Investing Through Taxes: Draft Law No. 13415

Ukraine is entering a reconstruction phase with an industrial landscape that has suffered up to USD 14 billion in losses. Almost half of the energy grid has been damaged or destroyed, and total recovery needs are projected to reach USD 524 billion by 2033. These figures, cited in the explanatory materials to Draft Law No. 13415, redefine the scale of the challenge: industry is not merely an economic matter—it is a matter of national security. The legislative initiative titled “Compensation of Investments Through Taxes” seeks to respond to this challenge by creating an incentive mechanism for capital investment in manufacturing projects (classified under NACE 10–33).

What the Draft Proposes

Under the draft, an investor who launches a production facility in Ukraine gains access to tax incentives proportional to the amount invested. The proposed tools include corporate income tax relief for up to 10 years, a zero VAT rate on imported production equipment, and the possible reduction or full exemption from land tax granted by local authorities. The threshold for receiving incentives ranges from EUR 100,000 to EUR 50 million, making the system theoretically accessible for both SMEs and major industrial groups. The architecture of the mechanism relies entirely on the creation of an Investor Register, the maintenance of which will be defined by a decision of the Cabinet of Ministers.

A Real Incentive or a Policy Illusion?

It is precisely where the draft raises the strongest hope that the most critical issues emerge. The document creates a parallel mechanism of state aid administration—outside the existing State Aid Law framework. In practice, this means that two distinct oversight systems could apply: one embedded in the tax system, and another rooted in the European-style competition-compliance regime. For investors, this presents a material legal risk: a tax benefit granted under the draft could later be deemed incompatible with competition principles. Romania’s case is instructive—lacking a coherent state-aid architecture, the country in 2007 failed to obtain European Commission approval for major investment schemes, freezing billions in expected capital.

Equally important is the question of effectiveness. According to analytical materials and global evidence, corporate tax holidays are among the least efficient forms of investment incentives.

OECD and IMF studies show that for every 100 monetary units of tax revenue lost, only 15–30 units translate into genuinely additional investment. Tax holidays are particularly vulnerable to transfer-pricing abuse—especially within multinational groups, where profits can be artificially concentrated in entities benefiting from preferential regimes. The draft also fails to account for the international tax reform under Pillar Two, which mandates a minimum global corporate tax rate of 15% for multinationals with annual turnover exceeding EUR 750 million. If a Ukrainian subsidiary pays 0% corporate tax, the parent company will simply top-up the remaining tax in its home jurisdiction. In such cases, Ukraine loses revenue without gaining investment.

Without Infrastructure, Tax Incentives Do Not Work

One of the most telling indicators is the record of Ukrainian industrial parks. Over 11 years, more than 100 parks have been registered—yet only 26–30% have actual access to utilities, and only 2,782 jobs have been created nationwide. When basic grid connection for a single plant costs USD 250,000–1 million (UAH 10–40 million), tax relief cannot substitute physical infrastructure. Another systemic vulnerability lies in governance: the draft law provides no deadlines for decisions on investor applications, no appeal procedures, and no exhaustive eligibility criteria.

How the Draft Must Change to Work

Effective and proven systems across Poland, the Czech Republic and South Korea show that investment grows when incentives are layered and complementary: one-time investment tax credits, accelerated depreciation, direct infrastructure subsidies, government-financed grid-connection support, and automatic access based on objective economic criteria—not discretionary approvals.

For Ukraine, this means that Draft Law No. 13415 must incorporate cost-based support instruments, realistic macro-impact projections, and a mandatory review mechanism—such as automatic programme reassessment after three and five years. Without this, the projected +1.72% GDP impact risks remaining as theoretical as the industrial parks that were planned on paper but never materialised in reality.

The system of “investment compensation through taxes” could become a transformative tool that turns Ukrainian industry from an object of reconstruction into a driver of growth. But that will only happen if the law is economically and institutionally balanced.