Industrial investment tax relief bills require transparent application and oversight mechanisms – lawyer
Legislative proposals to compensate industrial investments through tax relief (bills No. 13414 and No. 13415) will require transparent application procedures and robust oversight of fund allocation, according to Taras Onyschenko, a lawyer with Barristers Commercial law firm.
"These bills represent a potentially historic step in promoting investment, particularly in new industrial facilities. They introduce mechanisms for partial compensation of capital expenditures via tax incentives – a well-established and effective practice in EU countries. Still, their implementation poses certain challenges and risks that demand careful consideration," Onyschenko told Interfax-Ukraine.
Among the positive expectations from the draft legislation, he highlighted strong potential for stimulating economic growth. "These compensation tools could significantly reduce project risk and improve profitability, thereby encouraging investment in the manufacturing sector," he said.
"The EU's success with similar schemes proves their effectiveness, potentially attracting new capital and encouraging the return of previously withdrawn or relocated investments. Moreover, new and upgraded production facilities will inevitably lead to job creation and higher employment. Compensating equipment costs will further incentivize technological upgrades and improve the global competitiveness of Ukrainian products," he added.
However, Onyschenko cautioned that successful implementation depends on careful assessment of the short-term fiscal impact on state revenue.
"For these mechanisms to work, a transparent, efficient, and non-bureaucratic system must be established for submitting, reviewing, verifying applications, and monitoring proper use of funds. Without this, the benefits could be nullified. It is also crucial to define terms precisely – particularly 'processing industry' and 'equipment according to Ukrainian Classification of Goods for Foreign Economic Activity' – to prevent ambiguity and abuse," he said.
The lawyer also emphasized the need for synergy, ensuring that the new framework complements rather than overlaps or conflicts with existing investment support tools. He pointed to existing programs such as 5-7-9% concessional loans, processing grants of up to UAH 8 million, industrial park incentives, and state support for projects with significant investments (over EUR 12 million). Ukraine also offers investment insurance against military-political risks.
"However, Bills No. 13414 and No. 13415 stand out due to their comprehensiveness and accessibility. Unlike targeted support programs that focus on large-scale investors, these bills provide direct tax compensation and lower the entry threshold to as little as EUR 100,000. Importantly, they are available to both new and existing businesses," Onyschenko said.
The bills are aimed at supporting the processing industry – seen as a key sector for creating added value and driving economic growth in Ukraine. They would allow investors to recoup a large share of investment costs related to the construction of infrastructure, buildings, equipment purchases (as per the Ukrainian Classification of Goods for Foreign Economic Activity), and land acquisition.
The compensation would take the form of reduced tax liabilities, including corporate income tax, import VAT and duties on equipment, property tax, and land tax. The amount of compensation would depend on the size of the investment. A key innovation is that the mechanism would apply not only to new businesses but also to existing ones investing in expansion or modernization.
The bills were initiated by Dmytro Kysylevsky, Deputy Chairman of the Verkhovna Rada Committee on Economic Development, along with 54 other MPs from various factions and groups, including Danylo Hetmantsev, Andriy Motovylovets, and Dmytro Natalukha.
Bills No. 13414 and No. 13415 propose amendments to the Tax and Customs Codes to enable tax-based compensation for industrial investments.