Ukraine parliament adopts investment nanny bill

Ukraine’s parliament approved on Dec. 17 the second
reading of the investment nanny bill, which assigns state assistance and
oversight to large investment projects. The threshold for qualifying investment
projects was reduced to EUR 20 mln from EUR 30 mln in the first reading. The
final bill also includes a larger list of investment areas to include
practically all economic activities, except the production of tobacco and
alcohol.

Investment projects under the bill should create at least
80 new jobs with average wages of at least 15% higher than those in the same
industry and in the same region. The investment contract should be concluded
between the investor, Ukraine’s Cabinet of Ministers and local authorities (if
government incentives are involved).

The major investment nanny incentives are exemptions
from the enterprise profit tax, duties on imports of new equipment, possible
discounts on renting land, and state financing of infrastructure (roads, lines
of communication, electricity, gas, and water supply).

At the same time, parliament’s legal service in its
legal opinion provided to the draft bill noted that the project contradicts the
IMF-Ukraine memorandum of June 2 as Ukraine should abstain from introducing new
tax incentives.

Evgeniya Akhtyrko: As we mentioned earlier, the
investment nanny project is in essence an admission by the Zelensky
administration that it is incapable of carrying out systemic reforms that involve
large-scale planning and long-term strategy. Instead of promoting competition,
leveling the playing field and providing equal access to resources, the law
might bring only piecemeal change in a particular area, if any at all.

That said, we don’t expect the adopted bill to
become an effective tool to make a significant improvement in Ukraine’s
business environment and boost investment flow to the country. However, it can
provide some guidelines for some investors for assessing the costs of their projects.