Investments in Ukraine

In 2024 Ukraine continues to operate in conditions of full-scale war, posing extremely complex challenges to the economy, business, and the public administration system as a whole. The ongoing military aggression by the russian federation has not only caused significant destruction of infrastructure and disruption of logistical chains, but has also substantially complicated the process of making long-term investment decisions, increasing the overall risk of doing business in Ukraine. At the same time, it is under such extreme conditions that new approaches to state regulation of investment activity are being formed, which is becoming a tool for economic resilience and development.

During 2024, the state implemented a number of initiatives aimed at improving the investment climate. In particular, legislation on state support for projects with significant investments was revised, possibilities for insurance of investments against war-related risks were expanded, procedures for public financing were simplified, and privatization processes were accelerated. These steps demonstrate the government’s commitment to maintaining Ukraine’s economic attractiveness for both domestic and foreign investors even during the period of active hostilities.

In the sections of this article that follow below, we will consider the key changes in state regulation that influenced investment activity in 2024 and the beginning of 2025. In particular, we will address developments in the regulation of state-owned property privatization, insurance against war-related risks, and regulation of currency restrictions currently in effect in the country due to martial law.

Amendments to Legislation on Privatization of State-Owned Property

On 19 September 2024, the Verkhovna Rada of Ukraine (Parliament) adopted Law of Ukraine No.3983-IX On the Specifics of Sales of Stakes Owned by the State in the Authorized Capital of Banks, which came into force on 19 October of the same year.

The strategic goal that the new law is designed to attain is to reduce the state-owned stake in Ukrainian banks and enhance competition in the country’s banking sector. This objective is outlined both in domestic documents, such as the Financial Sector Development Strategy approved by the Financial Stability Council on 19 July 2023, and at the international level in the Memorandum of Economic and Financial Policies dated 11 March 2024, signed between Ukraine and the International Monetary Fund.

The scope of the new law has been extended to the sale of shareholdings in systemically important banks, all or part of the shares in the authorized capital of which are owned by the state, except for PJSC “State Savings Bank of Ukraine” and the Joint-Stock Company State Export-Import Bank of Ukraine. Notably, these criteria are met by the largest banks, the shares of which are fully or partially owned by the state, such as the JSC Commercial Bank PrivatBank, JSC Sense Bank, and  JSC Ukrgasbank.

The law enables the sale of any portion of the state-owned stake in a bank, rather than requiring the sale of 100% of the state-owned shares as was previously established.

The law also expands the range of potential investors considered by the state as eligible to participate in the sale process: any resident or non-resident of Ukraine that meets the risk profile criteria for a relevant tender, as approved by the Cabinet of Ministers of Ukraine, and provides a bid guarantee (if required by the tender procedure), may participate in the tender on the sale of shareholdings. At the same time, the law imposes tender participation restrictions on certain categories of persons. Thus, former holders of substantial interest in the bank, individuals registered in offshore jurisdictions or the russian federation or the republic of belarus, debtors of the bank whose shares are being sold, etc. will not be able to take part in the tender.

The law steps up requirements for legal entities that may be engaged by the state as financial advisors for the sale. Thus, a person who has at least five years of international experience in providing consultations, concluding, supporting, and performing agreements for the sale of financial institutions, and who has no creditor claims or debts to the bank for the sale of whose shares the advisor is engaged. In addition, the candidate must also be free of any conflict of interest, specifically, he/she must not have any current obligations to related parties of the bank to provide advisory services on the sale of shareholdings in banks, nor obligations to third parties to purchase shares in Ukrainian banking institutions on their behalf and at their expense. Furthermore, the above-mentioned restrictions imposed by law on potential investors also apply to financial advisor candidates.

The law permits international donors to participate in the procedure for selecting financial advisors for the sale and the procedure for the sale itself, and updates the rules for pricing and auction processes in compliance with the recommendations set out by the World Bank. It also takes into account the possibility that only one potential investor may participate in an auction, brings the requirements for a sale and purchase agreement into line with market practices, and prevents adverse influence on the sale procedure by former beneficial owners or current minority shareholders,  such as attempts to block the sale. Transparency of the sale procedure is enhanced by the law by increasing the amount of information subject to disclosure and holding tenders using an electronic trading system.

The parties to an agreement for the sale and purchase of shares in a bank may choose the law of England and Wales or the law of the State of New York (USA) as the law applicable to such an agreement and related documents.

In trying to attract investors to the sale of state-owned property, the government also aims to generate revenue for the state budget.

On 16 April 2025, the Verkhovna Rada of Ukraine adopted in the final reading Draft Bill No. 12230 On Amendments to the Legislation on the Privatization of State and Municipal Property Granted on Lease.  This adopted law is currently awaiting the President’s signature.

The clear objective of this draft bill is to increase revenues from privatization for both the state budget and local budgets. According to official statistics, from 2019 to 2024, nearly 37 percent of privatized properties were privatized through the mechanism of lessee buyouts. This piece of legislation aims to unify the approaches to privatizing state-owned properties and ensure the possibility of determining the value of such properties based on market mechanisms.

After it has come into force,  the document will change the rules for the privatization of leased state and municipal property by abolishing the current procedure for buyout of leased property with inseparable improvements and introducing a mechanism for auction-based privatization of such leased properties with inseparable improvements  (actually giving lessees a preemptive right). If a lessee has made inseparable improvements, for instance, capital repairs or modernization that have increased the property’s value by at least 25%, the lessee will be granted the preemptive right to purchase the property at the highest price offered at an open tender. If the lessee refuses to do so or violates the rules, the property will be sold to another buyer, and the lessee will be compensated for the improvements made.

The abolition of buyouts and introduction of privatization auctions are to take effect one year after the law is published. Auctions for the privatization of leased property with inseparable improvements will apply to those who have obtained a permit for inseparable improvements before this bill comes into force. Lessees who obtain permits for inseparable improvements after this law comes into force may privatize the property at an auction with conditions that provide for compensation to the lessee for inseparable improvements.

War-Related Risk Insurance

As is well known, one of the key factors in successfully attracting investment into an economy is the existence of effective legal mechanisms for protecting and guaranteeing investors’ rights. In this regard, Ukraine has taken several important steps during the war. At the end of 2023, the Verkhovna Rada of Ukraine adopted Law of Ukraine No. 3497-IX On Amendments to the Law of Ukraine On Financial Mechanisms for Stimulating Export Activity regarding Insurance of Investments in Ukraine Against War-Related Risks and it came into force on 1 January 2024. This law expanded the activities of the Export Credit Agency (ECA) by granting it the authority to insure and reinsure direct investments in Ukraine against war-related and/or political risks.

By Resolution No. 388 dated 9 April 2024, the Cabinet of Ministers of Ukraine approved the List of War and Political Risks, as well as the Terms and Conditions of Insurance (Reinsurance) of War and Political Risks during the Activities of the Export Credit Agency.

The list of war risks includes not only armed conflict and hostilities themselves, but also potential negative consequences arising from such actions: seizure of state power, occupation, annexation, terrorist acts, or sabotage, etc.

Political risks, as defined by the Cabinet of Ministers of Ukraine, include forced alienation of property by Ukrainian state authorities, unlawful revocation of a license by the market regulator or forced termination (suspension) of activities, failure or refusal by the state to fulfill its obligations, imposition by the state of restrictions on settlements (such as payment embargoes or moratoriums); and the inability to convert currency or to transfer currency abroad, etc.

The basis for insurance coverage is insurance agreements concluded with the Export Credit Agency. The object of investment insurance may include potential losses incurred by the investor as a result of full or partial loss of direct investments in Ukraine, or the inability to receive dividends from such investments. Any individuals or legal entities, whether residents or non-residents of Ukraine, and who invest in assets located in Ukraine, are eligible to insure their investments. These assets must be intended for the development of the processing industry and the export of goods, works, or services of Ukrainian origin. For this purpose, goods of Ukrainian origin are defined as those that are either wholly produced or have undergone sufficient processing in Ukraine. The criteria for determining such origin are established in accordance with the requirements of the Customs Code of Ukraine.

Investments in assets located within active combat zones or in occupied territories at the time of signing the insurance agreement cannot be insured.

The insurance of investment loans can be considered a separate investor protection mechanism. In this case, the object of insurance consists of potential losses resulting from full or partial failure by a Ukrainian business entity (the borrower under a loan agreement) to perform the terms and conditions of such an agreement related to repayment of the principal loan amount (investment loan insurance). In such a case, the insured party is the bank providing the relevant loan. It is obvious that this mechanism is intended to improve access for Ukrainian investors to bank lending for the development of their investment projects.

National Bank of Ukraine Update on Currency Restrictions

In 2024, the National Bank of Ukraine implemented several rounds of liberalization of currency legislation and relaxed a number of currency restrictions introduced in connection with the imposition of martial law.

Thus, by Resolution No. 56 of the Board of the National Bank of Ukraine of 3 May 2024 On Amendments to the Resolution of the Board of the National Bank of Ukraine No. 18 of 24 February 2022, the National Bank of Ukraine provided, among other things, the opportunity to repatriate dividends on corporate rights or shares abroad, dividends from which accrued based on the results of activities for the period starting from 1 January 2024, within the total amount (limit) of EUR 1,000,000 (this mitigation does not apply to the payment of dividends from retained earnings for previous periods or from reserve capital). The National Bank of Ukraine also permitted entrepreneurs to transfer funds abroad under leasing/lease agreements without any additional restrictions and simplified the conditions for residents to purchase foreign currency for the servicing and repayment of “new” external loans, provided that the loan funds have been received in foreign currency from abroad after 20 June 2023 into the the accounts of borrowers who have Ukrainian banks.

Further changes were approved by Resolution No. 83 of the Board of the National Bank of Ukraine dated 9 July 2024 On Amendments to the Resolution of the Board of the National Bank of Ukraine No. 18 of 24 February 2022, which came into force on 11 July 2024.

Most of these changes were aimed at enhancing the investment attractiveness of Ukraine, stimulating the inflow of private foreign capital, and expanding opportunities for Ukrainian companies to attract new external loans and credits. In particular, the National Bank of Ukraine permitted Ukrainian businesses to compensate non-residents for expenses incurred by them in connection with their participation in granting an external loan to a Ukrainian borrower. Such transactions are possible provided that a foreign export credit agency, foreign state, or international financial institution acts as a guarantor, surety, or insurer under the external loan.

In addition, the transfer of funds in favor of foreign companies, whose shareholders include a foreign state, is now permitted to pay insurance premiums under agreements covering war-related risks in Ukraine. Residents are also allowed to transfer funds under the provided guarantees or sureties that ensure the fulfillment of the obligations of resident borrowers under external credits and loans.

The mechanism for the purchase of foreign currency by resident borrowers for the purpose of reserving it under loan agreements with international financial organizations has also been regulated. This step aims to strengthen the support provided to Ukrainian businesses by such organizations.

Conclusions

In the difficult conditions of full-scale war, Ukraine continues to implement structural reforms and adapt state policy to the needs of economic survival and recovery. According to the results of 2024, the government has intensified efforts to foster a favorable investment climate, as evidenced by a number of significant legislative and regulatory changes in the fields of privatization, insurance of investments against war-related risks, and currency regulation.

The adoption of legislation that contributes to reducing the state’s role in the banking sector and improves  the mechanisms for the privatization of state and municipal property is an indicator of commitment to transparency, competitiveness, and openness to investors. At the same time, strengthening the institutional capabilities of the Export Credit Agency to provide insurance for investments makes it possible to mitigate the risks associated with investing in Ukraine, even in conditions of martial law.

The recent updates to currency regulations tailored to modern challenges and business needs, including the simplification of procedures for attracting external financing, reserving currency resources, and paying for risk insurance demonstrate the National Bank of Ukraine’s intent to support economic stability and foster the growth of the private sector.

In conclusion, these initiatives create the basis for a flexible partnership between the state, business, and international investors. Developing such an approach is critical for preserving the country’s economic potential in wartime and ensuring the necessary conditions for its post-war recovery.