Compensation for investments through taxes: risks of draft law No. 13415

The idea of creating a system of tax incentives for the processing industry certainly deserves support. At the same time, the blocks of state aid, tax incentives, and administration of the Investor Register will need to be refined.

The UNBA Committee on customs and tax law has reviewed draft Law No. 13415 dated 25 June 2025 «On amendments to section XX «Transitional provisions» of the Tax Code of Ukraine regarding compensation for investments through taxes».

According to the document, an investor implementing a project in the processing industry will be entitled to tax incentives in proportion to the amount of funds invested. Administration will be carried out through the Investor Register, the procedure for maintaining which will be determined by the Cabinet of Ministers. It is proposed to introduce a differentiated system of tax incentives depending on the amount of investment, including exemption from income tax for up to 10 years, exemption from VAT on imports of equipment, and the possibility of local land tax incentives.

Despite its progressive goal, advocates believe that the draft contains flaws that could not only reduce the effectiveness of the program, but also create serious risks for investors and public finances.

The most critical of these is the creation of a parallel system for administering state aid outside the framework of the Law «On state aid to economic entities» The bill provides for the maintenance of a Register of Investors by the Ministry of Economy and the introduction of relevant provisions into the Tax Code, while under current legislation and the Association Agreement with the EU, the Antimonopoly Committee of Ukraine has exclusive competence in the field of state aid.

This creates a dual regulatory system, where the same support measures may be subject to different control regimes depending on the authority administering them. For businesses, this means legal uncertainty regarding the validity of the benefits received, the possibility of appealing decisions on inclusion in the Register, and the risk of aid being found incompatible with competition principles at a later stage. The experience of EU candidate countries shows that aid schemes created outside the established institutional architecture are not usually approved by the European Commission.

Tax holidays, as a form of investment incentives, are the least effective form according to research by the OECD, IMF, and World Bank. Their main problem is «excessiveness» — when a significant portion of the support goes to investors who would have made investments even without the incentives. According to research, for every 100 hryvnia of lost budget revenue, only 15–30 hryvnia actually generate additional investment. In addition, holidays are vulnerable to abuse through transfer pricing – large groups of companies can artificially concentrate profits in structures that enjoy incentives, minimizing the overall tax burden without a real increase in productive investment.

The UNBA also drew attention to the lack of an infrastructure component in the program (co-financing of network connections and logistics), significant risks of discretionary administration due to unclear criteria for access to the Register, the absence of sectoral priorities between low- and high-tech industries, as well as the overestimated forecast indicators of impact on GDP and the need for periodic review of the program's effectiveness.

The full text of the comments on draft law No. 13415 can be viewed at this link.