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HomeReportsBureau of Economic and Business Affairs2024 Investment Climate
Statements…Ukraine
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2024 INVESTMENT CLIMATE STATEMENTS: UKRAINE
In this section /
EXECUTIVE SUMMARY
1. EXECUTIVE SUMMARY
2. 1. Openness To, and Restrictions Upon, Foreign Investment
1. Policies Toward Foreign Direct Investment
2. Limits on Foreign Control and the Right to Private Ownership and
Establishment
3. Other Investment Policy Reviews
4. Business Facilitation
5. Outward Investment
3. 2. Bilateral Investment and Taxation Treaties
4. 3. Legal Regime
1. Transparency of the Regulatory System
2. International Regulatory Considerations
3. Legal System and Judicial Independence
4. Laws and Regulations on Foreign Direct Investment
5. Competition and Anti-Trust Laws
6. Expropriation and Compensation
7. Dispute Settlement
1. Investor-State Dispute Settlement
2. International Commercial Arbitration and Foreign Courts
8. Bankruptcy Regulations
5. 4. Industrial Policies
1. Investment Incentives
2. Foreign Trade Zones/Free Ports/Trade Facilitation
3. Performance and Data Localization Requirements
6. 5. Protection of Property Rights
1. Real Property
2. Intellectual Property Rights
7. 6. Financial Sector
1. Capital Markets and Portfolio Investment
2. Money and Banking System
3. Foreign Exchange and Remittances
1. Foreign Exchange
2. Remittance Policies
4. Sovereign Wealth Funds
8. 7. State-Owned Enterprises
1. Privatization Program
9. 8. Responsible Business Conduct
1. Additional Resources
1.
2. Climate issues
1.
10. 9. Corruption
1. Asset declaration
2. Ownership registries
3. Public procurement
4. Resources to Report Corruption
11. 10. Political and Security Environment
12. 11. Labor Policies and Practices
13. 12. U.S. International Development Finance Corporation (DFC) and Other
Investment Insurance Programs
14. 13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
VS/LS
15. 14. Contact for More Information
EXECUTIVE SUMMARY
While Russia’s ongoing full-scale invasion presents clear challenges, existing
and new investors continue to make investments in Ukraine. Ukraine offers a
large consumer market, a highly educated and cost-competitive work force, and
abundant natural resources. The Ukrainian government continues to advance
legislation to capitalize on this potential with numerous recently completed or
ongoing governance and economic reforms designed to bring Ukraine into
compliance with EU standards and improve the business climate. Ukraine’s
increasing momentum towards integration with the EU offers potential
opportunities for investors seeking to access the EU market. Additionally,
Ukraine’s reconstruction is anticipated to attract hundreds of billions of
dollars in investment from governments, International Financial Institutions
(IFIs), and the private sector, which will create significant opportunities for
investors.
Many U.S. companies have found success in Ukraine, particularly in the
agriculture, consumer goods, and technology sectors. Ukraine is an agricultural
powerhouse and one of the world’s largest grain exporters, despite Russia’s
efforts to block grain exports. Ukraine has long had a skilled workforce in the
IT service and software R&D sectors. The technology sector continues to be a key
driver of Ukraine’s economy even amidst Russia’s ongoing aggression.
Russia’s occupation of a significant share of Ukrainian territory, fierce
fighting on the frontlines, missile and drone attacks on civilians and civilian
infrastructure throughout Ukraine, disruption of the workforce due to the
invasion, unexploded ordnance contamination, and other ecological consequences
of the war pose challenges to new and existing investors. However, most areas of
Ukraine are not on the frontlines. Despite ongoing progress, problems with
corruption and an unreliable judicial system persist, while Ukraine’s adoption
of wartime currency controls has added new complications. Nevertheless,
reconstruction and recovery offer significant potential opportunities,
particularly for early moving investors with a high risk tolerance. Ukrainian
government officials are also eager to engage with potential investors as they
look to bolster Ukraine’s economy.
Table 1: Key Metrics and Rankings Measure Year Index/Rank Website Address TI
Corruption Perceptions Index 2023 104 of 180
https://www.transparency.org/en/cpi/2023/ Global Innovation Index 2023 55 of
132 https://www.wipo.int/global_innovation_index/en/2023/ U.S. FDI in partner
country ($M USD, historical stock positions) 2022 $-131
http://apps.bea.gov/international/factsheet/ World Bank GNI per capita 2022
$4,260 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD
1. OPENNESS TO, AND RESTRICTIONS UPON, FOREIGN INVESTMENT
POLICIES TOWARD FOREIGN DIRECT INVESTMENT
The Government of Ukraine (GoU) actively seeks to attract FDI. In 2014, the GoU
established the National Investment Council as a consultative and advisory body
under the President and in 2016 the Ukrainian government established an
investment promotion office, UkraineInvest https://ukraineinvest.gov.ua/en/ ,
with a mandate to attract and support FDI. UkraineInvest’s mission is to provide
a one-stop shop for investors by helping them find and/or initiate a project and
then guiding them through any necessary regulatory processes. UkraineInvest is
also the primary point of contact for companies applying for tax and operational
benefits under the December 2020 investment incentive law “On State Support of
Investment Projects with Significant Investments,” that entered into force on
February 13, 2021. A unique electronic platform, “Advantage Ukraine”
https://advantageukraine.com/ , was created in 2022 to attract foreign investors
to the Ukrainian economy. This GoU investment initiative encompasses more than
500 investment projects and opportunities in 10 economic sectors.
The Business Ombudsman Council of Ukraine is as an advisory body under the
Cabinet of Ministers that provides a forum for domestic or foreign businesses to
file complaints about unjust treatment by government officials and state-owned
enterprises. In June 2020, draft law #3607 “On the Establishment of the Business
Ombudsman Institution in Ukraine” was registered, which would have significantly
expanded the institution’s authorities to investigate complaints. In 2021, the
bill was considered by a few Rada committees but did not move forward in
2022-2023 due to the Russia’s full scale invasion and ongoing war.
LIMITS ON FOREIGN CONTROL AND THE RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT
The regulatory framework for the establishment and operation of businesses in
Ukraine by foreign investors is generally similar to that for domestic
investors. Registering a foreign investment is governed by the Law “On Foreign
Investments Regime” (1996), although according to the Law “On Amendments to Some
Legislative Acts of Ukraine Regarding the Removal of Barriers to Attracting
Foreign Investments” (2017), registration is not mandatory, and having been
replaced by the requirement to submit information to the local authorities for
statistical purposes. Foreign investments registered before and after the entry
into force of this Law have an equal right to receive benefits and guarantees
provided for by the Law of Ukraine “On Foreign Investments Regime.” These
guarantees include the transfer of profits and income resulting from investment
in Ukraine, the right to issuance of a permanent residence permit, a ban on
nationalization, etc. Before registering their business, non-Ukrainian citizens
must register with the Office of Immigration in the Ministry of Foreign Affairs
and receive a taxpayer identification number through the State Tax Service.
Accreditation (registration and legalization) of branches and representative
offices of foreign banks is carried out by the National Bank of Ukraine,
registration of representative offices of other foreign economic entities on the
territory of Ukraine is carried out by the Ministry of Economy, state
registration of separate divisions of foreign non-governmental organizations,
representative offices, branches of foreign charitable organizations is carried
out by the Ministry of Justice of Ukraine.
Foreign and domestic private entities can engage in all forms of remunerative
activity, with some exceptions: foreign companies are restricted from owning
agricultural land, producing bioethanol, and some publishing activities. In
addition, Ukrainian law authorizes the government to set limits on foreign
participation in state-owned enterprises, although the definition of “foreign
participation” is vague, and the law is rarely enforced. Certain critical
infrastructure, especially in the energy sector, is precluded by law from
private ownership and therefore not available to foreign investors. This
includes the gas transmission system, electricity grids, and various plants and
factories. While Ukrainian authorities currently review merger and acquisition
investments on competition grounds, the government is actively developing a
mechanism for investment screening on national security grounds. Registered with
the Parliament in February 2021, draft Law # 5011 “On Foreign Investments in
Economic Entities of Strategic Importance for the National Security of Ukraine”
was not passed because of Russia’s full-scale invasion.
OTHER INVESTMENT POLICY REVIEWS
The Organization for Economic Cooperation and Development (OECD) and the World
Trade Organization (WTO) conducted formal reviews in 2016, which can be found at
OECD:
http://www.oecd.org/investment/oecd-investment-policy-reviews-ukraine-2016-9789264257368-en.htm ;
WTO: https://www.wto.org/english/tratop_e/tpr_e/tp434_e.htm .
On June 7, 2023, the OECD and the Government of Ukraine launched a four-year
Country Program that will support Ukraine’s agenda for reform, recovery and
reconstruction and will help Ukraine advance its ambitions to join the OECD and
the European Union.
BUSINESS FACILITATION
Ukraine has taken major steps to improve the ease of doing business over the
past several years. All U.S. companies surveyed in a report by USAID, American
Chamber of Commerce in Ukraine, and the U.S. Department of Commerce released in
April 2023: A New Ukraine: Catalyzing Investment in Freedom, Peace, and
Prosperity, confirmed that they will continue business in Ukraine post war and
31 percent reported plans to increase investment. Companies mostly invested in
Ukraine due to the size of its local market and the available skilled labor
force, but increasingly see EU accession as important to their businesses. The
report can be found at:
https://chamber.ua/news/a-new-ukraine-catalyzing-investment-in-freedom-peace-and-prosperity-usaid-report
The European Business Association (EBA) in its analytical report “Gradus
Research” indicates that the integral indicator of the Investment Attractiveness
Index of Ukraine slightly decreased in 2023 – to 2.44 points out of 5 possible
(2.48 points in the second half of 2022). Further research by the EBA showed
that despite the war, 32 percent of member-companies’ CEOs believe that it will
be profitable for new investors to enter Ukraine (17 percent of respondents
thought so a year ago). At the same time, 57 percent of the surveyed companies,
which are already present in the Ukrainian market, reported readiness to invest
in Ukraine during the war and 79 percent are ready to join the reconstruction
process. The report can be found at:
https://eba.com.ua/kilkist-seo-yaki-vvazhayut-vygidnymy-investytsiyi-v-ukrayinu-zrosla-majzhe-vdvichi-z-2022-roku/
The government of Ukraine is not a signatory to the WTO Investment Facilitation
for Development Agreement. See:
https://www.wto.org/english/tratop_e/invfac_public_e/invfac_e.htm#participation
Private entrepreneurs and legal entities can register online via a State
Electronic Services Portal “Diia” at
https://diia.gov.ua/services/reyestraciya-fop . This e-application has
accelerated the digital transformation of Ukraine via an online portal that
allows for digital access to 210 government services and enables Ukrainians to
receive a range of government services online, including applying for benefits
and government programs, paying taxes, accessing important documents,
registering and running businesses, and identification and digital signatures.
Once a company is registered with the State Registrar (EDR), its data is
transferred by the registrar to the relevant state authorities, such as the
State Committee of Statistics of Ukraine, the State Pension Fund, State Tax
Service, the Employment Insurance Fund, the Social Security Fund, and the Fund
for Social Insurance.
OUTWARD INVESTMENT
By end-year 2022 Ukraine’s investments in foreign countries (equity) totaled
approximately $1.68 billion, according to the National Bank of Ukraine (NBU).
2. BILATERAL INVESTMENT AND TAXATION TREATIES
Ukraine has signed more than 78 bilateral investment treaties (BIT), of which 65
are in effect. In August 2023, Ukraine terminated its BIT with Russia and the
GoU in December 2023 approved a draft law on the termination of the BIT with the
Republic of Belarus, however Parliament has not yet adopted the law. The BIT
between the United States and Ukraine has been in force since 1996. A list of
Ukraine’s bilateral investment treaties can be found at
https://investmentpolicy.unctad.org/international-investment-agreements/countries/219/ukraine?type=bits .
Currently, Ukraine has 72 international bilateral tax treaties (agreements the
on avoidance of double taxation), the list of which can be found at
https://mof.gov.ua/en/international_agreements_of_ukraine_on_avoidance_double_taxation-543
Two bilateral tax agreements, with Russian Federation and Republic of Belarus,
ended on January 1, 2023, and December 20, 2022, accordingly.
Ukraine also has 18 free trade agreements (FTAs) covering 48 countries. Three
agreements have been announced but not yet finalized. Information on these
treaties is available at: http://rtais.wto.org/UI/PublicAllRTAList.aspx .
In 2019, an agreement between the United States and Ukraine to facilitate
reporting under the U.S. Foreign Account Tax Compliance Act (FATCA) entered into
force. On December 1, 2019, Ukraine’s Law “On Ratification of Multilateral
Convention to Implement Tax Treaty-Related Measures to Prevent Base Erosion and
Profit Shifting (MLI)” came into effect. The MLI law is intended to combat abuse
in bilateral tax treaties in a synchronized and efficient way by amending
approximately 40 of Ukraine’s bilateral tax treaties.
The “Law on Amendments to the Tax Code,” entered partially into force in May
2020 and fully in January 2021. The legislation introduced changes to transfer
pricing, tax depreciation and the deduction of certain types of expenses,
withholding taxes and international taxation, taxation of permanent
establishments, and rent payments for subsoil usage. The law is designed to
apply international standards of tax control to all participants in
international trade, to implement provisions on base erosion and profit
shifting, and to improve tax administration.
The Government of Ukraine remains committed to achieving much needed revenue
mobilization and adopted the Law on Amendments to the Tax Code No. 8401 in July
2023 to reinstate the pre-war setup for taxpayers who moved from the universal
tax regime to the single tax, with effect from August 2023. The Ukrainian
government also reintroduced enforcement of the use of cash registers in retail
outlets, including restoring liability for violations. With another set of
amendments passed on November 8, tax audits were fully reinstated. At the start
of the war the CMU introduced deferrals on customs duties that applied to a
variety of imported products. In a year in March 2023, the CMU cancelled those
deferrals The Tax Code provisions introduced during Martial Law that relaxed the
administration of taxes and fees were not extended. For the duration of the IMF
program, the Government of Ukraine committed to refrain from introducing tax
amnesties or from introducing any tax measures which would jeopardize the tax
base.
In November 2023, the Parliament adopted the law on taxation of banks’ profits
to tax extra profit, which resulted in a temporary tax increase from 18 to 50
percent on the profit of banks, which will generate about 0.3 percent of GDP to
help meet Ukraine’s deficit financing needs in 2024. The rate is to be
subsequently reduced to 25 percent for profits generated in 2024, which would
still be a higher rate than for other economic sectors.
3. LEGAL REGIME
TRANSPARENCY OF THE REGULATORY SYSTEM
Regulatory regimes in Ukraine are often outdated, contradictory, and burdensome,
and feature a high degree of arbitrariness and favoritism in decisions by
government officials, weak protection of property rights, and irregular
payments. Since 2014, however, the country has been generally moving toward
clearer rules and fairer competition. Ukraine’s efforts to implement its EU
Association Agreement, including the Deep and Comprehensive Free Trade Area
(DCFTA), should continue to help boost overall transparency and legal certainty
as Ukraine strives to establish legal and regulatory systems that are consistent
with international norms, especially in the light of the European Council’s
December 2023 decision to commence negotiations on Ukraine’s accession to the
European Union.
The formulation of regulations falls solely under the purview of the government.
In Ukraine there are no regulatory processes managed by non-governmental
organizations or private sector associations. According to the Law “On the
Principles of State Regulatory Policy in the Sphere of Economic Activity”
(2004), the relevant ministry or regulatory agency is required to publish draft
text of proposed regulations on its website for review and comment for at least
one month but not more than three months. Along with the draft text, the
governmental body must include a data-based assessment justifying the need for
the regulation and analyzing its potential impact. The ministry or agency
receives comments via its website, at public meetings, and through targeted
outreach to stakeholders. The comments received are generally not made public.
At the end of the consultation period, the relevant ministry or regulator may
publish the results on its website. Often, however, final draft legislative
initiatives are not publicly available, or they reappear in dramatically
different form. In 2020, the Ministry of Economy successfully launched an
electronic platform on technical regulation ( https://techreg.in.ua/ ), on which
it publicizes all draft regulatory measures, accepts public comments, and
provides responses to comments. Information on draft laws and existing
legislation is available on the websites of the Rada (Parliament) and Cabinet of
Ministers (rada.gov.ua; kmu.gov.ua).
Public finances and debt obligations are transparent. Budget documents and
information on debt obligations are widely and easily accessible to the general
public, including online. Budget documents provide a mostly full picture of the
government’s planned expenditures and revenue streams. Information on debt
obligations is publicly available and is published as part of the budget
document on the Rada’s website. Information on the status of sovereign and
guaranteed debt is published and updated on a monthly basis on the Finance
Ministry’s website. Statistics are broken down by type of debt, type of
creditor, and type of currency.
INTERNATIONAL REGULATORY CONSIDERATIONS
Ukraine is not a member of the EU, but it is working to approximate many of its
standards to meet EU requirements and facilitate access to EU markets, in
particular due to Ukraine’s EU membership aspirations. As Ukraine drafts laws,
it often incorporates or references EU norms and standards. It also actively
solicits and generally follows technical advice from the EU and the Venice
Commission. Ukraine is a member of the WTO and a signatory to the WTO Trade
Facilitation Agreement. The Ministry of Economy (MoE) is responsible for
notifying all draft technical regulations to the WTO Committee on Technical
Barriers to Trade. Despite occasional delays in submitting draft legislation to
the WTO, Ukraine’s notification of draft texts to the WTO for comment has
improved in the past few years.
LEGAL SYSTEM AND JUDICIAL INDEPENDENCE
The legal system in Ukraine is based on a civil system of codified laws passed
by its parliamentary body, the Rada. Contracts related to foreign investments
fall within the jurisdiction of a system of specialized commercial courts.
Generally, the Foreign Investment Law provides that a dispute between a foreign
investor and the state of Ukraine must be settled in Ukrainian courts, unless
otherwise provided for by international treaties.
Ukraine’s judicial system comprises three court systems: 1) civil and criminal;
2) commercial; and 3) administrative. Each system has three levels: local
courts; appellate courts; and the Supreme Court, which tries all cases except
those involving corruption, which are tried by the High Anti-Corruption Court.
Civil and criminal courts are referred to as “general jurisdiction” courts,
while commercial and administrative courts are “specialized” courts. Commercial
and contract law in Ukraine is codified in the Commercial Code and Civil Code.
Local commercial courts exercise jurisdiction over commercial and corporate
disputes, while local administrative courts administer justice in legal disputes
connected with state government and municipalities, with the exception of
military disputes. Regulations and enforcement actions are subject to appeal
with no exceptions within terms prescribed in procedural codes and are
adjudicated in the national (general) court system.
The judicial system is independent of the executive branch; however, extensive
corruption in the court system provides an opening for outside influence.
Challenges within the Ukrainian judicial system include a lack of capacity and
resources, low salaries, as well as the existence of executive and prosecutorial
influence on judges. The selection process for the High Qualifications
Commission of Judges (HQCJ) was completed in June 2023 and the HQCJ began
filling over 2,500 judicial vacancies. By the decision of the HQCJ No. 95/zp-23
of September 14, 2023, a competition was announced to fill 560 vacant positions
of judges in local courts. Before the full-scale invasion, in surveys of their
members, two major business associations identified the lack of effectiveness
and integrity in Ukraine’s judicial system as the top impediment to greater
investment in the country.
LAWS AND REGULATIONS ON FOREIGN DIRECT INVESTMENT
The Law on Investment Activity (1991) established the general principles for
investment and was subsequently followed by additional legislative acts to
facilitate foreign investment. The most recent is the Law “On State Support of
Investment Projects with Significant Investments” (2021) and subsequent amending
legislation granting further tax and customs benefits for major investors.
Due in part to conflicts in the body of laws that govern investment and
commercial activity in Ukraine, and persistent issues with corruption, foreign
investors have found it difficult to pursue cases in Ukrainian courts and often
seek arbitration outside of the country. The website of Ukraine’s Investment
Promotion Office (https://ukraineinvest.gov.ua/) provides relevant laws, rules,
procedures, and reporting requirements for potential investors.
COMPETITION AND ANTI-TRUST LAWS
The Antimonopoly Committee of Ukraine (AMCU) is the Ukrainian state authority
responsible for the regulation of economic competition. The AMCU is an
independent state body with special status under the President of Ukraine and is
accountable to the Parliament. The AMCU’s functions include investigating and
prosecuting anti-competitive conduct, reviewing and authorizing mergers and
acquisitions, considering appeals of potential violations of public procurement,
monitoring the state aid system, conducting competition advocacy within the
government, formulating competition policy, and increasing international
cooperation and coordination of competition policy and enforcement.
In August 2023, Parliament passed the first competition reform Law No. 5431
which enacted amendments to strengthen the legal framework of the AMCU and
enable it to more effectively promote market competition and combat monopolistic
practices. The Law entered into force in 2024. Ukrainian lawmakers plan to
continue efforts to improve the legal framework for the AMCU, which will
strengthen its institutional capacity and independence and also enhance its
enforcement powers.
EXPROPRIATION AND COMPENSATION
Current legislation permits legal expropriation of property in certain criminal
proceedings or in cases of failure to fulfill investment obligations during
privatization procedures. Additionally, the Law “On Legal Regime of Martial Law”
(2015) and the Law “On Confiscation of Property During Legal Regime of Martial
Law” (2013) allow voluntary or forced expropriations for military purposes with
compensation to be provided either immediately or following cancellation of the
“special regime/martial law.”
On March 3, 2022, the Rada adopted law #2116-IX on expropriation of Russian
property in Ukraine. On March 7 it entered into force. The law defines the
principles for the forced seizure in Ukraine of objects of property rights of
the Russian Federation and its residents, the grounds and procedure for the
forced seizure of objects of property rights, as well as the legal regime of
objects forcibly seized in Ukraine. No compensation is provided in the case of
Russian property in Ukraine. The Rada later adopted changes to the law on the
seizure of assets from Russian residents, also allowing property seizures from
Ukrainian collaborators without any compensation and without unfairly
expropriating bona fide minority shareholders who happened to own shares in the
same companies.
On May 12, 2022, the Rada adopted law # 2249-IX “On Approving the President of
Ukraine’s Decree “About the Decision of the National Security and Defense
Council of Ukraine of May 11, 2022 “On Forcible Expropriation of Objects of
Property Rights of the Russian Federation and Its Residents in Ukraine” that
allowed for the nationalization of Russian assets in Ukraine. The law did not
clearly define who would identify Russian assets. Nevertheless, by the end of
2022 the Cabinet of Ministers compiled a list, which included more than 900
objects that belong directly to Russia as a state. The forced alienation of
these objects is to take place according to a special procedure.
In July 2023, “Sense Bank”, which previously belonged to sanctioned Russian
oligarchs Mikhail Fridman, Piotr Aven, and Andriy Kosogov was nationalized. On
July 23, 2023, Ukraine’s Deposit Guarantee Fund appointed the Supervisory Board
and Board of Directors of “Sense Bank” based on the proposals of the Ministry of
Finance in agreement with the NBU. On July 24, “Sense Bank” announced the new
board and supervisory board had commenced work.
In November 2022, the corporate rights of Ukrnafta, Ukrtatnafta, Motor Sich,
AvtoKrAZ, and Zaporizhzhiatransformator (ZTR) were seized “for the needs of the
state” and transferred to the Ministry of Defense. The companies previously had
been under the control of oligarchs, some of whom were accused of criminal
activity, support for Russia, or both. The seizures were made under the “Law on
the Transfer, Forced Alienation, or Seizure of Property under Martial Law or
State of Emergency,” which obligates the state to return the seized assets to
the owners or give them fair compensation. Ukrainian authorities emphasized that
Ukraine needs these companies operating at full capacity to support the critical
defense and energy sectors and this was a seizure of assets during martial law
rather than a nationalization, and that, following the end of martial law,
assets would either be returned to their owners or appropriate compensation
paid.
DISPUTE SETTLEMENT
Ukraine is a Party to both the International Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (ICSID) and the
New York Convention of 1958 on the Recognition and Enforcement of Foreign
Arbitral Awards. On October 20, 2015, the Government of Ukraine submitted a
formal UN communication, noting that Ukraine’s ability to implement its
obligations under the New York Convention in the occupied territories of Crimea,
Donetsk, and Luhansk is limited and not guaranteed until Ukraine regains
effective control from the Russian Federation. The full text of the
communication is available at: C.N.597.2015.TREATIES-XXII.1 of 20 October 2015 .
The procedure for recognition and enforcement of foreign arbitral awards in
Ukraine is regulated by the following legislative acts:
* The Law on International Commercial Arbitration (ICAL, 1994). ICAL is almost
a literal translation of the UNCITRAL Model Law.
* The Code of Civil Procedure of Ukraine (CPC, 2004). Pursuant to Article 390
of the CPC, Ukrainian courts shall enforce foreign court decisions provided
that: recognition and enforcement are stipulated under an international
treaty ratified by the Rada; or on the basis of the reciprocity principle
under an ad hoc agreement with a foreign country, whose court decision shall
be enforced in Ukraine.
INVESTOR-STATE DISPUTE SETTLEMENT
Many of Ukraine’s bilateral investment treaties recognize binding international
arbitration of investment disputes. Claims under the Bilateral Investment Treaty
(BIT) between the United States and Ukraine by American investors are rare. The
Embassy only tracks disputes at the request of U.S. businesses or individuals
involved in the case and cannot provide a comprehensive number of all investment
disputes involving U.S. or other foreign investors in Ukraine. Such disputes in
the past were a significant problem; however, in recent years the number of
disputes decreased substantially. The Embassy is unaware of any cases pending in
the International Center for Settlement of Investment Disputes in Washington,
DC. In the last such case, the ICSID Tribunal issued a procedural order taking
note of the discontinuance of the proceeding in January 2022.
ICAL limits the jurisdiction of international arbitration tribunals to civil law
disputes arising from international economic operations (provided that the
commercial enterprise of at least one party exists outside of Ukraine), disputes
between international organizations and enterprises with foreign investments in
Ukraine, and intra-company disputes of these enterprises. ICAL does not address
foreign arbitral awards issued against the government.
Extrajudicial action against foreign investors in the form of official acts of
government (e.g., unwarranted inspections, investigations, fines) and
illegitimate acts by private parties (e.g., corporate raiding) occur in Ukraine.
The Ukrainian government has made it a stated priority to improve the business
environment, end corporate raiding, and attract more foreign investment. In
2019, the Ukrainian Parliament passed legislation aimed to end corporate
raidership: the Law “On Amendments to Certain Legislative Acts of Ukraine on
Property Rights Protection,” and the Law “On Amendments to the Land Code of
Ukraine and Other Legislative Acts on Counteracting Raiding.” On July 22, 2023 a
Law of Ukraine #3103-IX of May 3, 2023 “On Changes to some Laws of Ukraine on
Ensuring the Inviolability of Property Rights” was enacted to ensure compliance
with sanction legislation in the field of state registration of rights to
immovable property and to guarantee objectivity, reliability and completeness of
information about registered rights to real estate.
INTERNATIONAL COMMERCIAL ARBITRATION AND FOREIGN COURTS
The Law on Arbitration Courts (2004), last amended in November 2021, stipulates
that parties can refer most of their commercial or civil law disputes to courts
of arbitration, which are non-state bodies. Article 51 stipulates that awards of
the aforementioned courts of arbitration are final and Article 57 stipulates
that they can be subject to mandatory enforcement via a competent state court.
Ukraine’s International Commercial Arbitration Court (ICAC) and the Maritime
Arbitration Commission at the Ukrainian Chamber of Commerce and Industry are
both annexed to the ICAL, which itself is a near-direct translation of the
UNCITRAL model law. ICAL distributes the functions of arbitration assistance and
supervision between the district courts and the President of the Chamber of
Commerce and Industry of Ukraine for both ad hoc and institutional arbitrations.
Local courts are obliged to recognize and enforce foreign arbitral awards under
ICAL and the CPC, per Ukraine’s obligations under the ICSID and the New York
Convention of 1958. However, the reliability, consistency, and timeliness of
implementation are unknown.
BANKRUPTCY REGULATIONS
In October 2019, a new Code of Bankruptcy Proceedings took effect, replacing the
bankruptcy law that had been in force since 1992. The new law strengthened
creditors’ rights by allowing them to select their bankruptcy administrator,
decide the starting prices of debtor assets at auction, and participate in other
asset sales matters. The law also improved the procedures for selling debtors’
assets by introducing online auctions and removed a requirement for asset
collection through courts or enforcement services before insolvency proceedings
can begin, which eased the debt collection process and reducing legal costs for
creditors. The new bankruptcy code also provides additional protection of
secured creditors.
Bankruptcy is not criminalized in Ukraine. The Criminal Code of Ukraine,
however, does criminalize: 1) intentionally making an entity bankrupt and 2)
distorting certain financial data to conceal the insolvency of a financial
institution. In April 2023, the Ukrainian Parliament adopted amendments to the
Bankruptcy Code, with the aims of strengthening the responsibility for untimely
appeals to court and initiation of bankruptcy proceedings; resolving the issues
of strengthening joint and subsidiary liability; approval of recovery plans; and
changing procedures of state property sales.
In July 2023, Parliament adopted Law on amendments to the Bankruptcy Code No.
3249-IX, in part of applying the bankruptcy procedures during the war time. The
bill, among others, establishes a soft moratorium on commencing bankruptcy cases
during the war. In particular, the courts may refuse to open proceedings if a
debtor’s failure to fulfill his obligations is caused by military operations or
if a debtor’s production facilities are located at the temporary occupied
terriories or in war zones.
4. INDUSTRIAL POLICIES
INVESTMENT INCENTIVES
The GoU has made attracting investment a top priority. As part of this effort,
in December 2020, the Rada passed the law “On State Support of Investment
Projects with Significant Investments,” which provides new financial and
operational incentives to companies that invest at least EUR 20 million in one
of a dozen predefined industries. Under this law, the GoU will appoint a manager
for qualifying investors who helps them communicate with relevant government
authorities and navigate government bureaucracy, permits, and regulations. The
companies also receive a number of tax and customs exemptions as well as
favorable access to land and necessary infrastructure. UkraineInvest has the
lead on helping companies identify potential projects and sign agreements with
the GoU. More information is available at:
https://ukraineinvest.gov.ua/incentives/investment-projects-with-significant-investments/ .
The agreements permit investors to pursue international arbitration for
violations of their property rights.
To further stimulate the attraction of foreign and domestic investments, on
August 9, 2023, Ukraine adopted a Law of Ukraine “On Amendments to Certain
Legislative Acts of Ukraine Regarding the Implementation of Investment Projects
with Significant Investments” that additionally simplified the requirements for
investment projects with significant investments and improved state support
mechanisms for the implementation of such projects. The law, in particular,
amended the Law of Ukraine “On State Support of Investment Projects with
Significant Investments in Ukraine” and envisaged:
* reducing the requirements for the size of significant investments to 12
million euros from 20 million euros and the number of new jobs created — from
80 to 50 during the investment project’s implementation period, which is
expected to expand the number of potential investors;
* introduction of a new support mechanism for investors, namely partial
compensation for the cost of construction of adjacent infrastructure
facilities; compensation for the costs of connection to engineering and
transport networks necessary for the implementation of an investment project
with significant investment;
* introduction of the opportunity for the investor to start the implementation
of the project before concluding a special investment contract and make
investments for pre-project works (preparation of documentation, purchase of
land, etc.) in the amount of 25% of the total cost of significant investment,
etc. See:
https://me.gov.ua/Documents/Detail?lang=uk-UA&id=b6d0940d-2443-41c4-82ec-86e6d2e56973&title=InvestitsiinaDiialnistVUkrainiZa2022-Rik#_ftn1
On March 15, 2024 the government approved the latest regulatory document that is
necessary to launch the state support mechanism for projects with significant
investment. It is once again clarified that state support will be available to
investors who plan to implement projects worth €12 million or more within a
duration of up to five years in such sectors as the processing industry,
extraction of minerals for further processing or beneficiation, transport,
logistics, scientific activity, health care, waste management, tourism, and
electronic communications.
So far, USD 75.8 million has been allocated in the state budget to support such
large-scale investors that are eligible for compensation in the amount of up to
30 percent of the amount invested in the project.
Previous incentives, such as generous depreciation rates for most fixed assets,
including property, plant, and equipment for investors, are still in place.
Moreover, foreign investors remain exempt from customs duties for any in-kind
contribution imported into Ukraine for the company’s charter fund. Some
restrictions do apply and import duties must be paid if the enterprise sells,
transfers, or otherwise disposes of the property. The government does not have a
practice of jointly financing foreign direct investment projects. The issuance
of government guarantees is rare and subject to budgetary restrictions.
FOREIGN TRADE ZONES/FREE PORTS/TRADE FACILITATION
Ukraine does not currently maintain special or free economic zones.
PERFORMANCE AND DATA LOCALIZATION REQUIREMENTS
An employer may employ a foreign national as long as the employer has obtained a
work permit for this person. The Law “On Employment of the Population” sets
forth the procedure for issuing work permits to foreigners. Authorities issue
work permits on a case-by-case basis, for a particular applicant and a
particular position in a company. A work permit is normally issued for the
period of employment indicated in the employment contract, but for not more than
one year. A work permit can be renewed for the same term, for an unlimited
number of times, free of charge.
A foreign citizen with a valid work permit who spends more than 90 days within a
180-day period in Ukraine can obtain a temporary residence certificate. As of
June 1, 2018, temporary residence certificates are now contactless electronic
cards with biometric data. The new permits are generally issued for the term of
an individual’s work permit. More information on applying for temporary
residence certificate is available at:
https://dmsu.gov.ua/poslugi/dokumentuvannya-inozemcziv/oformlennya-posvidki-na-timchasove-prozhivannya.html .
There are also no age or nationality restrictions on who can be a manager or
company director in the private sector.
Citizens of EU countries, the United States, Canada, Japan and some other
countries do not require a visa to enter Ukraine for a stay of up to 90 days
within a 180-day period. Individuals who are planning to get a temporary
residence permit in Ukraine for work purposes must obtain a long-term type D
visa. The list of countries and respective visa requirements are available on
the website of the Ministry of Foreign Affairs of Ukraine:
https://mfa.gov.ua/consul/foreigners/entry-and-stay/visa-ua .
There are no reports from foreign investors and their employees of excessively
onerous visa requirements inhibiting their mobility. Residence permits to
Russian citizens are not being extended after Russia’s full-scale invasion on
February 24, 2022.
Under Article II, clause 6 of the Bilateral Investment Treaty between the United
States and Ukraine, neither Party shall impose performance requirements as a
condition of establishment, expansion, or maintenance of investments, which
require or enforce commitments to export goods produced, or which specify that
goods or services must be purchased locally, or which impose any other similar
requirements.
On July 14, 2022, amendments to the Law “On Public Procurement” entered into
force, establishing local content requirements in public procurement of urban
transport, utility equipment, railway transport, aerospace products and energy
engineering products by giving preference to domestic producers in government
tenders if they can demonstrate at least 10 percent (20 percent in 2024 and 40
percent by 2028) local content. However, following consultations with the U.S.
government, and consistent with Ukraine’s WTO commitments, the law exempts from
the local content provisions those procurements subject to the WTO Government
Procurement Agreement.
In February 2024, President Zelensky announced the launch of the “Made in
Ukraine” platform. While few details have been released, it is expected to
incentivize the purchase of a products or services from Ukrainian manufacturers
by offering rebates on a portion of the price.
Ukraine has no forced localization policies or requirements for foreign IT
providers to turn over any source code or provide backdoors into hardware or
software applications. Ukraine’s IT infrastructure and Internet Service
Providers are largely unregulated. There are no legal measures preventing or
impeding companies from transmitting business-related data outside of Ukraine.
In an effort to bring its data storage and protection legislation into
compliance with the requirements of the EU–Ukraine Association Agreement and
with the EU’s General Data Protection Regulation (GDPR), draft law #8153 “On the
Protection of Personal Data” was registered in the Parliament on October 25,
2022. The draft law provides for the processing of personal and sensitive
information, as well as other specific types of data, establishes data subject
rights and responsibilities for data controllers and operators which pertains to
the concept of Privacy by Design and requirements for the security of
processing, registration with the relevant supervisory authority, and conducting
Data Protection Impact Assessments (‘DPIAs’), among other things. The law would
apply to both – the public and private sectors, as well as to the legislative
bodies when adopting legal acts regulating the processing and security of
personal data. This draft law on personal data protection should be adopted to
meet the requirements of both Convention 108 (not yet signed and ratified by
Ukraine) and the General Data Protection Regulation.
5. PROTECTION OF PROPERTY RIGHTS
REAL PROPERTY
Ukraine has a regulatory framework protecting property interests, as well as
mortgages and liens. The record system is generally reliable and maintained by
the Ministry of Justice. Still, judicial reform is needed to ensure efficient
enforcement of property rights. On March 31, 2020, Ukraine’s parliament adopted
the Law “On Land Market” lifting the moratorium on the sale of agricultural
land, effective July 1, 2021, and establishing new regulations for the land
market. The sale of state- and municipality-owned agricultural land remained
banned, meaning that in practice, the total initial market of land was limited
to the 28 million hectares originally privatized in the 1990s. The law limited
the purchase of land by individuals who are citizens of Ukraine until January 1,
2024, to 100 hectares of agricultural land. Beginning January 1, 2024, the
second stage of land reform started and the Ukrainian land market opened to
legal entities. Companies now can purchase up to 10,000 hectares of land
officially. The law establishes that a national referendum will be necessary to
determine whether foreigners may purchase agricultural land in the future.
Foreign nationals may lease land. Before war, the State Land Cadaster system
assessed that 27 percent of Ukraine’s 42.7 million hectares of agricultural land
does not have a clear ownership title. The State Service of Ukraine for Geodesy,
Cartography and Cadaster (StateGeoCadaster) and the Ministry of Justice are
working to identify ownership of this land and reduce the untitled portion.
Unoccupied property can become communal property only by court decision
following a request from the local body authorized to manage real estate
property. The request can only be made a year after the property was registered
as unoccupied.
Up to 30 percent of Ukrainian territory and up to 10 percent of agricultural
land is estimated to be mined due to Russia’s full-scale invasion, complicating
potential land use until the land has been assessed and demined.
Since June 2012, Ukraine is a party to the 2001 Cape Town Convention on Mobile
Equipment (CTC) and the Protocol on Matters Specific to Aircraft Equipment
(Aircraft Protocol). Embassy Kyiv has not been approached about any disputes
under the CTC.
INTELLECTUAL PROPERTY RIGHTS
Ukraine has a long history of inadequate protection and enforcement of
intellectual property rights (IPR). Ukraine has been listed on the Priority
Watch List in the U.S Trade Representative’s (USTR’s) Special 301 Report since
2015, due to the use of unlicensed software within the government, internet
piracy, and an inadequate system of collective management organizations (CMOs).
The Special 301 review of Ukraine was suspended in 2022 and 2023 in
consideration of Russia’s “premeditated and unprovoked further invasion” of the
country. The 2022 Special 301 Report does note that Ukraine has “engaged
meaningfully” with the United States on areas of concern such as its system for
collecting and distributing copyright royalties to right holders, the use of
unlicensed software by government agencies and implementing better methods of
combating widespread copyright infringement.
In June 2020, the Parliament of Ukraine adopted the Law of Ukraine No. 703 “On
Amendments to Certain Legislative Acts of Ukraine Concerning the Establishment
of a National Intellectual Property Authority” in force as of 14 October 2020,
which introduced a two-tier structure of the state system of legal protection of
intellectual property. Since November, 2022, the Ukrainian National Office of
Intellectual Property and Innovation (UANIPIO), formerly Ukrpatent, performs the
functions of the National Intellectual Property Authority (NIPA) that is
responsible for granting rights and coordinating the Ukraine’s IP rights system.
The Ministry of Economy is responsible for ensuring the formation and
implementation of state policy in the field of intellectual property. The
UANIPIO is in charge of reviewing and issuing patents and trademarks, training
IP examiners, hearing appeals on patent and trademark claims, and supporting the
drafting of IPR policy and regulations. UANIPIO also provides CMOs with
methodological assistance and clarifications regarding the implementation of the
state policy in the sphere of copyright and related rights protection and
monitors their activities.
In 2017, the President of Ukraine signed a Decree establishing the High Court of
Intellectual Property in Kyiv. The creation of a specialized court aimed to: (1)
resolve a range of intellectual property issues that have hindered the
development of intellectual property relations and (2) raise the standards of
protection of the intellectual property rights in Ukraine. However, as of April
2024, the selection of the judges has not been completed and the court is not
operational. To resume the process, the High Qualification Commission of Judges
of Ukraine is scheduled to decide by June 2024 on next steps for the selection
of judges.
The Cyber Police Department of the National Police had 831 IT officers, as of
January 2023. Its Department for Combating Crimes in the Sphere of Illegal
Content and Telecommunications (DCCSICT), that is focused on combatting online
piracy, had about 60 officers across Ukraine. In 2023, DCCSICT commenced 34
pre-trial investigations: 17 under Article 176 of the Criminal Code of Ukraine
(Violation of copyright and related rights) and another 17 under Article 229 of
the CCU (Illegal use of a mark for goods and services, brand name, geographical
indications). During 2023 the pre-trial investigations have been completed in 30
criminal proceedings and indictments concerning 54 offenders were sent to the
court. Russia’s invasion and lack of resources limited the effectiveness of the
Cyber Police’s efforts in 2023.
The Main Unit of Detectives of the Economic Security Bureau of Ukraine (ESBU)
also investigates IPR related crimes as criminal proceedings of private
prosecution. In 2023, ESBU launched 106 investigations, out of these 56 criminal
proceedings continue, 36 cases resulted in the issues of notifications of
suspicion and in 14 cases indictments were filed.
In December 2020, the government of Ukraine finalized the selection process for
the accreditation of collective management organizations (CMO). CMOs operated in
six of eight spheres of musical works defined by the GoU until May 2022, when
accreditations for CMOs managing broadcasting and public performance came to the
end of the 3-year term stipulated in the law. Due to Russia’s full-scale
invasion, GoU suspended re-accreditation and instead amended Law #2415 “On
Effective Management of Property Rights in the Sphere of Copyright and (or) the
Related Rights” to allow non-accredited CMOs to collect royalties in the sphere
of extended collective management (broadcasting and public performance of
musical works) if in their catalogues CMOs had rights for respective musical
works. The amended law requires the government to re-accredit CMOs within 12
months after the end of martial law.
On January 1, 2023, Law #2811 “On Copyright and Related Rights” (“New Copyright
Law”) took effect. With this legal update, Ukraine adopted best practices on
improving IP copyright protection and protection of related rights, bringing
Ukraine closer in line with EU regulations. In particular, the law extended the
“notice and takedown” procedure to all copyrights and related rights without
exception and envisages liability for camcording and card sharing as well as
introduced liability for managing a website that allows website users to find
and distribute content within a peer-to-peer network in violation of copyright
and related rights.
As noted in USTR’s 2020 Notorious Markets Report, the availability of
counterfeit goods in both online and large physical marketplaces fell
considerably in recent years. This trend continued in 2022 and 2023 due to
decreased import of goods from China and other countries. The State Customs
Service (SCS) of Ukraine maintains a Customs Register to ensure IPRs protection
during the movement of goods across the customs border of Ukraine. As of January
1, 2024, SCS entered 980 IP objects into the Customs Register at the request of
rightsholders. These included trademarks, industrial designs, inventions,
copyright objects, and geographical indications. In 2023, Customs took 347
decisions on the suspension of customs clearance of goods suspected of
infringement of IP rights. This resulted in: 15 protocols on the violation of
customs rules (under Article 476 of the Customs Code of Ukraine), 78 cases of
the destruction of counterfeit goods (under Article 401 of the Customs Code of
Ukraine), 49 cases of the destruction of small batches of counterfeit goods
(under Article 401 of the Customs Code of Ukraine).
Ukraine is a member of the World Intellectual Property Organization (WIPO) and
is party to the Berne Convention, the Paris Convention, the Patent Cooperation
Treaty, the WIPO Copyright Treaty, and the WIPO Performances and Phonograms
Treaty. For additional information about national laws and points of contact at
local IP offices, please see WIPO’s country profiles at
http://www.wipo.int/directory/en/ .
6. FINANCIAL SECTOR
CAPITAL MARKETS AND PORTFOLIO INVESTMENT
The Ukrainian government encourages foreign portfolio investment in Ukraine, but
Ukraine’s capital and commodity markets remain underdeveloped. Liquidity is
limited and investors have few investment options. Government bonds constitute
93 percent of trades in 2023, with trade consolidated (96.6%) on two platforms.
A few corporate securities are listed, but the volume of their trades is
insignificant. With limited exceptions, only Ukrainian-licensed securities
traders may handle securities transactions. The commodity market in Ukraine does
not have a transparent regulatory framework.
The regulator of Ukraine’s capital market, the National Securities and Stock
Market Commission (NSSMC), lacks financial and operational independence and is
not a signatory to the Multilateral Memorandum of Understanding Concerning
Consultation and Cooperation and the Exchange of Information of the
International Organization of Securities Commissions. Ukraine has been a member
of the International Organization of Securities Commissions (IOSCO) since 1996.
In November 2019, Ukraine adopted the so-called “Split” law to regulate the
non-banking financial services sector. The law, which entered into force on July
1, 2020, transitions Ukraine from a sectoral regulatory model to an integrated
model and lays the foundation for the full development of consumer rights
protections and market conduct regulations in the financial markets. The law
dissolved the National Commission for State Regulation of Financial Services
Markets and divided its regulatory functions between the NBU and the NSSMC. The
NBU now supervises and regulates the insurance market, leasing and factoring
companies, credit unions, credit bureaus, pawnshops, and other financial
companies, while the National Securities and Stock Market Commission regulates
private funds, including pension funds, construction financing, and real estate
transactions.
For many years, Ukrainian capital markets have struggled due to significant gaps
and inconsistencies in the regulatory framework. In June 2020, parliament passed
the law “On Amendments to Certain Laws Regarding Facilitating Investments and
New Financial Instruments,” aimed at restarting Ukrainian capital markets. The
law is intended to bring Ukrainian legislation in line with key provisions of EU
laws on capital markets (MiFID II, MiFIR, EMIR, the Settlement Finality
Directive, and the Financial Collateral Directive), create a framework for
updated capital markets’ infrastructure, and regulate commodity markets and
derivatives.
Long-standing gaps remain in the powers of the NSSMC relative to international
standards.
In February 2024, Parliament passed amendments to the NSSMC Law (No. 5865) to
enhance the NSSMC’s powers, independence and institutional capacity, and its
cross-border and domestic cooperation mandate. The GoU also committed to
ensuring that the law considers the mandate of other regulators and to moving
swiftly to align with International Organization of Securities Commissions
(IOSCO) principles to allow Ukraine to become a signatory of IOSCO’s
multilateral MoU by end-December 2024 with full implementation of the other
provisions of the law by end-December 2025
Credit is largely allocated on market terms and foreign investors are able to
get credit on the local market through a variety of credit instruments.
MONEY AND BANKING SYSTEM
Ukraine’s banking sector has adjusted to working in wartime. Despite the
challenges, banks have enjoyed increased inflows of client deposits, both retail
and corporate. Moreover, the share of term retail for deposits has increased due
to NBU measures, thus mitigating potential risks to bank liquidity. Bank lending
has also picked up: retail lending has been on the rise since Q2 2023 and the
cumulative increase in the hryvnia retail portfolio since the beginning of the
year was a record high 37.2 percent by the end-year 2023. Corporate lending in
the hryvnia has been gradually recovering, mostly driven by government support
programs like the “5-7-9″ affordable retail loan program. However, lending
outside these programs has also picked up. Income from investments in government
and National Bank of Ukraine securities as well as from corporate loan
portfolios has driven significant interest income.
Banks retained their high operational efficiency and kept their provisioning
costs at a minimum. Thanks to the above factors, the sector generated higher
profits – over UAH 86.5 billion in 2023. The government decided to tax this
extra profit with a windfall tax. In November, the Parliament adopted the law on
taxation of banks’ profits with a temporary tax increase from 18 to 50 percent
on the profit of banks, which will generate about 0.3 percent of GDP to help
meet deficit financing needs in 2024. The rate is to be subsequently cut to 25
percent for the profits generated in 2024, which will be higher than for other
economic sectors. At the same time, banking sector capital has been increasing,
paving the way for the implementation of postponed and new requirements in the
sector.
The National Bank of Ukraine (NBU) finalized its banking sector resilience
assessment. The results were optimistic: only three institutions faced a
moderate need for a capital increase.
Considering the current state of the sector, the NBU has been restoring
previously suspended regulatory requirements and introducing new requirements.
In September 2023, the NBU reinstated a number of credit risk assessment
requirements and improved approaches for banks to assess the solvency of
legal-entity debtors. Banks had to implement these measures by November 2023.
Starting in 2024, banks will have to restart updating and submitting their
business recovery plans to the NBU. Additionally, non-core assets will be
deducted from banks’ capital in full and 100 percent of operational risk will be
accounted for in capital adequacy ratios (vs current 50 percent). In 2024, the
NBU also plans to introduce a new capital structure, which will account for
market risk while assessing capital adequacy. Most banks have sufficient capital
to comfortably meet these additional regulatory requirements, even taking into
account the imposition of the additional tax on bank profits.
The number of operating banks in Ukraine in 2023 decreased to 63 from 67 in
2022, as the NBU liquidated four banks. The share of state-owned banks increased
by 3.1 percent over 2023, following the nationalization of Sense Bank, bringing
their portion of the sector’s net assets to 53.6 percent. Net assets of solvent
banks increased by 25 percent in 2023.
Portfolios gained in quality over the year with a diminishing number of
defaults. Overall, the share of non-performing loans (NPLs) slightly decreased
to 37.4 percent in 2023 from 38.1 percent in 2022.
The liabilities of solvent banks exceeded the levels of 2022 by 24.1 percent.
Client deposits remain the major source of funding for banks, replacing
expensive refinancing loans. By the end of December, their share increased to 91
percent, while the share of NBU refinancing
loans shrunk to record low 0.1 percent.
Over 2023, the NBU revised downward its key policy rate by 10 percent to 15
percent.
Foreign-owned banks may carry out all activities conducted by domestic banks and
there are no restrictions on their participation in the banking system,
including operating via subsidiaries. A foreign company can open a bank account
in Ukraine for the purposes of investment operations; otherwise, it needs to
register a representative office in Ukraine. A non-resident private person can
open a bank account in Ukraine. A foreign investor may open an account in a bank
operating in Ukraine and transfer in funds for further investment or invest
directly into the account of a Ukrainian resident company.
FOREIGN EXCHANGE AND REMITTANCES
FOREIGN EXCHANGE
Non-cash and cash foreign currency and investment metals are traded on the
Ukrainian FX market. Banks, nonbank institutions, bank customers, and the NBU
are FX market participants. The regulator trades on the FX market in order to
smooth excessive fluctuations of the market and accumulate international
reserves. The NBU calculates the official exchange rate of the hryvnia to
foreign currencies and investment metals.
In early 2022, the NBU took urgent and decisive measures to stabilize the
national economy and safeguard macroeconomic stability. The NBU adopted a
resolution “On the Operation of the Banking System Under Martial Law” which
imposed temporary restrictions on cross-border currency transactions including
capital flow management (CFM) measures and restrictions on bank account
withdrawals to help preserve financial stability.
Restrictions on the repatriation of proceeds from nonresident government debt
redemptions were introduced in April 2023 to contain FX reserve outflows. While
the repatriation of interest payments was initially allowed, it was restricted
in mid-May 2023 through requiring foreign investors to have a minimum continuous
holding period of 90 days before the coupon payment is made.
In June 2023, the NBU approved a Strategy for easing FX restrictions,
transitioning to greater exchange rate flexibility, and returning to its
inflation targeting regime. In line with the FX liberalization roadmap under its
Strategy, the NBU has gradually eased FX controls, conditional on economic
developments. Given strong reserves and stability in the FX market, and with the
goal of supporting economic activity, in recent months, the NBU eased
restrictions on lending and factoring as well as the servicing of certain loans.
At the same time, it has also adjusted measures as needed, including enhanced
enforcement of a settlement period (180 to 90 days) for agricultural exports.
Restrictions remain in place concerning transactions involving the movement of
capital. Some exceptions include:
* a bank’s own operations (except for providing loans to non-residents), though
payments under documentary and reserve letters of
credit/guarantees/counter-guarantees opened (confirmed and provided) from 24
February 2022 can be made only if they relate to transaction payments which
are otherwise permitted (e.g., payments for imports of goods and service);
* payments made by or to international financial institutions;
* payments secured by a state guarantee;
* payments made under a separate permit from the NBU.
FX controls including CFM measures are expected to be eased gradually and on a
case-by-case basis, consistent with the authorities FX liberalization roadmap
under their FX strategy.
In October 2023, amid a stable FX market supported by strong official financing
the NBU transitioned from the exchange rate peg toward a managed exchange rate
flexibility regime, The exchange rate has since remained broadly stable
supported by NBU FX sales in a market still dominated by the NBU. The spread
between the cash and official exchange rate has averaged in the 3– 5 percent
range through the year further narrowing.
REMITTANCE POLICIES
In 2021, the NBU doubled the limit for some retail foreign currency remittances,
including for investment abroad or foreign deposits, to EUR 200,000 ($230,000)
per year. As long as they comply with the limit, individuals are permitted to
remit foreign currency (or the national currency hryvnia) abroad or to current
accounts of corporate nonresidents in Ukraine. The transactions allowed include:
investing abroad, depositing funds into one’s own accounts abroad, transferring
funds under life insurance agreements, or making loans to nonresidents. In 2020,
individuals transferred about EUR 274 million ($315 million) abroad. The NBU
aims to completely remove the limit on international investments by individuals,
subject to the full adoption and implementation of legislation on tax base
erosion and profit shifting.
In February 2022, the NBU issued Resolution No. 18 “On the Operation of the
Banking System Under Martial Law,” which introduced a moratorium on cross-border
foreign currency payments, except for the banks’ own operations, including
settlements with international payment systems, purchase of imported goods,
payments by or to IFIs, payments ensuring mobilization plans (tasks), medical
and transportation costs, payments under special permits by the NBU. and
payments to diplomatic representations and consulates of Ukraine abroad.
At the same time, NBU also reintroduced some restrictions in October 2022. In
particular, it reimposed a ban on the peer-to-peer (P2P) transfers from hryvnia
payment cards of Ukrainian banks to cards of foreign banks, except for
educational, healthcare, and emergency transportation purposes.
Ukrainian companies are prohibited from purchasing foreign currency on the
Ukrainian FX market for cross-border payments if they already have funds in the
respective foreign currency available for making cross-border payments.
SOVEREIGN WEALTH FUNDS
Ukraine does not currently operate a sovereign wealth fund.
7. STATE-OWNED ENTERPRISES
While the government lists 3,256 state-owned enterprises as of January 1, 2024,
only about 43 percent of them are functioning and about 28 percent of them are
profitable. SOEs in Ukraine are defined as companies in which the state owns at
least 50-percent plus one share. Since such enterprises are owned by more than
80 different GOU bodies and agencies, there is a lack of unified management
principles which results in the low efficiency among state-owned enterprises and
the space for corruption. Before the full-scale invasion, the total assets of
Ukraine’s state-owned enterprises were estimated at USD 42.9 billion and their
total number of full-time employees was around 715,000. SOEs are active in areas
such as energy, machine-building, and infrastructure. Some of the companies have
significant environmental problems, legacy legal issues, or have oligarchs as
minority owners.
There is no common public list of all SOEs in Ukraine and each ministry
publishes a list of SOEs under its respective management. Before Russia’s
invasion of Ukraine, the Ministry of Economy (formerly Ministry of Economic
Development and Trade) periodically updated information on annual financial
reports of significant SOEs (100 of the largest SOEs), which it published on the
ministry website. Now, annual financial reports are published by multiple
government agencies.
Ukraine’s corporate governance reform is a part of its European integration
process and the IMF program effort. After eight years, this reform process
finally resulted in the passage of a new Corporate Governance Reform law that
aligns Ukrainian legislation with OECD standards. Bill #5593-d was passed on
February 22 and entered into force on March 8, 2024. The law aims to
professionalize the management of Ukraine’s SOEs and boost the efficiency of
their operations. Lawmakers expect that the law will help Ukraine implement
quality approaches to the corporate governance of state-owned companies, attract
additional investments, and boost economic development. The law:
* clearly defines the mechanism for selecting members of supervisory boards
* defines the procedure for independent assessment of supervisory board
performance
* empowers supervisory boards to approve strategic, financial, and investment
plans and to appoint and dismiss management
* enhances the accountability of supervisory boards
* regulates dividend payments.
The law also takes into account Ukraine’s wartime needs and fulfills several
international commitments that will play a key role in maintaining financial
support for Ukraine.
On February 6, 2023, the Rada passed Draft Law #8067 on the corporatization of
the state nuclear power company Energoatom. It established the legal, economic,
and organizational foundations to transform Energoatom from a (corporatized)
state enterprise to a joint-stock company (JSC) to improve its efficiency and
corporate governance. On December 29, 2023, the Cabinet of Ministers approved
the long-awaited transformation of Energoatom into a joint-stock company (JSC).
Energoatom JSC was registered on January 11, 2024. Energoatom remained 100
percent state-owned, with the Cabinet of Ministers as its ownership entity. At
the same time, the shares acquired by the state as a result of converting the
company into a JSC are not subject to privatization and it is also prohibited
from dividing the state-owned shares.
On June 28, 2023, “Ukroboronprom” was officially registered as a joint-stock
company “Ukrainian Defense Industry” (UDI). The concept of corporate governance
reform and transformation of Ukroboronprom, including a target model and a
detailed action plan, was developed in March 2020. In July 2021, the Verkhovna
Rada adopted a law #1630-IX on the transformation of Ukroboronprom and on
December 9, 2021, the Cabinet of Ministers adopted resolution on the
transformation of Ukroboronprom into a joint-stock company. The GoU also
approved the transformation of 43 unincorporated enterprises of Ukroboronprom
into joint-stock or limited liability companies that are fully controlled by the
state.
On February 2, 2024, the Cabinet of Ministers adopted an order on the
transformation of the State Enterprise “Guaranteed Buyer” into a joint-stock
company; 100 percent of its shares will belong to the state and will not be
subject to privatization.
On 21 February 2023, the National Securities and Stock Market Commission (NSSMC)
established a procedure for security issuers to disclose information on their
ties with risk-zone countries, namely Russia, Belarus, Iran, and North Korea.
The NSSMC’s new Decision mandates that security issuers (which include SOEs and
state-owned banks registered as joint-stock companies) should submit this
information to the NSSMC by 30 April 2023. The disclosure must include any
material information on the company’s engagements with or in Russia and its
satellites. Specifically, the disclosure should state whether:
* the company’s owners include risk-zone countries’ citizens, residents, or
legal entities;
* the company’s governing bodies include risk-zone countries’ citizens or
residents;
* the company has any commercial relations with risk-zone countries’
counterparties, including legal entities controlled by risk-zone countries;
* the company has any subsidiaries, branches, representative offices, or other
units operating in risk-zone countries;
* the company has any joint ventures with risk-zone countries’ citizens,
residents, or legal entities;
* the company has any equity stakes (shares) in a legal entity domiciled in or
controlled by risk-zone countries; and
* the company holds any securities other than shares of a legal entity
domiciled in or controlled by risk-zone countries.
The senior managers of Ukraine’s SOE traditionally report directly to the
ministry overseeing the relevant SOE’s area of specification. Ukrainian law
specifies that ministries are not permitted to interfere with the daily economic
activities of an SOE, but numerous anecdotal reports indicate that ministries
and vested interests ignore this restriction. The Cabinet of Ministers has the
power to decide on the creation, reorganization, and liquidation of SOEs, and to
adopt and enforce SOEs’ charters. It can delegate this authority to the ministry
charged with supervising the SOE. The Cabinet of Ministers may also delegate to
ministries the permission to create joint ventures with state property and
prepare proposals to divide state property between the national and municipal
levels.
Most SOEs rely on government subsidies to function and cannot directly compete
with private firms. Several SOEs capable of making a profit have already been
privatized, this means that mainly inefficient firms remain in government hands.
The Ukrainian government continues to heavily subsidize state-owned enterprises,
especially in the coal mining, rail transportation, gas, and communal heating
sectors, and has sometimes paid the outstanding debts of SOEs with sovereign
loan guarantees. The ability of SOEs to extend payment deadlines remains
nontransparent, especially where SOEs are directed to sell their products at
below-market prices.
PRIVATIZATION PROGRAM
At the beginning of the full-scale war, privatization in Ukraine initially
suspended for the period of martial law. Aiming to attract investments,
President Zelenskyy announced privatization as a priority of his administration
in spring of 2022. The re-launch of privatization efforts was expected to
attract investments necessary to sustain Ukraine’s wartime economy and assist
with the relocation of businesses to safer regions. Small-scale privatization
(objects worth up to USD 6.3 million was unblocked with the adoption of draft
law No. 7451 on July 28, 2022, which envisaged a set of simplification measures
aimed at simplifying auction sales of state-owned companies and assets, in
particular:
* unblocking privatization of state-owned enterprises where property is
mortgaged, arrested or otherwise encumbered while preserving the creditors’
rights;
* transferring all valid licenses and permits to a new business owner after
acquiring a privatizated object (i.e. simplifying the post-privatization
period), instead of obliging the new owner to obtain these regulatory
authorizations as previously required;
* introducing the requirement for auction items with a value exceeding USD 6.3
million, to hold large-scale privatization auctions using the Prozzoro
procurement system, which is more transparent and competitive than the
previous procedure;
* switching to online announcements of privatization auctions;
* significantly reducing the preparation time for privatization: particularly,
reducing the period from the auction announcement date to the signing of a
respective sale and ensuring that the purchase agreement with a private
investor does not exceed two months; and
* introducing the martial law-driven obligation to pay the purchase price in
advance (i.e. before signing a sale and purchase agreement) after winning an
auction.
From January-September 2023, the State Property Fund of Ukraine (SPF) held 303
successful auctions. More than 60 percent of the lots were commercial real
estate for opening a shop, office or cafe. The most expensive lot in 2023 was
the Hermitage Hotel in Kyiv, which was sold for USD 7.9 million. Distilleries
have been a frequent auction item in recent years. From the fall of 2020 to the
beginning of 2023, in total 39 electronic auctions were held, generating more
than USD 50.5 million for Ukraine’s budget.
As a rule, the privatization proceeds target included in the state budget do not
coincide with the actual privatization proceeds. Year after year, revenue is
significantly lower than expected. Though the first quarter of 2023 brought in
over USD 22.8 million, the best result in the last 10 years, the annual plan for
2023 privatization proceeds was not realized. As of December 15, 2023, the SPF
raised USD 88.5 million for the state budget, much less than the planned USD 164
million. Therefore, 2023 revenue plan was also not realized, although the
percentage of anticipated revenue realized was higher than in 2022, when the
revenue expectations were USD 202.2 million but due to the war and the
suspension of privatization, only USD 43 million was actually received.
In 2024, the SPF plans to privatize about 1,000 objects and sell state property
worth about USD 101 million. The minimum proceeds from small-scale privatization
are expected to reach USD 25.3 million.
The resumption of large-scale privatization (worth over USD 6.3 million) became
possible after the adoption of draft law # 820 in late May 2023. The main
challenge for realizing these larger-scale privatization efforts is the
vulnerability of potentially attractive assets to Russian attacks, which makes
it less likely that investors will be interested and that assets will be fairly
valued. However, Ukrainian authorities are seeing expand privatization efforts
given the burden of state enterprises on public finance and the need to support
ongoing military effort.
On June 22, 2023, the Law of Ukraine No. 3137-IX “On the Introduction of
Amendments to Some Legislative Acts of Ukraine Regarding the Optimization of the
State Property Fund of Ukraine, Improvement of State Property Management and
Effectiveness of the Sanctions Policy” came into effect, though the provisions
of this law related to the management of sanctioned assets only became effective
on September 22, 2023. The law grants the State Property Fund the authority to
sell large assets both to domestic and foreign investors even during the martial
law regime. The law also enhances the centralization of the State Property Fund
of Ukraine, extends the powers of the State Property Fund of Ukraine to managing
the sanctioned assets and simplifies the appointment of deputy heads of the
State Property Fund and directors of state enterprises.
The SPFU pledged to launch the first large-scale privatization auctions by the
end of 2023 and in September 2023 announced the first 15 objects for large-scale
privatization, among which there were objects announced for privatization many
times in the past, in particular:
* Odesa Portside Plant PJSC – producer of ammonia and carbamide;
* United Mining and Chemical Company JSC, specializing in the development of
titanium-zircon deposits and the production of rutile, ilmenite and zircon
concentrate;
* Zaporizhzhya Titanium and Magnesium Plant LLC – producer of high-quality
titanium products;
* Indar PRJSC – a company with a complete technological cycle of production of
genetically engineered insulins from substance to finished dosage forms; and
* Centrenergo PJSC – one of the leading power generators within Ukraine.
These assets were not sold in 2023 and were included into the list of objects
subject to privatization in 2024. The list of large enterprises subject to
privatization may be significantly expanded by adding the confiscated Russian
assets. The SPF continues to prepare these objects for privatization at
auctions, although the prospects for their sale are not clear. For example, the
first auction for the sale of sanctioned assets – Investagro – did not take
place as planned in August due to a lack of potential buyers.
In 2024, Ukraine can expect significant demand for small-scale privatization
objects and distilleries that have not yet been sold, but investor interest in
large assets seems doubtful in the current environment, which is partly
confirmed by the SPF’s constant postponement of the deadlines for putting them
up for privatization. More detailed information on the state enterprises and
assets subject to large-scale privatization may be found via the SPF’s website:
https://www.spfu.gov.ua/en/ ; https://privatization.gov.ua/ .
Starting September 22, 2023, the SPF is also empowered to determine the
enforcement procedures for the court decisions on the recovery of assets
belonging to an individual or a legal entity subject to sanctions. The Property
Fund will also manage sanctioned assets and will be entitled to dispose of
sanctioned assets belonging to the residents of the states that carry out armed
aggression against Ukraine (i.e. the Russian Federation).
The rules on privatization apply to foreign and domestic investors and,
theoretically, establish a level playing field. However, observers have pointed
to numerous instances in past privatizations where vested interests have
influenced the process to fit a pre-selected bidder. Despite these concerns, the
government has stated that there would be no revisions of past privatizations,
but there are ongoing court cases wherein private companies are challenging
earlier privatizations.
8. RESPONSIBLE BUSINESS CONDUCT
There is limited but growing awareness in Ukraine of internationally accepted
standards for responsible business conduct, including corporate social
responsibility. Primary drivers for the introduction of these standards have
been Ukraine’s vibrant civil society, international companies and investors, and
efforts by business associations such as the American Chamber of Commerce and
the European Business Association. The government of Ukraine has put in place
corporate governance standards to protect shareholders; however, these are
voluntary.
In 2017, Ukraine became the 47th country to adhere to the OECD Declaration and
Decisions on International Investment and Multinational Enterprises , which
provides recommendations on responsible business conduct. Ukraine formally
established its National Contact Point to promote these guidelines for
Multinational Enterprises under the Ministry of Economy back in 2018, but it
does not seem operational now. On May 31, 2018, Ukraine adopted and agreed to
support and monitor implementation of the OECD Due Diligence Guidance for
Responsible Business Conduct. There are also independent NGOs, such Center for
the Development of Corporate Social Responsibility, as well as investment funds,
worker organizations and unions, and business associations promoting or
monitoring responsible business conduct. There are no reported restrictions on
their activities aimed at promoting responsible business conduct.
Ukraine has been a member of the Extractive Industries Transparency Initiative
(EITI) since 2013. Participation by companies in Ukraine, however, remains
voluntary. Ukraine has not joined the Voluntary Principles on Security and Human
Rights.
ADDITIONAL RESOURCES
Department of State
* Country Reports on Human Rights Practices;
* Trafficking in Persons Report;
* Guidance on Implementing the “UN Guiding Principles” for Transactions Linked
to Foreign Government End-Users for Products or Services with Surveillance
Capabilities
* U.S. National Contact Point for the OECD Guidelines for Multinational
Enterprises; and;
* Xinjiang Supply Chain Business Advisory
Department of the Treasury
* OFAC Recent Actions
Department of Labor
* Findings on the Worst Forms of Child Labor Report;
* List of Goods Produced by Child Labor or Forced Labor;
* Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the
World and;
* Comply Chain.
CLIMATE ISSUES
Before Russia’s full-scale invasion in February 2022, Ukraine made important
steps to build the environmental regulatory framework and ramp up efforts on
national efforts on climate change mitigation. Ukraine updated its nationally
determined contribution (NDC) in July 2021, including a commitment to reduce
greenhouse gas emissions by 65 percent by 2030 compared to 1990. The beginning
of the full-scale war in 2022, however, rendered most of Ukraine’s previous NDC
implementation plans irrelevant. As a result, the concept for the implementation
of state policy in the field of climate change up to 2030, accompanied by an
action plan, for now remains outdated and does not reflect the new targets
stemming from the updated NDC. The commitment to reach net-zero emissions by
2060, which is included in the updated NDC, has not translated into a long-term
low-emission development strategy yet. A national adaptation strategy was
adopted in 2021 as well as an operational plan for its implementation covering
2022-2024.
Ukraine continues to work on a framework climate law to make climate commitments
legally binding and to establish a robust climate governance architecture. A
Contracting Party to the Energy Community, Ukraine has several obligations
connected to the Decarbonization Roadmap. Ukraine is developing its National
Energy and Climate Plan (NECP), a strategic document aimed at harmonizing energy
and climate policies to ensure sustainable development and economic recovery of
Ukraine. The document is being developed under the coordination of the Ministry
of Economy and should be adopted in 2024.
Also related to the Energy Community’s Decarbonization Roadmap, a law on
monitoring, reporting and verification of greenhouse gas emissions was adopted
in 2019 and entered into force in 2020, as a first step towards emission
trading, followed by a number of secondary legislative acts. However, due to
martial law, the monitoring, reporting, and verification system is not fully
operational.
Ukraine is implementing several pieces of legislation aimed at decreasing carbon
emissions across various sectors.
The “Law on Highly Efficient Cogeneration” (adopted in February 2023) aims to
create incentives for the reconstruction of existing heat-generating facilities
into highly efficient installations for the combined production of electricity
and thermal energy in line with the principles and provisions of the EU acquis.
Guarantees of origin for electricity produced from renewable sources is an
important legislative initiative to facilitate the development of the renewables
sector. Effective guarantees of origin mechanism are expected to contribute to
further development of renewable energy in Ukraine.
A recently adopted “Law on Use of Electric Vehicles” aims to support the
development of electric vehicles and the infrastructure of electric vehicle
charging stations.
The Concept of the State Target Program for the Development of the Agricultural
Sector until 2022 (adopted in 2019, but loosely enforced) proposes to enhance
biodiversity with incentives for conservation and sustainable land use and to
implement measures to combat land degradation and desertification.
Promoting cleaner household energy, the 2017 “Law on Energy Efficiency Fund”
established an Energy Efficiency Fund to introduce incentives and support
measures for energy efficiency improvements and savings in buildings.
A carbon tax was introduced in 2011 to reduce greenhouse gas emissions. However,
the current carbon tax rate of around $0.4 per ton of CO2 is virtually
ineffective in strengthening energy efficiency or reducing carbon emissions. The
carbon tax is seen more as a fiscal instrument to support the State Budget of
Ukraine, but the lack of proper accounting, interaction of public authorities,
and control over pollution allowed eligible taxpayers to avoid paying the tax in
past years. The country’s efforts to introduce a range of measures to achieve
emission reduction goals call for a revision of Ukraine’s carbon pricing
strategy.
The forest sector contributes around 1 percent of Ukraine’s GDP and provides
nearly 200,000 jobs, in particular in the wood processing and furniture
industries. The sector is heavily export-oriented, with roughly 50 percent of
the timber production, mostly log wood and sawn wood, exported annually. Three
million hectares of forests, or 30 percent of the country’s forest area, have
been affected by the war in the country (for comparison, Ukraine lost 1.20
million hectares of forests, or 11 percent of tree cover, to urban and
agricultural expansion, forest fires, and logging from 2001 to 2022). Despite
some positive changes prior to the full-scale war, environmental law enforcement
remains limited, leaving space for illegal logging and corruption.
Environmental groups have also criticized the government decisions to increase
logging volumes, including in protected forests, as part of an effort to boost
export earnings and provide timber for the needs of the military as it could
lead to large-scale losses in areas where illegal logging and forest
mismanagement were already common.
Ukraine joined the Greening Government Initiative (GGI) in 2021. Common areas of
interest for GGI participants include activities such as increasing the
government’s use of renewable energy, transitioning national government
buildings and fleets to net-zero emissions, enhancing the resilience of
government buildings, establishing sustainable procurement policies, and
identifying nature-based solutions. However, there are no mandatory requirements
to include environmental and green growth considerations in public procurement
in Ukraine.
Ukraine is one of 90 countries that have implemented the UN System of
Environmental-Economic Accounting, and the country has been publishing at least
one account on a regular basis. However, the lack of access to occupied areas
and information embargoes due to the martial law may impact the government
agencies’ ability to accurately report relevant data.
9. CORRUPTION
Ukraine has established a set of specialized anti-corruption institutions
responsible for the full criminal justice process as it relates to grand
corruption to replace the non-performing law enforcement and judicial systems,
including the investigation, prosecution, and adjudication of high-profile
corruption cases. Those agencies are the National Agency on Corruption
Prevention (NACP), National Anti-Corruption Bureau (NABU), Specialized
Anti-Corruption Prosecutor’s Office (SAPO), High Anti-Corruption Court (HACC),
and Asset Recovery and Management Agency (ARMA). However, experience has shown
that their effectiveness has greatly depended on the quality and integrity of
the institution’s leader. The establishment of Ukraine’s anti-corruption system
was completed in 2019 with the establishment of the last of the five specialized
anti-corruption bodies, the HACC. Ukraine’s anti-corruption bodies have been
persistently challenged by the lack of independently selected, permanent
leadership, although things have recently improved. As of March 2024, all five
institutions have independently selected leaders. This marks an improvement from
previous years when some institutions lacked permanent leadership. For all these
bodies, successful institutional establishment and leadership selection often
only happens because of strict international conditionality.
On March 4, 2023, the Cabinet of Ministers of Ukraine adopted the State
Anti-Corruption Program for 2023-2025 as an implementation plan for the National
Anti-Corruption Strategy for 2021-2025, adopted by parliament in June 2022. It
offers an action plan and timeline for 1,700 actions and policy measures to
reduce corruption and safeguard integrity across 15 areas. An online
implementation tracker has been launched to monitor the progress of strategy
implementation. As of March 2024, 222 measures (18.7%) are implemented (fully
and partially).
In June 2023, Olena Duma, despite controversy surrounding her appointment
process, was appointed as the new head of the Agency for the Recovery and
Management of Assets (ARMA). The government appointed her to the position
despite one member of the selection committee withdrawing their support for her
candidacy. As a result, the legality of her selection through the competition
process appeared questionable. While ARMA’s annual report showcases its efforts
across multiple operational fronts, it appears that actual asset recovery
activities have not been effectively executed. Transparency and adherence to due
process are crucial for ARMA to foster accountability and cultivate public
confidence in its institutional framework.
In December 2023 the Verkhovna Rada adopted changes to the Law on Procuracy
strengthening SAPO’s independence: SAPO became a separate legal entity which
allowed them to have their own HR, accountant, secrecy units, to own property,
etc. The procedure of competitive selection for supervisory positions in the
SAPO and positions of prosecutors has been improved and a procedure for
independent audit of SAPO’s performance has been established.
In February 2024, following an open and transparent selection process, Victor
Pavluschyk was appointed as the new head of the National Agency on Corruption
Prevention (NACP). Notably, Pavluschyk had previously served as a detective with
the NABU since 2015. His appointment marks a significant step forward in
ensuring experienced and qualified leadership within Ukraine’s anti-corruption
institutions.
ASSET DECLARATION
Ukrainian public officials must file annual electronic declarations of their
income and assets. The National Agency on Corruption Prevention (NACP) was
established to collect, verify, and publish asset declarations. The system of
electronic disclosure of assets and income of public officials is the most
instrumental source of information to monitor the lifestyle of public officials.
The information submitted there serves as the basis for official investigations
into illicit enrichment and exposing corruption by journalists and civil society
monitors. In early 2022, martial law temporarily lifted an obligation to file
asset declarations by public servants for security reasons, but in October 2023
the Verkhovna Rada adopted a law restoring the obligations to submit
declarations for public servants.
OWNERSHIP REGISTRIES
Ukraine built state-of-the-art government databases revealing the ultimate
beneficial owners of Ukrainian properties, vehicles, land, and legal entities.
However, in early 2022 martial law temporarily restricted access to multiple
ownership registers based on security concerns. In 2023, access was partially
restored after a strong push from civil society.
PUBLIC PROCUREMENT
Following the full-scale invasion and throughout martial law, public tendering
regulations were amended to introduce various limitations and conditionalities
to the use of Prozorro, Ukraine’s award-winning electronic public procurement
platform for the entire Ukrainian government to publicize procurement
solicitations, share requests for proposals, and run auctions.
Integrating Ukraine’s anti-corruption achievements into its wartime and
rebuilding processes will require using its world-class transparency systems
like Prozorro, empowering the specialized anti-corruption bodies with needed
resources and permanent leadership, and giving Ukraine’s vibrant civil society a
prominent role in planning and overseeing the flow of funds.
November 5, 2021, President Zelenskyy signed law #5599 “On the Prevention of
Threats to National Security Associated with the Excessive Influence of Persons
of Significant Economic and Political Importance in Public Life (Oligarchs)”
launching a “de-oligarchization” reform to curb the detrimental impact of
oligarchs on economic, political, and public life. The law defines the term
“oligarch” through four criteria. Anyone meeting three of those criteria is to
be designated an “oligarch” and included into the register of oligarchs subject
to prohibitions. The register was due for launch in April 2022, however timely
implementation of the reform was impeded by the war. To account for the delay,
on February 24, 2023, the Cabinet of Ministers of Ukraine adopted a new
implementation timeline: the registry of oligarchs is due within three months
following the receipt of the Venice Commission recommendations to the law. The
law will be also subject to amendments to reflect the recommendations of the
Venice Commission. The Venice Commission opinion on the Anti-Oligarch law was
issued at the June 2023 Venice Commission plenary session. The Commission
characterized the law as taking a “personalized” rather than “systemic” approach
to de-oligarchization. The VC recommended confronting the problem of oligarchs
through effective competition policy, anti-corruption and anti-money-laundering
measures, measures to ensure media pluralism, and rules on the financing of
political parties and election campaigns.
Ukraine’s judicial sector remains weak and prone to corruption, creating another
major obstacle to private investment. The head of the Supreme Court of Ukraine
was arrested in May 2023 for accepting a $3 million bribe, a sign of ongoing
corruption but also the will and capacity of anti-corruption institutions to
address it. Nevertheless, efforts to reform the judiciary have made significant
progress in recent years. In 2021, parliament adopted historic legislation to
reform Ukraine’s two judicial governance bodies: the High Qualifications
Commission of Judges (HQCJ), the body responsible for selecting new judges, and
the High Council of Justice (HCJ), the body responsible for appointing them. The
HCJ was reestablished in January 2023 with vetted membership and the HQCJ was
reestablished in June 2023. Both institutions are now poised to select and
appoint new judges to the roughly 2,200 judge vacancies across the country as
well as address a backlog of more than 7,000 judicial misconduct cases,
punishing and removing corrupt and criminal judges, as a means to renew
Ukraine’s judiciary. The government also eliminated the notoriously corrupt Kyiv
District Administrative Court and is in the process of replacing it with an
entirely new entity.
An additional step to support judicial reforms and advance democracy would be
for Ukraine to join the European Public Prosecutor’s Office (EPPO). Founded in
2021, its role in the EU integration and accession process is untested. Opening
EPPO membership to candidate countries, including Ukraine, could contribute to
their alignment with EU judicial standards, and it could strengthen the rule of
law early in the integration process. In March 2022, Ukraine became the first
non-EU country to sign a working arrangement with the EPPO, focusing on judicial
cooperation in criminal matters and information exchange. Fully joining the EPPO
would add a layer of EU oversight for EU-funded projects.
In an April 2023 USAID, Department of Commerce, and AmCham Ukraine report, U.S.
and foreign investors cited corruption, especially as it applies to the
judiciary, customs, and government services, as a key challenge in Ukraine. The
expansion of digitalization can continue to increase transparency and reduce
physical interactions between investors and public sector officials, strengthen
existing anti-corruption institutions, strengthen anti-corruption legal
framework and the capacities and powers of existing oversight institutions,
promote an open approach and communication on corruption and ensure Ukraine’s
alignment with EU acquis Directives and accession requirements related to
fighting corruption.
RESOURCES TO REPORT CORRUPTION
NABU, established in October 2014, is the appropriate contact for reporting of
high-level corruption.
Government of Ukraine contact for combating corruption:
National Anti-Corruption Bureau
3, Vasyl Surikov St, Kyiv, Ukraine 03035
Hotline: 0-800-503-200
info@nabu.gov.ua
Corruption Reporting email: povidomlennia_zvernennia@nabu.gov.ua
Contact at Transparency International:
Mr. Andriy Borovyk
Executive Director
Transparency International Ukraine
37-41 Sichovykh Striltsiv Street, 5th floor, Kyiv, Ukraine 04053+38(044)
360-52-42
borovyk@ti-ukraine.org
office@ti-ukraine.org
10. POLITICAL AND SECURITY ENVIRONMENT
Russia and its proxy forces have illegally occupied Crimea and portions of
Donetsk and Luhansk oblasts since 2014. Since the February 2022 full-scale
invasion, Russia’s occupation has expanded into portions of Zaporizhya and
Kherson oblasts. Russia’s forces have committed countless atrocities, including
war crimes and crimes against humanity. The UN estimates Russia’s full-scale
invasion has killed at least 18,000 civilians and displaced 12 million more.
Russia systematically targets vital infrastructure for water, gas, and
electricity, at times disrupting essential service delivery to populated areas.
Frequent air strikes threaten population centers throughout Ukraine.
The Ukrainian government continues to take measurable steps on governmental
reform and transparency. Both political leaders and the public are solidly
committed to EU accession, which provides a powerful stimulus for reform;
despite the war, the Rada continues to advance legislation in line with EU
integration requirements.
The government has made significant progress in improving the selection of
judges, but key reforms to the Constitutional Court of Ukraine are still
pending.
Oligarch influence in politics and the economy has declined steadily in recent
years and the war has further weakened its grip, but it remains a powerful force
in some sectors of the economy.
11. LABOR POLICIES AND PRACTICES
Ukraine has a well-educated and skilled labor force of about 17.4 million people
(as of January 2022) with a nearly 100 percent literacy rate. Ukraine had a
population of 41.13 million people as of February 2022 according to the State
Statistical Service. United Nations data show that during 2022 Ukraine’s
population shrunk to about 36.3 million people due to war. At the same time,
according to the estimates of the Institute of Demography and Social Research of
the National Academy of Sciences of Ukraine, the population as of January 1,
2023, ranges from 28 million to 34 million people. According to UN estimates
from March 2024, almost 6.48 million Ukrainian refugees have been registered
officially worldwide. Almost 3.69 million people are estimated to be displaced
inside Ukraine. As of March 2024, over six million refugees from Ukraine have
been recorded across Europe and in Europe and almost 476,000 – outside Europe.
More than 3.5 million have applied for temporary residence in another country.
The ongoing war, loss of territories, destruction and relocation of enterprises,
internal and external migration have all resulted in a dramatic worsening of the
economic situation in Ukraine. Unemployment has increased sharply, reaching
about 30 percent in 2022, 20 percent 2023 and 17 percent in January 2024
according to some estimates (official data is not available for 2022-23), and
the burden on the social security system has increased. At the same time, the
labor market is characterized by an imbalance in terms of professional
qualifications and the regional distribution of labor. According to available
government labor statistics, Ukraine’s official unemployment rate was 9.8
percent in January 2022, although unemployment in some regions, particularly in
rural areas, remained significantly higher.
Self-employment is becoming more common in Ukraine. In 2023, more than 300,000
new sole proprietorships have been opened, while about 33 percent fewer
companies opened as compared to 2021. The establishment of new businesses
contributed to the increase of jobs. A number of Ukrainian businesses were
forced to move locations due to the war, which has had significant implications
for the development of regional labor markets. From the beginning of the
full-scale invasion until the beginning of December 2023, 7,820 Ukrainian
companies left the regions of their permanent registration.
Wages in Ukraine remain low by Western standards. In January 2022, the minimum
monthly wage was raised to UAH 6,700 ($245) from UAH 6,500 ($238). This minimum
monthly wage was retained in 2023. The minimum monthly wage in January 2024
increased to UAH 7,100 ($ 187) and as of April 1 will increase to UAH 8,000
($200), but due to the national currency depreciation, the minimum wage
decreased in USD terms. The real average monthly wage in 2023 was 16,300 ($429)
and in 2024 it is expected to grow by 8.5 percent to UAH 22,000 ($578). The
highest wages are traditionally in the financial and aviation sectors, while the
lowest wages have typically been paid in the agricultural, education, food
service, and public health sectors.
Ukrainian law allows workers to organize and unions are prevalent in most
industries. The law provides most workers with the right to form and join
independent unions and to bargain collectively without previous authorization.
On July 19, 2022, the Rada passed draft law No. 5371 “On Amendments to Certain
Legislative Acts on Simplifying the Regulation of Labor Relations in the Field
of Small and Medium Enterprises and Reducing the Administrative Burden on
Entrepreneurial Activity” with the intention to liberalize Ukraine’s labor
relations during martial law. Its provisions regulate employment relations, in
particular the conclusion and termination of employment contracts during the
wartime. The bill also suspends collective bargaining rights for workers at any
employer with 250 or fewer employees, but this provision is to be applied only
during martial law.
By law, the establishment of a union establishment does not require government
permission. Within classic sectors of the economy, sector-specific collective
bargaining agreements involve representative employers’ associations (e.g.
chemical industry employers), sector trade unions, and some participation of the
government through the Ministry of Social Policy. Such agreements can also take
place at the regional level. The independence of unions from government or
employer control, however, has been disputed by certain labor groups.
Independent trade unions alleged that the country’s largest trade union
confederation, the Federation of Trade Unions of Ukraine (FPU), enjoys a close
relationship with employers and members of some political parties. Unions not
affiliated with the FPU were denied a share of disputed trade union assets
inherited by the FPU from Soviet-era unions.
The law provides for the right to strike “to defend one’s economic and social
interests,” as long as strikes do not jeopardize national security, public
health, or the rights and liberties of others then the government generally
respects this right. The law does not extend the right to strike to personnel of
the Prosecutor General’s Office, the judiciary, armed forces, security services,
law enforcement agencies, the transportation sector, or public servants. Workers
who strike in prohibited sectors may receive prison terms of up to three years.
Strikes are prohibited during martial law.
The State Labor Service is responsible for enforcing labor laws, although the
number of planned and unplanned inspections is generally low. Experts assess the
number to be inadequate relative to the size of the Ukrainian economy. Labor
inspections were suspended during the first few months of martial law. On July
19, 2022, a Law #2352-IX restored unscheduled labor inspections on a limited
list of grounds envisaged in the Article 16 of the Law of Ukraine No. 2136-IX
“On the Organization of Labor Relations Under Martial Law.”
The grounds for State Labor Inspectors to conduct inspections include: request
of an employee or a trade union regarding the verification of employers’
compliance with the provisions of the Law of Ukraine “On the Organization of
Labor Relations in the Conditions of Martial Law,” the legality of termination
of employment contracts, the detection of unregistered labor relations, etc. The
State Labor Service prioritizes the fight against undeclared work. According to
the estimate of the State Employment Service of Ukraine, as of March 2023, about
3 million people were working without official registration, which is more than
20 percent of the working population of Ukraine. The National Mediation and
Reconciliation Service (NMRS) is responsible for mediating labor disputes.
According to official Ukrainian statistics, during 2023, NMRS facilitated the
resolution of 143 collective labor disputes: 3 – at the national level; 4 – at
the sector level; 3 – at the territorial level and 133 – at the enterprise
level. More than 1.6 million workers and 7,668 economic entities participated in
these disputes.
12. U.S. INTERNATIONAL DEVELOPMENT FINANCE CORPORATION (DFC) AND OTHER
INVESTMENT INSURANCE PROGRAMS
The U.S.-Ukraine Overseas Private Investment Corporation (OPIC) Agreement was
signed in Washington in 1992. OPIC, now the U.S. International Development
Finance Corporation (DFC), currently provides political risk insurance to
several U.S. companies operating in Ukraine and has the capacity to insure other
eligible investors if such coverage is sought. Ukraine is a member of the
Multilateral Investment Guarantee Agency (MIGA). DFC has an active pipeline of
projects in Ukraine across various sectors.
13. FOREIGN DIRECT INVESTMENT AND FOREIGN PORTFOLIO INVESTMENT STATISTICS VS/LS
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or
International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other Economic Data
Year Amount Year Amount Host Country Gross Domestic Product (GDP) ($M USD) 2023
$179,000 2022 $160,502.74
https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?locations=UA Foreign Direct
Investment Host Country Statistical source* USG or international statistical
source USG or international Source of data: BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2021 $-79 2022 $-131 BEA
data available at: https://apps.bea.gov/international/factsheet/factsheet.cfm
Host country’s FDI in the United States ($M USD, stock positions) 2021 -$ 0 2022
-$1 BEA data available at: Bea: Ukraine – International Trade and Investment
Country Facts Total inbound stock of FDI as % host GDP 2023 30.3% 2022 33.7%
UNCTAD data available at:
https://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Country-Fact-Sheets.aspx
* Source for Host Country Data: NBU
Table 3: Sources and Destination of FDI Direct Investment from/in Counterpart
Economy Data From Top Five Sources/To Top Five Destinations (US Dollars,
Millions, NBU data, 2022) Inward Direct Investment Outward Direct Investment
Total Inward $50,986.7 100% Total Outward $1680.3 100% Cyprus $70.3 31.1 %
Cyprus $834.7 49.7% Netherlands $63.9 19.5% Latvia $50.3 30% Switzerland $58.0
5.1% Russia $35 2.1% Germany $89.2 4.97% Poland $5.0 0.3% UK & Northern Ireland
$77.7 4.8% Switzerland $9.7 0.6% “0” reflects amounts rounded to +/- USD
500,000.
Source: NBU, 2022
Table 4: Sources of Portfolio Investment Portfolio Investment Assets
(preliminary 2022 data) Top Five Partners (Millions, current US Dollars) Total
Equity Securities Total Debt Securities All Countries 604 100% All Countries -2
100% All Countries 606 100%
14. CONTACT FOR MORE INFORMATION
Jeffrey Joseph
Economic Officer
U.S. Embassy Kyiv
Aviakonstructor Igor Sikorsky St, 4, Kyiv, Ukraine, 04112
+380 44 521 5000
JosephJC@State.gov
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1. EXECUTIVE SUMMARY
2. 1. Openness To, and Restrictions Upon, Foreign Investment
1. Policies Toward Foreign Direct Investment
2. Limits on Foreign Control and the Right to Private Ownership and
Establishment
3. Other Investment Policy Reviews
4. Business Facilitation
5. Outward Investment
3. 2. Bilateral Investment and Taxation Treaties
4. 3. Legal Regime
1. Transparency of the Regulatory System
2. International Regulatory Considerations
3. Legal System and Judicial Independence
4. Laws and Regulations on Foreign Direct Investment
5. Competition and Anti-Trust Laws
6. Expropriation and Compensation
7. Dispute Settlement
1. Investor-State Dispute Settlement
2. International Commercial Arbitration and Foreign Courts
8. Bankruptcy Regulations
5. 4. Industrial Policies
1. Investment Incentives
2. Foreign Trade Zones/Free Ports/Trade Facilitation
3. Performance and Data Localization Requirements
6. 5. Protection of Property Rights
1. Real Property
2. Intellectual Property Rights
7. 6. Financial Sector
1. Capital Markets and Portfolio Investment
2. Money and Banking System
3. Foreign Exchange and Remittances
1. Foreign Exchange
2. Remittance Policies
4. Sovereign Wealth Funds
8. 7. State-Owned Enterprises
1. Privatization Program
9. 8. Responsible Business Conduct
1. Additional Resources
1.
2. Climate issues
1.
10. 9. Corruption
1. Asset declaration
2. Ownership registries
3. Public procurement
4. Resources to Report Corruption
11. 10. Political and Security Environment
12. 11. Labor Policies and Practices
13. 12. U.S. International Development Finance Corporation (DFC) and Other
Investment Insurance Programs
14. 13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
VS/LS
15. 14. Contact for More Information
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