Financial benefits of industrial parks compared to other business benefits

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The material was released with the support of Alterra Group.

At the beginning of the full-scale war, the Ukrainian authorities resorted to an unprecedented step in order to save the domestic economy – they introduced a number of tax benefits and incentives for business.

Among them: the abolition of customs duties and VAT on imports, a moratorium on tax inspections, the abolition of excise duties and a reduction of VAT on fuel. FOPs of all groups were allowed not to pay EUV, and the first and second groups were also allowed to pay a single additional tax.

At the same time, businesses with an annual turnover of up to UAH 10 billion were given the opportunity to switch to a simplified taxation model – for such legal entities and individuals, a tax of 2% of monthly income was established.

However, later some benefits were canceled, in particular by returning customs duties and VAT on imports. From August 1, 2023, the permission to conduct tax audits has also been restored, but only for producers of alcohol, tobacco, fuel, as well as businesses that provide financial services and work in the field of gambling.

Excise taxes were returned for fuel. In addition, the state removed the possibility of paying a single tax of 2% for businesses. And from October 1, 2023, fines for not using cash registers were also restored.

Despite this, entrepreneurs will be able to take advantage of a number of things tax benefits for business in 2024 as well. Next, we talk about the main opportunities for Ukrainian companies, how to get tax benefits for producers and other entrepreneurs, and what are the features of these economic incentives.

Preferential business lending

At the beginning of 2020, the program “Affordable loans 5-7-9%” for micro, small and medium-sized businesses began to operate in Ukraine. Within its limits, the state reimburses program participants part of the market rate of the loan, and entrepreneurs pay only 5, 7 or 9% per annum.

At the same time, from September 15, 2023, the rate for financing working capital for all businesses, except for those operating in a high military risk zone and in the field of processing or energy efficiency, was set at 13% per annum.

In general, such preferential conditions apply to credit amounts up to UAH 60 million. However, agricultural producers can count on the effect of preferential conditions for credit up to UAH 90 million, and enterprises of the processing industry, or those working in the zone of high military risks, or engaged in reconstruction – up to UAH 150 million.

They provide such concessional loans for replenishment of working capital and investment purposes. The maximum period of validity of such conditions is 10 years.

During this program, Ukrainian businesses received more than 75,000 loans for a total amount of UAH 249.4 billion. In particular, during the full-scale war, entrepreneurs signed almost 41,000 credit agreements in the amount of UAH 159.8 billion.

However, for some time, a number of small and medium-sized banks suspended their participation in this program. In October 2022, bankers reported that the Entrepreneurship Development Fund owed them funds for several months.

For example, Credit Dnipro Bank complained about 4-5 months of debt, so they temporarily suspended the issuance of loans under this program. At that time, the FRP referred to the “deficit of budget funds caused by the introduction of martial law.”

Benefits for farmers

At the beginning of 2021, special preferential rates for farmers also began to operate. For some types of agricultural products, the Verkhovna Rada reduced the VAT rate from 20% to 14%.

These conditions mainly applied to raw materials that are exported. The list of products with preferential VAT includes wheat, rye, barley, oats, sunflower seeds, rapeseed, flax, corn, soybeans, sugar beets, as well as whole milk, cattle and live pigs.

However, six months later, in July 2021, the Council partially returned the VAT rate to 20%. The changes affected such products as live cattle, pigs, sheep, whole milk, rye, oats, linseed, seeds and fruits of other oil crops and sugar beets. For everything else, the preferential VAT rate remains.

Benefits for technology businesses

And especially for technological businesses in Ukraine, from February 8, 2022, a special legal and tax regime, Diya City, became operational. For employees of resident companies, taxes have been set at the level of: 5% personal income tax, 22% VAT on the minimum wage and 1.5% military levy.

At the same time, companies and startups that are members of Diya City can choose between income tax (at the level of 18%) or tax on capital withdrawn (at the level of 9%).

In addition, under the special regime, individuals do not need to pay taxes on dividends received from a resident company no more than once every two years. Individuals can also receive a tax discount if they invest in a Ukrainian startup that is a resident of Diya City.

In order to increase the investment attractiveness of Ukrainian technology companies and startups, Diya City introduced elements of English law: convertible loan, option & ESOP (employee option and share ownership), liquidation preferences, liquidated damages (damages assessed in advance), warranties & indemnities (assurances and compensations).

Diya City residents can also use an alternative form of hiring employees – gig contracts. They combine the flexibility of freelancing, but also, at the same time, social guarantees (vacation, sick leave, maternity leave, etc.), which FOPs are often deprived of.

As Diya City promises, the above conditions will not change for 25 years.

Companies that meet the following requirements can become residents of this special regime:

• the average salary of an employee is not less than 1,200 euros;
• at least 9 employees/gig contractors;
• 90% of income should be in qualified activities (software development, robotics, drone production, etc.)

The third point of requirements for companies is also relevant for startups that want to obtain a residence, but, in addition, they must meet the following criteria:

• annual income must not exceed UAH 7.5 million;
• registration – no earlier than 2 years before submitting an application to Diya City.

Currently, 830 companies have become residents of the special regime – in particular, Monobank, Reface, Roosh, Ajax and others. But the Ministry of Statistics plans to increase their number to 5,000. In general, the goal of the special regime is to turn Ukraine into the largest IT hub in Europe.

Tax benefits of industrial parks

The project of state stimulation of industrial parks was developed with the same ambitious goals. According to the initiators, such parks should become the driver of the transition of the Ukrainian economy from a raw material model to a processing one.

But first let’s figure it out what is an industrial park. This is – plot for production, to which all communications are connected: gas, water, roads, sewage and electricity. The Verkhovna Rada adopted the framework law on the creation of such parks back in July 2013.

However, although since that time, they began to be more or less actively registered, most of such parks were in a non-working state due to legislative imperfections.

To correct the situation, deputies later adopted two more laws – No. 2330-IX and No. 2331-IX – on tax benefits for residents, which came into effect in the summer of 2022. According to them, companies located in industrial parkcan count on the following preferences:

• exemption from paying income tax for 10 years (but the released funds must be spent on the development of such an enterprise);
• exemption from payment of VAT and import duty for the import of new equipment (but it must be used only on the territory of the industrial park, and it cannot be rented, leased or used by others within 5 years after purchase);
• the opportunity to receive additional preferences from local authorities related to the payment of local taxes (in particular, to pay for land for industry).

From October 28, 2022, Resolution No. 1208 also entered into force, according to which initiators or residents of industrial parks can receive full or partial compensation of the interest rate on loans for the arrangement of the enterprise or the industrial park itself.

What businesses can get production sites on the territory of the industrial park? Their activities should fall under the following categories:

• Processing industry and waste processing;
• Scientific or technological research and development;
• Information Technology.

Now industrial parks in Ukraine there are more than 70. In particular, there are successful examples of the implementation of such projects in Vinnytsia (Vinnytsia cluster of refrigeration engineering), Bila Tserkva (industrial park “Bila Tserkva”) and Ivano-Frankivsk (ARKAN).

At the beginning of 2023, it also became known about something new industrial construction – the developer Alterra Group started building an industrial park called “Formation. Lviv“.

The total area of ​​the complex will occupy almost 150,000 square meters. m, the majority of these will be production premises of various sizes, which will be available both for rent and for purchase. In particular, it will be possible to order turnkey construction of premises.

The first stage of the “Formatsia” industrial park is planned to be handed over at the beginning of 2025 – it will include the creation of a social core, a cluster for the textile industry, as well as production premises with the possibility of installing a crane beam for other types of industry.

And the construction of the entire facility will be completed in 8 years.

According to the initiators and residents of industrial parks, their key advantage is ready-made infrastructure – accordingly, companies do not need to spend their resources on production construction and facilities for employees’ recreation from scratch.

In particular, this is a significant plus for relocated enterprises that need ready-made ones production premises with failed communications.

Another plus is an ecosystem that promotes the development of Ukrainian industry. In industrial parks, businesses can count on more than just land for construction or tax benefits for producers, but also in the community and cooperation with educational institutions, authorities, businesses and the community – which, by the way, cannot be said about the industrial zones of Soviet times.

But the main advantage is that residents of industrial parks can count on a number of preferences at once, rather than individual tax benefits. In addition, they are fixed in the legislation for years, and not tied, for example, to the end of martial law. So this contributes to even more active development of entrepreneurship in Ukraine.

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