Licensing in construction in Ukraine for non-residents: how does it work?

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In early August, the Government of Ukraine announced that it had adopted a decision to allow foreign companies and organizations operating in Ukraine through permanent establishments to acquire the right to carry out economic activities in the construction of facilities by filling out a declaration.

Olena Shtohryn, managing partner of Dictio Law Firm, a member of the Board of Directors of the CBU, prepared an overview of innovations at the request of the CBU.

Amendments approved by Cabinet of Ministers of Ukraine (CMU) Resolution No. 925 dated August 09, 2024 and amended by CMU Resolution No. 314 dated March 13, 2022 and relating to:

- objects: with medium (CC2) and significant (CC3) classes of consequences. The relevant rule will be in effect for the duration of martial law.

law.

- subjects: non-residents (foreign companies, organizations) operating in Ukraine exclusively through permanent establishments. The norm's validity period is for the duration of martial law.

The entity can submit the declaration electronically — via the Unified State web portal of electronic services, via the Diia mobile application or in hard copy — at the administrative services center (with further transfer to the licensing services authorities via the Diia Portal).

The Resolution also provides for a list of information to be entered by a legal entity in the declaration for conducting economic activity in the construction for its successful registration:

✔️Information about a non-resident:

🔹country of origin, legal form, complete and abbreviated name (if any), identification code according to the USREOU, location, contact phone number, e-mail address, surname, full name, patronymic (if any) of the non-resident's director or his/her authorized representative;

🔹information on the non-resident's registration with the territorial bodies of the State Tax Service as a corporate income taxpayer (tax number of the non-resident, date of registration as a taxpayer, name, and identification code of the territorial body of the State Tax Service where the non-resident is registered);

🔹Information on the registration of a permanent establishment of a non-resident with the territorial bodies of the State Tax Service (code according to the USREOU, date of registration of the permanent establishment as a taxpayer, date of registration as a payer of the single contribution to the obligatory state social insurance, name, and identification code of the territorial body of the State Tax Service where the permanent establishment is registered).

✔️Information on the actual address (addresses) of the permanent establishment of a non-resident's foreign economic activity.

✔️The name of the type of foreign economic activity carried out by the permanent establishment of a non-resident or information on changes to the license or previously submitted declaration.

✔️Name of the permit(s) to be replaced or amended by the declaration.

✔️A note stating that a non-resident operating in Ukraine through a permanent establishment is familiar with the requirements of the legislation establishing an exhaustive list of requirements for conducting activities subject to licensing and undertakes to comply with them.

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The Ministry of Economy of Ukraine developed the draft document. The prerequisite for such a decision was the need to implement projects planned under the Agreement between the Government of Ukraine and the Government of the Republic of Poland on extending a tired aid credit, dated September 09, 2015 (ratified by the Law of Ukraine No. 977-VIII dated February 03, 2016).

According to Article 1 of this Agreement, the Government of the Republic of Poland provides a loan to the Government of Ukraine to finance projects for the development of border road infrastructure, the arrangement of checkpoints on the Ukrainian-Polish border, and other projects to be agreed upon and financed under separate contracts between exporters from Poland and legal entities—residents of Ukraine.

The Agreement stipulates that the contracts should be concluded with legal entities with registered offices in the Republic of Poland, so only residents of the Republic of Poland, through their permanent establishments in Ukraine, are eligible to participate in procurement procedures and perform construction works in these projects. The cost of goods, works, and services of Polish origin may be at least 60% of the total contract value. The loan is used to finance 100% of the value of contracts for the supply of goods, works, and services from the Republic of Poland to Ukraine.

Such cooperation is a fairly common practice in European countries, and the terms and conditions established are those of export contracts, which must also comply with OECD (Organisation for Economic Cooperation and Development) guidelines and the provisions of the OECD Agreement.

Thus, foreign construction companies (including those of Polish origin) had to obtain the right to carry out economic activities in the construction sector (if they had not obtained it earlier) to implement projects in Ukraine.

Back in March 2020, the Cabinet of Ministers of Ukraine adopted two resolutions that marked the beginning of the reform of the state architectural and construction control system. At the same time, the regulations governing licensing in the construction sector were repealed, which blocked the procedure for obtaining construction licenses in the country (regardless of whether the company is a Ukrainian legal entity or a non-resident).

Before the reforms, foreign companies operating through permanent establishments were entitled to obtain construction licenses like  Ukrainian companies.

Subsequently, with the beginning of a large-scale war in Ukraine, the Cabinet of Ministers of Ukraine adopted Resolution No. 314 of March 13, 2022, which simplified the procedure and enabled Ukrainian legal entities to obtain the right to conduct construction activities by submitting a declaration of economic activity to the licensing authority free of charge without the need to get a license for the construction for the period of martial law.

At the same time, the possibility of foreign companies, those who operate through their permanent establishments in Ukraine, obtaining such a right remained uncertain.

In addition to the Polish-Ukrainian intergovernmental project that helped draw attention to this problem and accelerated its resolution, such changes aim to improve Ukraine's investment climate.

A clear legal framework will allow professional foreign construction companies to enter the market (which was impossible after March 2020), open their permanent establishments, invest their funds and expertise in Ukraine, and participate in Ukraine's reconstruction projects.

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