{"id":55682,"date":"2026-04-24T10:09:04","date_gmt":"2026-04-24T10:09:04","guid":{"rendered":"https:\/\/my.legal500.com\/developments\/?post_type=legal_developments&#038;p=55682"},"modified":"2026-04-24T10:09:04","modified_gmt":"2026-04-24T10:09:04","slug":"legal-framework-for-foreign-investment-in-ukraine-key-insights-for-investors-before-market-entry","status":"publish","type":"legal_developments","link":"https:\/\/my.legal500.com\/developments\/thought-leadership\/legal-framework-for-foreign-investment-in-ukraine-key-insights-for-investors-before-market-entry\/","title":{"rendered":"Legal Framework for Foreign Investment in Ukraine: Key Insights for Investors Before Market Entry"},"content":{"rendered":"<p><strong>Oleksandr Fefelov, <\/strong>Partner, Head of Antitrust and Competition Practice at Ilyashev &amp; Partners<\/p>\n<p><strong>Alina Borovets<\/strong>, Attorney at Ilyashev &amp; Partners<\/p>\n<p><strong>\u00a0Ukraine&#8217;s legal environment for foreign investment is characterized by two distinct features. As a whole, Ukrainian legislation maintains a broad openness to foreign capital, protects investor rights, and offers basic mechanisms for the establishment of or acquisition of corporate presences in the country. In contrast, a real investment decision in Ukraine today cannot be based solely on the provisions of the investment framework laws. It requires much more than a broader analysis \u2013 taking into account foreign exchange regulations, tax burden, banking compliance, sanctions profile, and the potential introduction of a foreign direct investment screening regime.<\/strong><\/p>\n<p><!--more--><\/p>\n<p>Foreign investment&#8217;s practical architecture has been transformed by martial law from 2022 to 2026. The key issues before the full-scale war were corporate structuring, tax optimization, and investment protection, but now the key concern is assessing whether a given investment is realistic from the standpoint of currency restrictions, banking controls, and regulatory predictability. Therefore, foreign investors considering entry into the Ukrainian market should evaluate the legal environment not just in formal terms but also from the perspective of the model they are considering.<\/p>\n<p><strong>Forms and Objects of Foreign Investment<\/strong><\/p>\n<p>The legal regime governing foreign investment in Ukraine rests primarily upon the Law of Ukraine &#8220;On Investment Activity&#8221; and the Law of Ukraine &#8220;On the Regime of Foreign Investment.&#8221; These instruments establish the fundamental principles of investor protection, define the general guarantees of investment activities, and define the legal status of foreign investments in Ukraine.<\/p>\n<p>Pursuant to Article 2 of the Law of Ukraine &#8220;On the Regime of Foreign Investment,&#8221; foreign investments in Ukraine may be made in the following forms:<\/p>\n<ul>\n<li>A foreign currency recognized by the Ukrainian National Bank as convertible;<\/li>\n<li>Ukraine&#8217;s currency, if reinvested into the original investment object or into any other object in compliance with applicable law;<\/li>\n<li>Any property, movable or immovable, and its related rights;<\/li>\n<li>Securities, including shares, bonds, and corporate rights;<\/li>\n<li>Claims for payment and rights to claim performance of contractual obligations guaranteed by prime-rated banks;<\/li>\n<li>Intellectual property rights whose value is confirmed based on legislation of the investor&#8217;s country or international trade customs;<\/li>\n<li>Generally, rights granted by law or contract for conducting business, including the use of subsoil and the exploitation of natural resources.<\/li>\n<\/ul>\n<p>If the foreign investor&#8217;s share of the authorized capital is not less than 10%, the enterprise acquires the status of an enterprise with foreign investment as of the date the foreign investment is recorded on the balance sheet. Ilyashev &amp; Partners&#8217; experience shows that the pre-entry stage is crucial to identifying the most efficient investment form.<\/p>\n<p>In practice, foreign investors in Ukraine most commonly use one of three basic market entry models:<\/p>\n<p>(1)\u00a0Greenfield investment: The establishment of a new Ukrainian legal entity for independently launching operations. This approach is traditionally used where the investor seeks full control over business processes, corporate governance, and compliance architecture from the first day of its presence in the country.<\/p>\n<p>(2) M&amp;A transactions: The acquisition of a stake in an existing business. This route allows for faster market entry, but simultaneously requires significantly more extensive legal due diligence, as the investor assumes the risks associated with the target company\u2019s prior activity \u2013 corporate, tax, contractual, labor, regulatory, and sanctions-related.<\/p>\n<p>(3)\u00a0Asset-based and contractual structures: Investment through the acquisition of individual assets or the use of contractual structures without the classical acquisition of corporate rights. This approach may be appropriate for projects involving real estate, infrastructure, leasing, concession arrangements, production facilities, or separate technological complexes.<\/p>\n<p>As privatization processes for state and municipal property intensify, significant assets can be acquired at extremely attractive prices at investment auctions. Currently, this sector represents a strategic entry point for investors looking toward the post-war recovery phase.<\/p>\n<p>Among corporate forms, the private limited liability company (LLC) is the most commonly used by foreign investors. For structuring a foreign capital presence in Ukraine, LLC is the most versatile and functionally appropriate form. By combining charter-based governance with contractual instruments, it enables the construction of a manageable corporate model, the entrenchment of internal arrangements among participants, and a flexible approach to entry, exit, corporate control, and ownership changes.<\/p>\n<p><strong>Due Diligence as a Critical Condition for Safe Entry<\/strong><\/p>\n<p>Legal due diligence is a critical stage of the investment process, regardless of the entry model chosen. Due diligence in Ukrainian conditions goes beyond simply identifying risks \u2013 it also determines the architecture of the future transaction, as we see at Ilyashev &amp;amp; Partners, from the scope of representations and warranties to the list of conditions precedent to indemnification mechanisms, escrow mechanisms, and retention of the purchase price.<\/p>\n<p>Several blocks need particular attention:<\/p>\n<ul>\n<li>Corporate status: the ownership of interests and the authority of control bodies; history of changes; encumbrances; and corporate disputes.<\/li>\n<li>Beneficial ownership: Structure and the AML profile of the business (UBO disclosure is now a cornerstone of Ukrainian compliance).<\/li>\n<li>Taxation: The tax block, which in Ukraine is frequently a source of significant post-closing risks.<\/li>\n<li>Currency flows: Whether the prospective payment model for non-residents will be permitted under NBU rules.<\/li>\n<li>Sanctions component: Due to the dynamic nature of sanctions lists in the region, sanctions are no longer optional, but a mandatory aspect of any due diligence review.<\/li>\n<\/ul>\n<p>In the current economic climate, quality due diligence should encompass not only the legal cleanliness of the asset, but also the overall feasibility of the transaction. Investors need to ensure not only that they understand what they are acquiring, but also that their investment can operate normally thereafter &#8211; opening accounts, obtaining financing, processing payments, engaging with counterparties, and not being blocked for compliance reasons.<\/p>\n<p><strong>The Tax Environment: The Importance of Correct Classification of Payments<\/strong><\/p>\n<p>The Tax Code of Ukraine establishes the basic framework for the taxation of foreign investments. Among the most material aspects for investors are corporate income tax, value-added tax, taxes on non-resident income, and international double tax treaties.<\/p>\n<p>International tax treaties, however, do not guarantee a safe structure in transactional practice. What is decisive is the correct combination of the legal characterization of a payment, its tax classification, documentary substantiation, and currency law permissibility. Incorrect classification often leads to complications with the tax authorities and difficulty in repatriating funds.<\/p>\n<p>Particular attention should be paid to dividends, interest, royalties, and intragroup fees. During the structuring stage, foreign investors need to understand how specific cross-border cash flows will be required following market entry, as well as whether they comply with both applicable tax rules and foreign currency regulations as well as banking compliance requirements.<\/p>\n<p>The taxation of income from foreign investments is governed by the Tax Code of Ukraine. Key parameters relevant to foreign investors include the following:<\/p>\n<ul>\n<li>Dividends: Dividends paid to non-residents are taxed at 15% (general rate) or at reduced rates under applicable conventions to avoid double taxation (DTTs). Ukraine is a party to over 70 such conventions.<\/li>\n<li>Royalties: Subject to 15% withholding tax (or reduced DTT rates).<\/li>\n<li>Customs duties: Property imported by foreign investors for at least three years for investment purposes under registered agreements is exempt from customs duties.<\/li>\n<li>Corporate Income Tax: Profits are subject to the standard rate of 18%.<\/li>\n<\/ul>\n<p><strong>Foreign Exchange Regulation as a Central Element of Investment Planning<\/strong><\/p>\n<p>Prior to 2022, currency law was often regarded as a technical aspect of a transaction, but now it&#8217;s one of the most important considerations for investment planning. The Law of Ukraine &#8220;On Foreign Currency and Foreign Currency Transactions&#8221; and the numerous amendments to Resolution No. 18 of the Board of the National Bank of Ukraine &#8220;On the Operation of the Banking System During the Period of Martial Law&#8221; effectively constitute a separate regulatory oversight framework that directly affects capital flows, debt servicing, profit repatriation, and intra-group settlements.<\/p>\n<p>At Ilyashev &amp; Partners, we advise that a legally correct and tax-compliant payment is not always feasible in operational terms. The key considerations are whether the relevant transaction falls within the list of permitted foreign currency transactions, whether it satisfies the applicable criteria, and whether the servicing bank is prepared to process it from a foreign currency control perspective.<\/p>\n<p>In this context, foreign currency exchange regulation functions as a filter for the investment model as a whole. It determines the practical feasibility of the investor\u2019s ability to repatriate invested capital, service external financing, pay dividends, or make other cross-border transfers. It is for this reason that planning an investment in Ukraine today is impossible without a detailed currency law analysis.<\/p>\n<p>One of the most sensitive issues for a foreign investor remains income repatriation. In recent years, the National Bank of Ukraine has been gradually easing currency restrictions; however, such liberalization has been targeted and measured in character. Ongoing monitoring of NBU policy is essential for any medium-to-long-term investment strategy.<\/p>\n<p><strong>Protection of Investor Rights: Contractual Architecture, Arbitration, and International Mechanisms<\/strong><\/p>\n<p>Despite its complex regulatory environment, Ukraine maintains basic legal mechanisms for investor protection on both a domestic and international scale. While domestic law formally protects foreign investments, bilateral investment treaties and arbitration mechanisms supplement the international law dimension.<\/p>\n<p>Practical experience demonstrates that the most effective protection begins at the transaction structuring stage. Contractual architecture is of utmost importance:<\/p>\n<ul>\n<li>Properly formulated warranties and indemnities.<\/li>\n<li>Clearly defined conditions precedent and risk allocation methods.<\/li>\n<li>Sanctions clauses and the right to withdraw in the event of regulatory changes.<\/li>\n<li>A carefully considered dispute resolution model.<\/li>\n<\/ul>\n<p>International commercial arbitration remains the most predictable and professional dispute resolution method for cross-border contracts. At the same time, it is advisable for a foreign investor, already at the market entry stage, to assess whether its home state has a bilateral investment treaty in force with Ukraine and what standards of protection such a treaty provides. The possibility of a foreign investor bringing a claim against a host state in investment arbitration is a certain guarantee for the investor in the case of a violation of rights. Recourse to international investment arbitration, such as, for instance, the International Centre for Settlement of Investment Disputes (ICSID), is also an effective tool for resolving disputes between an investor and a host state (Ukraine).<\/p>\n<p>For concentrated or concerted actions, certain investment transactions may require the approval of the Antimonopoly Committee of Ukraine.<\/p>\n<p><strong>Draft Law No. 14062 on the Screening of Foreign Direct Investments<\/strong><\/p>\n<p>Draft Law No. 14062 On Screening of Foreign Direct Investments, which provides for the introduction of a foreign direct investment screening regime in Ukraine, should receive special attention in 2026. Despite the fact that this draft law has not yet been adopted, its advancement reflects a clear governmental trend as of April 2026: Ukraine is gradually moving away from the general openness model toward a differentiated approach based on national security concerns.<\/p>\n<p>Investing primarily focuses on:<\/p>\n<ul>\n<li>Critical infrastructure.<\/li>\n<li>Strategic subsoil resources.<\/li>\n<li>Defense and dual-use sectors.<\/li>\n<\/ul>\n<p>For investors, this means that in the medium term, the standard M&amp;A process in Ukraine may be supplemented by an additional mandatory layer of approvals. Should the law be adopted in a form close to the current concept, a separate condition precedent linked to the completion of investment screening will need to be incorporated into sensitive-sector transactions, along with the preparation of an expanded information package regarding the control structure, sources of financing, and the nature of the asset.<\/p>\n<p>Non-compliance with the anticipated screening regime may have significant consequences \u2013 ranging from corporate restrictions and invalidations of transactions to substantial financial sanctions. Therefore, even in the absence of enacted legislation, investors should adopt a screening-ready approach already at this point, especially in transactions involving sensitive assets.<\/p>\n<p><strong>Conclusion<\/strong><\/p>\n<p>The legal framework for foreign investment in Ukraine is in the process of active evolution, driven by two parallel processes: gradual integration with the EU and adjusting legislation to match the conditions of martial law. Existing legislation provides a sufficient set of protections for foreign investors, from expropriation protection to capital repatriation rights. The wartime currency regime, however, temporarily restricts these guarantees in practice.<\/p>\n<p>The key to successful market entry lies in a thorough understanding of this evolving legal environment. Engaging a competent legal adviser with deep jurisdiction-specific experience allows investors to navigate these complexities effectively. Ukraine remains an attractive market for human capital, resource potential, and future reconstruction opportunities.<\/p>\n<p><em>Ilyashev &amp; Partners is one of the leading full-service law firms in Ukraine, with 30 years of experience advising international investors, multinational corporations, and domestic businesses across a wide range of industries. With offices in Kyiv, Kharkiv, and Odesa, the firm provides comprehensive legal support in key practice areas such as dispute resolution, international arbitration, antitrust and competition, corporate and M&amp;A, tax, white-collar crime, and cross-border transactions. The team has extensive experience in complex, high-stakes matters, including investment structuring, regulatory compliance, sanctions, and multi-jurisdictional disputes. <\/em><\/p>\n<p><em>To learn more, please visit the <\/em><a href=\"https:\/\/attorneys.ua\/en\/\"><em>Ilyashev &amp; Partners<\/em> <em>Law Firm website<\/em><\/a><em> or contact <\/em><a href=\"https:\/\/www.legal500.com\/firms\/15297-ilyashev-partners\/c-ukraine\/lawyers\/596829-oleksandr-fefelov\"><em>Oleksandr Fefelov<\/em><\/a><em> directly.<\/em><\/p>\n","protected":false},"featured_media":0,"template":"","class_list":["post-55682","legal_developments","type-legal_developments","status-publish","hentry"],"acf":[],"_links":{"self":[{"href":"https:\/\/my.legal500.com\/developments\/wp-json\/wp\/v2\/legal_developments\/55682","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/my.legal500.com\/developments\/wp-json\/wp\/v2\/legal_developments"}],"about":[{"href":"https:\/\/my.legal500.com\/developments\/wp-json\/wp\/v2\/types\/legal_developments"}],"wp:attachment":[{"href":"https:\/\/my.legal500.com\/developments\/wp-json\/wp\/v2\/media?parent=55682"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}