Investing into Ukraine
Conditions for Foreign Investments
The Law of Ukraine “On Foreign Investments” is the core legislative act regulating the foreign
investments into the country. The Law provides that national regime of investment and business
activity applies to foreign investors. In most instances the law provides for equal treatment of
foreign and Ukrainian-owned businesses. However, there are certain restrictions for foreign
investments in publishing and broadcasting sectors. Foreigners are not allowed to participate in the
manufacturing of weapons or alcoholic spirits. Ukraine has concluded investment protection and
promotion treaties with approximately 50 countries world-wide (currently under negotiation with
Singapore).
Investment protection under current Ukrainian legislation includes the following guarantees:
∙ protection for a period of 10 years against adverse changes in the legislation;
∙ investments cannot be expropriated, except in case of national emergency and with proper
compensation;
∙ compensation for losses due to negligence of state bodies;
∙ the right to repatriate the original investment in the event of termination of the investment.
Foreign investors are entitled to repatriate profit, income or other funds relating to investments
without any restrictions, after the payment of any taxes due.
In order to attract foreign investments into the country there have been a number of investment
incentives introduced in the Ukrainian legislation. Property (except for goods for re-sale)
contributed by a foreign investor to the statutory fund of a Ukrainian entity can be imported free of
import duty. In addition, exemption from import VAT is available for fixed assets imported into
Ukraine as an in-kind contribution to the statutory fund of a Ukrainian legal entity.
Forms of Business Representation of Foreign Investors
The forms of business representation most commonly used by foreign investors in Ukraine are joint
stock companies, limited liability companies and representative offices.
A joint stock company is a legal entity whose capital is divided into a specified number of shares
and which must have at least two shareholders. There are two types of joint stock company: "open"
joint stock company and "closed" joint stock company. Shares in an open joint stock company may
be offered to the general public and traded on a stock exchange, whereas ownership of shares in a
closed joint stock company is limited to the founding members. The minimum capital requirement
for a joint stock company is 1,250 minimum salaries (currently equal to UAH 231,250).
A limited liability company does not have shares in the usual sense. Participants in the company
own a percentage of the company's capital on the basis of a written agreement between at least
two founding participants. The minimum capital requirement is 100 minimum salaries (currently
equals UAH 18,500). The liability of the participants in respect of the company's debts is limited to
the value of their individual contributions.
A foreign company can establish a representative office in Ukraine, which is similar to an
unincorporated branch. The representative office does not constitute a legal entity and operates in
Ukraine on behalf of the foreign company it represents. A non-resident company operating a
representative office is deemed to be conducting business activity in Ukraine through a permanent
establishment and may be subject to corporate profits tax unless protected by a double taxation
treaty.
Taxation
The principal taxes in Ukraine are corporate profits tax, personal income tax, Value Added Tax,
payroll taxes, excise tax, land tax, and import duties. Other taxes and charges include tax on owners
of motor vehicles, stamp duty, royalties on oil and gas extraction; charges for the exploitation of
natural resources, charges on environmental pollution and charges for retail trade patents. In
addition, there are 16 different specific local taxes that may be levied by the local authorities.
The Tax Code, which is in the process of elaboration, is expected to introduce considerable
changes into the Ukrainian taxation system.
A uniform profit tax at the rate of 30% applies to taxable profits earned by resident entities and
permanent establishments of foreign companies. A special tax regime applies to Ukrainian
insurance companies. Taxable profits are defined as adjusted gross income (taxable income) less
allowable gross expenses (deductible expenses) and depreciation charges.
Residents of Ukraine are subject to personal income tax on their worldwide income. Ukrainian and
foreign individuals are residents in Ukraine for personal income tax purposes if they are physically
present in Ukraine for not less than 183 days in a calendar year. Tax is levied at a progressive
scale of rates up to a maximum of 40%. Non-residents are taxed only on their Ukrainian-source
income (income actually paid by a Ukrainian registered entity, income derived from property
located in Ukraine). In general non-residents are subject to tax at the flat rate of 20% (tax
withholding at source), unless otherwise provided by the relevant double tax treaty. Employers are
required to withhold personal income tax and state pension and social insurance contributions from
compensation paid to their employees.
Sale of goods, works or services in Ukraine; import of goods, works or services into Ukraine; and
export of goods, works or services from Ukraine are subject to Value Added Tax. VAT is levied at
two rates: 20% on domestic sales of goods and services, and imports of goods, works and
services; and 0% on export of goods and provision of works or services to be used outside
Ukraine; sales via duty free shops; international transport services. Transactions that are not
subject to VAT include issue, sale and exchange of securities; certain financial services; provision
of financial loans and bank guarantees; insurance and re-insurance services; lease payments
under financial lease agreements, cash payment of dividends, royalties and other.
Excise tax is applied to a limited range of goods imported into or produced in Ukraine, including:
alcoholic beverages, beer, tobacco and tobacco products, cars, petrol, diesel fuel and jewellery.
Owners or users of land are subject to a land tax. The rate depends on the nature and location of
the land, and is paid monthly.
Tax on owners of motor vehicles is paid by legal entities and individuals that own motor vehicles
registered in Ukraine. The tax rate currently varies from UAH 3 to UAH 30 per 100 cc of engine
displacement.
Income earned by non-residents from Ukrainian sources is subject to withholding tax at the rates of
15% or 30% depending on the source of the income. However these rates are substantially
lowered by respective bilateral tax treaties of Ukraine with near 50 countries world-wide.
Regions of Priority Development (incentives for foreign investors)
Development of Special Economic Areas and introduction of the special regime for investment
activity on certain territories is an efficient tool of public policy as for support of regional
development and investment attraction. Currently there are 11 special economic areas and special
treatment for investment activity introduced in 9 territories in Ukraine.
The existing Special Economic Areas are of different functional direction:
* Special Economic Areas Interport Kovel, Porto Franco, Port Krym, Reni belong to classic zones
of foreign trade type created to serve foreign trade flows (export, import, transit).
* SEA"Truskavets Spa Area" is focused at developing tourism and recreation sector. SEA
"Mykolayiv” is focused at development of ship-building. It is foreseen to develop an industrial park
at the territory of SEA “Donetsk”.
* SEA "Azov" & "Zakarpattya" belong to complex zones which combine functions of industrial and
foreign trade zones. SEAs "Slavutych" & "Yavoriv" are the territories with special treatment of
investment activity.
Activities and industries are defined for priority regions. Their development is stimulated by the
state by means of tax, customs, financial and other preferences. In general, these preferences are
adequate to preferences and to the commonly adopted regime for free economic zones in the
world.
The incentives for foreign investors include:
1 Exempt from enterprise income tax (up to 3-5 years) or taxing of the enterprise income using cut
rate (20%).
2 Exempt from taxing investments;
3 Exempt from duty payment and VAT on import of goods for implementation of investment projects;
4 Exempt from rent for land as well as payment of charges to certain budget funds.
Note: The information on this page is provided as a public service, however we cannot
guarantee that the information is current or accurate. Visitors are advised to verify the
information before acting on it.
Conditions for Foreign Investments
The Law of Ukraine “On Foreign Investments” is the core legislative act regulating the foreign
investments into the country. The Law provides that national regime of investment and business
activity applies to foreign investors. In most instances the law provides for equal treatment of
foreign and Ukrainian-owned businesses. However, there are certain restrictions for foreign
investments in publishing and broadcasting sectors. Foreigners are not allowed to participate in the
manufacturing of weapons or alcoholic spirits. Ukraine has concluded investment protection and
promotion treaties with approximately 50 countries world-wide (currently under negotiation with
Singapore).
Investment protection under current Ukrainian legislation includes the following guarantees:
∙ protection for a period of 10 years against adverse changes in the legislation;
∙ investments cannot be expropriated, except in case of national emergency and with proper
compensation;
∙ compensation for losses due to negligence of state bodies;
∙ the right to repatriate the original investment in the event of termination of the investment.
Foreign investors are entitled to repatriate profit, income or other funds relating to investments
without any restrictions, after the payment of any taxes due.
In order to attract foreign investments into the country there have been a number of investment
incentives introduced in the Ukrainian legislation. Property (except for goods for re-sale)
contributed by a foreign investor to the statutory fund of a Ukrainian entity can be imported free of
import duty. In addition, exemption from import VAT is available for fixed assets imported into
Ukraine as an in-kind contribution to the statutory fund of a Ukrainian legal entity.
Forms of Business Representation of Foreign Investors
The forms of business representation most commonly used by foreign investors in Ukraine are joint
stock companies, limited liability companies and representative offices.
A joint stock company is a legal entity whose capital is divided into a specified number of shares
and which must have at least two shareholders. There are two types of joint stock company: "open"
joint stock company and "closed" joint stock company. Shares in an open joint stock company may
be offered to the general public and traded on a stock exchange, whereas ownership of shares in a
closed joint stock company is limited to the founding members. The minimum capital requirement
for a joint stock company is 1,250 minimum salaries (currently equal to UAH 231,250).
A limited liability company does not have shares in the usual sense. Participants in the company
own a percentage of the company's capital on the basis of a written agreement between at least
two founding participants. The minimum capital requirement is 100 minimum salaries (currently
equals UAH 18,500). The liability of the participants in respect of the company's debts is limited to
the value of their individual contributions.
A foreign company can establish a representative office in Ukraine, which is similar to an
unincorporated branch. The representative office does not constitute a legal entity and operates in
Ukraine on behalf of the foreign company it represents. A non-resident company operating a
representative office is deemed to be conducting business activity in Ukraine through a permanent
establishment and may be subject to corporate profits tax unless protected by a double taxation
treaty.
Taxation
The principal taxes in Ukraine are corporate profits tax, personal income tax, Value Added Tax,
payroll taxes, excise tax, land tax, and import duties. Other taxes and charges include tax on owners
of motor vehicles, stamp duty, royalties on oil and gas extraction; charges for the exploitation of
natural resources, charges on environmental pollution and charges for retail trade patents. In
addition, there are 16 different specific local taxes that may be levied by the local authorities.
The Tax Code, which is in the process of elaboration, is expected to introduce considerable
changes into the Ukrainian taxation system.
A uniform profit tax at the rate of 30% applies to taxable profits earned by resident entities and
permanent establishments of foreign companies. A special tax regime applies to Ukrainian
insurance companies. Taxable profits are defined as adjusted gross income (taxable income) less
allowable gross expenses (deductible expenses) and depreciation charges.
Residents of Ukraine are subject to personal income tax on their worldwide income. Ukrainian and
foreign individuals are residents in Ukraine for personal income tax purposes if they are physically
present in Ukraine for not less than 183 days in a calendar year. Tax is levied at a progressive
scale of rates up to a maximum of 40%. Non-residents are taxed only on their Ukrainian-source
income (income actually paid by a Ukrainian registered entity, income derived from property
located in Ukraine). In general non-residents are subject to tax at the flat rate of 20% (tax
withholding at source), unless otherwise provided by the relevant double tax treaty. Employers are
required to withhold personal income tax and state pension and social insurance contributions from
compensation paid to their employees.
Sale of goods, works or services in Ukraine; import of goods, works or services into Ukraine; and
export of goods, works or services from Ukraine are subject to Value Added Tax. VAT is levied at
two rates: 20% on domestic sales of goods and services, and imports of goods, works and
services; and 0% on export of goods and provision of works or services to be used outside
Ukraine; sales via duty free shops; international transport services. Transactions that are not
subject to VAT include issue, sale and exchange of securities; certain financial services; provision
of financial loans and bank guarantees; insurance and re-insurance services; lease payments
under financial lease agreements, cash payment of dividends, royalties and other.
Excise tax is applied to a limited range of goods imported into or produced in Ukraine, including:
alcoholic beverages, beer, tobacco and tobacco products, cars, petrol, diesel fuel and jewellery.
Owners or users of land are subject to a land tax. The rate depends on the nature and location of
the land, and is paid monthly.
Tax on owners of motor vehicles is paid by legal entities and individuals that own motor vehicles
registered in Ukraine. The tax rate currently varies from UAH 3 to UAH 30 per 100 cc of engine
displacement.
Income earned by non-residents from Ukrainian sources is subject to withholding tax at the rates of
15% or 30% depending on the source of the income. However these rates are substantially
lowered by respective bilateral tax treaties of Ukraine with near 50 countries world-wide.
Regions of Priority Development (incentives for foreign investors)
Development of Special Economic Areas and introduction of the special regime for investment
activity on certain territories is an efficient tool of public policy as for support of regional
development and investment attraction. Currently there are 11 special economic areas and special
treatment for investment activity introduced in 9 territories in Ukraine.
The existing Special Economic Areas are of different functional direction:
* Special Economic Areas Interport Kovel, Porto Franco, Port Krym, Reni belong to classic zones
of foreign trade type created to serve foreign trade flows (export, import, transit).
* SEA"Truskavets Spa Area" is focused at developing tourism and recreation sector. SEA
"Mykolayiv” is focused at development of ship-building. It is foreseen to develop an industrial park
at the territory of SEA “Donetsk”.
* SEA "Azov" & "Zakarpattya" belong to complex zones which combine functions of industrial and
foreign trade zones. SEAs "Slavutych" & "Yavoriv" are the territories with special treatment of
investment activity.
Activities and industries are defined for priority regions. Their development is stimulated by the
state by means of tax, customs, financial and other preferences. In general, these preferences are
adequate to preferences and to the commonly adopted regime for free economic zones in the
world.
The incentives for foreign investors include:
1 Exempt from enterprise income tax (up to 3-5 years) or taxing of the enterprise income using cut
rate (20%).
2 Exempt from taxing investments;
3 Exempt from duty payment and VAT on import of goods for implementation of investment projects;
4 Exempt from rent for land as well as payment of charges to certain budget funds.
Note: The information on this page is provided as a public service, however we cannot
guarantee that the information is current or accurate. Visitors are advised to verify the
information before acting on it.
Embassy of Ukraine in the Republic of Singapore
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Investment in Ukraine 2006
In January-September 2006 foreign investors invested into economy of Ukraine 3238,7 mln USD of
direct investments, including from CIS countries - 137,5 mln USD (4,2 % of the total amount), from
other countries of the world - 3101,2 mln USD (95,8 %).
Considearble increase of foreign capital in the reporting period was at the enterprises of financial
activity – at 993,9 mln USD, of real estate, renting and services for legal entities – at 385,3 mln USD
and at the industrial enterprises - 703,2 mln USD including extractive - 55,4 mln USD and
processing industries - 638,3 mln USD.
Investments came from 117 countries of the world, and 10 of them make 84,0 % of total investment
amount. Top ten countries-investors are: Germany - 5700,7 mln USD, Cyprus - 2186,2 mln USD,
Austria - 1659,4 mln USD, United Kingdom - 1520,2 mln USD, United States of America -1399,5
mln USD, the Netherlands - 1364,3 mln USD, the Russian Federation - 925,0 mln USD, Virgin
(British) Islands -786,9 mln USD, France - 763,2 mln USD and Switzerland - 430,1 mln USD.
About 12,3 thousand enterprises of Ukraine reported on attracting of foreign investment.
In January – September 2006 Ukraine invested to the economics of other countries of the world 9,7
mln USD of direct investments. Investment was in money deposits (93,1 %), deposits of real and
movables estate (5,9 %) and other froms of investment (1,0 %).
In January-September 2006 foreign investors invested into economy of Ukraine 3238,7 mln USD of
direct investments, including from CIS countries - 137,5 mln USD (4,2 % of the total amount), from
other countries of the world - 3101,2 mln USD (95,8 %).
Considearble increase of foreign capital in the reporting period was at the enterprises of financial
activity – at 993,9 mln USD, of real estate, renting and services for legal entities – at 385,3 mln USD
and at the industrial enterprises - 703,2 mln USD including extractive - 55,4 mln USD and
processing industries - 638,3 mln USD.
Investments came from 117 countries of the world, and 10 of them make 84,0 % of total investment
amount. Top ten countries-investors are: Germany - 5700,7 mln USD, Cyprus - 2186,2 mln USD,
Austria - 1659,4 mln USD, United Kingdom - 1520,2 mln USD, United States of America -1399,5
mln USD, the Netherlands - 1364,3 mln USD, the Russian Federation - 925,0 mln USD, Virgin
(British) Islands -786,9 mln USD, France - 763,2 mln USD and Switzerland - 430,1 mln USD.
About 12,3 thousand enterprises of Ukraine reported on attracting of foreign investment.
In January – September 2006 Ukraine invested to the economics of other countries of the world 9,7
mln USD of direct investments. Investment was in money deposits (93,1 %), deposits of real and
movables estate (5,9 %) and other froms of investment (1,0 %).