Foreign investment in Ukraine: what investors need to know. PURCEN Law Firm

The issue of the legal status of capital entering the Ukrainian economy from abroad remains a topical one, despite all the challenges of recent years. The legislation sets out in considerable detail the manner and forms in which foreign capital may enter the country, as well as the guarantees afforded to its owners. Let us examine the key aspects of this regulation with PURCEN.

In what forms may foreign capital be received?

The law is not limited to the concept of ‘money’ in the narrow sense. A wide range of assets is recognised as foreign investment:

• convertible foreign currency and, under certain conditions, the national currency of Ukraine;

• movable and immovable property, together with the associated property rights;

• securities – shares, bonds, and stakes in the authorised capital of Ukrainian or foreign companies;

• monetary claims and the right to demand the fulfilment of contractual obligations;

• intellectual property – copyright, patents for inventions and utility models, industrial designs, trade marks, and know-how (provided their value is confirmed by an expert valuation);

• rights to carry out economic activities, in particular the right to use subsoil resources and natural resources.

Thus, the concept of investment encompasses more than just financial contributions.

What forms of market presence are available to foreign investors?

There is more than one way to enter the market; investors can choose the model that best suits their business objectives:

• taking a stake in a joint venture with Ukrainian partners or acquiring a share in an existing company;

• setting up a company wholly owned by a foreign founder, or opening a branch or representative office;

• full acquisition of an existing Ukrainian enterprise;

• purchase of immovable or movable property (buildings, equipment, vehicles) either directly or through securities;

• obtaining rights to use land and natural resources, either independently or jointly with Ukrainian entities;

• participation in projects under production-sharing arrangements;

• other lawful forms of cooperation, in particular contractual relationships without the formation of a legal entity.

This list is open-ended: only activities that directly contravene current legislation are prohibited; everything else is permitted.

Legal regime and state guarantees

The key principle underpinning the regulatory framework is national treatment. This means that, as a general rule, a foreign investor is subject to the same conditions as a Ukrainian business entity, subject to exceptions expressly provided for by law or an international treaty. For projects implemented as part of state programmes for the development of priority sectors, an additional preferential regime may be provided for.

At the same time, the state reserves the right to restrict or prohibit the activities of foreign investors in certain territories if this is required in the interests of national security.

Particular attention should be paid to the ‘stabilisation clause’ mechanism. If legislation on state guarantees for the protection of foreign investments is amended in a way that narrows the scope of these guarantees, an investor may, for a period of 10 years from the date the new provisions come into force, demand the application of precisely those guarantees that were in force previously. As for guarantees relating to the ‘green’ tariff, these remain in force for the entire duration of the tariff. This provides an additional level of predictability for those planning long-term investments.

Reporting by PURCEN

Enterprises with foreign investment and the banking institutions serving them are required to submit statistical reports on investments made in accordance with the procedures laid down by law. This is a formal but mandatory aspect of managing investment activities, and failure to comply may create unnecessary risks for the company.

Choosing the right form of market entry, correctly formalising rights to assets and understanding the available safeguards are what determine the long-term sustainability of an investment.

If you have any questions regarding the structuring of foreign investments in Ukraine, the protection of your rights as an investor, or support for a specific project, please contact our team – we will be delighted to help!