Draft law on foreign direct investment screening in Ukraine

The Ukrainian Parliament has introduced a draft law proposing the establishment of a comprehensive system for screening foreign direct investment (“FDI”). This system is modelled after those operating across the European Union and the US (e.g., CFIUS) and is intended to safeguard national security. Below are the key takeaways.

Core Scope and Affected Transactions

The FDI screening applies to any acquisition of control or significant influence by a non-Ukrainian investor in a company operating in a critical sector of the economy.

1. Significant influence includes specific shareholding thresholds, veto rights, or the right to appoint board members.
2. Critical sectors are defined as those relating to national security and public order, including:

• defence and military industry, dual-use products;
• energy;
• telecommunications (digital/data);
• critical infrastructure (transport, water); and
• certain mineral mining.

Responsible Authority

A newly established commission under the Ministry of Economy will be responsible for FDI screening.

Review Timeline and Outcomes

The review of a complete application must be completed within 90 calendar days. Potential outcomes include:

• unconditional or conditional clearance; or
• prohibition, if the investment poses an unacceptable risk to national security or if the applicant provided inaccurate or incomplete information.

Prohibitions and Penalties for Non-Compliance

The draft law explicitly prohibits investments originating from aggressor states or from related sanctioned persons.

Failure to notify or providing inaccurate/incomplete information may result in:

• suspension of voting rights;
• prohibition on receiving dividends;
• invalidation of the transaction; and
• fines of up to 50% of the investment value.

Merger Control and FDI Screening Interplay

Where a transaction is subject to both FDI screening and merger clearance in Ukraine, merger review cannot commence until FDI clearance is obtained or a confirmation is issued that screening is unnecessary.

Potential Business Impact and Strategic Considerations

Although it is too early for definitive conclusions, it is clear that this law (if adopted) will have a significant impact on foreign investors and Ukrainian strategic businesses. At the very least, early transaction planning will become essential, and parties should be prepared for extended review timelines and additional regulatory oversight.

Additional notes

This legal alert is issued to inform AVELLUM clients and other interested parties of legal developments that may affect or otherwise be of interest to them. The information above does not constitute legal or other advice and should not be considered a substitute for specific advice in individual cases.

For further information on this legal alert and other issues regarding foreign direct investment screening in Ukraine, please contact our partner, Mykyta Nota.