INVEST IN UKRAINE

1.  General  Information

I.   Facts and Figures

Official Name of Country: Ukraine
Area: 603 700 km2 (the second place in Europe after Russia)
Capital: Kyiv
Major Cities (Population): Kyiv (2,6 million), Kharkiv (1,5 million), Dnipropetrovsk (1,1 million), Odessa (1 million), Donetsk (1 million)
Official Language: Ukrainian
Currency: Hryvnia (UAH) official exchange rate of Hryvnia against foreign currencies [1]
Time Zone: GMT +3
Telephone Code: +380
Country Code Top-­‐Level Domain: .ua
Traffic Flow: Right
Electricity Voltage: 220 V, 50 Hz


II.   Population

Population: 45 675 thousand (01.07.2011)
Labor Force (Population): 22 058,2 thousand (01.07.2011)
Median age: 39,9 (2010)
Ethnic groups: Ukrainians (77,8%), Russians (17,3%), Belarusians, Moldovans, Crimean Tatars, Bulgarians, Hungarians, Romanians, Poles, Jews, Armenians, Greeks, Tatars, Azerbaijanis, Romanians, Georgians, Germans, Gagauz and others


III.    Legal Framework

Ukraine is a civil law country. The powers of government are divided into three branches -­‐ legislative, executive and judicial. Laws adopted by the Parliament are forwarded to the Presidentfor him to sign. The Constitutional Court of Ukraine is the sole organ of constitutional jurisdiction of Ukraine.

The court system in Ukraine has three branches:

  • The general court system decides on civil disputes and criminal cases, including cases filed by individuals that are not private entrepreneurs. The structure consists of local district courts, regional courts of appeal and the Civil and Criminal Chambers of the Supreme Court of Ukraine.
  • The commercial court system generally resolves business disputes between legal entities. It consists of local commercial courts (one in each region, plus Kyiv and Sevastopol), interregional courts of appeal, and the High Commercial
  • The administrative court system decides on disputes involving state authorities. It consists of regional administrative courts (one in each region, plus Kyiv and Sevastopol), interregional courts of appeal, and the High Administrative Court. The Supreme Court of Ukraine is the highest court, and has the power to review decisions of all three branches of the court system. As an alternative to litigation, Ukraine allows for third party arbitration. Ukrainian law also allows foreign companies to include an arbitration clause in their contracts, including those with Ukrainian entities, which allow for arbitration by international arbitration

The following major pieces of legislation (in addition to taxation law) affect foreign investment into Ukraine:

The Foreign Investment Law sets out in broad terms Ukraine's policy on inward investment and the rights and obligations of foreign investors.

The Civil Code regulates civil relationships, the establishment of legal entities and personal property rights.

The Commercial Code was enacted on the same day as the Civil Code, and governs business relationships. The Commercial Code is intended to regulate issues that are not dealt with in the Civil Code, even though in practice there is some overlap.

It governs the public issuance and trading of securities regarding Securities and Stock Market.

The Competition Law restricts business monopolies. The majority of mergers and acquisitions in Ukraine are likely to require pre-­‐approval from the Antimonopoly Commission.

The Law on Protection from Unfair Competition aims to protect business entities and consumers from unfair competition.

The Environmental Protection Law establishes a framework for pollution charges to be imposed on any legal entity that discharges contaminants into the environment.

IV.   Regions of Ukraine

Regions of Ukraine differ in a number of indicators: geographic location, market size, population, etc. However, each region may singly be interesting for foreign investors for their specific sectorial or regional investment projects.

Different parts of Ukraine have different natural, economic and labor conditions. If a region is specialized in a certain sector of economy, it receives what it lacks from another region. This specialization is often historical, but can change throughout the years.Ukraine is divided into economic regions – sectors with specific economic characteristics. Territorial divisions and traditional specialization form the base of Ukraine’s current division into nine economic regions.

To define regional specialization, clusters of different industries in this area are analyzed. Usually these industries appear thanks to specific natural resources and conditions, ample labor force, specific geographic situation, available transport and logistics, traditions and specific state tasks.

Mapping Ukraine’s economic regions

According to its natural, socio-­‐economic, historical and other plate-­‐marks (including administrative-­‐ territorial division), Ukraine is currently divided into nine economic districts: Donetsk, Pridneprovsky, Northeastern, Capital, Central, Podilsky, Northwestern, Carpathian and Black Sea Coast.

Donetsk region (Donetsk and Lugansk oblast) has substantial human resources. It is the leader in the country by means of number and density of population. The region is among the most prosperous.           Its leading industries are energy,  coal,  metallurgy,  chemical,  building  materials  and  heavy  engineering. The region also has considerable and varied natural resources: fertile soil,  coal,  salt,  building materials, vermillion, etc. Its  agriculture  is  characterized  by  the  dominance  of  cattle  breeding, while city suburbs feature a considerable amount of urban farms. The region also boasts of a well-­‐developed transport network, particularly railroad that has the highest density in the country. The  main  industrial  hubs  are  Donetsko-­‐Makeevsky,  Gorlovsko-­‐Enakievsky,  Lugansky,  Kramatorsko-­‐ Konstantinovsky, Stakhanovo-­‐Alchevsky, Lisichansko-­‐Rubezhansky and Mariupolsky.

  • Pridneprovsky region (Dnepropetrovsk and Zaporizhzhya oblast) has the country’s sixth highest population, but is among the leaders as far as  its  natural  resources  are    Some  of  them have global importance. The region is specialized in black metallurgy, machine  building,  metal  processing, chemical industry and energy, and according to its industrial performance it has the second place following Donetsky region. A well-­‐developed irrigation system helps agriculture, where crop raising and plant cultivation dominate animal husbandry. The region has a vast transport network with major hubs in Dnepropetrovsk and Dneprodzerzhinsk, Nikolsko-­‐Marganetz, Pavlograd-­‐ Petropavlovsk and Zaporizhzhya. The region exports iron and manganese ores, aluminum, titanium, mining and metallurgical equipment, automobiles, tires, oils and lacquers, agricultural products and equipment. It imports coal and charcoal, different machinery, textiles, etc.
  • Northeastern region (Kharkiv, Poltava and Sumy oblast) is among the country’s top three agricultural and top five industrial leaders. Its natural resources consist of oil, gas and iron ore. The region’s main industries are engineering, metal processing and chemical, food and light industries. The biggest hubs are Kharkiv, Kremenchug, Poltava and Sumy. The region imports metal, wood, different machinery and equipment, chemical products and food. It exports natural gas, iron ore, oil products, concrete-­‐steel constructions, tractors, lorries, engineering tools, bicycles, etc.
  • Capital region (Kyiv, Zhitomir and Chernigiv oblast) is second in territorial vastness and population within the country. It is rich in forests and quarries ample building materials. It is the country’s second biggest industrial (engineering, chemical and light industries) and agricultural region. The main means of transport are railroad (60% of transit loads) and air (Kiev is the biggest airway hub in Ukraine). The region’s important transport centers are Kiev, Chernigov, Zhitomir and Bilotserkovsky. In the capital, where a wide range of goods and services are produced, import still overwhelms export.
  • Central region (Cherkassy and Kirovograd oblast) is at the bottom of the list in the country’s population density (2.4 million people) and industrial potential. It depends heavily on agriculture. Natural resources consist of building and decorative stones. Leading industries comprise of food processing, engineering and metallurgy. The biggest centers are Cherkassy, Kirovograd, Alexandriysk and Uman. The region exports agricultural machinery, equipment for light and food industries, TV sets, chemical fiber, nitrate fertilizers, sugar, vegetable and meat preservatives, and import virtually everything (from coal and petrol to clothes and agricultural produce).
  • Black Sea Coast (Odessa, Mykolaiv, Kherson and the Autonomous Republic of Crimea) has the country’s largest population of 7.1 million people. It has poor natural and water resources. The economy’s leading industries are engineering and metal processing, food and light industries, and grain growing in agriculture. There are many gardens and vineries. Horticulture is highly developed. The region’s import rate is bigger than the export’s. The main centers are Odessa, Mykolaiv, Kherson, Kakhovsko-­‐Berislavsky, Simpheropol, Sevastopol, Kerch and Saksko-­‐Yevpotoriysky.
  • Podil region (Vinnitsa, Khmelnitsk and Ternopil oblast) is least Natural resources consist of raw building  materials.  The  main  centers  are  Vinnitsa,  Khmelnitsk,  Ternopil,  Kamenets-­‐Podilsk,  and Shepetovka. The region’s economy depends on agriculture, specializing in grain growing. It is the country’s fourth biggest agricultural area. Main industries are food, engineering and machine building (specializing in equipment for food, chemical and light industries).
  • Northwestern region (Volyn and Rivne oblast) has the country’s smallest territory and population (2.2 million). With 38% of forests, Volyn takes the second place after Carpathian region. Its other natural resources are coal, charcoal and building materials. The region has the country’s lowest industrial potential. In addition to food and light industries, it mainly specializes in machinery, metal processing and woodworking, which are rapidly developing. The region has three main centers in Rivne, Lutsk and Kovel. The region exports building materials, agricultural machinery, automobiles, chemical fertilizers, woodwork, cotton cloth and the unique kind of amber. It imports metals, different machines and equipment, instruments, automobiles, buses, natural and synthetic fibers, and agricultural
  • Carpathian region  (Lviv,  Zakarpattya,  Ivano-­‐Frankivsk  and  Chernovtsy)  has  high  population  density (higher than the country’s average). It has various natural resources and is rich in water and forests.      This is an industrial region specializing  in  engineering,  metal  processing,  chemical  products,  woodwork, light and food industries and construction. The region has a developed road and railway network  and  high  historical  tourism  potential.  The  main  centers  are  Lviv,  Drogobychsko-­‐Strysky, Chervonograd-­‐Sokalsky,      Chernovtsy,      Ivano-­‐Frankovsk,      Kalushsko-­‐Dolinsky      and      Uzhgorod-­‐

V.   Economy

Financial Center: Kyiv
GDP: USD 162,8 billion (2011, in current prices)
GDP Per Capita: USD 7 200 (2011, using purchasing power parity basis)
Inflation Rate: 4,6 % (2011)
Foreign Direct Investment: USD 49 362,3 million (31.12.2011)
Interstate Agreements on the Promotion and Mutual Protection of Investment: 61 countries of the world: Albania, Argentina, Armenia, Austria, Azerbaijan, Belarus, Bosnia and Herzegovina, Brunei, Bulgaria, Canada, Chile, Congo, Croatia, Cuba, Czech Republic, Equatorial Guinea, Estonia, Finland, France, Gambia, Georgia, Germany, Greece, Hungary, India, Indonesia, Iran, Israel, Italy, Jordan, Kazakhstan, Korea, Kuwait, Latvia, Lebanon, Libya, Lithuania, Macedonia, Moldova, Morocco, Netherlands, Oman, Panama, Portugal, Russia, San Marino, Saudi Arabia, Singapore, Slovakia, Slovenia, Spain, Sweden, Switzerland, Syria, Tajikistan, Turkey, Turkmenistan, UAE, USA, Vietnam, Yemen (01.10.2011)
Number of the Foreign Companies: 2 229 (01.09.2011)
EU Cooperation Status: Partnership and cooperation agreement with European Union (01.03.1998)


VI.   Foreign Direct Investments to Ukraine

FDI volume, USD million: 49 362,3 (as of 31.12.2011)
FDI per capita, USD: 1084,3
2011 FDI growth comparing to 2010, %  : 10,2
Ten major FDI source countries for Ukraine: 

  • Cyprus
  • Germany
  • Netherlands
  • Russian Federation
  • Austria
  • United Kingdom
  • France
  • Sweden
  • British Virgin Islands
  • USA

EU countries share in FDI, %: 79,9
FDI structure by sector                                                                  ·     

  • Finance – 33,1%
  • Manufacturing-­‐ 30,9%, including:
    • Metal products – 12,3%
    • Foods and beverages – 4,2%
    • Chemicals – 2,8%
    • Machine building – 2,5%
    • Electricity, gas, water – 1,4%
  • Real Estate – 11,6%
  • Retail– 10,5%
  • Construction – 6,1%
  • Transport and telecoms – 3,8%
  • Agriculture – 1,6%
  • Hotels and restaurants – 0,9%
  • Healthcare – 0,3%
  •       Other – 1,4%                                                                       

2.    Forms  of  Foreign Investment

Generally, the regulatory framework for the establishment and operation of businesses in Ukraine by foreign investors is similar to that for domestic investors, apart from the ownership of agricultural land, publishing activities and the manufacture of carrier rockets. As a general rule, investment permits are not required, but all enterprises must be established according to the form and procedure prescribed by law and registered with the appropriate government agencies. Foreign

investors are generally not required to seek special approval from authorities for doing business and investing in Ukraine 12 foreign direct investments, but shall register them with the state authorities.

Foreign investors can invest in the following forms:

  • Acquisition of assets
    • Direct purchase (acquisition of ownership title)
  • Investment in Equity

-          Foundation of a new legal entity

  • Acquisition of shares or participation interest in a Ukrainian company
  • Joint business activity by creation of a legal entity
  • Foundation of branches of foreign investors
  • Other forms of investment
    • Business (entrepreneurial) activities pursuant to production sharing agreements
    • Joint business activity without creation of a legal entity
    • Joint business activity without merging funds
    • Public-­‐private partnerships

3.    Company forms

Companies in Ukraine may be established in the following forms:

  • joint stock company (JSC) private and public JSC
  • limited liability company (LLC)
  • company with additional liability
  • company with combined liability
  • company with full liability

The most common are JSCs and the LLCs.

I.   Joint stock company (JSC)

= similar to German AG or US corporation

A joint stock company (JSC) is a legal entity whose share capital is divided into a number of shares of equal nominal value. The liability of shareholders in a JSC is limited to the value of their capital contribution.

A JSC may be established as "open" or "closed". Shares of Open JSC may be distributed through  public subscription and can be floated at stock exchange, contrary to those of Closed JSC, which are distributed between its founding shareholders.

The issued shares of JSC (open and closed) must be registered with the State Securities and Stock Market Commission of Ukraine, which prolongs the registration process approximately for two months.

1.       General Information

  •  Charter capital
    1,250 Ukrainian monthly minimum salaries (approximately USD 136,000)
  •  Number of shareholder
    Private JSC : No more than 100 Public JSC : Unlimited
  •  Governing Bodies
 Supervisory board      General shareholders meeting
 Management board      Auditor or audit commission
  •  Restrictions
  • a wholly-­‐owned JSC may not be established by another wholly-­‐owned subsidiary (either foreign or Ukrainian)
  • a JSC can not only have legal entity-­‐shareholders, which are wholly-­‐owned by the same person.
  •  State fee  for Registration

USD 21.25 plus 1% of the share capital, but not more than 50 officially established minimum monthly salary as of the date of the formation of the JSC.

  •  Supervision

Regular reporting to the State Securities and Stock Market Commission, to the tax and other local authorities, filing of annual accounts.

  •  Transfer of shares

There are generally no restrictions on the transfer of shares in a public JSC. There are specific regulations regarding significant shareholdings and mandatory buy-­‐outs in a private JSC, the existing shareholders may have a pre-­‐emptive right to purchase shares.

  •  Reporting requirements

Private and public JSCs are subject to reporting and publishing requirements.

“Regular Information” consists of the annual and quarterly reporting of information on the results of the JSC’s financial and business activities, for private JSC. For public JSC, on the other hand a single annual report is sufficient.

“Special information” is information about any actions, which may influence the financial or business activities of the issuer and lead to a significant change in the value of its securities.

2.       Steps needed to set up a JSC

→ Timeframe up to 3 months

  • Holding a meeting of founders
  • Opening of bank accounts and security accounts
  • Payment of share capital
  • Registration of share issuance with state regulator
  • Issuance of shares by depository
  • Holding a second meeting of shareholders and approval of a charter issuance of shares
  • Registration with the State Registrar
  • Registration with the State Statistics Committee
  • Obtaining of a seal
  • Registration of a Pension Fund in Ukraine
  • Registration with the Tax Inspection
  • Obtaining of a VAT certificate (if possible)
  • Registration of a shares placement report with a state regulator

II.   Limited Liability Company (LLC)

A limited liability company (LLC) is a legal entity in which participants own a percentage defined by the Charter, in the company's capital.

The Charter capital of a LLC should be equivalent to a 100 monthly minimum wages based on the date the LLC was established on.

For a 100% investment, using a LLC form tends to be more convenient. In comparison to a JSC, it is easier and quicker to establish, since no registration with the State Securities and Stock Market Commission of Ukraine is needed. Moreover, for the setting up of a LLC, lower minimum capitalization is required and its members may withdraw their contributions at any time by giving three month's notice.

1.       General Information

  •  Charter capital
    No  minimal required
  •  Number of shareholder
    No more than 100
  •  Governing Bodies
  General participants meetings    Directorate (collective
   Audit or auditor commission    
  • Restrictions
    A wholly-­‐owned LLC (same as a JSC) may not be established by another wholly-­‐owned subsidiary (either foreign  or Ukrainian)§ Restrictions
  • An individual or a legal entity (either foreign or Ukrainian) may not be the sole founder of and/or the sole participant in more than one LLC in Ukraine
  • Reporting requirements

Once per year submission of reporting to the state registration authority

  • State fee for Registration USD 21.25

2.       Steps needed to set up a LLC

→ Timeframe up to 10 – 15 business days

Holding a meeting of founders and approval of a charter LLC Registration with the State Registrar

  • Registration with the State Statistics Committee
  • Registration of a Pension Fund in Ukraine
  • Registration with the Tax Inspection
  • Obtaining of a seal of LLC
  • Opening of bank accounts
  • Obtaining of a VAT certificate (if possible)
  • Registration of the foreign investment (if required)
  • Registration with EPY Customs Office (if required)

III.    Representative Office

Representative office is not a legal entity and acts on behalf of the foreign company it represents. There are commercial (for restricted entrepreneur activity) and non-­‐commercial representative offices (for preparatory or auxiliary activity in the region).

A foreign legal entity, which carries out foreign economic activities in Ukraine, has the right to open its representative office in Ukraine. Registration of these offices is to be carried out by the Ministry of Economy of Ukraine within 60 days of the date the documents are submitted for registration.

3.    Restrictions  on  investment activities
I.   General restrictions on investment activity applicable to any investments

o  Certain types of business activity may be pursued only by state-­‐owned enterprises:

  • rocket industry
  • printing of banknotes
  • printing of blank forms of securities
  • Certain types of business activity may be pursued only by state-­‐owned enterprises or require prior consent of state  bodies:
    • railway transport industry (including the foundation, privatization or reorganization of railway enterprises, the layout of railway bed )
    • commercial
  • Foreign enterprises may not conduct their activity in certain industries with strategic importance for state security:
    • mining – there exists a vague requirement that company which extracts mineral resources of state importance may not be fully owned by non-­‐residents;
    • electric power transmission and distribution – there exists a vague requirement that company which transmits electric power or provides electricity distribution services may not be fully owned by

II.   Special restrictions on investment activity applicable only to foreign investments

Certain thresholds on the maximum permissible percentage of foreign investment in the charter fund of a Ukrainian enterprise in the following industries:

  • publishing – the size of shareholding in a printing house for non-­‐residents must not exceed 30 %
  • water distribution – companies providing water distribution services may not be fully owned by non-­‐residents
  • media – broadcasting organizations may be founded exclusively by Ukrainian
  • Land related restrictions:
    • agricultural land – may not be conveyed to nonresidents
    • forestry land – may not be transferred to nonresidents for permanent
  • Restriction on financing forms:

Housing projects provides special procedures or forms of financing such as construction financing funds, collective investment schemes, etc.


4.    Taxation

Taxation in Ukraine is conducted according to the new Tax Code of Ukraine dated December 2, 2010 N  2755-­‐VI  (the  “Tax  Code”).  The  Tax  Code  stipulates  the  general  principles  of  the  Ukrainian  tax system, as well as the taxes and duties (mandatory payments), tax rates, tax exemptions, procedures    and mechanisms for tax assessment and payments,     etc.

I.   Investor considerations

  • The standard corporate tax rate is 25%.
  • Qualifying small companies may opt to use a simplified tax system (with very favorable tax rules).
  • There is no group
  • Depreciation is based on the reducing balance method; relatively generous rates are available.
  • Losses may be carried forward
  • When companies pay dividends, they are generally required to pay advance corporate tax (ACT) at a 25% CPT This is in addition to potential withholding taxes of up to 15%.
  • Taxable income expenses are based on the "first event rule".

Set forth below is a brief overview of the main provisions related to taxation in Ukraine:


1.       Corporate Income Tax (CIT)

Corporate Income Tax (CIT) is levied on the worldwide income of resident legal entities, including joint-­‐stock companies, limited liability companies and state enterprises. Non-­‐resident entities, no matter what the legal form, including those operating through a permanent establishment in Ukraine, are subject to CIT on their Ukrainian-­‐source income. Small and medium businesses may opt out of CIT in favor of United Tax under the simplified tax regime

  Resident legal entities   Non-­‐resident entities   Small and medium  businesses
   Worldwide income    Ukrainian source income   May opt out of CIT
 
           
   joint-­‐stock companies, limited liability companies and  state enterprises    Independent of the legal form    
 

2.       Tax rates

The standard CIT rate is established at a flat 23% (21% as of 1 January 2012, which is further to be reduced to 19% as of 1 January 2013, and 16% as of 1 January 2014) rate applicable to taxable income after permissible deductions.

In general, Advance CIT is payable by the distributing company on dividend distributions to shareholders, in which Advance CIT is then credited against the corporate income tax liability of the distributing company.

Furthermore, dividends distributed to foreign corporate shareholders are subject to 15% Ukrainian withholding tax, which may be reduced or entirely eliminated by virtue of operation of an applicable Double Tax Treaty and Ukrainian domestic procedures. A Ukrainian corporate shareholder, as a CIT payer,  is  exempt  from  taxation  with  respect  to  dividends  received  from  resident  or  non-­‐resident “controlled companies”. A company is defined to have “control” over another company if it holds directly or indirectly at least 20% of the authorized capital or 20% of voting rights of the controlled company.

The dividend distribution is exempt from taxation if dividends are paid out in the form of shares provided that such dividends distribution does not change proportions of participants in the charter capital of the issuing legal entity.


3.       Deductions

In general, all substantiated expenses connected to the business of a legal entity and paid (accrued) by the company during a tax period are deductible from the taxable income if they were incurred for the preparation, organization, management or sale of products or services, or for labor safety.

Certain expenses (e.g. travel expenses) are deductible within established limits. Remuneration of employees is deductible if accrued or paid. Directors' fees and remuneration paid to the members of supervisory boards or supervisory commissions (if these members are considered employees) are

deductible. Dividends paid to a company's shareholders are not treated as cost and are not deductible for CIT purposes.

Interest paid is generally deductible. The deduction of interest expenses is limited where the interest is paid by a company on a loan granted by its non-­‐resident corporate or individual shareholders, or entities related to such shareholders, who in total own or manage directly or indirectly at least 50% of the borrower's capital. In such a situation, the deduction is limited to the amount of the borrower's interest income plus 50% of its net taxable income, the less interest income.

4.    Taxation of Foreign Entities

General rules for taxation of foreign investment:

  • No special taxes for the foreign investments or enterprises with foreign investments (i.e., national regime).
  • Any incomes of a foreign investor in Ukraine are taxable in accordance with the special rules established by the Tax Code of
  • Any payment that constitutes a profit by a Ukrainian resident or the permanent representative office  of  non-­‐resident  to  the  non-­‐resident  ,  with  the  source  in  Ukraine  is subject to 15% withholding tax (deductible by the respective payers, subject to certain exceptions).
  • Withholding tax may be reduced or eliminated as a result of existing double taxation treaties between Ukraine and the country of residence of the foreign
  • Foreign legal entities will be taxed in Ukraine on their profits derived from their commercial activities undertaken on the territory of Ukraine through a permanent establishment; and
  • Income derived from sources within the territory of Ukraine by foreign entities which are not engaged in commercial activities on the territory of Ukraine through a permanent establishment will be taxed at the time of the remittance of such income to such foreign entities or their authorized representatives, and such taxes will be withheld from the sums remitted.

The Tax Code provides that a foreign entity is liable for the payment of corporate income tax with respect  to  all  “Ukrainian-­‐sourced”  income.  Article  160.1  of  the  Tax  Code  provides  for  a  non-­‐ exhaustive list of the types of income, which are, per se, deemed to constitute a Ukrainian sourced income, including, inter alia: interest payments,  dividends,  royalties,  lease  payments,  proceeds  from real estate sales on the territory of Ukraine, profits from securities transactions, profits from joint activity  agreements  or  long-­‐term  agreements,  broker  or  agency  fees,  and  other  kinds  of  income derived by a foreign entity from its business activity on the territory of Ukraine.

However, the Tax Code provides that the income of a foreign entity received in the form of a payment of other kind  of compensation  for the  value  of goods  (works  or services) supplied   from

abroad by a foreign entity (or its permanent establishment) to a resident shall not constitute Ukrainian-­‐source income.

The Tax Code provides for a withholding tax rate of 15% to be withheld by a resident entity or by the permanent  establishment  of  a  foreign  entity  from  the  amount  of  any  Ukrainian-­‐sourced  income,  if and  when  such  foreign  entity’s  Ukrainian-­‐sourced  income  is  remitted  to  such  foreign  entity  or  its authorized representative by a resident taxpayer or by the permanent establishment of such foreign entity unless an applicable bilateral double taxation treaty provides relief with respect to such withholding.


5.       Value Added Tax (VAT)

Value Added Tax (VAT) is the internal indirect tax, which is generally levied on goods and services at all stages of supply. Input VAT is generally deductible against output VAT. The positive difference is paid to the Treasury, whereas the negative difference should generally be refunded by the Treasury.

The VAT rate is established at 20%, which scheduled to be reduced to 17% as of 1 January 2014. Export supplies are zero-­‐rated.


6.       Personal Income Tax (PIT)

Effective as of 1 January 2011, the Tax Code introduced the progressive tax rate of Personal Income Tax (PIT). These tax rates apply to almost all income received by a resident individual in Ukraine, regardless of the source of income. Thus, under the Tax Code, the general tax rate is 15%, whereas monthly income exceeding 10 times minimum monthly salary (i.e. UAH9, 410 on January 1, 2011) should be taxed at 17%. The progressive tax rate of 15% / 17% generally applies to an employment Ukrainian sourced income of the tax non-­‐residents.


7.       Taxation of Property

The property owners in Ukraine are subject to

  • land tax, or
  • real estate tax (becomes effective as of 1 January 2012).

Land Tax

Under the Tax Code, Land Tax is established based on 1% per annum of the "pecuniary valuation" of the land. For agricultural land plots Land Tax is established at 0,1% and 0,03% of the "pecuniary valuation" of land for 1ha of arable land/pastures, and 1ha of “perennial plants” lands respectively. Land Tax is paid on a monthly basis at 1/12 of the annual tax.

Real Estate Tax

Real Estate Tax becomes effective as of January 1, 2012. Real Estate Tax rates shall be set up by local authorities but shall not exceed (1) 1% of the minimum monthly salary established as of January 1 of a reporting year for each square meter of an apartment with the residential floor area not exceeding 240 m² and a house with the residential floor area not exceeding 500 m²; and (2) 2.7% of the minimum monthly salary established as of January 1 of a reporting year for each square meter of an apartment with the residential floor area exceeding 240 m² and a house with the residential area exceeding 500 m².However, the relief for 120 m² of apartments and 250 m² of houses is granted for individual real estate tax payers.


8.       Special tax regime for certain industries

Ukrainian legislation provides total exemption from taxation until 1 January 2020 for the following sources of profit:

  • The profit of biofuel producers derived from the sale of biofuels;
  • Companies’ profit derived from their activities of simultaneous production of electricity and thermal energy and (or) heat production using biofuels; and
  • Companies’ profit derived from their economic activity of production and use of gas (methane) coal

Ukrainian legislation provides for the total exemption from taxation until 1 January 2021 for the following industries:

  • Light  industry   (except   for   companies   with   production   based   on   customer-­‐owned   raw materials)
  • Ship-­‐building industry, and
  • Machine building for agro-­‐industry.

9.    Statutory Guarantees and  incentives for foreign   investors

Foreign investors are entitled to certain privileges and guarantees under the Foreign Investment Law, provided that their investments have been duly registered with the appropriate local state authorities.

I.   Guarantees

1.  Protection against nationalization

Foreign investment may not be nationalized or expropriated (with the exception of emergency measures such as national disasters, accidents, epidemics, etc.).


2.  Guarantee in the event of the termination of investment activity

Foreign investors can repatriate their revenues and investments from Ukraine free from export duties within six months upon the termination of the investment activity.


3.  Guarantee for compensation and reimbursement of losses

Foreign investors are entitled to reimbursement of their losses in connection to the failure of the state or municipal agencies to properly discharge their obligations to foreign investors or enterprises with foreign investments.

4.  Guarantee of repatriation of profits

Foreign investors can freely and immediately repatriate their profits and proceeds from investment activities after payment of taxes, duties and other mandatory payments.

5.  Protection against changes in legislation

Foreign investors are guaranteed protection against any legislative changes affecting guarantees described above for a period of ten years. This guarantee does not apply to legislative changes on matters relating to national security and defense, protection of public order and environment.

II.   Incentives

  • National Regime

The national regime provides foreign investors with the same rights and possibilities as of Ukrainian residents.

Enterprises with foreign investment or foreign enterprises are taxed on their profits on a par with other domestic enterprises

  • Enterprises with foreign Investment

Ukrainian companies, with foreign investor’s contribution in their charter funds amounting at least 10%. They may found subsidiaries, affiliates and branches in and outside Ukraine in order to conduct their economic activity.

  • In-­‐kind-­‐investments

In-­‐kind contributions to the charter fund of an enterprise with foreign investments (except for goods for  sale  or  goods  provided  for  such  company’s  own  consumption).  In-­‐kind  investments  are  exempt from  import duties.

III.    National Projects

«National Projects» are strategic projects of Ukraine exercised particularly in economic and social development sectors.

All Projects are investment ones and have three common features:

  • Scales and/or replicability: all projects are nationally scaled (hence they are called “national”).
  • Moving factors of development (of specific industries or sectors of economy: these strategic projects move the sector to the new efficiency level thus resolving nation-­‐level issues).
  • Relevancy, drive for result: projects have specific goals and implementation terms as well as investment guarantees and powerful support from the Government

As of 01.01.2012 the National Projects launched by the new Government of Ukraine in 2010, include the following trends:

  • «New Energy»
  • «LNG-­‐Terminal» – sea terminal for liquefied natural
  • «Energy of Nature» – the construction of wind, solar and small hydropower plants, production of solid alternative
  • «New Life Quality»
  • «Affordable Housing» – the system of affordable housing construction
  • «New Life» – new quality of mother and child
  • «Clean City» – up-­‐to-­‐date facilities for solid waste processing.
  • «Clear Water» – providing of Ukrainian population with high quality potable
  • «Open World» – establishment of the national educational network by introducing information technologies (4G) into the education management
  • “City of Future” – the elaboration of strategic planning and the system of the city development
  • «New Infrastructure»
  • «Air Express»  –  high-­‐speed  railway  service  between  Kyiv  and  Boryspil  International  Airport and construction of the other infrastructure objects of the Kyiv
  • «Danube Corridor» – development of transport communication and navigation in the Danube
  • «Olympic Hope – 2022»
  • «Olympic Hope – 2022» – creation of the sports and tourism
  • «Increasing production of competitive agricultural products»
  • «Grain of Ukraine» – growth of the gross domestic product, modernization of the grain production industry and increasing its export
  • «Revived Cattle breeding» – ensuring food safety in the production of milk products and beef, increasing the export potential of the cattle
  • «Development of the agriculture market»
  • «Green markets» – development of the network of wholesale agricultural products markets and satisfaction of consumer

Bibliography:

http://investukraine.com/why-ukraine/facts-and-figures-ukraine
http://investukraine.com/why-ukraine/population
http://debaty.org/en/materials/article/what-are-ukraine%E2%80%99s-economic-regions
http://investukraine.com/why-ukraine/economy-ukraine
http://investukraine.com/investment-opportunities/national-projects

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