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“The team was recently visible advising on a number of pharmaceutical cases. Sources agree that the team is “moving in the right direction” and are particularly impressed by its work in the pharmaceutical sector”.

 

Will Cancellation of State Registration of Investment Save the Ukrainian Investment Climate?

20.10.2016

Oleksandr Vygovskyy, attorney at law at Ilyashev & Partners Law Firm
Source: Forbes.ua

How much attractive will Ukraine become to foreign investors and what risks accompany this step?

The Government made the decision that will simplify the procedure for attracting foreign investment by canceling their state registration. Thus, the resolution of the Cabinet of Ministers of September 27, 2016, No. 661 invalidated the resolution of the Cabinet of Ministers of March 6, 2013, No. 139 that approved the Procedure of state registration (re-registration) of foreign investment and its cancellation.

The decision was made in accordance with paragraph 4, section II of the Final Provisions of the Law on amendments regarding cancellation of state registration of foreign investment.

The above that became effective on June 25, 2016, cancelled the mandatory state registration of investments. Instead, it introduced a declarative principle of public accounting of investment – submission of statistical reports on the foreign investments that have already been made.

The government resolution of March 6, 2013, No. 139 “On Approval of the Procedure of state registration (re-registration) of foreign investment and its cancellation” was revoked by the government in view of the effective Law of Ukraine “On amendments to some legislative acts of Ukraine regarding cancelation of the mandatory state registration of foreign investments” of May 31 of the current year.

From now on there is no need to record foreign investments by submission of a special information notice to the body of state registration of such investments and entering the appropriate information in the log book of state registration of foreign investments made. Instead of the earlier permissive principle of registration of investment the declarative principle of public investment accounting will be effective, which envisages submission of statistical reporting about the already made foreign investments by the enterprises with foreign investment and banking institutions.

Although earlier submission of the information notice for the state registration of foreign investments was not a prerequisite for making them, however, by virtue of the previously effective paragraph 5, Art. 13 of the Law of Ukraine “On foreign investment” of March 19, 1996 the non-registered foreign investments did not give the right to receive benefits and guarantees stipulated by the Law.

Therefore, a foreign investor that did not register the investment could not expect, e.g. guarantee in case of legislative amendments (within ten years from the date of entry into force of the new investment legislation at the request of the investor state guarantees of protection of foreign investments should be applied as specified in this Law), guarantee against forcible withdrawal (nationalization), and illegal actions of state bodies and their officials, guarantee of compensation and reimbursement of damages to foreign investors, guarantee of transfer abroad of profits, revenues and other funds from investment activities, etc.

Now, by virtue of paragraph 3, Section II of the Law of Ukraine “On amendments to some legislative acts of Ukraine regarding cancellation of the mandatory state registration of foreign investments”, both the foreign investments that were registered before the entry into force of the Law and the investments that were not registered before the entry into force of the Law have equal right to receive benefits and guarantees envisaged by the Law of Ukraine “On foreign investment”.

The expediency of such cancellation is obvious. Although registration of investment was not the major factor scaring off foreign investors from coming to Ukraine, removal of additional bureaucratic barrier would definitely have a positive effect.

Although the foreign investment registration procedure did not cause any particular difficulties, the mandatory nature of such registration only created additional concerns for business and could be a corruption factor. The presence of foreign investment in the authorized capital of the legal entity may be recorded in the charter.

Information about the presence of foreign investments, their form, amount, and structure is publicly available and can be read by anyone. Therefore, state registration of foreign investments had absolutely no sense in terms of information disclosure in the market.

Cancellation of registration of foreign investments will result in simplification of such investments due to reduction of bureaucratic procedures, improvement of investment climate in the country and approximation to the EU standards as it will show to foreign investors that Ukraine is ready to provide guarantees and privileges to all foreign investors regardless of whether they perform any formal actions.

At the same time, formal confirmation of investments may become essential for foreign investors (especially for small investors who own less than 10% in the authorized capital of the legal entity) for further repatriation of the investment itself and income received from investment activities.

If earlier the supporting document after the state registration of foreign investment was the information notice with the assigned registration number, which specified, in particular, information about the form of foreign investment (e.g. foreign currency, securities, intellectual property rights, etc.) and its form (e.g. equity participation, acquisition of securities or other property rights), now the investor will not have such confirmation that may put into question application to his investment of the guarantees and privileges envisaged in the effective investment legislation of Ukraine. It, in turn, may have a negative impact on protection of the foreign investor.

 
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