3.2. LEGAL BACKGROUND FOR INVESTMENT

Effective legal sources

The effective Ukrainian legislation on issues of foreign investments consists of two enactment arrays:

(i) legal provisions of Ukraine, which concern implementation of foreign investments, and

(ii) international agreements regarding implementation of foreign investments, where Ukraine participates and which comprise the national legislation of Ukraine.

Legislation of Ukraine

It is a historical trend that Ukrainian legislation, which regulates foreign investments, developed toward reduction of privileges and benefits that were granted to foreign investors as well as to gradual introduction of national treatment of foreign investments. Pursuant to the effective national treatment of foreign investments, foreign investors have the right to perform any business or commercial activity in Ukraine provided with conditions equal to those of Ukrainian business entities. Exceptions from the national treatment, which are stipulated in special legal provisions, are rare, and as a whole comply with international experience.

Domestic legislation of Ukraine regulates the issue of foreign investment types, defines guarantees for protection of foreign investments, and resolves other questions, which regard implementation of foreign investments in Ukraine. A recently adopted law has finalized establishment of national treatment of foreign investments via provision of national treatment of currency regulation and taxation of foreign-investment companies, regardless of type and period, when foreign capital was invested into such companies.

International agreements

Ukraine is a participant of more than twenty bilateral agreements on promotion and mutual protection of investments, including treaties with such countries as USA, Germany, Canada, the Netherlands, Italy, etc. Such bipartite agreements traditionally fix national treatment or the most favored nation treatment, depending on which is the most welcome for investors.

International treaties comprise Ukraine's guarantees from expropriation or nationalization of investments. Besides, as a rule Ukraine takes on responsibility to provide effective means for presentation and consideration of any claim, which concerns implementation of foreign investments. Finally, these bipartite treaties ensure possibility of considering the investment disputed between investors and Ukraine.

Guarantees of foreign investment protection

In compliance with national legislation, Ukraine guarantees protection of foreign investments инвестиций. Guarantees of the protection are supported by legislation of Ukraine and international agreements of Ukraine.

Domestic legislation of Ukraine establish the following guarantees of foreign investment protection:

(i) guarantees from nationalization or requisition – ban on forced withdrawal and illegal actions of state entities and their officials, which regard foreign investments;

(ii) compensation and damage recovery– establishing of the principle of fast, adequate, and effective compensation to foreign investors in case of violation of their rights by state officials of Ukraine Украины;

(iii) guarantees in case of business suspension – vested right of foreign investor to claim back investments in natural form or in investment currency no later than six months starting the date of investment activity suspension;

(iv) guarantees of transference of profit, revenues, and other funds – right for free and immediate transference of profit, revenues, and other funds abroad after repayment of taxes, fees, etc.

Adjudication

Pursuant to the national legislation of Ukraine, disputes between foreign investor and Ukraine on issues of state regulation of investments are examined by general court judges of Ukraine, if otherwise is not defined by international agreements of Ukraine. As a rule, bipartite treaties on assistance and protection of foreign investments stipulate the possibility of appealing to international arbitrage (both standing and ad hoc) to resolve all disputes, which evolve from investment in Ukraine. Execution of foreign arbitrage decisions is ensured by the respective regulations of the New York Convention on admittance and fulfillment of foreign arbitrage decisions dated 1958, where Ukraine is a participant, as well as national legislation of Ukraine.

In addition, in compliance with the Law of Ukraine “On Ratification of the Convention on the Order of Settlement of Investment Disputes between States and Foreign Entities" dated March 16, 2000, Ukraine became a member of the Convention on the order of settlement of investment disputes between states and foreign entities of 1965 (hereinafter – “the Washington Convention"). Pursuant to the Washington Convention, any foreign entity*, which makes investment in Ukraine, has the right to appeal to the International center for regulation of investment disputes (hereinafter– “the Center") to settle any legal dispute, which is a direct outcome of such investments, under condition of Ukraine's agreement to transfer the dispute for consideration by the Center.

* Physical entity, who is a citizen of the country – participant of the Washington Convention, or legal entity, established in compliance with legislation of such country, or legal entity, which is subject to control by the mentioned entities.