Among the main advantages of investing in Ukraine are worth noting:

 

46 million consumers - one of the largest markets in Eastern Europe;

 

High scientific and educational potential - powerful network of universities and research centres;

 

A competitive skilled labour force - according to research company BrainBench, Ukraine has the 4 th place in the world in number of certified professionals in the field of hi-tech;

 

Strategic advantages of location - Ukraine is at the crossroads of trade routes East-West and North-South;

 

Widely developed transport infrastructure - railways, ports in the Black Sea and the pan-European transport corridors;

 

Large number of investor success of leading international companies - Kraft Foods, Coca-Cola, Hewlett Packard, Cargill, Knauf, Yazaki-Ukraine, Raiffeisen Bank and others.

 

Investment Climate is a set of economic, legal, regulatory, political and other factors that ultimately determine the investment risk and the possibility of their effective use.

 

Parts of the investment climate:

1. Political situation

2. Macroeconomic factors

3. The legal environment

4. Tax Environment

5. Regulatory impact

 

Political situation

After the presidential elections in Ukraine in 2010, a ruling coalition in Parliament and forming a functioning Government, political situation in Ukraine is much improved. The stabilization of political situation led to high international ratings of Ukraine.

In early 2010, the agency Standard & Poors has three times raised rating of Ukraine.

In July 2010 the agency Standard & Poors upgraded the long-term rating of Ukraine under obligations in foreign currency to "B +" from "B" in connection with the adoption of the International Monetary Fund (IMF) for a new credit program for Kyiv. Outlook is "positive".

Also, Standard & Poor's upgraded the sovereign credit rating of Ukraine in national scale rating to 'uaAA-"from" uaA +.

Long-term local currency rating upgraded to "BB-" from "B +".

 

Government of Ukraine to stabilize the situation in Ukraine, including in order to create an attractive investment climate has prepared a number of strategic documents, including this:

State program of economic and social development of Ukraine for 2010 (the anti-crisis program)

The main tasks of the anti-crisis program are: sanitation of public finances and the banking system, restore lending to the real economy, carry out fundamental institutional reforms, increasing investment in modernizing the economy, create favourable conditions for businesses that together will not only solve the crisis, but also to restore and strengthen the trend for sustainable socio-economic development of Ukraine and the welfare of citizens.

 

To develop the investment Program has the following main Tasks:

 

-         Development of public-private partnership to stimulate investment.

-         Establishment of industrial (industrial) parks.

-         Restoration of special regimes (special economic zones and priority development territories.)

-         Strengthening the state guarantees rights of concessionaires.

-         Improving the mechanism of attracting investors to production-sharing agreements.

-         Preparations for the European Championship finals in 2012.

 

Program of acting of the Cabinet Ministers of Ukraine

The main objective of the program is to conduct systematic reforms to switch to energy efficient innovation-investment model of development that will help modernize the economy and achieve high standards of living.

The program has identified number of priority reforms, implementation of which will help achieve those goals. Main index is to switch from declarations to implementation of reforms, which will enhance the competitiveness of Ukraine's economy, create favourable conditions to attract investment, accelerate growth and achieve positive structural changes in the economy.

Priority actions are that Government will focus on solving critical problems in the financial and investment field.

 

To encourage foreign investment the Government Program includes:

 

-                     Providing investors with comprehensive support during the design and implementation of priority for economic development investment projects.

-                     Enhancing international cooperation for the joint implementation of priority investment projects of social and economic development Ukraine, especially in the areas of transport, energy, telecommunications, environment, development of municipal infrastructure, small and medium business projects in preparation for the finals in Ukraine of European Football Championship in 2012.

-                     Providing the interaction between State and private partners to promote investment activities.

-                     Recovery of special investment regimes, the creation of industrial (industrial) parks.

-                     Improvement of investment under the conditions defined production-sharing agreements and agreements on joint activities.

 

Concept of State program of development of investment activity for 2011-2015 (developed by the State Agency of Ukraine for Investment and Development)

Program objectives - to create conditions to facilitate investment activities aimed at modernizing the economy and sustainable economic development.

For achieving this purpose the main ways of development of investment activity in Ukraine and its activation in the project of the Concept proposed to define:

 

1) Improving the investment climate, creating conditions for the transition to investment and innovative model of economic development through improvement of legislation aimed at intensifying investment activity, removing barriers and incentives for investment;

 

2) Improving the methodology of development and evaluation of investment projects, expansion of public investment in the following areas:

-                           state support of investment programs and projects in infrastructure and core sectors;

-                           state support of investment programs and projects aimed at developing export-oriented and import replacement industries;

-                     state support of medium-and long-term investment projects aimed at creating high-tech competitive products;

-                           state support of investment programs and projects aimed at development of energy facilities that produce electricity using alternative energy sources;

 

3) Developing the investment market and investment infrastructure, namely:

-               creation and effective functioning of the state investment company, fund credit guarantees and other development institutions;

-               formation and development of industry equity and venture capital;

-               creating conditions for investments in capital markets (stock exchanges to consolidate, strengthen the protection of consumers of investment services;

 

4) Ensuring efficiency and transparency of the functioning mechanisms of Public Private Partnerships (concessions, joint activity, production sharing agreements, etc.);

5) Transformation of state enterprises (except state owned enterprises which can not be private kazenny) in the company's market-type, able to attract private investment.

 

Macroeconomic factors

Gross domestic product at current prices in the second quarter of 2010 amounted to 262 365 millions UAH, what is 23% over the same period of 2009 (and only 11% more than in 2 quarter 2008). The main reason of such a low level of GDP is the financial crisis.

Between January and September 2010, foreign investors directed 3423.2 million USA of direct investment into Ukraine's economy what is 13% less than the amount raised for the first 9 months of 2009 foreign direct investment.

The growth of total foreign capital in the economy, including its revaluation, losses, exchange rate differences, etc., within 9 months of 2010, amounted to 2546.7 millions USA.

The growth of foreign capital was observed in enterprises engaged in financial activities in the amount of 1684.3 millions USA, trade, repair of motor vehicles, household goods and personal consumption - 237.6 millions USA and real estate transactions, leasing, engineering and services for entrepreneurs - 215.7 millions USA.

The total volume of direct foreign investment into Ukraine as of 1 October 2010 was 42.5 billion dollars that the 6.4% increase over investments at the beginning of 2010, and in per capita amounted to $ 926.7.

 

Recall, according to projections of the experts estimated in the field of foreign investment according to the publication of the Ministry of Economy of Ukraine Ukraine: Prospects for Development (consensus forecast) as of July 2010 consensus estimate of the net inflow of foreign direct investment results in 2010 was 4.9 billion USA, varying from 3.7 to 6 billion. USA.

 

Structure of capital investments

The structure of capital investment share of investment in fixed assets is 81.2%. On the enhancement of the (overhaul, modification, modernization) sent 9% of total capital investment, in intangible assets - 4%, others 1.8%.

Capital investments in January-September 2010 compared with same period last year decreased by 4% and amounted to 83.9 billion. (January-September 2009, there was significant decrease in capital investment - 37% compared with the data for the corresponding period of 2008).

 

Structure of capital investments

January - September 2010

At current prices, mln. UAH (% of total)

- Capital investments 83852.3 (81.2%);

- Overhaul 9289.0 (9%);

- Investments in intangible assets 4142.9 (4%);

- Other 1867.6 (1.8%).

 

Capital investments by kinds of economic activity

 

January - September 2010

at current prices, mln. (% of total)

total 95.2 billion UAH

- Industry 30 715.3 (32.3%);

- Real estate 20 825.7 (21.9%);

- Transport and communications 142.2 16 (16,9%);

- Construction of 3 472.6 (3.6%);

- Agriculture, hunting, forestry 5 844.5 (6.1%);

- Trade and repairs 6334.7 (6,7%);

- Other 11 828.3 (12,5%).

 

Ukraine's place in the ranking of Doing Business (closest to assess the investment climate)

 

Calculated by experts of the World Bank and International Finance Corporation (IFC.)

 

 

Doing Business 2011 ranking the country's

Doing Business 2010 ranking the country's

Ranking change

 

In total

145

142

+2

Registration of companies

118

136

+18

Obtaining permits for construction

179

181

+2

Registration of property

164

160

-4

Loans

32

30

-2

Protecting Investors

109

108

-1

Taxation

181

181

Unchanged

International trade

139

139

Unchanged

Enforcement of contracts

43

43

Unchanged

Liquidation of enterprises

150

`45

-5

 

 

Index of Economic Freedom - an indicator that is calculated annually Wall Street Journal and Heritage Foundation in most countries of the World since 1995. In 2010, there were 179 countries in ranking.

Index of Economic Freedom is based on 10 indices (freedom of business, trade freedom, tax freedom, freedom from government, monetary freedom, freedom of investment, financial freedom, property rights, freedom from corruption, freedom of labor relations), which are measured on a scale of 0 to 100, and, the index 100 corresponds to the maximum freedom.

In 2010 Ukraine took place 162 (the index of 46,4.

 

Global Competitiveness Index of World Economic Forum

In the global competitiveness ranking of the World Economic Forum 2010-2011 Ukraine stands at 89th place among 139 countries worldwide.

Some positive points, namely: Ukrainian infrastructure climbed up 10 positions, finishing in 68 place. Health and primary education increased by two positions - to 66, and higher professional education and remained at 46 seats.

 

The legal environment

Recently, Ukraine has seen a steady improvement of the legal business environment, including:

abolished "double" state registration of foreign investment in National Bank of Ukraine;

Verkhovna Rada of Ukraine (Parliment) adopted the Tax Code of Ukraine (by 02.12.2010);

The Law of Ukraine "On public-private partnership" 01.07.2010 2404-VI;

The Law of Ukraine "On preparation and implementation of investment projects on a" single window "of 21.10.2010 2623-VI;

came into force the Law of Ukraine "On amendments to some legislative acts of Ukraine on the deregulation of economic activities" of 19.10.2010 2608-VI.

In addition, currently under consideration in the Verkhovna Rada of Ukraine are bills the adoption of which will have positive impact on the business climate in Ukraine, including the following:

Draft Law on Market Surveillance and control of products of 09.07.2010 6694;

Draft Law on Amendments to Certain Legislative Acts of Ukraine to improve licensing procedures of 09.11.2010 6220;

Draft Law on general product safety of 06.09.2010 7094.

 

The Government is constantly working on improvement of the legal environment in the investment area, particalarly, the State Agency of Ukraine for Investment and Development (SAUID) is working on:

- Development and adoption the Law on the Bank promoting development, which will define the conditions for the establishment and operation of the bank in Ukraine to promote development, that will channel investment resources to carry out medium and long term lending projects to establish import replaced and export-oriented production, to support the implementation of investment and innovation projects in the real sector of economy, etc.;

- Amending the legislation to determine the principles of operation of the investment market and regulation of subjects of investment activities;

- Preparation of proposals for amendments to legislation to develop and maintain a system of special investment regimes in Ukraine;

- Improvement the mechanism of attracting investment by state enterprises for investment projects through relevant amendments to the Order of the auction to attract investors by state enterprises, institutions and organizations, approved by the Cabinet of Ministers of Ukraine dated April 17, 2009 530.

 

Tax Environment

Today in Ukraine there are a number of legislative acts regulating the sphere of taxation, which were adopted at different times and were made many changes. In addition, the provisions of regulations governing the order of taxation for specific tax, not always consistent with the provisions of other regulations, which leads to the presence of conflict of laws rules and as a result - to the disputes between the subjects of tax relations.

The main purpose of the project of the Tax Code of Ukraine was the need of systematization and generalization of legal acts regulating relations in the field of taxation. The need for drafting a regulation occurred due to the fact that current regulations on taxation were adopted at different times, different subjects of power, leading to uncoordinated legal norms, or even gaps in legislation on taxation.

In order to systematize the tax laws by the Government developed a draft Tax Code has become the first in Ukraine codified legislative act to be sent to the complex regulatory issues related to taxation.

The main innovations of the Tax Code relating to investment activities are:

- Promotion of Ukraine's transition to innovation model of development, including through the phased reduction of corporate tax rate from 25 to 16 percent (2011 - 23 percent, in 2012 - 21 percent in 2013 - 19 percent in 2014 - 16 percent );

- Temporary (until 1 January 2020) income tax exemption of biofuels producers for electricity and thermal energy, and profits from the extraction and use of gas (methane) of coal deposits;

- For 10 years from January 1, 2011 shall be exempt from tax income earned from providing hotel services for all categories of five stars, the four-star and three stars, including newly constructed or reconstructed, or in which an overhaul or restoration of existing buildings and structures, as well as enterprises of light industry sectors (except for companies that produce raw materials for) income from selling electricity produced from renewable energy sources, profit shipbuilding and aircraft industries;

- Extended classification of fixed assets in tax accounting, provides 16 asset groups instead of 4 groups in the legislation;

- Settled the issue of taxation of financial leasing, which will provide new incentives this form of investment; - Tax at 5% of income on deposits (deposits), interest or discount income for a nominal savings (deposit) certificates of deposit rate (deposit) a credit union member in the credit union, profits as dividends and some other earnings to investment activity;

- Creating the preconditions for investment climate by reducing the rate of VAT to 17 percent;

- Introduction of automatic refund of value added tax to the honest payers of taxes and the Single register of tax invoices and implemented the State's responsibility for late refund of value added tax for such payers;

- Provides a simplified tax system for distributing exclusively on individuals with annual income up to 600 thousand USD (or 300 thousand. Registrars without payment transactions) and the number of persons who are employed by a single tax payer - 4. Unified tax rates are established on a territorial basis:

 in settlements with a population of 500 thousand people - from 20 to 600 USD per month;

 in settlements with a population of 150 to 500 thousand people - from 20 to 400 USD per month;

 in other towns - from 20 to 200 USD per month.

- For the period from January 1, 2011 January 1, 2016 0 percent rate applicable for taxable income, in which the size of income tax of each reporting period, cumulative from the beginning of the year does not exceed three million and assessed for each month of the reporting period salary (income) employees who are on the taxpayer in labor relations, is not less than two-set minimum wage laws, and that corresponds to one of the following criteria:

a) formed as prescribed by law after January 1, 2011;

b) The operating businesses, who during the preceding three consecutive years (or during all previous periods, if the moment of their formation was less than three years), annual income declared in an amount not exceeding three million, and an average number of employees during this period did not exceed twenty persons;

c) who were registered single tax payers in accordance with legislation in the period prior to enactment of the Tax Code and in which the last calendar year revenues from sales of products (goods and services) amounted to 1 million. and average number of employees amounted to 50 people.

 

Regulatory impact

Overall regulatory environment characterized by the following parameters:

transparency and consistency of regulatory policy;

impact on investors by public authorities at various levels as requirements for registration, licensing, certification, business, etc.

Level of bureaucracy and corruption.

 

Ensuring the implementation of regulatory policy provides:

establishing a common approach to regulatory impact analysis and evaluation of regulations;

preparation of regulatory impact analysis;

planning activities with drafting regulations;

publication of draft regulations to obtain comments and suggestions from individuals and entities and their associations, as well as open discussion of issues related to regulatory activities involving members of the public;

determine the effectiveness of regulations, reviewing and systematizing;

prevent the adoption of regulations that are inconsistent or inconsistent or duplicate existing regulations;

description of the provisions of a regulation in a manner that is accessible and straightforward to understand the people who must implement or comply with its requirements;

Disclosure of regulatory activities.

 

To reform the regulatory policy should:

establish a unified approach to the drafting and adoption of regulations by local governments, as well as mechanisms to ensure and protect the rights of economic entities in the implementation of regulatory policy

determine the mechanism for regular review of regulations for all branches of government, including the regional level, for the dissolution of inefficient regulations (to identify the entire array of regulatory acts adopted with violations of the regulatory legislation started monitoring the entry into force of regulations).

 

President of Ukraine Viktor Yanukovych instructed the Cabinet of Ministers of Ukraine to simplify licensing procedures for conducting economic activity by business and government officials to minimize the impact on this sector to reduce licensing and permit system in Ukraine.

To improve the business climate and create favorable conditions for the flow of investments and accelerated economic growth program of economic reforms in 2010 - 2014 years identified a number of necessary steps. Work in this direction continues. Today we already have some results:

In the area of the permit system:

- Expanded use of the declarative principle of starting a business in accordance with the adopted Law of Ukraine "On amending the Law of Ukraine" On licensing in the sphere of economic activity "of economic activities on the basis of the declaration" dated 07.07.2010 2451-VI.

According to this principle, an entity acquires rights to perform certain actions to undertake business activities without obtaining permits by notification to the administrator or the appropriate licensing authority on compliance with its material and technical basis of the legislation (hereinafter - the declarative principle).

Cabinet of Ministers of Ukraine dated August 25, 2010 725 approved the list of specific actions on economic activities or economic activities that can not be conducted on the basis of the declaration of conformity logistics entity's legal requirements.

In the field of licensing:

- The Law of Ukraine "On amendments to some legislative acts of Ukraine on the deregulation of economic activities" of 19.10.2010 2608-VI, to whom licenses canceled 23 out of 66 species of activities that are not related to threats to the security of the state, life and health, the deterioration of the environment, and for which there are other methods of state regulation (state standards, building codes, technical specifications, international quality standards, etc.).