1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

The government of Ukraine actively seeks FDI.  In 2014, the National Investment Council was established as a consultative and advisory body under the president, and in 2016 the Ukrainian government established an investment promotion office UkraineInvest, with a mandate to attract and support FDI.  Ukraine also established a Business Ombudsman in 2015 to provide a forum for domestic or foreign businesses to file complaints about unjust treatment by state or municipal authorities, state-owned or controlled companies, or their officials.  Ukraine has made attracting investment a top priority for 2020.  Accordingly, this year it launched various incentive programs to increase investment.  President Zelenskyy has remarked on multiple occasions about his desire to have an ongoing dialogue with investors and has arranged various meetings with Ukrainian businesses and foreign business associations such as the American Chamber of Commerce and the European Business Association.

Limits on Foreign Control and Right to Private Ownership and Establishment

The regulatory framework for the establishment and operation of business 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” (2013).  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 Fiscal Service.  The accreditation process for representative offices of foreign companies and their branches is has been historically slower and more costly than the simplified registration process for Ukrainian businesses.  Legislation was adopted in November 2019, however, that reduced the cost of accreditation for foreign representative offices (excluding Russian businesses) from $2,500 to one minimum monthly wage (which in 2019 was approximately $70) and the timeframe from 60 to 20 days.  The Ministry of Economic Development, Trade, and Agriculture issues these accreditations.

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 bio-ethanol, 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 used in practice.  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.  Ukraine currently reviews merger and acquisition investments only on competition grounds, but is considering a mechanism for investment review on security grounds.  According to Ukraine’s investment promotion office, UkraineInvest, foreign direct investments are reviewed on an ad hoc basis by the Cabinet of Ministers if concerns arise, but there is no formal process in place.

Other Investment Policy Reviews

The Organization for Economic Cooperation and Development (OECD) and the World Trade Organization (WTO) conducted formal reviews in 2016, and can be found at OECD: ; WTO: .

Business Facilitation

Ukraine has taken major steps forward to facilitate the ease of doing business, and it moved up seven spots in the World Bank’s 2020 Doing Business Ranking from 71th place in 2019 to 64th.  This is Ukraine’s largest annual leap since 2014 and the highest ranking the country has ever received.  The country demonstrated improvements in six out of the ten indicators the World Bank assesses, scoring the highest in categories such as “starting a business” and “dealing with construction permits.” Legislation adopted in October 2019 on “Encouraging Investment Activity in Ukraine,” which abolished outdated and inefficient regulations, improved the protection of minority investors’ rights, and increased lending options for businesses is expected to further facilitate doing business in Ukraine.

Private entrepreneurs and legal entities can register online at and .  These online registrations systems are not commonly used because it is difficult to submit the required documents online.  Once a company is registered with the State Registrar, 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 Fiscal Service, the Employment Insurance Fund, the Social Security Fund, and the Fund for Social Insurance.  Registering a joint-stock company or a limited liability company takes approximately six days.

Outward Investment

As of December 1, 2019, Ukraine’s investments in foreign countries totaled approximately $6.5 billion, according to data provided by the State Statistics Service of Ukraine.  Individuals are limited to investing a maximum of EUR 50,000 ($56,000) abroad per year, and any investment exceeding this cap requires a license from the National Bank of Ukraine.  Legal entities and private entrepreneurs registered in Ukraine have a cap of EUR 2 million ($2.24 million) per year.

6. Financial Sector

Capital Markets and Portfolio Investment

The Ukrainian government encourages foreign portfolio investment in Ukraine, but the capital market is underdeveloped.  Ukraine’s capital market consists of two separate sectors: a stock market and a commodity market.  Liquidity is limited and investors have limited investment options.  The stock market includes ten stock exchanges and a settlement center.  Government bonds constitute 95 percent of the trades. A few corporate securities are listed, but the volume of their trades is insignificant.  Only Ukrainian-licensed securities traders may handle securities transactions, though there are limited exceptions.  In January 2020, China’s Bohai Commodity Exchange acquired a 49.9% stake in one of Ukraine’s leading stock exchanges, JSC PFTS Stock Exchange.  The commodity market in Ukraine does not have a transparent regulatory framework.  It includes hundreds of commodity exchanges, and other participants that are not licensed or subject to any supervision.

The regulator of Ukraine’s capital market, the National Securities and Stock Market Commission, lacks financial and operational independence and, therefore, Ukraine is not a signatory of the Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information of the International Organization of Securities Commissions.  Legislation to strengthen the independence of the Securities Commission was submitted to the Parliament but has not yet passed.  In November 2019, Ukraine adopted the so-called “Split” law, which regulates the non-banking financial services sector.  According to the law, the National Bank of Ukraine will supervise and regulate the insurance market, leasing and factoring companies, credit unions, credit bureaus, pawnshops and other financial companies, while the National Securities and Stock Market Commission will regulate private funds, including: pension funds, construction financing, and real estate transactions. The law provides for a transition period through June 30, 2020.

Ukraine has restrictions in place on payments and transfers for current international transactions.  However, legislation adopted in 2018 on currency regulations came into effect in February 2019 that has begun to loosen some of these restrictions.  Ongoing currency liberalization, along with the legislation and regulatory reform, should facilitate foreign investments into securities, including corporate ones.  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, though interest rates remain high. The credit market environment has long lacked transparency; enforcement of key laws and regulations has been weak; and investors, both domestic and foreign, continue to face significant uncertainty.

Money and Banking System

Ukraine’s banking sector has seen remarkable progress following the 2014-2015 crisis thanks in large part to the authorities’ banking sector cleanup, which resulted in the closure of over 100 banks for insolvency or money laundering activities, as well as sound policies from Ukraine’s independent central bank, the National Bank of Ukraine.  The number of unprofitable banks has steadily decreased in the past few years; only six banks were unprofitable in 2019 compared to 13 in 2018.  The banking sector nearly tripled 2018’s record high net profit of UAH 21.7 billion ($775 million), reporting a cumulative profit of UAH 60 billion ($2.4 billion) for 2019.  State-owned PrivatBank earned half of the total profits in the banking system.  Interests were the main source of the total profit. Foreign banks’ profits amounted to UAH 18.5 billion ($740 million) in 2019.

Non-performing loans, however, remain one of the biggest unresolved issues of the banking sector accounting for 48.4 percent of loans in 2019.  State-owned banks hold nearly 75 percent of total NPLs.  Moreover, the penetration of banking services in Ukraine remains low, as only approximately 63 percent of Ukrainians have a banking account.  There are approximately 75 banks operating in Ukraine, with the top 20 banks accounting for 92 percent of net assets in 2019.  As of end-2019, the banking sector’s net assets amounted to UAH 1.49 trillion ($57 billion).

Foreign-licensed banks may carry out all activities conducted by domestic banks, and there is no ceiling on 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 nonresident 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 to an account of a Ukrainian resident company.  In 2017, the National Bank of Ukraine began allowing foreign investors to use escrow accounts to make investments in Ukraine.

Foreign Exchange and Remittances

Foreign Exchange

The National Bank of Ukraine (NBU) in 2019 continued to liberalize currency controls and restrictions on repatriating funds, which had been put in place to stabilize the Ukrainian foreign exchange market during the 2014 economic crisis.  In February 2019, the Law “On Currency and Currency Transactions,” came into effect, marking the start of the most radical overhaul of the country’s currency environment in over a quarter of a century.  Under the new law, individuals can purchase foreign currency online and against credit money.  Individuals can transfer up to EUR 50,000 ($55,000) abroad every year, with the daily limit raised to $5500 from $1800. Even though many restrictions for foreign currency transactions have been loosened, the new regulations still require Ukrainian banks to verify most foreign currency transactions. This rule applies to a majority of cross-border payments by Ukrainian residents.

The NBU has abolished all restrictions related to the repatriation of dividends. As of July 2019, dividends can be paid to a foreign investor’s account in Ukraine or abroad without limits and for any year. The NBU also cancelled the mandatory sale of currency proceeds by businesses from June 2019.  In addition, it removed the hryvnia reserve requirement banks had to keep for foreign currency purchases, and it now allows unlimited daily purchase of foreign currency by individuals through banks, financial institutions, and via online banking.  In September 2019, the NBU cancelled a monthly EUR 5 million limit for the repatriation of proceeds received by a foreign investor from selling shares of a Ukrainian company, decreasing its charter capital or withdrawing investment from a Ukrainian company.  A cap on the repatriation of the above-specified proceeds of foreign investment was introduced by the NBU back in 2014 in order to restrict the outflow of capital from Ukraine.  The NBU has developed a road map for removing currency restrictions with the goal of reaching a full capital flow regime.  The roadmap is publicly available on its website in both Ukrainian and English.  Further liberalization is contingent on implementation of BEPS legislation and general macro-economic conditions.

The NBU has had a floating exchange rate policy for the last five years, though the NBU carries out currency interventions to meet two objectives: reducing excessive currency fluctuations and replenishment of international reserves.

Remittance Policies

In December 2019, the central bank of Ukraine doubled the e-limit for some retail foreign currency remittances, including for investment abroad or foreign deposits, to EUR 100,000 ($110,000) per year.  As long as they comply with the e-limit, individuals are permitted to remit foreign currency (or the national currency hryvnia) abroad or to current accounts of corporate nonresidents in Ukraine opened in order to meet liabilities to nonresidents under health insurance agreements, invest abroad, deposit funds to their accounts outside Ukraine, or issue a foreign currency loan to a nonresident.

Sovereign Wealth Funds

Ukraine does not maintain or operate a sovereign wealth fund.

7. State-Owned Enterprises

The Government of Ukraine operates 1,600 state-owned enterprises (SOEs) out of 3,358 registered SOEs, with an economic output of approximately ten percent of GDP.  While the government lists 3,358 enterprises, more than 1,700 of them no longer operate as functioning businesses.  SOEs in Ukraine are defined as companies which the state owns at least 50 percent +1 share.  SOEs are active in areas such as energy, machine-building, and infrastructure.  More than half of the SOEs are small and inefficient, with ties to corrupt interests, illegal shadow owners, and Soviet-era management practices, which are the real barriers to privatization.  Some of the companies have significant environmental problems, legacy legal issues, or oligarchs as minority owners—all issues that could keep foreign investors away.

There is no common public list of all SOEs in Ukraine and each ministry publishes a list of SOEs under its respective management.  The Ministry of Economic Development and Trade periodically updates information on annual financial reports of significant SOEs (100 of the largest SOEs), which it publishes on the ministry website. 

Ukraine’s law on corporate governance requires SOEs to publicize annual financial reports and disclosures on official websites, including information on financial indicators, company officials, transactions, etc.  The law also stipulates that SOEs publish their annual financial statements and audits, though a review of SOE financial statements and audits showed that SOEs did not rigorously adhere to the law.  Independent and government board members were selected in 2018 in certain strategic SOEs, including Naftogaz, Ukrzaliznytsia, Ukrenergorynok, Ukrposhta, and Ukrenergo.  In 2019, the government continued its corporate governance reform efforts, and created independent supervisory boards in strategic SOEs in the defense industry.  These long overdue reforms were an important step towards improving the management, efficiency, and responsiveness of the companies.  Since late 2019, some rollbacks of corporate governance protections at SOEs have been observed, especially in SOEs in the energy and infrastructure sectors such as Naftogaz, Ukrenergo, and Energoatom.

SOE senior managers traditionally report directly to the Ministry overseeing the relevant SOE’s area of expertise.  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 SOE 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, and the result has been that the most inefficient firms have remained 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 outstanding debts of some SOEs with sovereign loan guarantees.  SOE access to extensions of tax payment deadlines remains nontransparent, especially where SOEs are directed to sell their products at below-market prices.

Privatization Program

The Government of Ukraine approved a revised list of 21 SOEs designated for large privatization on January 16, 2019.  The government also approved a list of smaller-scale SOEs to put up for sale in 2019.  Despite an ambitious annual plan, the budget received only UAH 0.5 billion ($20 million) from privatization, which was 3.1 percent of the original plan for 2019.  Influence from vested interests led to the government’s decision to cancel the sale in late 2019 of Centrenergo despite a promising start to the process.  In 2019, several advisors appointed to supervise the privatization of SOEs designated for sale fell victim to legal challenges launched by vested interests.  In 2020, the government unblocked the advisor assignments, allowing the privatization processes to continue.  Nonetheless, Ukraine’s failure to complete a single major privatization in three years raises concern about the government’s commitment to privatization.

Ukraine’s new government has vowed to implement a series of major privatization reforms, including a dramatic reduction of the number of SOEs deemed strategic and exempt from sale.  As a first step, the Ukrainian Parliament voted in October 2019 to nullify legislation from 1999 banning the privatization of a lengthy list of state assets.  Over the next year, the Cabinet of Ministers will have to create a new list designating which companies the state should control.  Objects of strategic infrastructure, such as defense enterprises, public broadcasting, cultural and social importance, will still be barred from the privatization.  In February 2020 as part af an effort to reform state-owned companies, the government started the legislative process to permit partial privatization of some previously excluded SOEs, including Naftogaz, MainGasPipelines of Ukraine, UkrTransGaz, UkrNafta, Ukrgasvydobuvannya, Ukrzaliznytsia (UZ) and UkrPoshta.  The United States has provided significant technical assistance to Ukraine to support an open and transparent privatization process.

The State Property Fund (SPC) oversees privatizations in Ukraine.  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 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.

10. Political and Security Environment

Russia’s military aggression entered its sixth year in the eastern oblasts of Donetsk and Luhansk, as did its illegal occupation of the Crimean peninsula.  Residents of Russia-controlled areas are subject to political violence at the hands of Russia’s proxy authorities.  Civilian casualties in eastern Ukraine from landmines, shelling, and small arms fire have decreased steadily since 2017, but continued to occur with some regularity.  Infrastructure for water, gas, and electricity remained at risk of conflict-related damage, and fighting routinely disrupted maintenance of aging facilities, thereby threatening essential service delivery to populated areas.  Russia-led forces control approximately 400 km of Ukraine’s international border with Russia through which Russia supplies and equips its proxy forces, who receive logistical and command support from Russian Army soldiers.  Russia continued its illegal occupation of the Autonomous Republic of Crimea and the City of Sevastopol, and reports of political violence, repression, and religious persecution continue.

The 2019 presidential elections, and subsequent early parliamentary elections fundamentally reformatted Ukraine’s political space, bringing to power a new political party with little prior governance experience.  The new parliament initially adopted rapid legal changes, but the perceived lack of a coherent strategy lead to growing social dissatisfaction.  Presidential dissatisfaction with progress on reform and economic performance led to the replacement of the Presidential Chief of Staff and a complete overhaul of the Cabinet in the spring of 2020.  The president remains personally popular, but popularity for the parliament and the Cabinet has declined.  Protests have been limited to those against “capitulation” to Russia, especially in October 2019, and more recently against specific legislation such as land reform.  Protests have decreased as COVID-19-related quarantine restrictions on large public gatherings have been implemented.

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