Article: Legislative Framework

Legislative Framework for Foreign Investment
he Law of Ukraine "On the Regime of Foreign Investments" (the "Foreign Investment Law") is the principal legislative act governing foreign investment in Ukraine. To view the full English version of the Law of Ukraine "On the Regime of Foreign Investments", please click here. Ukraine has also adopted legislation dealing with issues such as anti-monopoly, corporations, bankruptcy, pledge, currency regulation, corporate taxation, international arbitration and other areas of importance to foreign investors. Privatization Ukraine adopted a package of laws on privatization in March of 1992. In addition, State Privatization Programs for 1992 and 1994 were adopted by Parliament. Privatization in 1995 and 1996 has been regulated by the Decrees of the President of Ukraine. The principal state organ responsible for privatization in Ukraine is the State Property Fund ("SPF"). Ukraine has significantly increased the speed of privatization at the end of 1995. Although the government had begun to transform state enterprises into joint stock companies and to sell them through auctions and competitive tenders in 1993, the pace of privatization of medium and large enterprises had been slow. Most firms privatized up until 1995 had been small businesses involved in the spheres of retail trade, food service and other service-related activities. Furthermore, a significant portion of those enterprises, which were privatized prior to 1995, had been privatized through a buyout of the enterprise by the enterprise's workers' collective. Property Laws pplicable Ukrainian legislation provides for three forms of ownership: (i) private, (ii) collective and (iii) state. All three forms are deemed equal and in theory should enjoy equal privileges. Ukrainian citizens and legal entities are permitted to own all types of property except those types, which are directly prohibited from private ownership. Ukrainian law provides that foreign legal entities, as well as joint ventures, international organizations, foreign citizens and persons without citizenship may own property in Ukraine. Foreign individuals are specifically allowed to	own residential buildings, apartments, summer cottages and other objects of "personal use" (e.g. automobiles). Foreign legal entities are specifically permitted to own "buildings, facilities and other property of a social, cultural or industrial character." There is no legal requirement for a foreign individual or foreign legal entity to establish any form of residency or presence (e.g. a representative office or a branch) prior to or as a condition for acquiring property in Ukraine. Ukrainian citizens may own land in Ukraine for a limited number of purposes, including agricultural needs and the construction of a private house or other dwelling. Ukrainian legal entities may own land (in the form of "collective ownership") for agricultural purposes only. As a general matter Ukrainian citizens or legal entities needing to use land may only do so on the basis of so-called "rights of use" or through a lease. In contrast, foreign individuals and foreign legal entities are not permitted to own land in Ukraine or to obtain "rights to use" land. They may only lease land. As amateur of practice, however, foreign legal entities and individuals who have purchased buildings do obtain the right to use the land surrounding the building on the basis of Article 30 of the Ukrainian Land Code. Accounting Accounting principles and procedures in Ukraine are regulated by the "Special Rules for the Organization of Accounting in Ukraine" (the "Accounting Rules") approved by Decision No. 250 of the Cabinet of Ministers of Ukraine on April 3, 1993. The following summarizes a number of the relevant provisions from the Accounting Rules: (a) Compliance with the Accounting Rules is mandatory for all Ukrainian enterprises regardless of their form of ownership. The Ministry of Finance is responsible for establishing the official accounting methods in Ukraine and is empowered to issue special regulations from time to time regarding the same. (b) Official books and accounting records are to be maintained in the national currency of Ukraine. Transactions in foreign currency are to be recalculated into local currency at the official exchange rate of the National Bank of Ukraine ("NBU") in effect at the moment of the transaction. A parallel entry may be made in the actual currency of the transaction.	(c) The director general of an enterprise is responsible for organizing bookkeeping and accounting procedures. Accounting is carried out by the accounting department, headed by a Chief Accountant, or by an outside organization if the enterprise does not have an accounting department. (d) The fiscal year for all enterprises begins on January 1 and ends on December 31. For newly organized enterprises, the first fiscal year begins on the date of registration and ends on December 31. If the enterprise is registered later than October 1, its first fiscal year ends on December 31 of the following year. Banking Ukraine has a banking system in the process of development. It is two-tired, with the NBU and approximately 200 commercial banks. Of the commercial banks, five are the former specialized state banks: one is a savings bank; three are specialized lending banks (industrial investment, agricultural and social development) and one is the Export-Import Bank of Ukraine. The three specialized lending banks receive concessionary treatment from the NBU and are responsible for the vast majority of enterprise lending. The NBU regulates and supervises commercial banks. However, the NBU's resources are often insufficient to provide for thorough supervision and regulation. It is anticipated that there will be significant amendments to the current legislation governing banking activities. The fact that most of the commercial banks are lending to financially strapped enterprises has resulted in instability in the Ukrainian banking system. Foreign investors may confront delays in transferring funds both domestically and internationally, converting currency and repatriating profits in foreign currency (although the situation is rapidly improving). In addition, state authorities such as the tax inspectorate have wide-ranging powers to freeze bank accounts or to withdraw funds for payment of taxes or fines without the need to obtain a court order or authorization. Two foreign banks, Credit Lyonnais and Societe General, have opened wholly owned subsidiary commercial banks. Other foreign banks are attempting to obtain a banking license, although there appears to be considerable opposition within the NBU for the granting of further banking licenses to subsidiaries of foreign banks.