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Ukraine to provide state support for large investment projects
Baker Mckenzie, Kyiv, Ukraine,
July 23, Thu, 2020
On 21 July 2020, Ukraine's parliament, the Verkhovna Rada of Ukraine, passed in the first reading a Draft Law No. 3760 "On State Support for Investment Projects with Significant Investments" ("Draft Law"). The Draft Law was proposed by the President of Ukraine as part of his investment promotion agenda and is aimed at enabling state support for major investments in Ukraine.
Among the most notable provisions, the Draft Law sets out:
- possible forms (instruments) of state support for investment projects
- key eligibility requirements to investment projects and investors
- terms of a special investment contract between a participating investor and government authorities
- legal guarantees for participating investors
Forms of state support for investment projects
The Draft Law provides that state support can be provided to a local or foreign investor in the form of:
- tax benefits, such as exemption from corporate income tax or duties on import of new equipment into Ukraine
- granting preferential rights and special land use fees for using state- and municipality-owned land plots for the implementation of an investment project
- providing related infrastructure facilities (roads, communication lines, heat, gas, water and electricity, utilities, etc.) necessary for the implementation of the investment project, including through the (re)construction of such facilities at the expense of the state or municipality
The maximum amount of state support cannot exceed 30% of the overall amount of project investments.
In addition, the Draft Law provides for the appointment of a state institution to support participating investors for the duration of their investment projects. Such institution will be responsible for (i) assisting investors that apply for the participation in the state support program, (ii) helping investors in designing their investment projects and getting these projects approved by the government authorities, and (iii) facilitating the implementation by investors of approved investment projects and fulfilment by such investors of their obligations under the respective special investment contracts. All such services will be provided to investors free of charge.
Eligible investment projects
To be eligible for the state support, an investor's investment project must meet the following key requirements:
- The amount of capital investments must not be less than the equivalent of EUR 30 million.
- The investments should be made in the areas of processing industry, infrastructure and logistics, household waste management, tourism, healthcare, education or sports.
Investments in renewable energy, mining, crop production and financial sector are not eligible for the state support.
- During the project implementation period, at least 150 jobs must be created each year with the average salary of employees being at least 15% higher than the average salary in the relevant industry of the region where the project is implemented.
- The project implementation period should not exceed five years.
Special investment contract
Special investment contract ("SPIC") is an agreement between, on one side, an investor whose investment project has been approved by the government authorities and a special company established by the investor in Ukraine specifically for the implementation of the approved investment project ("Investment SPV") and, on the other side, the Government of Ukraine and (where applicable) the respective regional municipality. A SPIC will set out, among other things:
- the terms of implementation of the investment project by the investor and the Investment SPV
- the undertaking by the Government of Ukraine and the municipality (i) to guarantee stable conditions for the implementation of the investment project and (ii) to provide the state support in the form and on the terms set out in the SPIC
Under the current wording of the Draft Law, the parties to a SPIC will be allowed to choose the governing law of the SPIC and dispute resolution forum.
Legal guarantees for participating investors
The Draft Law guarantees that the rights and obligations of the Investment SPV under a SPIC will be subject to the laws of Ukraine effective at the time of the conclusion of the SPIC.
If, however, following the conclusion of the SPIC, Ukraine were to reduce or cancel any applicable taxes or duties, simplify the regulation of economic activity, liberalize state supervision (control) procedures, mitigate the responsibility of the Investment SPV or otherwise improve the position of the Investment SPV, such improved regulations would apply to the rights and obligations of the Investment SPV.
The aforementioned guarantees will not apply to legislative changes relating to defense, national security, public order and environmental protection.
Following the adoption of the Draft Law in its first reading, the parliament will consider the draft in its second reading, with the final vote expected later in 2020. Over the course of the second reading, the Draft Law is likely to undergo updates and revisions.
Once the Draft Law is adopted in its final reading, certain provisions will require further elaboration in the secondary legislation.