Annex B. Measures notified by Ukraine for transparency in the meaning of the OECD Declaration on International Investment and Multinational Enterprises

a. Investments by established foreign-controlled enterprises

Trans-sectoral:

Unspecified restrictions exist on foreign direct investment in sectors of strategic importance for national security reasons. The commercial code stipulates that “Ukrainian affiliates wholly owned by foreigners or foreign legal entities cannot be created in sectors of strategic importance for the State Security. These sectors are to be defined by law” Moreover, the law “On the fundamentals of National Security of Ukraine” stipulates that “An increase in the share of foreign capital in strategic sectors of the Ukrainian economy such that it jeopardises Ukraine’s economic independence” can be a “real or potential threat to national security”. As of January 2016, there is no definition of such sectors of strategic importance to national security where foreign investments would be prohibited or restricted.

Source: Commercial Code, Art. 117.2; Law No. 964-IV “On the Fundamentals of National Security of Ukraine” of 22 July 2003 as amended (Article 7).

Weapons, ammunition and space facilities:

Weapons and ammunition production for military use by foreign-controlled companies is prohibited as well as ownership of space facilities.

Source: Parliament Resolution No. 35/1992 “On the property right of specific items”, which forbids foreign legal entities to own weapons, ammunitions and missile or space facilities.

Activities affecting public order, public security and national defence interests:

Ukraine state can apply sanctions against foreign legal entities or Ukrainian legal entities which are under control of a foreign legal entity or natural person (non-resident, foreigner, persons without citizenship), who carry out terrorist activities.

Source: Law No. 1644-VII “On sanctions” of 14 August 2014; President’s Decree No. 549 “On decision of National security and defence council of Ukraine of 02.09.2015” “On application of personal special economic and other actions (sanctions)” of 16 September 2015.

Currently sanctions towards the legal entities – residents of the Russian Federation are applied in various spheres of economic activity. Among them:

Television and radio broadcasting:

Legal entities and residents, as well Ukrainian legal entities whose shareholders or ultimate beneficiaries are residents from the Aggressor-State, are forbidden from setting up or being shareholders of any TV or radio broadcasting company, or of any television and radio content provider.

Source: Article 12 of the Law of Ukraine on Television and Radio Broadcasting No. 3759-XII of 21 December 1993 (as amended).

Licensing (30 economic sectors subject to compulsory licensing as defined by Article 7 of the Law “On Licensing of Certain Types of Business Activity”): Entities “under the control of residents from countries undertaking armed aggression against Ukraine and/or creating conditions for armed conflict or use of military force against Ukraine” are not entitled to an activity license. Applicants to a new license must demonstrate the absence of control “of residents from countries undertaking armed aggression against Ukraine and/or creating conditions for armed conflict or use of military force against Ukraine” to the licensing authority. Documentary evidence of such control, as established by licensing authorities, causes the withdrawal of existing licenses.

Source: Articles 6, 9 and 16 of the Law No. 222-VIII “On Licensing of Certain Types of Business Activity” (2 March 2015).

NB. In January 2015, the Ukrainian Parliament recognized the Russian Federation as an Aggressor-state (Parliamentary Resolution No. 129-XIX adopted on 27 January 2015).

a. Corporate organisation and key personnel

Road transport: Local incorporation is required for road (freight and passenger) transport.

Source: Schedule of Specific Commitments on Trade in Services attached to the Protocol of Accession of Ukraine to WTO. Attached to Law No. 250-VI “On Ratification of the Protocol on Ukraine’s Accession to the WTO” of 10 April 2008.

Education services (Primary and secondary, higher education, non-school education establishments): The head of primary and secondary schools, as well as preschools, should be a Ukrainian citizen with a degree in pedagogy and no less than three years of teaching experience. The same requirement applies to all non-school education institutions. The head of any higher education institution should speak fluent Ukrainian and be an academic with at least 10 years of experience in academic teaching positions. The head of a state or municipal higher education institutions shall be a Ukrainian citizen.

Sources: Law No. 1556-VII “On Higher Education” of 1 July 2014 (Article 42); Law No. 651-XIV “On General Secondary Education” of 13 May 1999 (Article 24); Law No. 1841-III “On Off the School Education” of 22 June 2000 (Article 21); Law No. 2628-III “On Pre-School Education” of 11 July 2001 (Article 31).

b. Temporary capital controls (non-exhaustive, selected measures with direct impact on foreign investors established in Ukraine).

Banks are subject to the obligation to monitor foreign currency purchase transactions on a daily basis and service only those that have an express legal basis. The NBU has the right to suspend any transaction it suspects of being illegal and request additional documents regarding any transaction.

The following foreign-exchange transactions are prohibited:

• Transfers of dividends abroad to foreign investors;

• Repatriation of the proceeds from the sale of a security, except in the case of a debt security sold on a stock exchange (NBU verifications required in this case) or in the case of government bonds;

• Repatriation of the proceeds from the sale of corporate rights (other than shares), from the decrease of the charter capital or the withdrawal of a foreign shareholder in a company;

• Premature repayment of loans in a foreign currency under agreements with non-residents, including repayments rescheduled for earlier dates as compared to the original payment schedule.

Source: NBU Resolution No. 863 “On Resolving the Situation in the Money and Foreign Exchange Markets of Ukraine” (4 December 2015).