On September 20, the Parliament of Ukraine adopted a draft law No.1059 on stimulation of investment activity in Ukraine in the second reading. The document contains comprehensive solutions that will allow the country to significantly improve its business climate and increase its position in Doing Business, in particular, it cancels such a fee associated with investments as a share participation in construction from January 1, 2021.
In Ukraine, share participation has long been transformed into a corruption tax that discourages investments and does not contribute to the development and inflow of investments. This kind of “investment tax” is usually established for each individual builder by local authorities as they wish and can range from 0 to 10% of the construction cost. The amount depends solely on “arrangements”, and it is impossible to monitor the targeted use of funds intended to develop social infrastructure.
Manual administration and numerous options for manipulation when calculating a “share participation” are the factors that can not be fixed. Recognizing the importance of creating a comfortable environment to attract investments in the economy, European countries canceled this type of investor taxation several decades ago. Now we are finally cancelling it in Ukraine!
During 2020, there will be a transitional period when a share participation will be paid under clear rules: only in cash and at reduced rates:
- for non-residential buildings and facilities – 4% of the total estimated construction cost;
- for residential buildings – 2% of the construction cost;
- 0 for all industrial facilities!
In addition, the amendments that will regulate a procedure of transferring engineering networks from developers to a city’s property list should be made to the legislation by the end of the year. Such a decision is the result of a trade-off between the need to attract investments and the ability of communities to launch appropriate compensators.
Another important aspect of the draft law No.1059 is the introduction of a concept of trust property that enhances the protection of creditors’ rights. And this is a way to reduce credit risks and, as a result, to reduce credit rates. In addition, it improves the procedural legislation and proposes additional mechanisms for protecting rights and interests of minority investors.
All these projects and practices that the BRDO Office has worked on for several years will help Ukraine to be in the Top 40 of the Doing Business rating in 2020.