Ukraine has undergone a profound transformation. In the last five years, Ukraine accomplished more reforms than during the previous period of independence combined. Unprecedented structural reforms have been launched aiming at achieving a full membership of Ukraine in the EU and making Ukraine an industrial hub of Europe.
Justice and Anti-corruption policy
Ukraine continues its efforts to reform the judiciary and to ensure a better access to justice and increase its efficiency. In recent years progress has been reached in implementation of reforms of law enforcement bodies, judicial system and anti-corruption bodies.
As an integral issue of ensuring justice and protection of investors’ rights, Ukraine will systematically reform law enforcement bodies. The goals of Ukraine in the coming years are the functioning of effective and “transparent” in their activities:
- The State Bureau of Investigations (SBI), a law enforcement body, specializing in the investigation of offenses committed by senior officials, judges, law enforcement officers, as well as persons who have committed military crimes.
- The National Anti-Corruption Bureau of Ukraine (NABU), a special law enforcement body, designed for prevention, detection, termination, investigation and disclosure of corruption offenses.
- The Bureau of Economic Security (BES) as an alternative body to the existing tax police, designed to carry out operational-intelligence activities and pre-trial investigations of economic crimes.
- The Prosecutor’s Office bodies and the bodies of the Security Service of Ukraine, which are in the process of reforming.
- The Specialized Anti-corruption Prosecutor’s office (SAP) as an independent structural department of the General Prosecutor’s Office, designed to supervise the observance of laws during the operational-intelligence activities of pre-trial investigation of NABU, to support state prosecution and represent the state in criminal proceedings for corruption crimes.
A high level of justice in Ukraine shall be ensured by a full-scale judiciary reform consisting of the following steps:
- Creation of the Highest Anti-Corruption Court of Ukraine as a higher specialized court in the judicial system, the mission of which is to conduct a fair justice in criminal proceedings for corruption crimes.
- The transition from a four-level to a three-level judicial system, as well as the creation of the new highest court in the judicial system of Ukraine – the Supreme Court.
- Creating of the Highest Court on Intellectual Property (IP-Court) as a specialized court in the intellectual properties examination system.
- Introduction of the e-court.
- Reforming constitutional justice.
- “Relaunch” of reforms of the High Council of Justice and the High Qualifications Commission of Judges of Ukraine.
- Introduction of legislative regulation of mediation, etc.
During 2014-2019, goals of the first stage of decentralization reform were achieved, including the introduction of financial decentralization, the adoption of the Law of Ukraine “On the Voluntary Association of Territorial Communities”, the introduction of system of village chiefs, the transfer of more than 1.5 million hectares of land for agricultural purposes located outside of the populated area into the communal property of united territorial communities, expanding powers of local self-government bodies.
In 2020 the second stage of decentralization reform was launched, which was marked by the approval of a new administrative-territorial system at the basic level, the adoption of the Elections code of Ukraine and the holding of regular local elections on October 25, 2020.
Further tasks of the decentralization reform are further transfer of powers to local self-government bodies, the introduction of local referendums and the adoption of amendments to the Constitution of Ukraine regarding decentralization.
Today, municipalities, cities and regions have direct responsibility for their development, as 60% of tax receipts remain in the localities.
Ukraine’s energy sector has been deeply transformed and liberalized since 2014. The government eliminated illegal schemes, leading to a transition from large budget deficits to healthy profits from the state gas company, Naftogaz. Steps are also underway to boost Ukraine’s domestic energy production and increase gas extraction as part of efforts to reduce the country’s dependence on energy supplies from Russia – a dependence that has previously left Ukraine particularly vulnerable to blackmail by Russia.
In 2018, the Government abolished the controversial and non-transparent mechanism for the issuance of special permits for subsoil use. Instead, the practice of open auctions was introduced for the granting of licenses for natural resource extraction, which provides unique opportunities for increasing oil and gas production in Ukraine.
From July 1, 2019, Ukraine has introduced a competitive electricity market that operates on the principle of consumer right to freely choose a supplier of electric energy.
In January 2020, the “Gas Transmission System Operator of Ukraine” LLC was finally separated from NJSC Naftogaz of Ukraine, which completed the process of the “оwnership unbundling” in the field of natural gas transportation and gave impetus to an increase in competition in the energy market of Ukraine.
Ukraine sees itself as part of the European Community and one of the steps towards energy independence from Russia and EU membership is the integration of Ukraine’s Integrated Energy System (Ukrainian IES) into the European Network of Transmission System Operators for Electricity (ENTSO-E).
The full integration of Ukrainian IES into the European system will allow Ukraine to increase revenues from electricity exports to $ 1.5 billion a year, European suppliers will enter the Ukrainian market, and competition will balance electricity prices for consumers. It is estimated that the capacity between the Ukrainian IPS and ENTSO-E will be about 4 GW.
Banking and Financial Market
During the last 5 years the National Bank of Ukraine (NBU) started a massive campaign to “cleanse” the banking sector, as a result of which more than 100 banks were closed and Ukrainian banks collectively made a “historical” $2.3 billion profit in 2019.
A new currency law came into effect in Ukraine, marking the start of the most radical overhaul of currency regulations in over a quarter of a century. The new rules continue the NBU’s direction towards currency liberalization that included the simplification of opening, use and closing of accounts, and changes in the procedure of obtaining loans by non-residents, while the requirement for the mandatory sale of foreign currency income and all limits on dividend repatriation were cancelled.
In August 2020, has entered into effect the law of Ukraine No. 738-IX, by which the laws of Ukraine “On Capital Markets and Organized Commodity Markets” and “On Commodity Exchange” have been issued in new versions. It created preconditions for the full functioning and development of capital markets in Ukraine, in particular: markets of derivative financial instruments, capital markets and organized commodity markets.
In September 2021, the Verkhovna Rada of Ukraine adopted the law of Ukraine “On Virtual Assets” and, therefore, started the process of legalization of virtual assets in Ukraine.
Key objectives for further reforming the sphere are to improve the legislation of Ukraine in order to liberalize the financial services market, stimulating the development of the capital markets, the virtual assets market, introduction and transition to e-hryvnia and harmonization of Ukraine’s legislation with EU legislation.
Deregulation and ease of doing business improvement
An ambitious deregulation program was launched in 2014 aimed at achieving regulatory compliance and convergence with European Union standards and global best practices. The reforms positively impacted the business environment in key sectors, including agriculture, telecommunications, infrastructure, construction, taxation, as well as state customs procedures, sanitary and veterinary controls.
Regular quarterly government deregulation meetings, often including input from the private sector have resulted in repeal of more than 1,300 outdated regulations.
Key regulatory reform achievements:
- Tax administration reform (automatic VAT refund system, e-cabinet for tax administration, etc.)
- Simplified procedure for the opening and operation of representative offices of foreign companies
- Simplified customs clearance procedure of goods in sea and river ports
- Launch of transparent e-sales of special permits for oil & gas extraction
- Open access to geological information
- Risk-based approach to state supervision of business
- New modern building rules
- Port charges reduced by 20% starting from 2018
In 2021, Ukraine’s Parliament adopted a comprehensive law on simplifying the procedure for connection to the electric grid, which provides for a reduction in the number and time-duration of required procedures (e.g., 7 working days – for filing information to the State land cadastre, 10 working days – for provision of information and/or documents for the development of design documentation for construction to the distribution systems operators, etc.), documents and approvals necessary for connection to the grid, significant reduction in time for investors, removal of artificial restrictions and elimination of barriers in the procedure for connection to the grid, introducing mechanisms of a “one-stop shop” and an online service for filing information and documents, etc.
As a result of the adoption of the law, conditions for reducing an average time for connection to the electric grid were created: from about 267 days (according to “Doing Business” data) to about 90 days (which is less than an average 100 days in Europe and Central Asia).
In 2018, a new privatization bill was adopted by the Ukrainian parliament. The law divides companies into three categories: those to be privatized, liquidated, or retained. The new law replaces numerous and often contradictory regulations, cuts the privatization timeline, and makes the online Prozorro electronic system mandatory for the privatization of small SOEs.
Despite the significant impact of the corona-crisis on the world’s economy, in March 2021 a so-called “large privatization” was unlocked (privatization of state enterprises with the balance cost of more than 250 mln UAH). This opens opportunities for foreign investors to enter sectors of Ukraine’s economy, which were previously “closed”, monopolized.
Land market reform and Agriculture
In the 2021, a number of bills in the field of land reform were adopted by the Verkhovna Rada:
✅ Access to land circulation procedures has been simplified. In April, 2020, the Verkhovna Rada of Ukraine a number of important barriers, which blocked the free circulation of land plots in Ukraine, were removed, in particular: 1) the need for foreign investors to apply for a pre-approval of the purchase of land plots of state or communal property to the Cabinet of Ministers of Ukraine has been cancelled 2) the procedures of the state expertise of land management documentation, the state expertise of land management documentation and agrochemical certification of land were abolished, a number of procedures in the field of land relations were transformed into the electronic form, etc.
✅ The moratorium on sale of agricultural land was abolished, which became the “driver” of the full functioning of the agricultural land market in Ukraine.
✅ The system of electronic auctions for the sale of state and communal lands was introduced, which shall increase the transparency of land bidding procedures and promote access to land trading for a larger circle of investors. From now on, at all stages, the trading information will be available online, and most processes will be automated.
Traditionally a wide range of opportunities are available for investors in the agricultural sector. Enterprises in agroproccessing may apply for a number of types of state support, in particular, partial compensation by the state of the value of agricultural machinery for domestic production, state financial support for irrigation, organic production, potato growing, development of gardening, viticulture and hop growing by providing budget funds on an non-repayable basis for the coverage of target expenses, etc.). From 2021 agricultural producers can also use the benefits of a partial state compensation (up to 60% of compensation) of insurance payments paid by the agricultural commodity producers.
Expansion of the e-transport market
Ukraine is continuously moving towards development of high-tech production with high added value, in particular, in order to stimulate production of electric transport, electric motors and components for them in Ukraine, a regime of tax and customs relieves was introduced in 2021, among which:
- An exemption from payment of import duties when importing components for the production of electric transport, until 2028.
- A right of taxpayers to include expenses for the purchase of passenger electrical automobiles to a tax discount, until 2030.
- An exemption from taxation of corporate income tax received from the sale of electric motors, lithium-ion batteries, their charging devices, electric transport of own production, until 2033.
From now on, the production of electric transport in Ukraine is becoming economically more profitable, and the demand for electric transport in the Ukrainian market will only increase.
Space and Aircraft industries
Ukraine is one of the few nations with a full cycle capacity to design, produce, and operate civil, military and cargo aircraft, as well as supply space technology. A law No. 1071 on amending certain laws of Ukraine involving the development of activities in space and attracting investments was passed by the Ukrainian Parliament. The bill brings competition to this sector by allowing private companies to engage in space-related activities, including the launch of rockets.
Also, the legislation of Ukraine provides for exemption from the taxation of VAT for operations on importing equipment for the purpose of space technology and aircraft production.
Digitizing of public services
Ukraine’s Government continues to transfer cooperation between the state and business purely into an electronic form that promotes the simplification of access, in particular for investors, to public services, reducing the time and financial expenses for their receipt, ensuring transparency of the procedure for obtaining them.
During 2021, Ukraine has introduced a voluntary legal regime of e-residency that provides IT companies an access to a special tax regime, namely: 9% of a so-called “distributed income tax” instead of 18% of a corporate income tax, 5% of a personal income tax (PIT) on employees’ remuneration of a so-called “gig-specialists” under “gig-contracts”, as well as on the author’s rewards for the creation of a employee’s invention and for the transition of rights to a company, instead of 18% of the PIT.
In addition, from 2022 IT companies in Ukraine will receive access to:
✅ More flexible regulation of labor relations.
✅ Best protection of intellectual property rights.
✅ Legal mechanisms of the common law system.
✅ Mechanisms of a non-interference of the state into the company’s economic activity.
✅ Guarantees for the stability of legislation for 25 years.
✅ The possibilities of participants in a legal entity with foreign share capital to freely choose an applicable law to a corporate agreement, etc.
Support for the development of the market of transport and logistics services in Ukraine
Ukraine is moving towards introduction of legal mechanisms for wider use of multimodal freight traffic in the transport system and for promotion of environmental protection through the reorientation of a large part of transportation from car roads to the river and other “environment-friendly” types of transportation. The time and expenses for transport and logistics shall be also greatly optimized by introduction of a single contract for multimodal transportation.
In the beginning of 2022 the Law of Ukraine “On Inland Water Transport” shall enter into force. Despite the fact that the reform of inland water transport only gains momentum, the freight transportation by the Dnipro river has already increased by 1.2 million tons comparing the first 4 months of 2021 to the same period of 2020.
Stimulation for the development of industrial parks of Ukraine
During 2021-2022 the volume of foreign direct investments into the R&D and industrial sector of economy of Ukraine will increase significantly as a result of introduction of new types of financial incentives for participants, managing companies and initiators of industrial parks, namely:
- Compensations of costs for connecting to the utilities networks.
- Non-repayable subsidy for economic activity within the industrial park.
- Financing of construction, reconstruction, repair of engineering and transport infrastructure for the creation and functioning of industrial parks, as well as the arrangement of industrial parks.
In September, 2021, a mandatory provision for inclusion expenditures in state budgets for 2022-2026 for the implementation of state incentives at the amount of at least 2 billion USD on the every successive year shall become a guarantee for granting companies a state support provided by the Law of Ukraine “On Industrial Parks”.
In addition, as a result of recent amendments of the law of Ukraine “On Industrial Parks”, from 2021 “brownfield” types of projects, as well as projects in the field of processing industrial and/or domestic waste (except for disposal) could be also implemented on the basis of industrial parks. The requirements for potential industrial parks were also minimized by reducing the minimum (from 15 hectares to 10 hectares) and by increasing the maximum (from 700 hectares to 1000 hectares) permissible limits of industrial parks.