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Foreign investments. Legal base

Principal conditions of investment activity in Ukraine, notwithstanding the nationality of investors, are defined in the Law of Ukraine on "Investment activity" dated 18 September 1991. Peculiarities of foreign investment regulation are specified in the Law of Ukraine on "Foreign investment control" dated 19 March 1996 (hereinafter referred to as Law on investment) and article 38 of Economic Code of Ukraine dated 16 January 2003. A number of other laws and by­laws in a varying degree regulate procedures of effectuation of foreign investments.

Legislation of Ukraine stipulates for the same (with some exceptions) investment conditions for foreign investors as for national investors as well as certain additional guaranties and investment drivers. In particular, investment conditions form of investment, investment media; state guaranties of foreign investment protection are defined. We should outright note that in order to maximize exploitation of guaranties provided to foreign investors in Ukraine by the state, it is recommended to register all foreign investment at its introduction.

Law on investment defines foreign investment as assessed value foreign investors contribute into investment activity objects in accordance with the legislation of Ukraine for the purpose of profit generation or achievement of social effect. Enterprise with foreign investments, in accordance with Economic Code and Law on investment, is an enterprise with a statutory fund of at least 100% of foreign investment.

Foreign investors enjoy the right to invest on the territory of Ukraine in the form of foreign cur­rency, real and personal property and related pro­prietary rights, other valuables (property) that are voted foreign investments under the law.

Among forms of effectuation of foreign investments the Economic Code stipulates the following:

  • creation of enterprises jointly with Ukrainian legal entities and individuals or interest acquisi­tion in acting economic entities;

  • creation of foreign enterprises, branches or other departments of foreign legal entities on the territory of Ukraine or buy out of existing enter­prises;

  • direct purchase of real and personal property or acquisition of shares or other securities;

  • independent purchase or purchase in partner­ship with citizens or Ukrainian legal entities of right of enjoyment of land and use of natural resources on the territory of Ukraine;

  • economic activity on the basis of production sharing agreement;

  • purchase of other proprietary rights.

    Herewith legislation defines restrictions both with regard to investment activities of all investors ir­respective of nationality (for example, only state establishments are entitled to print bank notes), and in some cases limiting possibilities for foreign investment introduction (for example, creation and operation of publishing houses with a statu­tory fund with over 30% of foreign investment is forbidden).

    Legislation envisages a number of guaranties to protect foreign investments, in particular:

  • unamended legislation on foreign investment during 10 years;

  • protection from compulsory withdrawal (na­tionalization) of investments, as well as illegal actions of state bodies and their officials;

  • compensation of losses, including loss of profit and moral damage as a result of illegal actions of state bodies of Ukraine;

  • return of investment within six months from the moment of investment activity termination in kind without payment of duties or in investment currency;

  • untrammeled and immediate transfer of profit abroad in foreign currency that was lawfully se­cured as a result of effectuation of foreign invest­ments.

    In accordance to Law on investment any prop­erty imported into Ukraine as a contribution of foreign investor into statutory fund of enterprises with foreign investment (except for goods for sale or personal consumption) is duty-free.

    Registration of foreign investment

    As Art 13 of Law on investment stipulates, foreign investment is subject to state registration. Non-registered investment is not subject to privileges and guaranties stipulated in this law.

    A provision on registration of foreign investment dated 7 September 1996 establishes a procedure of such registration. In accordance with this provision, to register foreign investment foreign investor hands in an information message on foreign investments introduction to state registra­tion body with a reference mark of a relevant tax inspection on its actual introduction, documents in support of the form of investment activity and its value as well as confirmation of registration fee payment.

    Restitution of investment and profit

    Legislation of Ukraine guarantees that in the event of investment activity termination, foreign investor is entitled to restitute its investment in kind or in investment currency in the amount of de facto contribution (with allowance for possible reduction of statutory fund) without customs clearance charge as well as profits from this investment in money or in commodity terms at factual market price at termination of investment activity.

    Foreign investors after payment of taxes, duties and other compulsory payments are also guaran­teed an untrammeled and immediate transfer of their profit, incomes and other assets abroad in foreign currency that were lawfully secured as a result of effectuation of foreign investments. As effective agreements on evasion of double taxa­tion between Ukraine and a number of other countries stipulate different schemes of taxa­tion of income secured as a result of investment activity in Ukraine, we recommend thorough analyzing of prospects of income assessment and investment activity structure prior to investment introduction.






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