The Mergers & Acquisitions Review: Ukraine

Overview of M&A activity

Ukraine has experienced adverse economic and geopolitical conditions since 2014 that have had a negative effect on overall M&A activity in the country. Following economic and political stabilisation, deal activity in Ukraine significantly picked up in 2019. After the covid-19 pandemic struck the country, M&A activity experienced an overall slowdown that affected practically all industries. According to the KPMG M&A Radar Ukraine report, Ukrainian M&A activity dropped in 2020, with 69 transactions worth a combined US$945 million, a 60 per cent decrease over the previous year.

Naturally, inbound M&A activity also decreased, from US$846 million in 2019 to approximately US$534 million in 2020. Major domestic Ukrainian players continued to generate a significant part of M&A activity in Ukraine yet significantly decreased their outbound M&A activities.

The most active sectors for M&A activities in 2020 were real estate and construction, agricultural, and innovation and technology.

The real estate sector M&A activity also experienced an approximately 50 per cent drop in deal value from US$392.2 million in 2019 to US$199.6 in 2020. In Ukraine's agricultural sector, which has been historically the most resilient to crisis, we observed a slight increase in M&A volume, as the volume of transaction value has increased from US$162.3 million in 2019 to US$190 million in 2020, which mainly involved land banks. Ukraine being world-renowned for its IT outsourcing industry slowly gains its momentum in the IT products industry. IT M&A activity in 2020 experienced a slight decrease in deal value from US$369.5 million in 2019 to US$156 million in 2020. In the energy sector, foreign investors have shown increased interest in investing in Ukraine's oil and gas sector through participation in tenders for concluding production-sharing agreements.

In 2016, the government announced the privatisation of several large state enterprises, including Ukraine's largest producer of nitrogen fertiliser, the state-owned Odessa Portside Plant. Unfortunately, the attempts to auction off the Plant failed to attract any bids from strategic investors. In 2018, the government relaunched the privatisation of large state enterprises. The list of companies included United Mining and Chemical Company, Kransnolimanskaya Coal Mine, Electrovazhmash Plant and President Hotel, to name a few. These companies remain at the different stages of preparation for privatisation. In 2020, the Ukrainian Parliament voted to postpone the announcement of the first auctions for large enterprises because of the impact of the covid-19 pandemic on volatility of the world's markets and valuation of businesses. Nevertheless, the privatisation of large enterprises was relaunched in March 2021, and the first auctions for large enterprises should be held at the end of 2021.

General introduction to the legal framework for M&A

The Civil Code,2 the Commercial Code,3 the Company Law,4 the Limited and Additional Liability Companies Law (Law on LLCs),5 the Joint-Stock Company Law (JSC Law),6 the Law on Capital Markets7 and the Law on State Registration8 constitute the legal framework for M&A in Ukraine. The merger control rules and merger notification thresholds are set out in the Competition Law.9 Recently, the 'know your client' rules as set out in AML Law10 and the Law on State Registration have become increasingly relevant because of tightened requirements aimed at ultimate beneficial owner and comprehensive group structure disclosure.

A corporate merger or an acquisition involving a joint-stock company (JSC) would also trigger the application of the Depository System Law11 and the Capital Markets Law.12 Moreover, there are a number of additional rules and principles that should be taken into account when preparing or conducting an acquisition of a JSC, such as:

  1. the rules relating to the disclosure of significant shareholdings in JSCs and ultimate beneficial owners;
  2. the rules relating to insider dealing;
  3. the rules relating to the public offer of securities and the admission to trading of these securities on a regulated market; and
  4. the general rules on the supervision of and control over the financial markets.

The Securities Commission13 supervises compliance with the takeover and JSC-specific regulations.

At the same time, JSCs have become less popular as a vehicle for conducting business activities in Ukraine. As of 1 June 2021, only 13,679 JSCs were registered in Ukraine according to the official statistics. In contrast, the statistics show that there were 722,327 companies in the form of limited liability companies (LLCs) in Ukraine on 1 June 2021, which is the most common vehicle for conducting business activities in Ukraine. Legal entities in Ukraine may also be established in the form of a general partnership, a limited partnership and an additional liability company.

Acquisitions of businesses and companies are usually carried out through the purchase of the participatory interests of an LLC or through the acquisition of the shares of a JSC. The majority of M&A deals are privately negotiated deals, as Ukrainian companies usually have one or several significant shareholders.

JSCs may be public or private: the shares of a public JSC may be both privately and publicly placed, whereas the shares of a private JSC are privately placed among its shareholders. Asset acquisitions are also common, but they are technically more burdensome and time-consuming, and involve the imposition of VAT.

Because of the generally mandatory nature of Ukrainian law and a developing judicial system, shareholders and participants in Ukrainian companies have traditionally preferred to set up holding companies in foreign jurisdictions such as Cyprus or the Netherlands. By the same token, they preferred to choose foreign law (mainly English) as the governing law of transaction documents. Nonetheless, the Ukrainian government has committed to tackle both issues. As for the mandatory nature of Ukrainian law, the Ukrainian parliament has already introduced the concepts of representations and warranties into Ukrainian legislation, and committed to amend most chapters of the Civil Code. In addition, the Ukrainian parliament considers a restated JSC Law which is pending a second reading. Likewise, significant progress has been made in respect of the judicial reform. The Supreme Court finally started to delineate and elaborate in particular cases such concepts as freedom of contracts, fairness, good faith and others to equip investors with more potent Ukrainian law tools. The lower courts are also expected to undergo a comprehensive reform coordinated by Ukrainian government in cooperation with foreign experts.

While recent developments in corporate and takeover law are intended to increase the attractiveness of structuring M&A deals in Ukraine and expose them to Ukrainian law, we do not expect a major change in deal structuring in the nearest future. In those cases where an investment has already been structured as a joint venture on the Ukrainian level, shareholders may choose to benefit from the new legislation and conclude Ukrainian law-governed shareholders' agreements. Notably, as a result of recent changes, if a company has a foreign shareholder, all shareholders may enter into foreign law-governed shareholders' agreements.

Developments in corporate and takeover law and their impact

The corporate and takeover laws in Ukraine have been significantly amended between 2016 and 2021 in the course of the ongoing corporate reform. In 2021, the following developments have brought significant attention to the M&A market players.

i Takeover rules for JSCs and escrow accounts, and other important rules

The Corporate Governance Law,14 which became effective on 4 June 2017 provides for takeover rules that are based on EU Directive 2004/25/EC of 21 April 2004 on takeover bids. The Law governs the acquisition of controlling stakes, sets out the concepts of squeeze-out and sell-out, and increases the disclosure requirements and thresholds for the approval of interested-party transactions.

Investors and shareholders should consider the takeover rules when structuring M&A transactions that may result in the direct or indirect acquisition of shares in Ukrainian JSCs (even if such JSCs are not the direct acquisition targets), including:

  1. disclosing information on acquiring stakes that are equal to or exceed the provided thresholds (for public JSCs: 5, 10, 15, 20, 25, 30, 50, 75 and 95 per cent; for private JSCs: 5, 50 and 95 per cent and more);
  2. disclosing information on the highest acquisition price for controlling stakes (50 per cent plus one share, 75 per cent and more, and 95 per cent and more);
  3. complying with the procedure for submitting other notices on acquisitions of shares;
  4. complying with the obligation to make a mandatory bid to the remaining shareholders to purchase their shares at a fair price in cases of acquisition of the controlling stakes (50 per cent plus one share, or 75 per cent and more), including the timing of an irrevocable mandatory bid and the formula for determining the fair price (i.e., the price to be paid by the majority shareholder for the shares of the minority shareholder);
  5. squeeze-out: that is, the right of the dominant stakeholder (95 per cent and more) to require the holders of the remaining shares to sell him or her their shares; and
  6. sell-out: that is, the right of minority shareholders to require the dominant stakeholder to buy their shares at a fair price.

The squeeze-out procedure entitles a shareholder that acquired the dominant controlling stake of 95 per cent and more of shares to require the holders of the remaining shares to sell him or her their shares within 90 days following the date of disclosure of the information on the acquisition of the shares. The dominant stakeholder intending to exercise its right to squeeze-out should first comply with the mandatory bid procedure. The price for the mandatory purchase of shares of minority shareholders should be determined according to the formula set out in the Corporate Governance Law.

Following the adoption of Corporate Governance Law, escrow accounts became a commonly used instrument for securing payments among parties. Settlement of payment of the purchase price to minority shareholders as a result of a squeeze-out procedure should be made via escrow accounts without engaging a securities broker. This mechanism allows the elimination of 'dead souls' (i.e., minority shareholders (often deceased persons)) with whom any connection has been lost. As a result of the introduction of the concepts of squeeze-out and escrow accounts, dominant stakeholders are able to consolidate 100 per cent of the shares in their hands.

According to information publicly available as of 31 December 2020, 378 JSCs have already launched squeeze-out procedures in Ukraine. Several court and administrative proceedings have also been initiated disputing the squeeze-out price. The first decisions forming the respective court practice have been circulated addressing the eligibility criteria of squeeze-out procedures, and elaborating a concept of 'fair price'.

As for sell-out procedure, minority shareholders have the right to require a dominant stakeholder to buy their shares at a fair price to be determined similarly to the squeeze-out price. Minority shareholders may exercise their sell-out right at any time following the acquisition of at least one additional share of a JSC by the dominant stakeholder.

At the same time, the Corporate Governance Law allows private JSCs to disapply rules or establish different rules in their charters regarding acquisitions of controlling stakes, and squeeze-out and sell-out procedures, subject to having complied with the majority voting requirements set out in law.

Additionally, the materiality thresholds in excess of which interested party transactions should be approved by the respective corporate body of a JSC equal to 1 per cent of the assets' value, based on the latest financial statements of the JSC.

ii Capital markets reform

The Capital Markets Law15 came into force on 1 July 2021. The Capital Markets Law aims to implement key provisions of the European capital market directives and regulations such as MiFID II,16 MiFIR,17 EMIR18 and others. This Law introduces the new concept of capital markets, which will comprise a stock market, a derivative instruments market and a money market whereby each of these is composed of relevant participants interacting among themselves. The Law also amends the rules on circulation of securities, including shares in JSCs, and introduces new rules on circulation of different types of derivatives. Additionally, the Law amends the prospectus requirements (including the requirements for the language and content of a prospectus) and establishes new rules for disclosure of information (disclosure thresholds, content of information and means of disclosure).

iii State support of investments

The new State Support of Investments Law19 became effective on 13 February 2021. The Law created a legal framework for organisational, legal and financial support of projects with significant investments – both inbound and outbound – by the state of Ukraine. An investment project should meet the following criteria for projects with significant investments to apply for state support:

  1. the amount of investment must exceed €20 million;
  2. the term of realisation of the investment project does not exceed a five-year period;
  3. the creation of at least 80 jobs with minimum salary of more than 15 per cent above the average in the relevant industry in the region; and
  4. an investment project aimed at one of the industries or sectors identified in the State Support of Investments Law.

Ukraine has committed to provide tax benefits (exemption from income tax, exemption from VAT and import duties), new equipment, land plots, construction and reconstruction of related infrastructure facilities required for investment to facilitate the projects with significant investments. The exact form of facilitation or their combination thereon are negotiated between the investor and government on case-by-case basis.

iv Pending JSC law reform

Another recent development in corporate law is the draft Restated JSC Law20 which was passed in the first reading by the Ukrainian Parliament. In addition to legal developments achieved between 2016 and 2021 in the course of the ongoing corporate reform, the Law provides for the following updates:

  1. introduction of a mechanism for holding general meetings with use of electronic voting;
  2. bringing rules on shareholder representation in line with European Union (EU) regulations;
  3. bringing rules on mergers, acquisitions, spin-offs and divisions of JSCs in line with EU regulations;
  4. providing an opportunity to introduce a one-tier management structure in JSCs or LLCs,
  5. increased minority shareholder protection rights, etc.

v DIIA city law reform

On 15 July 2021, DIIA City Law21 was passed by Ukrainian parliament. The Law primarily focuses on the IT industry to stimulate the development of the digital economy in Ukraine by creating favourable conditions for innovative business, building digital infrastructure, attracting investment, as well as talented professionals. Among other things, the Law introduced such legal concepts as warranties and indemnities, liquidation preferences rules, liquidated damages, etc. Separately, the DIIA City Law contemplates the adoption of the tax benefits package that should stimulate the IT industry to test and subsequently transfer operations into the DIIA City Law regime. The said tax benefits package is currently being considered by the Ukrainian parliament.

Availability of these instruments should not only favour the local IT companies that will become more attractive investment targets for foreign investors, but also stimulate the whole industry to use more flexible legal instruments.

Foreign involvement in M&A transactions

According to the information provided by the Ministry for Development of Economy, Trade and Agriculture of Ukraine,22 in 2020 foreign investments into the Ukrainian economy came mainly from Cyprus, the Netherlands, the United Kingdom, Switzerland, Germany and Austria.

Because Cyprus and the Netherlands are popular jurisdictions for setting up holding companies for large Ukrainian groups, investments coming from these countries are most likely to see the return of Ukrainian capital that flowed out of the country at the outset of the crisis in 2014. This is a good sign, proving that Ukrainian investors believe that the economy is past the worst of the downturn. This positive trend has also become possible because of the gradual relaxation by the National Bank of Ukraine of certain capital control and foreign currency restrictions relating to the repatriation of dividends, repayment of cross-border loans, and import and export transactions involving foreign currency.

As for outbound investment, Ukrainian companies that are leaders in their respective industries are currently looking at possible acquisition targets abroad, in particular within the EU and in Gulf countries.

Significant transactions, key trends and hot industries

The hottest industries in 2020 and to date in 2021 have been real estate and construction, agriculture, and innovation and technology.

The largest M&A transaction in 2020 was a transaction involving foreign investments in the transport and infrastructure sector: the US$130 million acquisition of majority stake in a port operator in the Port of Yuzhny, one of the deepwater multipurpose terminal in Ukraine, by DP World, one of the leading port operator and smart logistics solutions providers in the world. Previously, investment activities in the TMT sector were minimal.

Naturally, another significant deal was closed in the agri sector, namely an acquisition by Epitsentr Agro of Khmelnytsk land bank from Svaroh West Group Corporation for US$100 million.

The real estate and construction sector saw the US$110 million acquisition of Eurozhytlogroup by Dragon Capital. Another landmark transaction in the real estate sector involving inbound investment was the acquisition by Smartland of Dnipro Hotel, a real estate complex in the very centre of Kiev, for US$40.7 million.

Financing of M&A: main sources and developments

Despite uncertainty provoked by presidential and parliamentary elections and the following change of government, financial institutions such as the European Bank of Reconstruction and Development, the International Finance Corporation and the Overseas Private Investment Corporation have continued to invest into Ukraine-focused private equity funds.

Other than international financial institutions investing in private equity funds, no foreign commercial banks have been financing acquisitions in Ukraine: current risks would make the cost of acquisition financing impermissibly high. Furthermore, no bank would lend money over the long term. For example, since 2014, the Ukrainian hryvnia has lost more than 60 per cent of its value. This sharp depreciation has significantly inflated all foreign currency-denominated loans. Most M&A deals are still financed by acquirers from their own funds. In those cases where big multinational companies with access to cheap financing abroad acquire a company in Ukraine, they may use foreign financing to refinance expensive Ukrainian debt upon completion. This financing is not available to most Ukrainian investors.

Employment law

The Labour Code of Ukraine, dated 10 December 1971, remains the principal legislative act governing employment relationships in Ukraine. Due to numerous amendments to the Labour Code in the recent years, the document is generally adequate for current business needs. For this reason, developments in employment legislation are not usually seen as the hottest topic in an M&A context in Ukraine.

On 27 September 2017, a law simplifying the procedure for obtaining work permits and temporary residence permits for foreigners came into effect.23 The law facilitates the engagement of foreign managers and skilled employees serving Ukrainian companies by establishing clear, transparent and foreigner-friendly work permit and temporary residence permit procedures. The adopted law contains a number of novelties. In particular:

  1. it extends the list of grounds to apply for a temporary residence permit;
  2. it permits parallel employment of a foreign employee by two or more Ukrainian companies;
  3. it simplifies the procedure for obtaining a work permit by reducing the number of documents to be submitted to the state authorities;
  4. it extends the term of a work permit from one to three years for certain categories of foreign employees, including highly paid foreign professionals, founders and beneficial owners of Ukrainian companies, graduates of certain top-ranked universities and IT professionals;
  5. it establishes an affordable minimum salary that must be paid to certain categories of foreign employees; and
  6. it establishes a possibility for an employer to amend a work permit in certain cases instead of applying for an entirely new one.

Since 1 June 2018, temporary residence permits are issued in the form of a card with a contactless electronic chip. Because the chip contains certain biometric data (the digitalised signature, photograph and fingerprints of a foreign national), which are obtained at the time of filing the application, the foreign national is required to file an application for a temporary residence permit in person. A temporary residency permit for a foreign employee will be issued for the term of the relevant work permit (i.e., for up to three years) and must be exchanged after it expires (previously, a temporary residency permit could be extended).

In recent years, the minimum monthly salary has been increased significantly, from 1,600 hryvnias in December 2016 to 6,000 hryvnias in September 2021.24 This change may affect the purchase price of target companies with a significant amount of low-paid employees, especially in the agricultural and manufacturing sectors.

A series of further amendments to the Labour Code is in the pipeline. The pending draft laws are anticipated to contain a number of game-changing provisions. Among others, the following amendments are expected:

  1. a detailed list of the features of employment relations;
  2. new types of employment agreements (e.g., on-call work agreements, whereby the employee will be required to be on standby but will be paid only for the time when the employer instructs them to actually work);
  3. the detailed list of the grounds for conclusion of fixed-term employment agreements;
  4. the possibility to define additional termination grounds in fixed-term employment agreements;
  5. the amendments into the rules for imposition of material liability on employees;
  6. a more detailed regulation of protections against discrimination at work (e.g., the employer's obligation to notify the candidate about the reason for their rejection if the candidate so requests); and
  7. the possibility to instantly terminate an employee under certain circumstances subject to payment of severance.

Tax law

i New anti-Base Erosion Profit Shifting rules

The Tax Code of Ukraine, dated 2 December 2010, as amended, remains a comprehensive legal act regulating tax matters in Ukraine. The Tax Code has been significantly amended in 202025 with a view to transposing anti-Base Erosion Profit Shifting (BEPS) measures into Ukrainian legislation. The key amendments of the Anti-BEPS Law that are relevant to M&A transactions are the following.

Controlled foreign companies

Effective 1 January 2022, the CFC Rules introduce taxation of the income of controlled foreign companies (CFCs) at the hands of Ukrainian controlling persons (individuals or companies).

The CFC Rules will target Ukrainian individuals and companies with an ownership interest in a foreign entity of (1) more than 50 per cent or (2) more than 10 per cent (25 per cent and more in 2021 and 2022), provided Ukrainian individuals (companies) jointly own a share of 50 per cent and more, or (3) in the case of established de facto control over a foreign entity.

Tax-free liquidation of CFCs established before 23 May 2020 has been allowed until 31 December 2021 with no tax applicable to the liquidation proceeds.

Business purpose

Applies effective as of 1 January 2021 to transactions defined as 'controlled' for the transfer pricing purposes. Transactions are deemed to lack a business purpose if:

  1. the principal or one of the principal purposes of a transaction is found to be tax evasion or underpayment; or
  2. under comparable conditions, a taxpayer would not be able to purchase or sell the same goods, services or works from or to an unrelated party;

Effective 1 January 2022, the business purpose rule would be expanded to:

  1. transactions with a foreign counterparty registered in a 'low-tax' jurisdiction;
  2. transactions with a foreign counterparty that is a fiscally transparent entity or exempt from corporate income tax;26 or
  3. royalty payments in favour of non-residents.

Capital gains

Taxation of capital gains arising from the offshore sale of real-estate-rich companies deriving their value from immovable property located in Ukraine applies starting from 1 July 2020; capital gains from the direct alienation of shares or a participatory interest in Ukrainian real estate-rich companies are also subject to tax; and the non-resident buyer of a Ukrainian 'real-estate-rich company' would be required to register with the Ukrainian tax office and withhold 15 per cent withholding tax from the non-resident seller.

Constructive dividends

The concept of constructive dividends has been introduced starting from 1 January 2021; however, taxpayers should be relieved from the obligation to pay advance corporate income tax payments on constructive dividends.

Permanent establishments

The enhanced permanent establishment (PE) rules, elaborated and detailed in line with the Organisation for Economic Co-operation and Development (OECD)'s recommendation as per BEPS Action 7, apply from 1 January 2021. The key change concerns the methods of PE taxation, namely the authorised OECD approach (AOA). The AOA suggests applying transfer pricing methods for determining the profits that would be deemed earned by a PE as if it were an independent local company rendering or selling the same or similar services or goods on the same or similar terms. Harsh penalties are envisaged for carrying out business activities in Ukraine without formal tax registration as a PE.

Beneficial owners

Effective from 23 May 2020, the definition of beneficial owner has been amended so that the recipient of income should not qualify as the beneficial owner but rather as an agent, nominee or intermediary with respect to the income when:

  1. the recipient does not have the right to dispose of such income;
  2. the recipient merely forwards the income further along the chain and performs no substantial functions in the transaction; or
  3. the recipient has no relevant resources (personnel, fixed assets, sufficient equity, etc.) necessary to perform the functions and manage the risks of the transaction.

Moreover, effective from 23 May 2020, Ukraine introduced a look-through approach to cases when there is a foreign intermediary between the Ukrainian payer and the foreign beneficial owner of income. In brief, the tax benefits under the treaty with the country of the intermediary's residence should not apply. Instead, the tax treaty with the country of residence of the beneficial owner should govern.

Finally, Ukraine has committed to join the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information (MCAA CRS), which would allow the tax authorities to access information on financial accounts of Ukrainian residents. The first automatic exchange is expected to occur in 2023 and would cover the FY 2022.

ii Tax treaties

Ukraine has a double tax treaty network with around 70 jurisdictions, with treaties with Luxembourg, Malta and Qatar being the most recent.27 While historically Luxembourg, and, in certain cases, Malta were used in multilayer group structures, ratification of these double tax treaties has had a positive effect on the structuring of M&A deals in Ukraine.

The Ministry of Finance has also started to gradually review the existing tax treaty network, specifically targeting those offering full exemptions from withholding tax. This issue should be taken into account while structuring M&A deals.

Among the most significant developments, mention should be made of the Ministry:

  1. signing a protocol amending the Ukraine–United Arab Emirates double tax treaty with a domestic ratification procedure still in progress;
  2. signing the new Ukraine–Spain double tax treaty and a protocol thereto to replace the obsolete Soviet–Spanish double tax treaty of 1985, with the domestic ratification procedures still in progress;
  3. signing a protocol amending the Ukraine–Austria double tax treaty (effective for Ukraine as of 25 June 2021);
  4. signing a protocol amending the Ukraine–Netherlands double tax treaty (effective for Ukraine as of 31 August 2021);
  5. signing a protocol amending the Ukraine–UK double tax treaty (effective for Ukraine as of 5 December 2019);
  6. signing a protocol amending the Ukraine–Switzerland double tax treaty (effective for Ukraine as of 16 October 2020); and
  7. signing a protocol amending the Ukraine–Cyprus double tax treaty (effective for Ukraine as of 27 November 2019).

Ukraine has also recently signed and ratified the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI). The application of the MLI is aimed at combating abuse of bilateral tax treaties in a synchronised and efficient way by amending about 40 of Ukraine's treaties. Among other novelties, it introduces the principal purpose test concept, requiring companies seeking treaty benefits to substantiate the commercial rationale behind relevant structures and transactions. The MLI also broadens the definition of permanent establishment, expanding the profits base taxable in Ukraine. Ukrainian and foreign entities operating in Ukraine should reassess their current corporate structures to be in compliance with the new rules.

The MLI applies from 1 January 2020 for withholding taxes in relation to double tax treaties between Ukraine and other jurisdictions that have also deposited their instruments of ratification. For instance, the MLI affects withholding tax levied on payments taking place from 1 January 2020, and covered by the double tax treaties between Ukraine and Ireland, Luxembourg, Malta, Singapore, the UAE and the UK, to name a few. In terms of other taxes, such as corporate income tax, the MLI applies as of 1 June 2020 in relation to double tax treaties between Ukraine and other jurisdictions that have also deposited their instruments of ratification.

iii Currency control

Ukraine has recently reformed its currency control legislation with an aim to harmonise the Ukrainian rules on the movement of capital with EU standards (the undertaking prescribed in the EU–Ukraine Association Agreement). This step has liberalised and significantly changed the Ukrainian currency control rules.

Since 2019, the National Bank of Ukraine has lifted nearly 40 foreign exchange regulations and restrictions that had been in place in Ukraine for years. As a result, the following notable foreign exchange restrictions no longer apply in Ukraine:

  1. restrictions on the amount of dividend repatriation and repatriation of other investment proceeds (e.g., received from the sale of corporate rights or securities);
  2. registration requirements and maximum interest limitations on cross-border loans; and
  3. mandatory conversion of foreign currency proceeds of Ukrainian businesses.

Competition law

Although the economic crisis has slowed M&A activity, the Antimonopoly Committee of Ukraine (AMCU) has demonstrated its strong desire to adjust the merger control rules in line with the best practices of other European countries. As a result, a number of significant and long-awaited reforms to competition law have taken place during the past few years. Following the recommendations of the OECD and the United Nations Conference on Trade and Development, back in 2016 Parliament amended the rules on merger control.28 The changes increased the merger notification thresholds that had been in effect for over 15 years. In particular, since May 2016, transactions are subject to prior approval of the AMCU if for the preceding year:

  1. the parties' combined worldwide turnover or assets exceed the equivalent of €30 million, and the domestic turnover or assets of each of the two parties exceeds the equivalent of €4 million; or
  2. the target's domestic assets or turnover exceed the equivalent of €8 million, and the buyer's worldwide turnover exceeds the equivalent of €150 million; or
  3. in the case of the establishment of a business entity, the domestic assets or turnover of one of the parties exceed the equivalent of €8 million, and the worldwide turnover of the other party exceeds the equivalent of €150 million.

All thresholds are to be calculated on a group level for the last financial year preceding the contemplated transaction.

In addition to amending the rules on merger control, the merger control procedures have been simplified by allowing parties to conduct preliminary consultations with the AMCU. Furthermore, the new merger control procedures have significantly simplified the disclosure requirements for parties during the course of filing preparation, but at the same time they require profound economic analysis for transactions that may impact competition in Ukraine. A further sign of liberalisation has been the introduction of a fast-track procedure for certain cases, with decisions to be issued within 25 calendar days instead of 45 calendar days.

As part of the reform in the antitrust sphere, the AMCU's transparency has been enhanced. Previously, the AMCU decisions did not have to be published; however, starting from 2015 all decisions of the authority are to be published on the AMCU's official website within 10 working days from the adoption of a decision.29

Furthermore, in 2015 the AMCU approved fining guidelines that make its process of calculating fines more predictable and transparent.30

In 2017, Parliament adopted changes to the Ukrainian competition and sanctions laws that allow the AMCU to deny merger clearance of transactions involving entities included in the sanctions list.

Another step towards the alignment of the Ukrainian competition legislation to the EU competition legislation was the AMCU's approval of the Guidelines on the Assessment of Horizontal Mergers at the end of December 2016 and the Guidelines on the Assessment of Non-Horizontal Mergers in March 2018.

In 2018, the AMCU adopted the new Guidelines on Definition of Control, which were developed around a concept of control similar to that of the EU competition legislation.

Further, in June 2019, the AMCU adopted amendments to the provisions on concerted actions, which cancelled the concerted actions financial thresholds and removed the de minimis exemption. Due to these amendments, restrictive arrangements implemented in M&A transactions, such as non-compete and non-solicitation, irrespective of the financial thresholds of the parties, may benefit from the block exemption according to which concerted practices are allowed and do not require prior clearance from the AMCU if the aggregate market share of the parties (on a group level) does not exceed 15 per cent (for horizontal or mixed concerted actions) or 20 per cent (for conglomerate concerted actions) in any product market.

Another recent significant development was the adoption in September 2019 by the AMCU of non-binding guidelines on the application of merger control rules to joint ventures, which clarified the notifiability of the establishment of joint ventures. The establishment of a joint venture qualifies as a notifiable concentration subject to the following conditions:

  1. the joint venture shall be created from scratch by several undertakings and shall be jointly controlled by its founders;
  2. the joint venture shall be full-function, meaning it shall carry out all the functions generally associated with fully independent undertakings active on that market;
  3. the joint venture shall be intended to operate on a lasting basis; and
  4. the establishment of the joint venture shall not result in the coordination of the competitive behaviour between the joint venture founders, or between the founders and the joint venture.

In July 2020, the AMCU adopted guidelines on the application of the small but significant and non-transitory increase in price test, which elaborates the applicability of this test to alternatively identify the narrowest relevant market.

The completed and ongoing reforms represent a broader effort to harmonise Ukrainian competition law with that of the EU, and generally make Ukraine a more business-friendly place. In addition to these initiatives, a number of legal changes are making their way through the legislative process. Several are responses to recommendations cited in reviews carried out by the OECD and the United Nations Conference on Trade and Development. These legislative proposals address, for example, a revision of the concerted actions regulation, the AMCU's increased discretion in determining which cases to investigate and the establishment of a specialised court chamber for hearing antitrust-related disputes.

In addition to the above, the draft amendments to the Ukrainian competition laws are currently under the consideration of the Parliament, which anticipates essential changes to the merger control regulations, in particular the exclusion of a seller's financials for the purposes of merger control assessment, implementation of new merger notification thresholds, and an increase of filing fees for the submission of merger and concerted action applications.

In particular, in July 2021 the Parliament of Ukraine adopted the respective draft law,31 aimed at reform of Ukrainian competition law, which was developed together with competition law experts from the EU in line with the EU–Ukraine Association Agreement. As of the time of writing, the draft law awaits the second reading in the Parliament of Ukraine with numerous amendments thereto expected.

Further, in July 2021 the so-called Tax Amnesty Law32 entered into force, which, among other things, envisages an amnesty for failure to comply with the merger control requirements in Ukraine. In particular, the law provides for an exemption from the fine for the failure to obtain the AMCU's prior merger approval if such approval was required, which may amount up to 5 per cent of the global annual turnover of the participating groups (including all persons or entities related by control) for the preceding fiscal year. The law, in its turn, envisages the replacement of the regular fine by an 'amnesty fine' of 20,400 hryvnas if the following requirements are met:

  1. the concentration (e.g., acquisition of assets or shares) took place before 31 December 2020, the concentration was completed by individual or undertaking, controlled by such individual, which:
    • filed a one-time special voluntary declaration with respect to personal assets; and
    • paid the agreed fee for one-time special voluntary declaration;
  2. such concentration has not led to a significant restriction of competition or monopolisation of the relevant market; and
  3. the application for approval of the respected concentration was filed with the AMCU between 1 October 2021 and 1 October 2022.


Since February 2020, Ukraine has faced a sharp slowdown in M&A activity in the face of the global covid-19 crisis. The dealmaking in 2021 has significantly picked up as a result of delayed demand in many sectors. Both strategic and financial investors are currently looking to invest significant amounts into various sectors, including innovation and technology, industrials and manufacturing, and healthcare.


1 Viacheslav Yakymchuk and Olha Demianiuk are partners at Baker McKenzie.

2 The Civil Code of Ukraine, adopted on 16 January 2003, effective from 1 January 2004.

3 The Commercial Code of Ukraine, adopted on 16 January 2003, effective from 1 January 2004.

4 Law of Ukraine No. 1576-XII 'On Companies', dated 19 September 1991.

5 Law of Ukraine No. 2275-VIII 'On Limited and Additional Liability Companies', dated 6 February 2018.

6 Law of Ukraine No. 514-VI 'On Joint-Stock Companies', dated 17 September 2008.

7 Law of Ukraine No. 3480-IV 'On Capital Markets and Organized Commodity Markets', dated 23 February 2006.

8 Law of Ukraine No. 755-IV 'On the State Registration of Legal Entities, Individual Entrepreneurs and Public Organisations', dated 15 May 2003.

9 Law of Ukraine No. 2210-III 'On Protection of Economic Competition', dated 11 January 2001.

10 Law of Ukraine No. 361-IX 'On prevention and counteraction to legalization (laundering) of crime proceeds, financing of terrorism and financing of proliferation of weapons of mass destruction', dated 6 December 2019.

11 Law of Ukraine No. 5178-VI 'On Depository System of Ukraine', dated 6 July 2012.

12 Law of Ukraine No. 448/96-VR 'On State Regulation of the Capital Markets and Organized Commodity Markets', dated 30 October 1996.

13 The National Securities and Stock Market Commission of Ukraine.

14 Law of Ukraine No. 1983-III 'On Amendments to Certain Legislation of Ukraine Regarding Improvement of Corporate Governance of Joint-Stock Companies', dated 23 March 2017.

15 Law of Ukraine No. 738-IX 'On Amending Certain Legislative Acts of Ukraine in relation to Investment Attraction and Introduction of New Financial Instruments', dated 19 June 2020.

16 Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU.

17 Regulation (EU) No. 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Regulation (EU) No. 648/2012.

18 Regulation (EU) No. 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories.

19 Law of Ukraine No. 1116-IX 'On state support of investment projects with significant investments in Ukraine' dated 17 December 2020.

20 Draft Law on Joint Stock Companies No. 2493 dated 25 November 2019.

21 Law of Ukraine No 1116-IX 'On stimulating the development of the digital economy in Ukraine' dated 15 July 2021.

22 The state of investment activity in Ukraine, available at

23 Law of Ukraine No. 2058-VIII 'On Amendments to Certain Legislative Acts of Ukraine on Eliminating Barriers to Foreign Investments', dated 23 May 2017.

24 Law of Ukraine No. 1082-IX 'On the State Budget of Ukraine for 2021', dated 15 December 2020.

25 On 23 May 2020, the Law of Ukraine 'On Amendments to the Tax Code of Ukraine Purposed to Improve the Administration of Taxes, Eliminate Technical and Logical Inconsistencies in the Tax Legislation' (Anti-BEPS Law) became effective with certain provisions being phased out by Amending Law No. 786-IX of 14 July 2020, which entered into force on 8 August 2020. Further clarifications and amendments were introduced by Law No. 1117-IX, which entered into force on 1 January 2021.

26 The list of legal forms of such entities is established by the Cabinet of Ministers of Ukraine.

27 Convention between the Government of Ukraine and the Government of the Grand Duchy of Luxembourg 'On Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital' ratified by the Law of Ukraine No. 1918-VIII, signed on 6 September 1997, as amended by the Protocol of 30 September 2016. Convention between the Government of Ukraine and the Government of the Republic of Malta 'On Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income', ratified by the Law of Ukraine No. 2018-VIII, signed on 4 September 2013. Convention between the Government of Ukraine and the Government of Qatar 'On Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital', ratified by the Law of Ukraine No. 2690-VIII, signed on 20 March 2018.

28 Law of Ukraine No. 935-VII 'On Amendments to the Law of Ukraine 'On Protection of Economic Competition', dated 26 January 2016, which became effective on 18 May 2016.

29 Law of Ukraine No. 782-VIII 'On Amendments to Certain Legislative Acts of Ukraine Concerning Transparency of the Antimonopoly Committee of Ukraine', dated 12 November 2015, which became effective on 3 March 2016.

30 Recommendation No. 16-pp approved by the Antimonopoly Committee of Ukraine on 15 September 2015.

31 Draft Law of Ukraine No. 5431 'On Amendments to Certain Legislative acts of Ukraine to Improve the Activities of the Antimonopoly Committee of Ukraine', dated 27 April 2021.

32 Law of Ukraine No. 1539-IX 'On Amendments to the Tax Code of Ukraine on Stimulating the Regularization of Income and Improving Tax Culture of Citizens by Introducing One-Time (Special) Voluntary Disclosure by Individuals of Their Assets and Payment to the Budget of One-Time Tax', dated 15 June 2021, which became effective on 21 July 2021.

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