Investing in Ukraine Benefits

Ukraine needs foreign investment to rebuild its economy after the war, which has destroyed more than 30 percent of its value. It also needs to focus on attracting high-quality IT talent from abroad. Check out news Ukraine to learn more.

Ukraine has made significant progress in establishing clearer rules and improving its business environment over the past five years. It moved up seven steps in the World Bank’s 2020 Doing Business ranking.

1. Taxes are low

One of the most attractive aspects of Ukraine's tax system is its low rates. Companies pay just 2% of turnover, while personal income tax is 19% on all types of income, including dividends from foreign-owned companies and investment funds.

However, Ukrainian taxes are complex and often unclear. This leads to inequity and a large number of loopholes, which undermine the competitiveness of the country's economy.

In recent years, Ukraine has moved toward clearer rules and fair competition. However, corruption and mistrust of the judiciary remain significant challenges for the country's economic institutions. Despite progress, these issues remain a major barrier to investment. Western partners should work with Ukraine to strengthen anti-corruption institutions, while also focusing on other ways to address the issue.

2. Government incentives are available

Ukraine has a government-backed investment promotion agency, which helps foreign investors to secure financing. Investing in Ukraine can also provide tax benefits.

In addition, the country's banking sector has made considerable progress since the 2014-2015 crisis. Credit is largely allocated on market terms, and the number of solvent banks has increased to 73.

The government is currently drafting a law that would allow partial privatization of some large state-owned enterprises (SOEs). Auctions for 22 SOEs are set to begin in 2021.

A September 2020 report from the German Marshall Fund of the United States, Designing Ukraine's Recovery in the Spirit of the Marshall Plan, notes that donors must rigorously and cooperatively oversee reconstruction aid to thwart endemic corruption. Donors should closely involve the Ukrainian nongovernmental organizations that have emerged as watchdogs, as well as local leaders and civil society members, to maintain the integrity of Ukraine's anti-corruption agencies.

3. Free trade agreements with the EU

A number of free trade agreements have been signed with the EU, and they are a good way to attract foreign investors. The deals allow EU companies to sell their products in Ukraine at a low tariff rate, without the need for export licences or quotas.

The free trade agreements between the EU and Ukraine are also helping to modernize Ukraine’s economy. This includes lowering/removal of non-tariff barriers and regulatory harmonization with the EU’s regulations.

However, it is important to note that free trade agreements with the EU can have some negative effects on horizontal FDI flows (investments made abroad to access a foreign market without tariffs). This type of FDI, which some economists call ‘tariff-jumping’ or ‘market-seeking’ FDI, has been found to be more prevalent in 'deep' trade integration countries.

4. Access to skilled labor

Ukraine offers a large consumer market, a highly educated and cost-competitive work force, and abundant natural resources. This combination provides the country with tremendous potential to attract foreign investors.

While the war in Ukraine has negatively affected global trade, investment flows are resilient. Even with a significant drop in exports, the country’s robust domestic market and low tax rate make it an attractive place to invest.

The Ukrainian refugee crisis has been a major driver of labour market inclusion in Europe, with the share of working-age refugees in employment already exceeding 40% in some OECD countries (notably in Germany, the Netherlands and Poland), even after taking short-term jobs into account. However, the challenge remains to ensure sustainable employment commensurate with their skills and qualifications.

5. Access to natural resources

Ukraine has an abundance of natural resources, including coal, iron ore, salt and titanium. These resources can be used to attract foreign investors and diversify the country’s economy.

Russia’s military intervention in the Donbas region could disrupt this supply chain. It also threatens to undermine the country’s efforts to privatize its energy sector.

The country has the second-largest known gas reserves in Europe, but it consumes almost one-third more than it produces.

The country’s mineral wealth also offers Western countries and private companies tantalizing opportunities, particularly in titanium, lithium and other ore exports. As Ukraine strives to join the Euro-Atlantic economic sphere, its mineral resources offer the potential to secure its future and protect its wealth.