Navigating current business opportunities in Ukraine
For more than six months of the full-scale war, registration of new businesses keep demonstrating positive recovery dynamics – since February, Ukrainians opened more than 50,000 new businesses. As per the American Chamber of Commerce in Ukraine statistics, 72% of AmCham Ukraine member companies are fully operational, 27% continue to work partially, and 96% of companies plan to continue operations in Ukraine in 2023.
Current key sectors of the Ukrainian economy
In addition to the traditional key sectors of the Ukrainian economy, martial law circumstances have created a demand for production covering current military and social needs (food, military goods, logistics, urgent repair of damaged infrastructure, housing of displaced persons) and preparations for the reconstruction of Ukraine.
At the same time, reconstructing infrastructure destroyed as a result of the hostilities is not only a matter of perspective but also a critical need. Infrastructure, communications, residential property, and facilities in the de-occupied territories require urgent reconstruction.
It is essential to understand that active hostilities occur only on a part of the Ukrainian territory, in the south-eastern regions. In the rest of the country, enterprises operate in challenging conditions but at the same time in a more or less typical production mode.
The program of business relocation from war-torn regions allowed to maintain production in many industries. Government programmes and initiatives, together with unprecedented global financial support, have created conditions for launching new businesses and developing the existing ones.
The invasion of the russian federation has radically redrawn the map of Ukraine’s key economy sectors. For example, the agricultural sector has been reoriented towards producing oil products and exporting vegetable oil. Construction services are becoming crucial to restoring damaged infrastructure.
The limited possibilities of exporting goods by sea make it necessary to establish and develop alternative logistics routes.
Considering this, the most promising business areas include construction, storage and processing of agricultural products, logistics, production of military and military-related products.
Incentives and opportunities
Existing and newly implemented state initiatives greatly facilitate opening and scaling of businesses in Ukraine in the context of the war.
Support of large investors
Ukraine provides a range of benefits for investors involved in projects with significant investments, such as exemption from income tax, payment of VAT and duties on import of new equipment, granting the preemptive right to use state or municipal land plots for the implementation of an investment project, provision of construction, reconstruction, restoration, major overhaul of related infrastructure (highways, communication lines, heat, gas, water, and electricity supply facilities, utilities, etc.) required for the implementation of the investment project at the expense of the state or local budgets.
Support of agricultural producers
Agricultural producers have an opportunity to get a loan of up to UAH 60 million (approx. USD 1,650,000) under 0% for the period of martial law under the "5-7-9%" programme. The term of a loan under the "5-7-9%" programme will depend on the special purpose of the funds.
Members of industrial parks are entitled to exemption from corporate income tax for a 10-year period. Operations on the import of new equipment to Ukraine by members of industrial parks are exempt from VAT and import duties. The land tax and rent rates for land plots forming the territory of an industrial park may be reduced by local authorities.
The Ukrainian government announced privatization of at least 150 assets for business in 2022. The most attractive assets include bread and alcohol production facilities. Bread baking plants usually have a well-developed infrastructure for grain storage; therefore, they can be of particular interest to agricultural companies.
The virtual economic zone, the so-called Diia.City, combines favourable tax conditions with effective tools to allow companies to build a transparent corporate structure, attract foreign investment more easily, and use additional mechanisms to protect intangible assets.
The special corporate income tax regime provides a Diia.City resident with an opportunity to choose to pay 9% withdrawal capital tax instead of 18% corporate income tax payable on general basis, 0% on the income of individuals as dividends accrued by a resident company, provided that they are paid no more than once in a 2-year term, as well as other investment and development tools.
The importance of legal support
Special wartime conditions and dynamic changes in legislation require significant legal support. Russian aggression and hostilities in the territory of Ukraine brought about significant adjustments to contractual relations, both in Ukrainian and international business. Ukrainian companies and their foreign counterparties in practice have faced a number of issues previously considered purely theoretical. The following peculiarities should be considered due to wartime threats:
- possible difficulties in communication (correspondence, keeping a record of the counterparty’s receipt of messages, etc.);
- possible logistics difficulties (supply routes, storage facilities, bank transactions);
- possible sanctions against the participants of the logistics or settlement chains (transport companies, chartered ships belonging to the sanctioned companies may not be allowed into ports; banks of the recipients or payers);
- possible trade restrictions (a ban on exports of certain categories of goods).
The ongoing legislation changes in response to economic challenges necessitate constant legal analysis for identifying new and effective use of existing opportunities.
Despite difficult circumstances, business in Ukraine has survived, is developing and providing a wide range of opportunities for effective investment, as well as a constant demand for legal services from the potential and existing investors.