Doing business in Ukraine
- How quickly can I set up a business?
- What is the minimum investment needed?
- How can I raise finance?
- What are the legal requirements for setting up my business?
- What structure should I consider?
- What advice can you give me in regards to payroll and taxation requirements?
- Is there anything else that I should know?
How quickly can I set up a business?
Up to 7 days.
What is the minimum investment needed?
Investment depends on the scale of project.
No minimum share capital required for Limited Liability Company (LLC), which is the most popular form for medium to large businesses.
How can I raise finance?
You can raise finance through bank loans – the average rate is 16-22% in local currency (UAH, hryvna) – or from private investors, including foreign ones. For foreign investors, the necessary permission (National Bank of Ukraine registration certificate) is needed.
What are the legal requirements for setting up my business?
LLC – is the most popular and optimal form.
However, there are other options of legal structures which can be opened:
• a representative office of your foreign company
• joint stock company – JSC (public or private – depends on the size of the capital)
Also available is the form of business known as Joint Activity Agreement, which is when two or more entities unite but without setting up a new company.
All of them have advantages and disadvantages, which one to choose depends on your specific business circumstances and needs.
For setting up you should:
• choose name and form from above.
• choose a personality to be a founder (physical or juridical person, including non-residents).
• choose a director (physical person only, for foreigners – a work permit needed).
• submit the form to a state registrar / private notary.
• director should visit a bank for opening an account.
What structure should I consider?
Establishment (a branch of your overseas business):
• Not a separate legal entity but an extension of the overseas parent company.
• Can perform all or part of the parent company’s functions, including (but not limited to) representation.
• Because of the wide scope of their powers, branches are considered to engage in commercial activities for taxation purposes and are thus subject to taxation.
• Must file an annual report on the foreign entity’s activities as well as a tax return.
Limited liability company — LLC:
• There is no minimum share capital.
• The size of the share capital of the company consists of the nominal value of shares of its members.
• The contribution of a shareholder member can be money, securities, and other property.
• The participants pay the share capital within six months from the date of state registration of the company (this term can be changed in the charter).
• The number of members of the company is not limited.
• Members have limited liability (within their contributions / within the value of the paid part of the contribution of each participant.).
• Compulsory auditing of annual financial statements of companies will depend on turnover.
Public joint stock company – PJSC/ Private joint stock company – PJSC:
• The minimum charter capital may not be less than 1250 minimum wages at the time of creation (registration) of a joint-stock company (in 2021 – UAH 7,500,000 approximately USD 272,331). /
• The number of shareholders is unlimited. The founders of a joint-stock company may
• A shareholder may alienate his shares without the consent of the shareholders or the company. / A shareholder may not alienate shares without the consent of the shareholders or the company.
• The Company may place shares publicly and privately. Shares may be distributed through an open subscription and stock exchange purchase. / The Company can only conduct a private placement of shares.
• It is also necessary to go through the listing procedure. / There’s no necessary to go through the listing procedure.
• The annual financial statements are subject to mandatory audit by an independent auditor.
• You need to have your own website for disclosure of information.
• Decisions are made by a simple majority of shareholders present at the meeting (except for matters where the law requires a qualified majority).
• Shareholders are liable for the company’s liabilities only within their shares (also within the unpaid amount of their shares).
What advice can you give me in regards to payroll and taxation requirements?
The current profit tax rate in Ukraine is 18%. Taxable profit is calculated as income minus expenses.
(NB: rates are for the tax year to 31/12/2021)
What if we use Ukraine to set up our holding company?
Tax rates for dividend income are:
5% for dividends paid by the payer of profit tax.
9% for dividends paid by the payer of profit tax for non-residents, co-investment institutions, business entities that are no. 1 payers of profit tax (legal entities).
18% for dividends accrued on shares or other corporate rights that have the status of preference or other status that provides for the payment of a fixed amount of dividends or an amount exceeding the amount of payments calculated on any other share (corporate law) issued by such taxpayer.
If, however, Ukraine and the country of a non-resident have a treaty on the avoidance of double taxation, the tax rate on dividends is determined by this agreement.
What if we make cross-border transactions between group companies?
Transfer pricing rules in Ukraine are generally based on the OECD transfer pricing guidelines. The rules apply to taxpayers with annual revenue (less indirect taxes) exceeding UAH 150 million that engage in controlled transactions exceeding UAH 10 million with one counterparty.
Controlled transactions include:
1. Transactions with non-resident related parties.
2. Sales or purchases of goods and services under commission agreements with non-residents.
3. Transactions between related parties (one of which is a non-resident) through one or more unrelated intermediaries that do not perform significant functions.
4. Transactions with non-residents registered in the low-tax jurisdictions included in the list issued by the Cabinet of Ministries of Ukraine (CMU).
5. Transactions with non-residents in specified legal forms (to be included on a list that will be issued by the CMU) that do not pay corporate tax or are not tax residents of the country where they are registered.
What Employment Taxes and Social Security will need to be paid?
Under Ukrainian legislation, residents of Ukraine pay taxes in Ukraine on their worldwide income, whereas non-residents are subjected to taxation only in respect of their Ukrainian- source income. However, in cases when an applicable double tax agreement (DTA) determines other rules, the DTA has priority over Ukrainian national legislation.
Among main taxes, which apply to income of individual, include income tax, temporary military tax and property tax (the latter is paid annually for owned real-estate, passenger vehicles, and land).
What is Value Added Tax (VAT), and should the business be registered?
According to legislation of Ukraine:
1) A business entity is obliged to register as a VAT payer in case when in the last 12 months the amount received in the process of selling goods, performing works, and providing services exceeds UAH 1 million in total.
2) A business entity may voluntarily register as a VAT payer.
Ukrainian legislation provides three types of VAT rates:
• Rate of 20%, which is applied by default to all types of transactions that are subjected to taxation.
• 0% rate applies to transactions that are expressly provided for by law, for example, a zero rate applies to the export of goods.
• Rate of 7% is applied in cases established by the Tax Code (for example, trade in).
Is there anything else that I should know?
Tax legislation changes quite often, with a tendency to harmonize with EU approaches.
Therefore, it is strongly recommended to contact local consulting companies with updated legal information immediately before opening a project.
Since obtaining Ukrainian independence in 1991, there moratorium a moratorium on the sale of agricultural land. That land is owned by former peasants (members of Soviet collective farms spread across the USSR), but they cannot sell it, just only lease it. The moratorium is to be cancelled in July 2021 and it means the market of the agricultural land opens. It will make it possible to realize the investment potential of the agricultural sector of Ukraine.
This information is provided for guidance only and is not a substitute for professional advice. The information in this document was prepared as 1st June 2021.
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