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16LEGAL REGULATION OF FOREIGN INVESTMENT IN UKRAINE
Lashchykhina V.
PhD in Pedagogical Sciences, associate professor Taras Shevchenko National University of Kyiv, Ukraine ORCID ID 0000-0002-8192-9932 Lashchykhina I. student of Institute of Law Taras Shevchenko National University of Kyiv, Ukraine ORCID ID 0000-0003-0508-7486
Abstract
Strategies formation of the world dimension of a supportive environment for international investment and government cooperation is the main advantage of state policy nowadays. The regulatory and legal framework of legal regime of foreign investment in Ukraine is considered in this investigation. According to the legislative base new laws, opportunities, issues in foreign investment in Ukraine are analyzed.
The research deals with the setting of the context, scope, purposes and principles of investment policy in Ukraine. The article investigates investment activities in Ukraine, the work of Ukrainian legislative institutions regarding globalization and integration processes in the world economy concerning investment policy, the conceptual basis for the development of international investment cooperation and tendencies in the international legal framework on foreign investment.
Keywords: foreign investment, foreign investors, legal regulation, legal framework, investment climate, investment activities, investment environment, regulatory and legal framework, investment policy, laws, legislative acts, capital investments, international investment cooperation.
Introduction. Nowadays, in the context of formation of the world dimension of a cooperation, a lot of areas of society's life, including the legal system of investment policy and international investment cooperation which plays an important role as a social institution.
Actually, Ukraine views its development within the context of integration into the European dimension, orienting itself to the fundamental European targets (security and justice without internal borders, freedom, peace, etc.) and values (justice, human rights, tolerance, and non-discrimination prevail, etc.). These values and the well-being of citizens are an integral part of our european way of life.
A number of scientific investigations and Internet sources are devoted to investment policy, the development of international investment cooperation and tendencies in the international legal framework on foreign investment, particularly the works of Poyedynok V., Lukach I, Reznikova V., Shcherbyna V, Fedorenko V. and others.
Therefore, taking into account the complex impact of international incentives, development of the international legal framework on foreign investment, the goal of the article is related with implementation of the legal regulation of foreign investment in Ukraine.
Materials and Methods. Currently, Ukraine has been faced various challenges as a consequence of the political transformation in terms of economic restructuring, joining the global economy in order to the country would be attractive for foreign investors. However, for this there was a need for a supportive social, economical and political climate and security. Accordingly, those who are in charge of the legislative base of the organization of a favorable environment for foreign investment policy in Ukraine: new laws, opportunities, issues in this area have an enormous responsibility.
Every year, Ukraine is becoming an increasingly attractive investment destination, as the country represents a comparatively large market with over 42 million
consumers. Not only the labour force but also raw materials and other production costs, including electricity and water, are cheaper if compared to employees from the developed countries.
A number of things have improved in Ukraine in the past couple of years with the ease of doing business, a supportive environment for investment and government cooperation being the main advantages. According to the State Statistics Service of Ukraine, in 2018 Ukraine received USD 2.87 billion in foreign direct investment, USD 0.36 billion more than in 2017 [1; 3].
Ukrainian legislation is favorable to foreign investors and foreign investment.
The following laws of Ukraine specifically regulate the treatment of foreign investments and investors:
• the Law of Ukraine on Protection of Foreign Investments No. 1540a-XII of 10 September 1991;
• the Law of Ukraine on Investment Activity No. 1560-XII of 18 September 1991;
• the Law of Ukraine on the Regime of Foreign Investing No. 93/96-BP of 19 March 1996.
These laws provide for national treatment, protection from expropriation, the free transfer of funds and other guarantees for foreign investments.
Apart from the special domestic laws dealing with foreign investments, a number of other legislative acts contain provisions applicable to foreign investment, including:
• the Civil Code of Ukraine No. 435-IV of 16 January 2003;
• the Commercial Code of Ukraine No. 436-IV of 16 January 2003;
• the Tax Code of Ukraine No. 2755-VI of 2 December 2010;
• the Law of Ukraine on Legal Status of Foreigners and Persons without Citizenship No. 3773-VI of 22 September 2011;
• the Law of Ukraine on Currency and Foreign Currency Transactions No. 2473-VIII of 21 June 2018;
• the Law of Ukraine on Concessions No. 155— IX of 3 October 2019 [2].
As amended according to Laws of Ukraine, N 997-XIV of July 16, 1999, N 1807-III of June 08, 2000, N 762-IV of May 15, 2003, N 153 of 23 June 2009, N 2155-VI of 27 April 2010, N 2850-VI of 22 December 2010, N 4496-VI of 13 March 2012, N 4835-VI of 24 May 2012, N 406-VII of 04 July 2013, N 1390-VIII of 31 May 2016.
This Law determines the terms and conditions for foreign investment within the territory of Ukraine, based on the goals, principles and provisions of the legislation of Ukraine [4].
An amount of foreign direct investments (equity capital) attracted since the beginning of investment in the Ukrainian economy as of 31.12.2018 made up USD 32,291.9 million. In 2018, an increase of foreign investments in the Ukrainian economy amounted to USD 685.5 million of direct investments (equity capital).
The investments are directed towards already developed areas of economic activity.
As of 31.12.2018, the most significant amounts of direct investments were directed towards industrial enterprises - 33.0% as well as institutions and organizations engaged in wholesale and retail trade; repair of motor vehicles and motorcycles - 16.7% [3].
The main investors include Cyprus - 27.5%, the Netherlands - 21.9%, the Great Britain - 6.1%, Germany - 5.2%, Switzerland - 4.8%, the Virgin Islands (British) - 4.1%, Austria - 3.1% [3].
An amount of implemented capital investments of Ukrainian enterprises in 2018 made up UAH 526.3 billion, which is 10.5% more than the amount of capital investments for respective period of 2017 [3].
In 2018, the leading areas of economic activity, in terms of implemented capital investments, are: industry - 34.1%; construction - 9.9%; agriculture, forestry and fishery - 12.5%; repair of motor vehicles and motorcycles - 9.0%; transport, warehousing, postal and courier activities - 8.5%; public administration and defense; compulsory social insurance - 7.8%, information and telecommunications - 5.4%, wholesale and retail trade; real estate transactions - 4.0% [3].
The analysis by sector shows that more than 40% of inward Foreign Direct Investment (FDI) flows are related to finance and insurance - USD 1,215.1 million (42.3%). The leading sectors in terms of FDI attraction in 2018 remain wholesale and retail, repair of motor vehicles and motorcycles with USD 599.4 million (20.9%), real estate operations with USD 405.3 million (14.1%), the manufacturing industry with USD 302.1 million (10.5%), the information and telecommunications industry with USD 119.4 million (4.2%) and professional, scientific and technical activities with USD 93.2 (3.2%) [1; 3].
There are some other attractive investment factors contributing to the expansion of Ukraine's investment ties: a considerable capacity and virtually unlimited domestic market; the geographical location at the intersection of major transport routes between Europe and Asia; relatively inexpensive and at the same time skilled workforce; scientific potential; a developed infrastructure (ports, airports, railways, warehouses, communication systems and engineering networks), etc. [1; 3].
Another sign of the country's enormous potential is the number of tourists increasing year by year and,
according to the Ukrainian Ministry of Economic Development and Trade, reached 14.2 million in 2018 [1].
Foreign Direct Investment (FDI) is indisputably an important factor in stimulating economic growth in Ukraine. The data and analysis of the State Statistics Service of Ukraine reveal that FDI flows to Ukraine in 2018 reached USD 2.87 billion and showed a slight increase compared to 2017 (from USD 2.51 billion). The total FDI stock in 2018 was estimated at USD 31.6 billion [1; 3].
FDI sources tend to diversify. The Netherlands is the largest investor in the country, having invested USD 951.5 million in 2018. Despite the conflict in eastern Ukraine, the Russian Federation still remains the second largest investor in the country, having invested USD 495.6 million. However, more than half of FDI inflows in 2018 came from European countries, including the Netherlands, as already mentioned, Cyprus, Austria, France, Great Britain and Poland [1; 3].
The main sources of funding of capital investments remain own funds of enterprises and organizations at the expense of which 71.3 % of capital investments were implemented in 2018. A share of bank loans and other advances in total amount of capital investments made up 6.7 %. 12.7 % of capital investments were implemented at the expense of state and local budgets. A share of funds from foreign investors amounted to 0.3 % of all capital investments, while a share of citizens' funds for housing construction made up 6.4 %. Other sources of funding constituted 2.6 %
[3L
Consequently, Ukraine remains attractive for investments, not staying aside from global processes. It is sufficiently integrated into the world's economy and is sensitive to microeconomic displacements on foreign markets.
Following reforms aimed at protecting foreign investment, Ukraine has become a more attractive destination for international investors. In the Ease of Doing Business 2019 ranking, Ukraine has risen by 5 points and took the 71st place among 190 countries, up from 76th in 2018. The country has shown the largest growth in such categories as taxation (increase by 110 points, 54th place), international trade (+70 points, 78th place) and protection of investor's rights (+56 points, 72nd place). Foreign direct investment contributes to growth and employment. Moreover, Ukraine's 2018 GDP growth reached its highest level since 2011, breaking above 3.3 %. In addition, for European investors, the proximity to the EU and low labour costs with relatively high job skills of the Ukrainian workforce are making Ukraine an important country of interest [1; 3].
It should be noted that rating agency Moody's Investors Service has increased Ukraine's sovereign rating. It has changed from Caa2 to Caa1, which means the forecast changed from "positive" to "stable". Hence, the change of rating was associated with the beginning of new loan program of the International Monetary Fund. Ukraine ranked 81st place among 137 countries in the Global Competitiveness Index rating and raised its position in terms of technology adaptation (from 81st to 77th place) and infrastructure level (from 78th to 57th place); Rating and Investment Information Agency, Inc. (R & I) has raised Ukraine's foreign currency ranking from CCC to CCC+ and confirmed stable forecast [3].
To attract investors, Ukraine offers a lot of legislative advantages, e.g. a feed-in tariff, inward processing, benefits etc. The Ukrainian economy is being gradually liberalised and currently offers one of the most attractive economic climates for investment.
The improvement of legal and organizational framework to enhance the capacity of mechanisms to ensure a favorable investment climate and to form a basis for preservation and enhancement of the competitiveness of domestic economy is appropriate issue for further improvement of investment climate in Ukraine.
A lot of positive and forward-looking steps have already been made in this direction:
• To simplify the procedure for attracting foreign investments and make it impossible for signs of corruption to appear upon state registration thereof, on
31.05.2016 the Law of Ukraine No. 1390-VIII "On Amendments to Certain Legislative Acts of Ukraine regarding Cancellation of Compulsory State Registration of Foreign Investments" was adopted.
• The Verkhovna Rada of Ukraine adopted the Law of Ukraine "On Amendments to Certain Legislative Acts of Ukraine regarding Elimination of Barriers to Attraction of Foreign Investments" on 23.05.2017. The law regulates the main aspects of issuing a permit for the employment of foreigners and a temporary residence permit, which will facilitate the attraction of foreign managers and foreign skilled employees, which is necessary at early stages of development of a subsidiary in Ukraine. Also, the Law grants the right to obtain a temporary residence permit in Ukraine to foreign investors who have a considerable participatory interest in Ukrainian enterprises, however are not employed at the enterprise [3].
The First Deputy Prime Minister S. Kubiv - the Minister of Economic Development and Trade of Ukraine, signed the Investment Promotion and Protection Agreement between Ukraine and the OPEC's International Development Fund in Vienna (Republic of Austria) on 26.05.2017. The agreement provides for the promotion of investment implementations and predictably contributes to an increase in foreign investments in key sectors of the Ukrainian economy [3].
Respective steps are also being taken to promote sustainable development of the Ukrainian economy and to intensify the investment activities, in particular, in the following areas: Protection of investor's rights:
- within the framework of the Action Plan for deepening cooperation between the Organization for Economic Cooperation and Development (OECD) and the Government of Ukraine, designed to implement the measures envisaged by the Memorandum of Understanding between the Organization for Economic Cooperation and Development and the Government of Ukraine on deepening cooperation dated 07.10.2014;
- the measures are being taken on the accession of Ukraine to the OECD Declaration on International Investments and Multinational Enterprises (hereinafter referred to as the OECD Declaration). Thus, the order of the Cabinet of Ministers of Ukraine No. 130-p dated
01.03.2017 approved the draft Agreement (in the form of exchange of letters) between the Government of
Ukraine and the Organization for Economic Cooperation and Development on the accession to the Declaration on International Investments and Multinational Enterprises, relevant Recommendations and Procedural Decisions of the Council of the Organization for Economic Cooperation and Development [3].
On 15 March 2017, S. Kubiv, signed the Agreement (in the form of exchange of letters) between the Government of Ukraine and the Organization for Economic Cooperation and Development on the accession to the Declaration on International Investments and Multinational Enterprises, relevant Recommendations and Procedural Decisions of the Council of the Organization for Economic Cooperation and Development [3].
The accession of Ukraine to the OECD Declaration on International Investments and Multinational Enterprises and membership in the OECD Investment Committee will provide the following significant benefits to the country, namely:
- will testify to Ukraine's introduction of international standards of investment activities;
- will encourage attraction of foreign direct investments through elimination of restrictions on sectors in which foreign investment is prohibited and by ensuring national regime for transnational corporations (hereinafter referred to as TNC) in accordance with the system of development of international standards regulating TNC relations with countries hosting their investments;
- will facilitate the improvement of the competitive environment and influence on the introduction and dissemination of innovations;
- will promote the implementation of the principles and standards of corporate social responsibility in accordance with the OECD guidelines on doing responsible business [3].
All reforms in ukrainian investment policy aimed at protecting foreign investment, Ukraine is emerging as an attractive destination for international investors.
Conclusion. Therefore, due to investment policy, international investment cooperation, regulatory and legal framework, the outlook for the Ukrainian economy is positive with foreign direct investment inflows growing, exports increasing, and the business climate improving. To attract investors, Ukraine offers a lot of legislative advantages. Due to reforms aimed at protecting foreign investment, Ukraine has become a more attractive destination for international investors. Despite a number of challenges, donors and investors appreciate the government's and society's willingness to transform Ukraine into a dynamic market economy.
References
1. Investing in Ukraine | DLF attorneys-at-law dfua>>Legal Regulation of Foreign Investment in Ukraine
2. http://In brief: regulation of inbound foreign investment in Ukraine ... www.lexology.com >
3. http://Investment activities in Ukraine www.me.gov.ua > Detail > titl...
4. https://investmentpolicy.unctad.org/invest-ment-laws/laws/253/ukraine-law-on-the-regime-of-foreign-investments
