The Verkhovna Rada, the Ukrainian parliament, has passed a law on increasing state support for large investment projects in yet another attempt to lure international business to the country.
The law will offer tax benefits to big investors and provide them with so-called “investment nannies,” managers who will help them communicate with state officials, provide advice and generally help them navigate the complicated world that is Ukrainian bureaucracy.
In total, 252 lawmakers voted for the bill, which was initiated by President Volodymyr Zelensky, in its final reading on Dec. 17.
The law will “incentivize attracting strategic investors to the economy of Ukraine, increase the investment attractiveness of Ukraine, and increase the competitiveness of Ukraine’s economy,” the legislation’s explanatory note reads.
According to the law, large investors will be exempted from paying income tax, value-added tax and the import duty on new equipment and its components.
Investors will also be able to have money allocated from state or municipal budgets to build the infrastructure needed for an investment project, including highways, communication lines, heat, gas, water and electricity supply facilities, and utilities.
However, the total amount of state support won’t exceed 30% of the investment in a project.
Investors also have to meet some requirements to be eligible for this program. The project needs to be in the sectors of mineral processing, waste management, transport, warehousing, postal and courier activities, logistics, education, health, arts, culture, sports, tourism or recreation.
Investors in businesses focused on the production and circulation of tobacco products, alcohol and alcoholic beverages, as well as the processing of coal and lignite, crude oil and natural gas are excluded from this list.
Moreover, an investment project has to create at least 80 new jobs, while employees’ average salary must be at least 15% higher than the average salary for this activity in the region for the last year.
Investors must also implement their projects in no more than five years and must invest at least 20 million euros.
The Ukrainian government will sign agreements with investors enshrining their obligations and rights.
However, this law has disadvantages, some experts say.
“It creates and supports unequal rules of the game,” Ilona Sologub, chief executive officer of the Vox Ukraine think tank, told Bloomberg.
Nina Yuzhanina, a lawmaker from the European Solidarity party, claims that this law is lobbying for the interests of some investors — “obviously, those who benefit from the authorities’ actions,” — she wrote on Facebook.
Yuzhanina added that the law contradicts the principle of tax neutrality and will deemphasize the goal of developing economically depressed territories, since investors can realize their projects everywhere in Ukraine, even in the center of Kyiv.
Yuzhanina also warns that, under this law, officials won’t fight offshoring: Applicants for this program can even be companies where 50% of their authorized capital belongs to people registered in countries with offshore status.
“That is, up to 50% of an investor’s income exempt from taxation in Ukraine will be taken to offshore zones,” Yuzhanina writes.
