GSW: Investments in Ukraine: how to get up to 30% of support from the state?

 

Due to the risks associated with investing in Ukraine, the state has updated its mechanisms for supporting foreign investments to support economic development and the creation of new jobs. One of such tools is state support in the form of reliefs and guarantees, granted on the basis of a special agreement between the investor and the government of Ukraine. Investors implementing projects worth at least EUR 12 million over a period of up to 5 years can receive co-financing of up to 30% of the investment costs (CAPEX), in accordance with the Law on Support for Investments of Significant Importance in Ukraine.

Conditions for project qualification for support

Projects eligible for support must meet the following criteria:

Sectors of activity: an investment project involving significant investments must be implemented in Ukraine in the following sectors:

– processing industry (except for the production and marketing of tobacco products, alcohol and alcoholic beverages);

– production of bioethanol used as a fuel component;

– production of biogas and biomethane in liquefied or compressed form;

– extraction of minerals for further processing or enrichment (except coal, crude oil and natural gas);

– waste management;

– transport, warehousing, postal and courier activities, logistics;

– education, scientific and scientific-technical activities;

– health care, art, culture, sport, tourism, recreation;

– electronic communication, including the development or reconstruction of telecommunications networks (fixed, mobile, Internet).

Modernisation of investment facilities: the project must include the construction, modernisation or purchase of equipment. It may also include the construction of engineering and transport infrastructure at the investor’s expense and those that are necessary for the implementation of an investment project with significant investment outlays.

Job creation: You are required to create:

10 jobs with a salary 50% higher than the average in the region,
30 jobs with a salary 30% higher than the average,
or 50 jobs with a salary 15% higher than the average.

Amount of investment: the investment must exceed the equivalent of EUR 12 million and its implementation should not exceed 5 years.

Forms and scope of state support

Exemption from customs duties:

Investors may be exempt from customs duties on imported equipment and components necessary for the implementation of the project, provided that they are used exclusively for the purposes of the investment project under a special investment agreement.

Tax:

VAT exemption: equipment imported by an investor for the purpose of a project covered by a special investment agreement is exempt from VAT. The exemption is valid for the entire duration of the project and within the unused amount of state support provided for in the contract.
CIT exemption: the investor’s income obtained from the implementation of a special investment agreement is exempt from income tax for a period of 5 years, starting from the date of filing the application for exemption, but not earlier than from the date of commencement of operation of the facilities built under the project. Income determined on the basis of transfer pricing regulations and regulations concerning controlled foreign companies is not exempt.
Limitation of tax exemption: The total amount of funds obtained as a result of tax exemptions is included in the total amount of state support for the investment project. If the maximum amount of support provided for in the special investment agreement is reached, the investor loses the right to further relief.

Right to use a state or municipal plot: investors can access plots owned by the state or local government on preferential terms, which allows them to be used as part of the project.

Construction of engineering and transport infrastructure: the infrastructure, such as roads, communication lines, heating, gas, water supply and energy networks, necessary for the implementation of the project, can be financed from the state budget or the investor can be compensated for the costs of their construction.

Compensation for grid connection costs: the state can cover the costs associated with connecting the project to the necessary engineering and transport networks.

Exemption from fees for losses in forest production: in the event of a change in the use of forest land for the purposes of a project with significant investments, investors are exempt from the obligation to pay compensation for losses of forest production.

Total amount of support: the total amount of state support for an investment project with significant expenditure is determined in a special investment agreement and does not exceed 30% of the value of the planned investments under the project.

Obligation to repay the support: in case of failure to meet the minimum investment requirement of the equivalent of EUR 12 million, the investor is obliged to repay the full amount of the state support received for the implementation of the project.

Application Procedure

The process involves several steps:

Preparation and submission of an application to the Ministry of Economy for the evaluation of the project.
Assessment of the project by the Ministry, which will decide on the legitimacy of the investment.
Conclusion of a special investment agreement with the Cabinet of Ministers, local government body (if involved) and investor.

The investor must register as a legal entity in Ukraine, meeting the statutory criteria. In the event of failure to meet the minimum investment requirement (EUR 12 million), the investor will be obliged to return the support received.

Grounds for rejecting an investment project

The decision to refuse to implement an investment project and to conclude a special contract may be made in the following cases:

when the applicant has submitted false information in the application file,
when the applicant or investment project does not meet the requirements set out in the Act,
when financial, social, environmental risks or other negative consequences resulting from the implementation of the project have been identified.

The applicant has the right to appeal against the negative decision in court.

Governing Law and Dispute Resolution

The special investment treaty is governed by the laws of Ukraine, but the parties can choose any way to resolve disputes, including mediation, arbitration, or a national court.

How do we help?

The GSW team provides legal support at every stage of investment in Ukraine, providing professional advice and representation of investors‘ interests.

 

For further information, please contact:

Yevgen Motrych, Barrister

Gorazda, Świstuń, Wątroba i Partnerzy adwokaci i radcowie prawni, Kraków

e: yevgen.motrych@gsw.com.pl

 

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