The land law will help to improve the land market but its influence on the agricultural industry in general is still hard to estimate, says Andriy Dovbenko, Managing Partner at N&D Law Firm. He spoke to Jerry Cameron about the new regulation that the Ukrainian government is working on, as well as the legal framework for making an investment in the country.
It seems that within the last three years Ukraine has introduced more market oriented reforms than in the previous two decades. How do you see that from the legal perspective?
In the last few years Ukraine has been definitely shown huge progress in its legal reforms, which are aimed at the establishment of a stable and investment-friendly business environment.
Currently, state authorities are working on the implementation of the land reform, along with reforms in litigation, corporate governance and privatisation etc. We expect to have some new laws adopted, by the end of the summer, i.e. on agricultural land circulation and on privatisation. We also expect the existing prohibition (moratorium) on the sale-purchase of agricultural land to be cancelled by the end of 2017. In addition, the National Bank of Ukraine is eliminating restrictions in currency regulation, step-by-step. All of these will allow Ukraine to improve its position in the World Doing Business ranking and will offer investors better opportunities. Therefore, considering latest developments, the legal community feels rather optimistic about further perspectives.
Previous governments treated land reform as a hot potato. How could that improve the investors’ situation?
Despite the long-lasting land law saga, agriculture is still the engine of all Ukrainian economy and this sector retains its top position in world markets. Nowadays Ukraine has a lot of free land and cheap lease rental. These factors attract domestic investors, as well as foreign ones, to put their funds into agribusiness.
Moreover, in the next three years we do not expect that the government will allow foreign companies or individuals to buy land, because this issue is a means of political speculation. The land law will help to improve the land market but its influence on the agricultural industry in general is still hard to estimate. However, foreigners keep investing in Ukraine’s farming and associated sectors and keep making money.
If you look back at the last three years, which areas have improved most significantly, from the foreign investors’ perspective?
99 per cent of business people, the common citizens of Ukraine, international experts and authorities of highly developed countries consider corruption is the cornerstone of all the problems in the country. Of course, the business environment feels this disease very acutely. A lot efforts are being made to beat corruption; lots of resources being spent in order to build a transparent and just governmental system.
Deregulation and reform became the red thread of all post-Maidan legislation. In our opinion the most successful areas would be a new transparent system of state registration and newly open state registers. Investors are able to check assets’ issues online; register businesses, assets and even vehicle, in a much easier and faster manner nowadays. The deregulation of business is happening as thousands of ancient, corruptogenic and harmful legal norms in a large number of industries have been stopped or changed, and many of the artificial borders are being left in the past.
In addition to this, the state procurement procedures have become electronic. The process is much more transparent and saves the state budget millions. Finally, political reform is a good sign for investors too, because no political force or business group has absolute power, so the pressure on business circles is a little lowered.
How do you see tax regulations from the business perspective? Which areas are challenging and where are the benefits?
I would say that the Ukrainian tax regulations are quite progressive and similar to tax regulations in Europe. Ukraine has joined the OECD/G20 OECD/G20 Base Erosion and Profit Shifting Project (BEPS) Project and has already introduced certain tax changes, aimed at combatting BEPS. Of course, there are national tax specifics, including tax deductibility limitations, specific transfer pricing rules and electronic VAT administration etc.
Ukraine also has a wide network of double tax treaties allowing foreign investors to structure their investments in a tax efficient manner. The tax rulings and advance pricing arrangement mechanisms are in place and allow investors to predict tax issues with some certainty. Certain businesses, e.g. agriculture, alternative fuels, renewable energy sources, the IT industry and start-ups may benefit from tax privileges. Tax incentives can be offered to investors that are involved in important social projects.
The challenges many businesses may face when applying the Ukrainian tax regulations include the frequent changes in tax laws. In addition, the tax authorities tend to apply a document-focused and fiscally driven approach to their interpretation and application of tax rules. For these reasons, it is important to seek professional tax advice, to make sure that the investment is structured efficiently from a tax perspective. It is also worthwhile to have professional tax support, when a new business is established, especially where complex or non-standard business transactions and tax disputes are concerned.
Can investors be offered incentives?
Although, there are a few exceptions — some incentives may be offered to those companies engaged in certain activities, e.g. biofuel production and the development of transportation infrastructure etc. — the state usually does not provide for any special “bonuses” for foreign investors. Currently, the laws of Ukraine provide for the “national” regime for foreign investors, i.e. foreign investors enjoy the same rights as national ones.
Foreign investors say legal assistance is of high importance when entering Ukraine. Why?
It is certain that qualified legal advisors will help avoid the corruption-based pitfalls and find the most effective and lawful way to get results. Despite corruption, our legislation has lots of collisions and non-compliances. A legal expert can help to secure the investment, to save money for procedures and to check that your partners are reliable ones. Their experience can get you out of woods and save expensive time too.
Of course, you should be careful making your choice of law firm. Whether choosing an international law firm or a reputable local advisor, we recommend paying attention to the firm’s ability to provide legal advice in several types of practice, which are key for the future investment process. Here, I would specific corporate and M&A, dispute resolution, advice on the best strategy to avoid a litigation process in the future, tax and, certainly, industrial expertise. We are sure that the right choice will prove that the investor’s entry into the country is the very best step they have ever made in their business.
What would be your message to the foreign investors who are considering entering the Ukrainian market?
Well, as a lawyer and also a businessman who runs a business in Ukraine, and who sees how the business environment is changing, on a daily basis, I only have one thing to say — come to Ukraine because now is the right time. As you know, the investment process doesn’t happen overnight and it takes careful consideration and proper planning to enter a new country, whether is it Ukraine or any another country. Start making connections, consult with local legal advisors and look for some of the great opportunities that Ukraine is offering at this historic moment.
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