety of means to aid investors to apply for state support under the Draft Law, have its Project approved by the relevant state authorities and successfully implement it pursuant to the agreed terms. The assistance of such ‘investment nanny’ could take the form of cooperating with relevant state or local authorities on behalf of the investor, assisting with the preparation or completion of all necessary documentation for approval of the Project, information support, etc.

Additional guarantees

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

Although the Draft Law is subject to further consideration and discussions in the Ukrainian Parliament that could result in various changes to its text, the contents of the Draft Law as it now stands is already promising, and is aimed at enhancing state support for large investment projects and boosting further investment in Ukraine. For more information on the Draft Law, please contact your local CMS advisor or local CMS experts: Tetyana Dovgan, Graham Conlon, Maria Orlyk.

Authors:

Tetyana Dovgan, Partner, tetyana.dovgan@cms-cmno.com

Graham Conlon, Partner, graham.conlon@cms-cmno.com

Vitalii Mainarovych, Senior Associate, vitalii.mainarovych@cms-cmno.com

Maria Orlyk, Partner, maria.orlyk@cms-rrh.com

Oleksandra Prysiazhniuk, Senior Associate, oleksandra.prysiazhniuk@cms-rrh.com