A law that will allow to significantly improve the investment climate in Ukraine was adopted

11-09-2019

The Verkhovna Rada adopted a draft law No.1059 “On Amendments to Certain Legislative Acts of Ukraine on Encouraging Investment Activity in Ukraine” in the first reading. It is a long-awaited and necessary document for the country that will establish important conditions for improving the investment climate in Ukraine and allow increase the country’s position in the DoingBusiness rating significantly. BRDO has long been working on implementing these initiatives, so we are pleased to welcome the approval of the document by deputies.

First of all, the Law abolishes the obligation to pay a share participation fee as part of the settlement’s infrastructure development, which has become a kind of quasi-tax on construction formally paid by real estate developers, but actually leading to a rise in price of real estate for buyers, in Ukraine. Moreover, the mechanism of paying a share participation fee is non-transparent, resulting in numerous corruption manifestations, abuses and discrimination against responsible construction project owners. For example, according to the Doing Business 2017 rating, the existence of a share participation in Ukraine increases the expenses for administrative procedures related to the construction of an industrial facility by an average of 15.2%.

In addition, the draft law provides for the introduction of a new tool as a security for loan liabilities that will minimized the creditors’ risk associated with repayment of bad debts and create the preconditions for increasing the volume of business lending. Existing mechanisms are not working properly, so creditors include additional risks into their credit programs and rates, while domestic companies are virtually cut off from the available credit resources of the banking system.

The document draws particular attention to the activity of limited liability companies. As the Law of Ukraine “On Limited Liability Companies and Additional Liability Companies” does not sufficiently regulate the issues related to the application of a LLC model charter creating a number of legal risks, the draft law is designed to address these gaps.

Important components of the document are the provision of additional mechanisms for protection of rights and interests of minority investors in Ukraine, the simplification of the regulation of land security agreements as well as the improvement of the procedure for claiming evidence base in economic cases.

Therefore, the expected results from the adoption of the draft Law are:

  • reducing the costs associated with the construction of residential and non-residential properties;
  • reducing the cost of credit resources;
  • reducing the number of minority shareholder rights violations;
  • increasing the number of limited liability companies operating under the model charter.
  • improving the quality of economic justice and reducing the length of commercial litigation.

These steps, in turn, will improve the investment climate in the country along with the Ukraine’s position in the Doing Business rating.

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