Foreign investors may carry out investment activities in Ukraine on the same basis as local investors. However, Ukrainian laws impose certain restrictions on foreign investment. These restrictions should be considered, but in most cases, they can be managed by timely analysis and proper structuring of the investment.
What is a foreign investment?
Ukrainian law says that foreign investment refers to any assets (e.g., cash, tangible, and intangible property) that foreign investors invest in Ukraine. Foreign nationals and legal entities that conduct investment in Ukraine qualify as foreign investors.
The most common scenarios – setting up a local entity or buying shares in one by a foreign national or company – are covered by the above definitions. Generally, registering a limited liability company, Ukraine's most common form of legal entity, requires few formalities and can be completed within 1-2 business days after the draft charter, foundation minutes, and required documents (including documents related to ownership structure and ultimate beneficiary owners) are approved and a set of documents required for incorporation is delivered to Ukraine. Buying a limited liability company (shelf company) is more complex and often requires due diligence, antitrust, and tax reviews. However, registering a new shareholder and related changes typically still take 1-2 business days.
What may be restricted?
Ukraine, like other states, protects certain strategic industries, assets, and the economy by imposing restrictions such as limits on equity participation, asset ownership, and capital repatriation during war regime.
Foreign equity restrictions
These restrictions limit foreign ownership percentages in companies across some key industries, including media, air transport, and pipeline transport. Most sectors remain open to foreign investors.
However, following the start of russia's war in Ukraine in 2014 and its escalation in 2022, Ukrainian legislators introduced various restrictions and limitations on direct or indirect equity participation in Ukrainian companies by russia, its citizens, and their controlled companies, as well as states and persons subject to Ukrainian personal and sectoral sanctions.
Because these restrictions are broad, they have a significant impact on investments. Transactions involving restricted states and persons may be subject to the risk of seizure, licensing denial, or criminal prosecution. For instance, a local company cannot get subsoil use permits if a russian citizen or resident owns, directly or indirectly, at least 10% of its shares or is an ultimate beneficial owner of the company.
These risks can often be identified early, particularly during legal due diligence, allowing the investor to make an informed decision.
Restrictions on owning certain assets
Some foreign investors require specific assets, such as land, real estate, or vehicles, to operate in Ukraine and can purchase most of these assets. Still, there are legal restrictions to note.
For example, a foreign investor may consider investing in Ukrainian agricultural land. However, foreigners and foreign legal entities are not permitted to acquire:
- agricultural land in Ukraine
- shares in Ukrainian legal entities (excluding banks) owning agricultural lands
- agricultural land through/by Ukrainian legal entities, where foreigners are among shareholders or ultimate beneficial owners
Ukrainian law permits these prohibitions to be lifted statewide by referendum; however, no such referendum has taken place yet.
Furthermore, the sale or disposal of real estate and vehicles to companies with russia or its citizens as shareholders holding 10% or more shares, or as ultimate beneficial owners, is prohibited, and such transactions may be recognized as void.
Restriction on capital repatriation during wartime
During wartime, the National Bank of Ukraine limits cross-border capital transfers to stabilise the economy, restricting investors' ability to repatriate capital. The regulator is gradually easing these restrictions and plans to eventually remove them.
For example, non-residents may currently receive payments of foreign-currency dividends accrued from 1 January 2023. The total monthly payment amount may be up to EUR 1 million (or its equivalent), provided certain requirements are met. In some cases, such as with Eurobonds, there may be additional easements.
Further, repayment of cross-border loans taken after 20 June 2023 from a non-resident lender is allowed if:
- the full amount of the principal loan was received after 20 June 2023
- the amount of interest repaid does not exceed the maximum interest rate of 12%
- repayment of principal loan during the first year of the loan validity is made only from the company's foreign currency reserves, while payment of interest is also possible from purchased currency
- repayment is not made ahead of schedule
Separate rules apply when the creditor is a highly rated foreign bank, an international financial institution, or when there is a specific guarantee, insurance, or surety is in place.
Principal loans received before 20 June 2023 cannot yet be repaid. Recent regulatory changes offer some incentive-based mechanisms to allow this, such as debt-to-equity conversion and support for the Armed Forces of Ukraine.
Summary
Ukrainian law imposes certain restrictions on foreign investment in equity, assets, and the repatriation of capital during wartime. Non-compliance can result in losing control of assets, failing to obtain permits, or facing criminal liability. However, most investments remain unaffected. For smooth investment, it is recommended to conduct a tailored analysis of relevant restrictions before entering the Ukrainian market.
