Ukraine government's new tax incentives to attract foreign investments

A new law with significant tax reductions and land transfer rights aimed to attract investments was passed by the Ukraine government, on the 11th of February.

Upon a company entering into an investment agreement with Ukraine’s Cabinet of Ministers, support can be provided in the following areas:

1. Lower taxes: exemption from corporate taxes for a period of time and value added tax for all new equipment imported for the project;
2. Duty exemption: no import duties need to be paid on new equipment;
3. Priority land rights: priority rights to lease state and communal land plots needed to realize the investment project; and
4. Stabilization of law: the rights and duties of the investor shall be governed by the Ukrainian laws in effect at the date the investment agreement is executed unless a new law improves the investor’s position.

Implementation of the new laws relating to tax and import duty exemptions require amendments to the Tax Code of Ukraine and Customs Code of Ukraine, which are currently in draft form and need to be adopted to come into effect. The current draft of the Tax Code amendments, which may be revised prior to coming into effect, includes the following provisions which would positively impact the development of the Shymanivske project:

• Exemption from the corporate profit tax for all income derived from the project during any 5 consecutive years chosen by the investor after the project has been commissioned (i.e. starts operations).
• Exemption from paying value added tax for all new equipment imported for the project.
• Exemption from import duty for all new equipment imported for the project.
• Local authorities are allowed to reduce the land tax for land plots utilized by the project

The total monetary value of the above outlined benefits is capped at 30% of the amount of investment made to start up any project.

This law offers relevant incentives for foreign investments. For example, Black Iron Inc., a Canadian iron ore exploration and development company owning 100% of Shymanivske Project (Krivyi Rih, Ukraine), could obtain savings of up to US$ 170 M through a combination of reduced upfront tax/duty payments to realise the project and initial corporate tax payments.

This is a very positive concrete measure initiated by Ukraine President Zelensky to attract additional investment to Ukraine that is greatly welcomed by international investors, including Black Iron, and should prove to be very effective. Elimination of import duties and value added tax on new equipment substantially benefits Black Iron’s investors by reducing the amount of money that needs to be raised to fund construction of the Shymanivske project. Lower corporate taxes for the first five years post achieving production could increase Black Iron’s debt capacity and also potentially accelerate construction of the second phase expansion to 8 million tonnes and/or ability to pay shareholders a dividend.”

Matt Simpson, CEO of Black Iron

Source: Black Iron Inc.