Damalion Ukraine desk
Doing business in Ukraine
Ukraine is an emerging market providing foreign investors the opportunity to expand their reach in a highly strategic location in Europe. One of the largest countries in the heart of Europe, Ukraine enjoys rich ties to neighboring countries and the Middle East. Despite its potential, starting a business in Ukraine can be a painstaking process due to the complicated administrative processes swamped in bureaucracy and costly procedures. Is therefore imperative that you have expert consults that can assist you in the process of doing business in Ukraine as a non-resident.
A recent World Bank and International Finance Corporation report revealed that Ukraine ranks 137th out of the 190 economies on the ease of doing business. Despite its improvement through the years, it’s still a challenging feat to successfully do business in Ukraine, whether you are local or foreign investor.
Foreign Investments in Ukraine
- Ukrainian legislation offers foreign investors the opportunity to carry out investment activities in Ukraine in the same way as Ukrainian local investors.
- The Law of Ukraine on Investment Activity delineates the fundamental principles for investment activities in the country, regardless of an investor’s nationality.
- Provisions relating to foreign investments in Ukraine are regulated by the Law of Ukraine on the Regime of Foreign Investment or the Foreign Investment Law.
- Under the Foreign Investment Law, foreign investment refers to all forms of assets or values invested by foreign nationals into objects of investment activity in accordance with applicable Ukrainian legislation and for the sole purpose of obtaining profit or a social effect or impact.
- Pursuant to the Commercial Code of Ukraine and the Foreign Investment Law, any company registered in Ukraine qualifies as an enterprise with foreign investment, if the foreign investment in its charter capital amount is at least 10%.
Business Structures in Ukraine
Limited Liability Company
- Shareholder liabilities are limited by shares.
- The most common form of commercial company in Ukraine.
- Business activities of a limited liability company (LLC) and corporate relationships between shareholders are governed by the Law of Ukraine on Limited Liability and Additional Liability Companies, company’s articles of association, and shareholder’s agreement.
- Can be established by one person, either a natural person or legal entity, regardless of residency.
- Cannot be incorporated by single entity, which is owned the sole shareholder.
- No minimum share capital requirement.
- Registration of a limited liability company in Ukraine is two weeks.
Required to report monthly, quarterly, and annual tax returns and monthly returns on social contributions and quarterly and annual financial statements.
- Not considered a legal entity and may only perform activities of protecting and representing the interests of a foreign company.
- Non-commercial representative office in Ukraine can only function as representative of its parent company, with no right to commercial activity in Ukraine.
- Commercial representative office in Ukraine can conduct business and gain profit in the country.
- A permanent representative office is subject to taxation on ordinary terms.
- Registration of a representative office is with the Ministry of Economic Development and Trade of Ukraine.
- Registration takes 60 working days as from the date of state duty.
- Registration payment is UAH 75,625 and then duly registered with the tax authorities.
- Opening a bank account in Ukraine is a requirement before a representative can be fully operational.
- Required to submit monthly, quarterly, and annual tax returns and official financial statements, even if they do not carry out business in the country.
Joint Stock Company
- Activities of joint stock companies are governed by the Law of Ukraine on Joint Stock Companies.
- Share capital is divided into a certain number of shares of equal nominal value.
- Legislation sets our minimum capital dimension at the level of 1250 wages. Shareholders of such joint stock companies shall bear the risk of losses related to the joint stock company’s activities within the value of their shares.
- Public joint stock companies offer shares and carried out only after the payment of full value of the shares by the founders
- Private joint stock companies cannot offer shares to the public.
Grants and Incentives for Foreign Investors
- Foreign investors in Ukraine are taxed in the same way as domestic companies unless there is preferential treatment.
- According to the Foreign Investment Regime Law, preferential treatment may be granted to projects under the state programmes for development of priority industries.
- Tax incentives may be available under production-sharing agreements and agreements for the acquisition of state-owned enterprises that are entered in the course of privatization.
- Specific grants and incentives may be provided in public-private partnership initiatives.
Company Formation and Registration in Ukraine
Limited Liability Company (LLC)
- Formed and registered in three business days, in some cases within a day from the holding of the first founding meeting of its participants.
- After the liberalization of the registration regime in January 2016, a limited liability company (LLC) can be registered by a private notary and other non-government registration professionals.
- All required documents to set-up a limited liability company (LLC), including minutes of the founding meeting and the constitutional documents must be duly signed before a notary.
- Documents from foreign shareholders must be apostilled or otherwise legalized in the country of origin and translated to Ukrainian.
- Limited liability company registration documents, with the exception of the registration application itself, minutes of meetings, participants, its charter, and other pertinent records can be drafted in bilingual format with a Ukrainian text and a text in another language.
- Hard copies of the registration documents must be filed.
The name of Ukrainian registered Limited Liability Company must have the following:
- Start with words, Limited Liability Company
- Be in Ukrainian, and may additionally be in English as well
- There is an exhaustive list of characters that can be used in an LLC’s name, including letters of the Ukrainian and Latin alphabets, punctuations, marks, symbols, numerals, and more.
- The use of certain words and expressions in the name may be prohibited.
- The requirement to file annual accounts with the state registrar was cancelled in January 2016.
- A limited liability company must notify the state registrar of changes to the business name, directors’ information, participants’ details, ultimate beneficial owners, other crucial information included in the companies registrar.
- Filing of hard copies of underlying documents in respect of changes.
Company Minimum Share Capital
- No maximum or minimum equity share capital for a limited liability company.
- Participation interests can be issued for non-cash considerations, such as in the case of securities in other companies and property rights.
- General meeting of shareholders is the highest management body of a limited liability company (LLC).
- Daily operations are managed by an executive body of the company, which can be the sole director or management board.
- All directors must be natural persons.
- Must have its own supervisory board to regulate activities of the executive body.
- No longer a requirement to establish an audit committee.
- The parent company of a limited liability company (LLC) is not held liable for debts of the limited liability company, with limited exceptions such as in the case of bankruptcy.
- Non-resident business structure is subject to tax in Ukraine in that business vehicle either has permanent establishment in the country, such as in the case of a representative office or registered branch.
- It may not have a permanent establishment in Ukraine but receives income from sources in the country.
- Tax residents are assessed tax on their worldwide income at a rate of 18%.
- Withholding tax is withdrawn from some type of Ukrainian income from a foreign company, but not attributable to its permanent establishment in Ukraine. This is applicable in the case of dividends, royalties, capital gains, interests, and more.
- General withholding tax rate s 15%, which can be reduced under an applicable double taxation treaty.
- Income generate through Ukrainian permanent establishments is taxable at a rate of 18%.
Corporate Income Tax
- Basic rate of 18%, with reduced rates at 3% and 0% for resident insurance companies.
- Reporting period is each quarter, although for small entities, annual reporting is not necessary.
Value Added Tax
- Chargeable on the sale of goods and services in Ukraine.
- Import and export transactions and international transactions are also subject to tax.
- Company must register as a VAT taxpayer once total amount of its supplies, subject to VAT, exceeds UAH 1 million for the next twelve months.
- General VAT rate is 20% although reduced rate of 7% applicable to medicines and 0% applicable on certain categories, including imported goods.
- VAT filed monthly.
- Withholding tax of 15% applicable unless a reduced tax rate is provided by a double taxation treaty.
- Included into taxable base and taxed at a generate rate of 18% unless a relevant double tax treaty is applicable in its place.
- Ukrainian company may offset tax withheld by the country source of dividends against corporate profit tax to be paid in Ukraine.
- Withholding tax rate of 15% unless a reduced tax rate is provided by a relevant double taxation treaty.
- Recipient should comply with the beneficiary concept.
IP Royalties Paid
- Withholding tax rate of 15% is applicable unless a reduced rate is provided by a relevant tax treaty.
- Recipient should comply with the beneficiary concept.
Thin Capitalization Rules
- When a resident receives a loan from a foreign affiliate and the debt-to-equity ratio of the borrow exceeds 3.5, the borrower’s right to deduct he accrued interest will be limited to the amount equal to 50% of the earnings before interest, tax, depreciation, and amortization (EBITDA) of the relevant tax period.
- Non-deducted interest is carried forward with an annual reduction of 5% of the residual amount until full usage.
Transfer Pricing Rules
The transfer pricing rules introduced in 2013 is applicable to the following transactions:
- Transactions made by Ukrainian taxpayers with foreign-related parties, with an ownership threshold of 20%.
- Cross-border sales of goods involving non-resident agents.
- Transactions made by Ukrainian taxpayers with non-resident status and registered in low-tax jurisdictions or countries with no treaty on exchange information with Ukraine.
- Transactions furnished by Ukrainian taxpayers with non-residents that do not pay corporate income tax and are not tax residents of the country in which they are registered.
Double Taxation Treaties
Ukraine has an extensive tax treaty network, with most treaties following the OECD model. There are more than 85 tax treaties in place, including a convention list with Luxembourg that was entered into force on 6 September 1997 pertaining to taxations, including withholding tax rates and capital gains.
Damalion offers an excellent combination of skills, expertise, and knowledge in company formation in other European countries, including Ukraine. We have an extensive global service network consisting of experts in the legal, accounting, and consulting fields, ensuring a seamless and hassle-free company formation in Ukraine. Our Damalion experts offer impeccable service and support across all types of activities from company registration, opening a bank account, accounting, bookkeeping, taxation advice, and many more. If you wish to learn more about our services, reach out to a Damalion expert today.
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