Switching to electric vehicles has become a trend, in Ukraine as across the world. Few are aware that, according to 2017 InsideEVs (the global platform that analyzes electric vehicle markets) Ukraine is among the top ten countries with the highest rate of electric vehicle sales.
The Ukrainian government sees electric vehicles (EVs) as an opportunity for the country to become a major car manufacturer, identify a new source of highly-qualified workplaces and new export earnings, and wean itself from expensive imported petrol.
Sales of EVs in Ukraine
Two basic problems – price and infrastructure – are believed to stand in the way of making EVs a mass-market success, as EVs are commonly one and a half or even double the cost of a petrol version of the same car, and the charging infrastructure is not yet sufficiently developed in many places.
To mitigate the current disadvantages and encourage more people to buy electric cars, Ukraine, like many countries around the world, is experimenting with different incentives and restrictions. First, in 2015, Ukraine exempted all imported cars with electric motors from the country’s 10% import duty. This assisted drivers in making the move toward EVs, and the country’s EV fleet doubled each year from 2016-2018.
As a next step, in 2017, the Ukrainian Parliament adopted a set of additional incentive measures, including exemption from VAT (20%) and the excise tax (depending on type of vehicle: EUR 100 per vehicle or EUR 1 per 1kwh of motor capacity) on the import of EVs throughout 2018 – which was recently extended to 2022. The only duty left is a Pension Fund contribution (depending on the value of the vehicle: 3-5% of its value), which is also expected to be cancelled soon (the relevant draft law is already registered with the Parliament). These incentives match the practice of the world’s leaders, like Norway, making EVs in Ukraine increasingly affordable and compatible with their traditional counterparts.
The Ministry of Infrastructure of Ukraine reported that Ukrainians imported and registered more than 7,100 electric vehicles between January and November 2018, up almost 150 percent from a year earlier. In total, at the end of 2018, about 11,000 EVs were registered in Ukraine. The Ukrainian government also supports green initiatives (e.g., in 2017, Mitsubishi supplied the National Police of Ukraine with 635 units of the Outlander PHEV).
Investment Opportunities in Producing EVs and Spare Parts in Ukraine
In 2016, a Ukrainian-developed electric car prototype named Synchronous, which was designed to serve as an eco-friendly taxi or hotel shuttle, was presented in Monaco. This and some other Ukrainian projects are all niche initiatives of enthusiasts. To become a mass EV producer, Ukraine needs global market players to come.
Thus, in 2018, the Ukrainian government announced a 15-year strategy for electric car production in Ukraine and registered two related draft laws in the Parliament. The drafts suggest, among other things, a VAT exception for the import of spare parts and excise tax exemption for import of car bodies until December 31, 2028, if they are imported exclusively for producing cars with electric motors in the territory of Ukraine. Both draft laws have yet to go through the challenging parliamentary process, and the date of their adoption is hard to predict.
Meanwhile, Ukraine, being close to the EU, has already become an attractive location for large foreign spare part producers like Leoni, Yazaki, and Bader. These new legislative initiatives give the country even more opportunities to become a regional hub for EVs and spare part production.
Infrastructure
The charging infrastructure is key to the growth of the EV market. Ukraine’s network of charging stations is constantly growing, especially in shopping malls, restaurants, and cafes.
Until recently one of the largest obstacles to the development of charging infrastructure business was a lack of legal certainty. Those who install charging stations had doubts as to whether they could take payment for this, as under Ukrainian law, electric energy can be sold only by companies with a license to do so (commonly big national energy companies, like Kyivenergo).
In 2018, the Ukrainian energy regulator finally clarified that the sale of electric energy at charging points does not require a license. The approach corresponds to EU best practices on that matter (Directive 2014/94/EU), which makes Ukraine even more attractive both in terms of the development of energy-selling business and the use of electric cars.
By Olga Belyakova, Partner, and Mykola Heletiy, Associate, CMS Kyiv
This Article was originally published in Issue 6.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.