Amendments to the Ukrainian “Law on Investment Nannies”. Pragma Consulting Group’s review
On August 9, 2023 the Parliament of Ukraine adopted draft law no. 8138 in the second reading and as a whole as a Law, aimed at improving the current regulation of provision of the state support to large investment projects. Starting from August 24, the adopted Law is waiting for the signature of the President. Since the initial Law of Ukraine "On State Support of Investment Projects with Significant Investments in Ukraine (hereinafter — "the Law on Investment Nannies") was largely discussed and brought a lot of hope for potential investors, amendments to it are on the top of the agenda for businesses as well. Pragma Consulting Group, Partner of the Ukrainian Bar Association’s GR Committee, has highlighted the main changes brought by the recently adopted Law in its review.
Amendments regarding the admissibility of the projects
A significant number of amendments concern the criteria of admissibility of the investment projects for state support under the Law on Investment Nanny, as the initial version of the Law was rather restrictive: in terms of industries in which these projects are to be implemented (processing industries (except alcohol and tobacco production), mineral extraction with the aim of processing (except coal and carbohydrates), waste management, transport, warehouse services, mail and courier services, logistics, education, science and research, healthcare, art, culture, sport, tourism and recreation), the minimum sum of investment (20M EUR within 5 years period starting from the date of the signature of the investment contact), minimum number of new work places to be created (80 new workplaces with the salary, exceeding median salary in respective region).
In order to ensure availability of the state support mechanisms to the broader number of investment projects in the current difficult economic situation, adopted draft law no. 8138 sets new, milder requirements to the investment projects, admissible for the state support, namely:
- In addition to the existing list of eligible industries, include the following ones: production of biogas and biomethane and electronic communications;
- Decreasing the threshold for admissibility of project to 12M EUR and prescribing that up to 30% of the sum of the project’s planned investment may be invested not earlier than 18 months before the signature of the investment project;
- Requiring to create at least:
- 10 new workplaces with a salary at least 50% higher than the median salary in the region for the same type of activity during the previous calendar year; or
- 30 new workplaces with the salary at least 30% higher than median salary in the region for the same type of activity during the previous calendar year; or
- 50 new workplaces at least 15% higher than the median salary in the region for the same type of activity during the previous calendar year.
New types of state support
The current wording of the Law provides four possible forms of state support: priority right for use of land plots in the state or communal property; budget funding for building supporting infrastructure (roads, connection to utilities) — in new wording term “supporting infrastructure” is replaced with term “engineering and transport infrastructure”; tax incentives; duty-free import of necessary equipment. The new draft law includes a new type of state support — state financing for connecting to engineering and transport infrastructure, as well as exemption from compensation of losses of forestry production by the entities implementing large investment projects.
It is worth noticing that costs related to these new types of state support are included in the sum of the state support provided to the investor — which may not exceed 30% of the sum of the investments. According to the recent amendments, in the case when the sum of the investment made exceeds the sum prescribed in the investment agreement the maximum sum of state aid does not change; however, in the case when the sum of the investment made is smaller than the sum prescribed in the agreement, the maximum sum of the state aid decreases proportionally.
Changes regarding the procedural requirements
In addition to substantive changes, the draft law also aims at simplifying the procedure of application for state support. In particular, the draft law suggests that in case there are some drawbacks in the feasibility study of the project, the applicant for state support may correct them within a 15-day period — while in the current wording applicant was not provided with such a possibility.
In addition, it is suggested to set a timeframe for negotiations on the scope of the investment contract — such negotiations must be completed within 2-month period.
Also, the adopted draft law sets a list of the state authorities that participate in the evaluation of the project, including the Antimonopoly Committee of Ukraine, the Ministry of Finance of Ukraine, the Ministry of Justice of Ukraine, the Ministry of Health of Ukraine, the Ministry of Environmental Protection of Ukraine, as well as the Ministry responsible for the state policy in the industry in which the project is to be implemented. Other state authorities may be involved in the evaluation of the project as well if necessary.
Important: in addition to amendments to the Law of Ukraine “On State Support to the Investment Projects with Significant Investments in Ukraine” adopted draft law also instructs the Cabinet of Ministers of Ukraine to take measures ensuring creation and functioning of the Business Ombudsman Institution, including definition of the main directions of its functioning and sources for its financing within six months after its coming into force. The Business Ombudsman Council currently functions as a consultative body to the Cabinet of Ministers of Ukraine and financed using multi-donor account, managed by EBRD. However, for sustainability of the project adoption of the separate law, as well as ensuring of other sources of financing is required.