New Law of Ukraine pertaining to stimulating creation of industrial parks (infographics)
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On 7 October 2021 the new Law of Ukraine on amending certain legislative acts pertaining to stimulating creation of industrial parks No. 1710-IX, dated 7 September 2021 (the “Law“) became effective.
The Law is aimed at attracting direct investments into industrial sector of the national economy by means of industrial parks by introduction of financial and other incentives that are in line with modern global trends.
What is an industrial park?
To put it in simpler words, an industrial park is an area occupied by certain production and other objects of legally determined branches for purposes of carrying out economic activity based on special preferential terms (except for cases established by the Law).
According to the Law, industrial parks are aimed at:
- attraction of investments and development of the national economy;
- creation of new jobs;
- improvement of quality of life of the population of Ukraine;
- introduction of innovative and energy-saving technologies;
- sustainable development and protection of the natural environment.
Prospective incentives for industrial parks
The Law provides for the anticipated amendments as regards industrial parks, i.e., certain financial incentives for management companies, initiators – business entities and participants of industrial parks.
Thus, the mentioned subjects are entitled to enjoy the following incentives at the expense of the state and municipal budgets as well as other sources not prohibited by law (in the manner prescribed by the Government):
- compensation of the interest rate on loans for the arrangement and / or carrying out of economic activities within industrial parks;
- provision of funds on a non-refundable basis for the arrangement of industrial parks and / or ensuring the construction of related infrastructure (highways, communication lines, heat, gas, water and electricity, utilities, etc.) necessary for the establishment and operation of industrial parks;
- compensation of expenses for connection to engineering and transport networks.
These incentives are subject to further state regulation and policies to be adopted by the Parliament and the Government. The minimum statutory level of the budgetary expenditures for implementation of these incentives should be UAH 2 billion (ca EUR 65,2 mln) per year during the period of 2022-2026. The exact expenditures for such incentives should be envisaged by the Government annually in the state budget for the corresponding year.
Activities in industrial parks
What activities can be carried out in an industrial park?
- processing industry;
- industrial and/or domestic waste processing (except for burial of waste);
- scientific and technical activities;
- information and telecommunication activities.
The Law determined the following objects that can be located in an industrial park:
- offices of the management company, participants and other subjects of an industrial park, financial institutions, marketing and advertising objects;
- educational institutions;
- scientific parks, accelerators, laboratories for development of innovative technologies;
- multi-purpose halls for scientific conferences and other events;
- fire departments;
- green areas;
- industrial, warehouse buildings and structures, logistics infrastructure facilities;
- engineering buildings and structures;
- waste management facilities (except for burial of waste);
- other objects that are not prohibited by law.
Pursuant to the Law, the existing industrial park may be also included into the Register of Industrial Parks (the “Register“) provided that at the time of inclusion (1) there are no new production facilities commissioned in the last 10 years prior to taking a decision on creation of the industrial park, and / or (2) there are no production facilities operated during the last 5 years prior to taking a decision on creation of the industrial park in the territory of the industrial park (except for industrial facilities of a coal mining enterprise).
The Law introduced a term “another subject of an industrial park” which means a business entity that has acquired the right to land and / or other real estate object within the industrial park, has entered into an agreement with a management company and performs its economic activity within the industrial park (for instance, a post office). Such another subject of the industrial park is not entitled to state incentives prescribed by law.
Settlement of potential disputes
The Law established the right of management companies, initiators (except for state and municipal authorities) and participants of industrial parks to agree settlement of potential disputes arising from civil and commercial relations (including contractual relations) in the arbitration or international commercial arbitration court pursuant to law.
Restrictions provided by the Law
The Law provides for certain restrictions as regards establishment of an industrial park, for example, initiator / management company / participant of an industrial park cannot be incorporated by citizens of the state / legal entities registered in the state that is recognized as the aggressor or occupant state by the Parliament, or that came under sanctions pursuant to Ukrainian or international law, or whose ultimate beneficial owner / controller is the resident of such state, or such state itself.
What activities cannot be carried out in an industrial park?
- manufacture of excisable goods (except for the manufacture of cars, motorcycles and some other vehicles);
- economic activities subject to licencing (i.e., lottery, gambling, mediation in employment abroad, production and sale of drugs, commercial catch of aquatic bioresources outside the jurisdiction of Ukraine, burial of domestic waste).
Amendments to other legislative acts
The following provisions of the Land Code of Ukraine, inter alia, have been updated due to the adoption of the Law:
- industrial parks should be created on land parcels with the area of not less than 10 hectares and not more than 1,000 hectares (instead of the previous amounts, i.e., not less than 15 hectares and not more than 700 hectares);
- land owners and users (or other interested persons) are entitled to demand the establishment of such additional easement as the right for construction and passing of engineering, cable, pipeline networks that are necessary for proper operation of industrial parks;
- individuals and business entities are exempted from compensation for losses of agricultural and forestry production in case of use of land plots for placement of industrial parks.
Prospective actions and anticipated laws
According to the Law, before 1 January 2025, the Government will have to establish a new authorized state body that will implement the state policy regarding the creation and operation of industrial parks in Ukraine. Until the establishment of this body, but not later than 1 January 2025, it is the Ministry of Economy of Ukraine that will perform the functions of the authorized state body. The authorized state body will get reports from management companies on operation of industrial parks, ensure favourable conditions for creation and operation of industrial parks, keep the Register, and will have other powers as envisaged by the Law.
Furthermore, within 6 months as of the date of coming into force by the Law, the Government will have to establish a new state institution for purposes of providing support to initiators, management companies and participants of industrial parks.
Pursuant to the Law, management companies, initiators – business entities and participants of industrial parks are entitled to get tax and customs incentives as provided by law (such incentives are to be additionally established by the Parliament). To fully launch the potential of industrial parks, the Parliament should approve two more bills – No. 5688 and No. 5689, which provide for tax and customs incentives (such as profit tax exemption for 10 years, VAT exemption, preferential rates of real estate tax and land fee for land plots within industrial parks established by municipal authorities, import duty exemption), respectively.
Prospects for the positive development of the theme of industrial parks in general look optimistic, but only time will show how successful the implementation of the newly adopted provisions of the Law and other related legislative acts will be.
For further information, please contact Asters’ Partner Oleg Boichuk and Senior Associate Olena Kasatkina
