On 20 September 2019, Verkhovna Rada of Ukraine adopted the Law of Ukraine on Amendments to Legislation of Ukraine related to Promotion of Investing in Ukraine ("New Law"), which was signed by the President of Ukraine on 11 October 2019. Starting from 1 January 2020, the New Law will reduce rates of infrastructure fees, and from 1 January 2021 will abolish its payment.

What does it mean?

At the moment, the law requires developers to pay an infrastructure fee to local authorities, who use such fees to create and develop local infrastructure. Developers of certain facilities designated for social and public purposes are exempted from paying infrastructure fees. Construction commissioning is conditional upon payment of an infrastructure fee.

Infrastructure fees are calculated based on the total cost of construction and must not exceed:

• 10% for non-residential buildings and structures
• 4% for residential buildings

Thus, the abolishment of infrastructure fees is intended to create substantial economic benefits for developers and reduce the risk of commissioning delays.

What's next?

Starting from 1 January 2020:

a) The following reduced rates of infrastructure fees will be effective:

• 4% for non-residential buildings and structures (calculation will continue to be based on the total cost of construction)
• 2% for residential buildings (calculation will be based on the average construction costs in a given region, which will be approved by the Ministry of Communities and Territories Development of Ukraine, as opposed to calculations based on the total cost of construction).

b) The New Law will extend the list of exemptions from payment of infrastructure fees (the list will be supplemented with industrial facilities and buildings for forestry/fish farming).

c) A new procedure for payment of infrastructure fees will entail the following:

• a developer must apply to local authorities for calculation of an infrastructure fee within 10 business days after commencement of construction
• local authorities must provide the infrastructure fee calculation within 15 business days
• no agreement on payment of infrastructure fees will be concluded between developer and local authorities (as opposed to current regulations)
• agreements on payment of infrastructure fees, concluded before 1 January 2020, will remain effective and binding until completion.

d) Developers will be required to pay infrastructure fees prior to commissioning solely by transfer of funds. Notably, the New Law is silent about the developer's right to reduce the infrastructure fee amount for constructed facilities designated for social purposes.

Starting from 1 January 2021, infrastructure fees will be abolished.
 

Additional notes

This LEGAL ALERT is issued to inform Baker McKenzie clients and other interested parties of legal developments that may affect or otherwise be of interest to them. The comments above do not constitute legal or other advice and should not be regarded as a substitute for specific advice in individual cases.

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