Ukraine to introduce foreign direct investment control

Draft Law “On Procedure of Foreign Investment in Entities of Strategic Importance for National Security of Ukraine” was released for public consultations on 6 May 2020 by the Ministry of Economic Development, Trade and Agriculture of Ukraine.

The Draft Law establishes a sector-specific FDI screening mechanism that aims to strike balance between national security interests and predictable domestic investment policy. The initiative concerns only two sectors – defense and telecommunications.

The document covers a wide range of transactions, which involve establishment or change of control over companies of strategic importance, operation with voting stock of 10% and more of such companies, as well as assets constituting 25% and more of the fixed asset value of the companies concerned.

The proposed model combines screening and evaluation. In the first instance it is expected that an investor submits a notification with the Ministry which decides whether a transaction is subject to control. Following the screening step, the Ministry either informs the investor that the transaction does not require further evaluation, or, concludes that evaluation is necessary and passes the materials to Interdepartmental Commission for Foreign Investments Impact Assessment. The latter is a new body the Draft Law proposes to be created in order to enforce the control.

The Commission is expected to exercise the evaluation based on the criteria to be set by the Cabinet of Ministers of Ukraine. The Commission may approve or refuse approval of the transaction.

The published draft is a remodeled and improved successor of the similar initiative of the former government and is a great step towards introduction of FDI control in Ukraine. The Draft Law has not been registered with the Parliament yet.