COMPANY ESTABLISHMENT

Before undertaking business activity in Ukraine, it is necessary to choose which type of legal entity to form. The type of company form will influence all the activity of the company, which includes financial and tax reporting as well as customs procedures. An investor should pay special attention to determining the appropriate corporate form according to their goals. The most common company forms used are the Limited Liability Company or LLC, and the Representative Office.

As in most countries, the LLC company form allows the owner to undertake most business activities without restrictions as their own legal entity. Conversely, the representative office allows only for activity that supports the owning company's business - usually this is marketing activity done locally in order to create sales for the parent company.

Some business areas require licenses in Ukraine. These include banking and financial activities, power supply, alcohol and tobacco sales and production, telecommunication, construction activity.

Foreign nationals can act as sole proprietors of an LLC in Ukraine. The sole ownership in Ukraine doesn’t require a minimum share capital and it is the basic form of business. The founder is taking all the decisions necessary to the good function of the entity and can use the profits after submitting the personal tax income declaration to the tax authorities.

Accounting & TAXATION

Accounting and Payroll in Ukraine

Accounting and payroll in Ukraine are legally much the same as in more developed European markets, but in practice a lot of nuances have to be taken into account. The accounting practices in Ukraine are governed by the Law on Accounting and Financial Reporting since the year 2000. This law states that IFRS should override local accounting standards, but in practice there are many differences between the two. The fiscal year begins on January 1st and ends on December 31st, i.e. it is always the calendar year. As in other CIS countries, the accounting and payroll program 1C dominates the market and finding accountants with skills to use other programs can be difficult.

What are the controlling institutions?

The regulatory body for accounting is the Ministry of Finance. For tax payments, companies are controlled by the State Fiscal Service of Ukraine. Payroll taxation and employees' rights are monitored by the State Labour Inspectorate.

Tax rates in Ukraine

Corporate income tax - 18 %
VAT - 20 %
Social security contributions (payroll tax) - 22 %
Personal income tax - 18 % (additionally a 1,5 % military tax is currently levied)

These are the basic tax rates that apply to normal limited liability companies and people in Ukraine. There are many exemptions to these numbers, for example private small entrepreneurs generally only pay 5 % tax. Many foreign companies use such private entrepreneurs for outsourcing, especially in the IT field. In these cases an accounting partner usually takes care of the PE registrations, international invoicing and tax payments, in essence taking care of the payroll and administration responsibilities.

Standard VAT rate is 20 %. Export of goods VAT is 0 %, for services it can be 0 or 20 % depending on the place of receiving services, place of registration of the recipient etc. Import of goods and services to Ukraine is subject to 20 %VAT and customs duties.

Interesting facts about accounting and payroll in Ukraine

Physical paper accounting documentation is still a mandatory thing in Ukraine. This creates extra work for accountants, who need to be able to manage and store sometimes very large quantities of paper documents. If outsourcing is used, then the exchange of documents between client and service provider needs to be arranged in a systematic way. The company stamp is no longer compulsory, however many organizations still opt to use it. Even though the law no longer requires a company stamp, it is sometimes easier to just use it than to try explaining this to some of the representatives of the local bureaucracy.

Ukraine is a very popular outsourcing market for IT services in particular. The legislation allows foreign companies to purchase services from local private entrepreneurs in such a way that resembles having the entrepreneurs on the foreign company's payroll.

How often do I have to report?

Monthly: VAT report, Report of Unified Social Insurance Contributions, specific statistical reports
Quarterly: Financial statements, personal income tax reports, CIT reports in case of revenue exceeding 20 000 000 UAH (approx. 700 000 EUR) annually
Annually: Financial statements, CIT report.

How often will the government audit me?

The government performs scheduled on-site tax audits of companies which are listed on the audit plan of the relevant tax office. This list is pubished online, so companies can check if they are on it. Unscheduled tax audits are performed in case the target company violates some statute of the tax law, e.g. fails to file a tax return.

Some types of companies face mandatory audits, for example JSCs, banks, issuers of securities, financial institutions and insurance companies.

Are tax authorities strict regarding the Accounting and Payroll regulations?

Yes, they are - sometimes even brutal. This is a fact that companies operating in Ukraine have to take into account. Many minute details have to be taken into account when doing accounting, as it is very easy to break the rules. A professional and accurate accountant is the best way to minimize risks when it comes to government audits and checks.

Unfortunately foreign companies especially may sometimes face harassment from the tax authorities, however this is occurring less and less in recent years.

EMPLOYMENT

The regulation of employment in Ukraine is governed by the Labor Code of Ukraine, which applies equally and must be complied with by both the executives and the employees. Ukrainian labor laws apply to foreign nationals and foreign businesses in Ukraine in the same manner as to domestic entities. All regulations related to minimum guarantees, employment benefits and compensation supersedes any agreement between the employer and employee. In general, the Ukraine labor law is protective of the employee.

Expats are liable to pay resident Ukrainian taxes and social charges only if they stay in the country at least 183 days during a calendar year. Your employer will typically arrange for your registration with the Ukrainian tax office and secure your tax number. Self-employed workers will need to arrange their tax registration and Ukrainian tax number themselves. Ukrainian social security payments are deducted from your gross salary by the employer.

In the condition of an employer-terminated agreement as a result of redundancy or liquidation, two months’ notice is given along with a two months’ salary severance payment to the employee.

Termination of the employment agreement by the employee may be carried out by providing two weeks’ written notice to the employer, which is a basic right under the Labor Code that cannot be overridden by contractual terms.

BEING AN EXPAT

An investor looking to start a company in Ukraine may want to consider moving here to manage their company. In this case they must first start their company so that they have the company's registration certificate, and after that apply for a work permit. The work permit entitles them to receive an entry visa into Ukraine, and afterwards apply for a three year work visa and residence permit. This process is somewhat cumbersome but easily done with the right help. For most countries' citizens, it is also possible to visit Ukraine visa-free for a maximum of 90 days per each 180.

Ukraine is a very nice place to live, living costs vary greatly from city to city and also within cities. We recommend to use an agent when looking for an apartment, as most of the advertisements online are outdated.

The foreign national who is living or working in Ukraine for more than 183 days in a calendar year is obliged to pay taxes and contributions towards the Ukrainian social security system. Usually double taxation can be avoided but this should always be checked on a case-to-case basis.