Current Investment Trends
Foreign direct investment continues to flow into Ukraine’s economy in 2011. The total volume of FDI in Ukraine as of Jan. 1, 2011 was USD 44.7 billion, 11.6% more than on Jan. 1, 2010. While small compared to the amount of foreign direct investment inflows detected in neighboring Central European countries, Ukraine has observed a steady surge of investment inflows since the Orange Revolution of 2004 slapped the country onto the radar screens of Western investors.
The cash inflows continue to stream in from so-called tax-heaven countries, such as Cyprus and the Netherlands. The largest FDI inflows to Ukraine as of January 1, 2011 were from Cyprus, with 22.2% of cumulative FDI, Germany with 15.8%, the Netherlands with 10.5%, Russia with 7.6%, Austria with 5.9%, France with 5,3% and the United Kingdom with 5.1%.
Direct investment from Ukraine was USD 6.8 billion as of Jan. 1, 2011. The largest portion of investments from Ukraine went to Cyprus. Both inflows and outflows of investment between Ukraine and Cyprus represent the capital transactions and movements done by the major Ukrainian industrialists aiming at optimizing taxation as well as allocating money for developing the international structures of their own businesses. Over more than a decade, Cyprus offshore economy has been playing an important role as a shelter for the evading Ukrainian money.
The lion’s share of FDI to Ukraine was invested in the financial services and industry sector: USD 15 billion or 33.7% of total FDI and USD 14 billion or 31.4% of total FDI respectively. The real estate business and wholesale and retail trade absorbed 10.7% and 10.6% of total investment.
At USD 2.1 billion, the city of Kyiv got most of the FDI. Other top performers included Kharkiv and Dnipropetrovsk oblasts.
On Sept. 29, 2010, the Cabinet of Ministers adopted the Concept for a State Targeted Economic Program on investment activity for 2011-2015. Ukraine regulates foreign investment activity through two main laws: the Law “On Protecting Foreign Investments in Ukraine” dated September 10, 1999, and the Law “On the Foreign Investment Regime” dated March 19, 1996. The National Bank of Ukraine has also adopted a number of resolutions that regulate currency issues involving foreign investment.
What is a foreign investor?
As defined by the Foreign Investment Law, a foreign investor may be any legal entity established in accordance with the laws of any country, any individual whose permanent place of residence is outside Ukraine, any foreign state or international organization, or any other foreign subject of investment activity.
The current law offers a number of guarantees to foreign investors:
- Unencumbered repatriation of profits from investments in Ukraine;
- Protection against nationalization and expropriation, except in the case of natural disasters, emergencies, epidemics, epizootics, where appropriate and effective compensation would be offered, and investors retain the right to reinvest their profits in Ukraine;
- Compensation of losses incurred as a result of unlawful action or inaction on the part of state agencies or government officials;
- Protection against future changes in legislation affecting these guarantees for a period of 10 years; and
- Exemption from customs duties on fixed assets imported to Ukraine as contribution to the charter fund of a company.
Foreign investors also enjoy the standard domestic regime for investing and doing business in Ukraine. The law states that foreign investors who implement projects in accordance with state programs for the development of priority branches of the economy and the social sphere may be granted preferential treatment.
Registering a foreign investment
A foreign investment need not be registered in Ukraine. However, to enjoy guarantees offered to foreign investors by the law, a foreign investment should be registered with the appropriate state authorities within three business days after the investment has been contributed. The official fee for registration of foreign investment is about $40.