Foreign Infusions into Charter Capital of the Company in Ukraine: Benefits and Guarantees

“Foreign Invested Enterprise” is the term that we hear in daily business life in Ukraine more and more often. But what features does it hide? Let’s try to understand.
First of all, it should be noted that enterprises, established with participation of foreign investments, are subjected to currency and customs regulation and taxation according to the rules established by the legislation of Ukraine on currency and customs regulation and taxation of companies, on one level with created without the participation of foreign investment (Ukrainian Law, Art. 2 “On elimination of discrimination in the taxation of business entities, created with the use of property and funds of domestic origin”).
Moreover, since May 15, 2010 registration of foreign investments has been carried out on their own, now it is the choice of each investor but not its duty. But if you decide to register a foreign investment, it is necessary to become familiar with the benefits, guarantees and features of this procedure in Ukraine.
Foreign investments in Ukraine have number of advantages over direct foreign credits: purposive character of investments, an investor interest in improving the efficiency of business enterprises in Ukraine, in improving production and refund. In accordance with Ukrainian legislation, investments can be either in cash or in the form of property that foreign founders contribute to the charter capital of the enterprise.
According to the current legislation of Ukraine, an enterprise with not less than 10% of foreign investments in the charter capital (fund) (Ukrainian Law, paragraph 3 of Art. 1 “On the Regime of Foreign Investment”) is recognized as a company with foreign investment. Persons (investors, founders) of investment activity can be citizens and legal entities of Ukraine and foreign countries, as well as the state represented by its offices. Contributions from foreigners (both physical and legal persons) may be in any form, as it was stated above.
We will look at the two most popular types of investments which are protected by the laws of Ukraine and (in accordance with the Laws of Ukraine “On the Regime of Foreign Investment” and “On Protection of Foreign Investments in Ukraine”) have a number of benefits and guarantees, such as the investment in the charter fund of the legal entity and buy-back of legal entity’s corporate rights by non-residents in Ukraine.
Of course, the most popular form of share, which is the most often used in practice, is an investment in the form of a contribution to the charter fund of the legal entity. One of the main advantages of this contribution is that the property imported into Ukraine as a contribution to the fund of a legal entity with foreign investments (except goods for sale or personal consumption), provided that within three years from the date of enrollment of this investment the balance of the enterprise with foreign investments it has not been alienated, exempt from duty. This exemption applies only to investments that are considered as a contribution to the charter capital and at the same time such foreign investment is registered.
The registration procedure of a foreign investment in the form of property is as follows. When an investor has received from the state registrar certified documents for registration of a legal entity with its participation, he is given the opportunity to import their property into the customs territory of Ukraine.
The customs authorities allow the passage of property-investment only on the basis issued by a legal entity of a promissory note in the amount of tax deferred payment of no more than 30 days from the date of registration of the import customs declaration. It must to be pointed out that the property is imported as a contribution in the charter capital.
Once the property cross the border, you need to register a foreign investment in the respective state administration at the location of the legal entity. After completion of the official registration procedure, you should apply to the fiscal authorities issued to repay the importation note. According to the legislation of Ukraine, 3 days in state administration and 15 days in the fiscal authorities for the passage of these actions are reserved, but on practice it takes much more time. Through the registration procedure public authorities carry out the appropriate registration carefully and they always fear to have no time to complete the procedure in 30 days. In this case, the whole procedure will make no sense, and the investor will have to pay the full fee. Therefore we advise to be extremely careful at this stage and in case of fears contact Ukrainian lawyer for legal support procedures.
Also, we would like to draw your attention to features of another type of foreign investment (the acquisition of non-resident corporate rights of a legal entity established under the laws of Ukraine). This operation also falls under the definition of foreign investment which is a subject of special state guarantees. The legal consequences of this form of investment are the same as if the entity initially was established by a foreign investor. Because of this it is used more often, it is much easier to create a legal entity with a resident and then just assign (sell) the corporate rights to the interested investor.
It should be understood that investing with the state registration of such an investment has many advantages and guarantees to which investors should pay attention, namely:
– foreign investments in Ukraine are not be nationalized;
– state authorities have no right to confiscate foreign investments;
– foreign investors are entitled to recover damages, including lost profits and moral damage caused to them as a result of actions, omissions or improper performance of the state bodies of Ukraine or their officials of the duties stipulated by the legislation with respect to foreign investors or enterprises with foreign investments in accordance with the laws of Ukraine;
– in the case of termination of investment activities foreign investors will be entitled to the return of their investment without paying duty, as well as income from these investments;
– for foreign investors (after paying taxes, fees and other mandatory payments) unhindered and immediate transfer abroad of profits, revenues and other funds in foreign currency obtained legally as a result of foreign investment are guaranteed.
Also, in accordance with Article 8 of Section 2 of the Law of Ukraine ” On the Regime of Foreign Investment”, if the legislation of Ukraine change the guarantees for the protection of investments, within ten years from the date of entry into force of such legislation at the request of a foreign investor state guarantees for protection of foreign investments from this Law are used.
But all these benefits and guarantees are true only for the registered foreign investment, so only you decide if you should you use this opportunity or not. In any case, preliminary legal advice in this matter will not be superfluous.

Author: Kydalov Igor

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