Foreign investments in Ukraine are governed by the Law of Ukraine "On the Regime of Foreign Investment" officially published on April 25, 1996 after having been adopted by the Verkhovna Rada of Ukraine and signed by President Kuchma on March 19, 1996.

This Law stipulates the terms and conditions for foreign investment within the territory of Ukraine, based on the aims, principles and provisions of the legislation of Ukraine.

Types of Foreign Investment

Foreign investments may be in the form of:

• foreign currency which is recognized as convertible by the National Bank of Ukraine;
• the currency of Ukraine - while reinvesting in the initial object of investment or in any other object of investment according to the legislation of Ukraine provided that income (profit) taxes has been paid;
• any movable property or real estate and related ownership rights;
• stocks, bonds, other securities and also corporate rights (ownership rights for share in the Statutory fund of the legal entity established according to the legislation of Ukraine or the legislation of other countries) expressed in convertible currency;
• monetary claims and the right to claim for the fulfillment of contractual obligations guaranteed by the first class banks and having value in convertible currency, confirmed in accordance with the laws (procedures) of the investor's country or international trade procedures;
• any kind of intellectual property and related rights including copyright, patents, trade marks (marks for goods and services), industrial samples, know-how, and others, the value of which has been expressed in convertible currency and confirmed according to laws (procedures) of the investor's country or international trade procedures and by the expert's evaluation in Ukraine;
• rights to engage in economic activity including the right to exploration and exploitation of natural resources granted according to the legislation or contracts, the value of which in convertible currency is confirmed according to the laws (procedures) of the investor's country or international trade procedures;
• other stores of value according to the legislation of Ukraine.

Methods of Making Foreign Investments

Foreign investments may be made in the form of:

• ownership interest in entities which are being established jointly with Ukrainian legal entities and natural persons, or acquisition of shares of functioning entities;
• the establishment of entities wholly owned by foreign investors, subsidiaries and branches of foreign legal entities or full acquisition of existing entities;
• - the acquisition, which is not prohibited by the laws of Ukraine, of movable property or real estate including buildings, apartments, premises, equipment, transportation facilities and other property, by direct acquisition of property and proprietary complexes or in the form of stocks, bonds and other securities;
• the acquisition of the rights to use land and/or concessions for the use of natural resources in the territory of Ukraine by foreign investors, independently or jointly with Ukrainian legal entities or physical persons;
• the acquisition of other property rights;
• other kinds of investment, which are not prohibited by the laws of Ukraine, in particular, those based on agreements with agents of economic activity in Ukraine without establishing a legal entity.

Valuation of Foreign Investments

Foreign investments and the investments of Ukrainian partners, including contributions to the Statutory Fund of the entity, shall be valued in convertible foreign currency and in Ukrainian currency according to the understanding reached by the parties, on the basis of prices at international markets or at the market of Ukraine.

Foreign currency for investment shall be converted into the currency of Ukraine at the official rate for the currency of Ukraine as determined by the National Bank of Ukraine.

The profits, income, and other funds, received in the currency of Ukraine as a result of foreign investments, and which are being reinvested, shall be converted according to the official rate of the currency of Ukraine as determined by the National Bank of Ukraine at the date of actual reinvestment.

State Registration of Foreign Investments

State registration of foreign investments shall be made by the Government of the Autonomous Republic of Crimea, Oblast's (regional), Kyiv and Sevastopol City State Administrations within 3 business days after their actual contribution according to the procedure determined by the Cabinet of Ministers of Ukraine.

Unregistered foreign investments shall not provide privileges and guarantees stipulated by this Law.

Denial of State Registration for Foreign Investments

State registration of foreign investments may be denied only in cases where there is a violation of the established registration procedure. Refusals for reasons of its inexpediency are not permitted.

Refusals of state registration of foreign investments should be in a written form with the reason for the refusal indicated, and can be appealed in court.

Statistical Information regarding Foreign Investments

Bodies conducting state registration of foreign investments, entities with foreign investments, tax and customs authorities, and bank institutions shall present statistical reports on foreign investments in compliance with the established forms and periods.

Organizational and Legal Forms of Entities with Foreign Investments

Entities with foreign investments on the territory of Ukraine shall be established and shall operate within the forms stipulated by the legislation of Ukraine.

Statutory Documents for Entities with Foreign Investments

Statutory documents of entities with foreign investments shall include information required by the legislation of Ukraine for the appropriate organizational and legal form of the entity and also information on the nationality of its founders (equity holders).

Customs Duty

Property imported into Ukraine as a contribution of a foreign investor to the Statutory Fund of an entity with foreign investment (except for the goods for sale or personal consumption) shall be exempt from customs duty.

Customs bodies shall permit the entry of such property onto the territory of Ukraine on the basis of a promissory note issued by the entity for the amount of duty with a postponement of payment for a period of no more than 30 calendar days from the date of issue of the import customs declaration.

The note is redeemed and import duty is not imposed if within the postponed period of payment aforementioned property is included to the balance sheet of the entity and taxation inspection at the place of the entity's location made mark about this at the note.

Procedure of issuing, discounting and redeeming promissory notes is determined by the Cabinet of Ministers of Ukraine.

If during three-year period from the moment of foreign investment's inclusion to the balance sheet of the entity with foreign investments property imported into Ukraine as a contribution of the foreign investor to the Statutory fund of the aforementioned entity is alienated, including the cases of cessation of the activity of this entity (except for the cases of redemption of the foreign investment abroad), the entity with foreign investments shall pay import duty calculated on the basis of customs value of the property converted into the currency of Ukraine at the official rate of the currency of Ukraine determined by the National Bank of Ukraine at the day of property alienation.

Sale terms for Products (Works, Services)

Entity with foreign investments determines sale terms of its products (works. services), including their price, by itself unless other rule is stipulated by the legislation of Ukraine.

Products of entities with foreign investments are not the subject for licensing and quotas provided that they are certified as products of own manufacturing according to the procedure defined by the Cabinet of Ministers of Ukraine.

Export of the goods to which a special export regime is applied is carried out according to the legislation of Ukraine.

Taxation

Entities with foreign investments pay taxes according to the legislation of Ukraine.

Intellectual Property Rights

Protection and execution of intellectually property rights by entities with foreign investments are secured according to the legislation of Ukraine. Entities with foreign investments make decisions on foreign patenting (registration) of the inventions, industrial samples, trademarks and other intellectual property objects, which belong to them according to the legislation of Ukraine, by themselves.

Foreign investments under contracts

Concession Contracts

Assignment of rights to foreign investors as to mining and development of the renewable and nonrenewable natural resources, carrying out economic activity connected with the usage of the state owned items that are not given to the entities, institutions, organizations for the complete ownership or operational management is executed on the basis of concession contracts drawn up with the foreign investors by the Cabinet of Ministers of Ukraine or another state body authorized to do that according to the legislation of Ukraine. Term of a concession contract validity is determined depending on the type and conditions of the concession, but it cannot exceed 99 years.

If concession contracts include conditions which are not stipulated by the legislation of Ukraine then they are to be approved by the Verkhovna Rada of Ukraine.

Agreements (Contracts) on Investment Activity

Foreign investors have the right to conclude agreements (contracts) on joint investment activity (production cooperation, joint production, etc.) which is not connected with establishment of a legal entity according to the legislation of Ukraine.

Regulation of Economic Activity under Agreements (Contracts)

Economic activity on the basis of the agreements (contracts) on joint investment activity without establishment of a legal entity is regulated by the legislation of Ukraine.

Parties of the agreements (contracts) should keep separate accounting and draw up reports on operations connected with the fulfillment of the terms and conditions of these agreements (contracts) as well as open separate accounts in bank institutions of Ukraine to make payments under these agreements (contracts).

The agreements (contracts) should be registered within the terms and according to the procedure determined by the Cabinet of Ministers of Ukraine. Property (except for goods for sale or entity's consumption) imported into Ukraine by foreign investor for not less than 3 years with the purpose of investment under the registered agreements (contracts) is exempted from customs duty payment according to the procedure stipulated by the parts 2 and 3 of Article 18 of this Law. Should this property be alienated within 3 years from the date of its inclusion to the entity's balance sheet, the customs duty shall be paid in accordance with the procedure stipulated by the part 5 of Article 18 of this Law.

Profit received as a result of the joint investment activity under agreements (contracts) is taxed according to the legislation of Ukraine.

Procedure for Dispute Settlements

Disputes between foreign investors and the state on the issues of the state regulations of foreign investments and activity of entities with foreign investments should be considered in the courts of Ukraine unless other procedure is stipulated by the international agreements of Ukraine. All other disputes are subject for consideration in the courts and/or arbitration courts of Ukraine or with the consent of the parties in the arbitration courts abroad.

The above is intended to provide a brief guide only. It is essential that appropriate professional advice is obtained. Our company will be glad to assist you in this respect. Please do not hesitate to contact us.