According to the International Monetary Fund’s estimates, Ukraine’s GDP fell by 25% during the military aggression by the Russian Federation. The Ukrainian economy is in a challenging state, with many businesses forced to close, and people losing their jobs. This has undoubtedly affected budget revenues, and as of the beginning of 2024, the budget deficit exceeds 30% of GDP.
Despite these challenges, there is some positive news. According to the IMF, Ukraine’s real GDP increased by 4.5% in the past year, 2023. The banking system operates stably, achieving currency stability and implementing systemic business support through state grants, loans, and subsidies. During the war, the state invested 6.5 billion UAH in business development through grants. In the first week of 2024 alone, the “Accessible Loans” state program provided 2.2 billion UAH in credits to support businesses. All of this demonstrates the government’s active efforts to revive Ukraine’s economy.
Particular attention should be paid to state support for investment projects with significant investments. This instrument was envisaged even before the start of military aggression, and its relevance is growing. The state is taking active steps to simplify the investment process.
An investment project can be considered significant if it meets the criteria specified in the Law of Ukraine “On State Support for Investment Projects with Significant Investments in Ukraine.” These criteria include:
- A minimum investment amount of 12+ million euros.
- The project involves creating 10+ jobs with an average salary exceeding the regional average by at least 15%.
- The project involves construction, modernization, technical and/or technological re-equipment of investment objects.
- The implementation period of the investment project should not exceed <= 5 years.
- The project is implemented in one of the specified sectors: processing industry (excluding the production and circulation of tobacco products, ethyl, cognac, and fruit spirits, alcoholic beverages), extraction for further processing and/or enrichment of minerals (excluding coal, brown coal, crude oil, and natural gas), waste management, transportation, warehousing, postal and courier activities, logistics, education, scientific and technical activities, healthcare, arts, culture, sports, tourism and resort-recreational activities, electronic communications, biogas and biomethane production (including liquefied or compressed).
On its part, the state provides support and several guarantees for investment projects with significant investments, including:
- State guarantees regarding the stability of legislation (in a negative direction) for 15 years.
- Compensation for losses caused by the actions or inaction of state authorities.
- Providing state support of up to 30% of the volume of significant investments in one of the following forms:
- Exemption from corporate income tax for 5 years from the date of application (excluding projects in the sectors of extraction for further processing and/or enrichment of minerals).
- Exemption from VAT payment on the import of equipment and machinery (provided that the respective goods were manufactured no earlier than three years before the date of their import and have not been used), according to the list and volume approved by the Cabinet of Ministers of Ukraine.
- Exemption from customs duties when importing equipment and machinery (provided that the respective goods were manufactured no earlier than three years before the date of their import and have not been used), according to the list and volume approved by the Cabinet of Ministers of Ukraine.
- Construction at the expense of state and local budgets/compensation for the construction of engineering and transport infrastructure objects (roads, communication lines, utilities, etc.) necessary for the implementation of an investment project with significant investments (excluding projects in the field of iron ore enrichment).
- Establishing a land tax rate and rent for state and municipal property at a rate lower than the land tax rate or exemption from land tax (excluding projects in the sectors of extraction for further processing and/or enrichment of minerals).
- Simplified procedure for providing land plots of state or municipal property for use (lease) and with a preferential right to purchase such land plots after the expiration of the special investment agreement term.
- Compensation for costs related to connection to and joining the engineering and transport infrastructure (roads, communication lines, utilities, etc.).
- Exemption from reimbursing losses to the forestry sector.
To receive state support, it is necessary to submit an application, a technical and economic justification of the investment project with significant investments (with mandatory indication of the social effect of its implementation), a project of a special investment agreement, and, finally, conclude a special investment agreement with the state.
It is also worth noting that recent changes to the legislation allow insuring investment projects against war risks. This innovation serves as a positive incentive for investors, as they can now be confident that their funds invested in the Ukrainian economy are protected.
The state provides support and incentives for smaller projects as well, which will be discussed in upcoming articles.
In conclusion, challenging times breed new economic opportunities. The Black Swan that landed on Ukraine may open up promising possibilities for investors worldwide. Ukraine is open to investments and is doing everything possible to attract investors. If you are interested in starting a business in Ukraine or implementing an investment project in Ukraine, feel free to contact us for legal support. Despite all the benefits and incentives for investors, the process is quite bureaucratic and challenging, so you will need professional legal assistance for the successful implementation of your project.
