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Establishing a Business in Ukraine

 In this article it is described how to establish a business in Ukraine, if you want to find out more on why Ukraine is attractive for opening a company then read more on Business in Ukraine page. You can also read about some recent experiences of a long-time Kyiv expat here.

As in other countries, a legal entity can be established in Ukraine in several different forms. The most common form is the TOV, which is the abbreviation used for an LLC in Ukraine. The LLC enables you to conduct business without limitations, of course taking into account that in some business sectors you will need a license to operate. A representative office or RO is the next most common form of legal entity established by foreign investors. The representative office acts usually only as a cost center, and it is suitable when you want to employ people in Ukraine to market your products, but make all sales as direct exports from your parent company abroad. There are other forms of corporations in Ukraine as well, but these two being the most common, we will focus on them in this article.


Opening a Limited Liability Company in Ukraine

In Ukraine, a company may be founded by Ukrainian and/or foreign legal entities, Ukrainian citizens as well as foreign citizens. The LLC acquires the status of a legal entity after state registration.

Most commonly foreign investors establish an LLC in Ukraine using the parent company abroad as the owner. In this case, you will need to gather the following documents:

  • Copies of passports of final beneficiary owners of parent company and the director (if physical persons)
  • Trade register extract certificate of founding company (with all registration information)
  • Basic data of founding company (according to electronic application form, that your local consultant will provide)
  • Written statement of founding company to register Ukrainian affiliate office (your local consultant will provide this too)
  •  Power of Attorney
On the basis of these documents, your local partner will execute the establishment procedure which usually takes 5-10 business days. After your LLC is established, it will need to be registered at the tax authority and pension fund as well. Next, the company bank account needs to be opened, and then you are ready to send in your statutory capital and start doing business in Ukraine.

You can also find some resources regarding establishing your Ukrainian business on the export.gov portal, which is especially helpful for U.S. based companies.

The company charter in Ukraine

Decisions are made and power is delegated to the executives of your company based on the company charter. Formulating a charter for the new company is also done by your local partner. A basic charter is usually provided as part of the company establishment package, but you may want to consider adding something of your own. For example, you may want to include limitations on the monetary size of the transactions and deals the director of your Ukrainian company is legally able to make.

Contributions to the statutory capital

Founders can contribute to the company’s statutory capital both in monetary form and through in-kind contributions such as:

  

  • Structures and buildings;
  • Equipment and other tangible assets;
  • Securities (except for promissory notes);
  • Rights of possession to land, water and other natural resources: or
  • Other property rights (including intellectual property rights)

 

The use of Budget funds, borrowed funds or pledged property to form statutory capital is prohibited.

Today it is possible to establish a company in Ukraine with minimum share capital, for example one Euro, however we do not recommend it. Your company will have monetary obligations since day one, as it needs to have a director who has to receive at least the minimum wage. If the mandatory social contributions from this wage are late, your company could be flagged and inspected by the tax authority.

 

Opening a Representative Office in Ukraine 

A foreign company may set up a representative office in Ukraine. A representative office is not a legal entity under the Ukrainian law but only acts for and on behalf of the foreign founder.

In practice, representative offices of foreign companies may be of two types:

 

  1. 1. A representative office through which a non-resident entity carries out its business activity in Ukraine and which is considered a branch office from the legal viewpoint and has the right to release payments for third party goods and services and receive payments from local customers;
  2. 2. A representative office whose functions are generally limited to representing the interests of the foreign entity, performing marketing activities, and providing other support functions to promote the business of the foreign founder, with the right to release payments, but funds from product sales must benefit the account of the head office.  
Representative offices must be registered with state authorities under Ukrainian Legislation. The mandatory state fee for registration is 2,500 USD.

Liquidating a company in Ukraine

A company may be liquidated based on (i) a decision by the participants/shareholders or (ii) court decision. In the case of bankruptcy the creditor's demands are settled from any remaining capital and the proceeds from the sale of assets. The priority order for distribution is established by the foundation documents.

Liquidating a company in Ukraine is considerably more difficult and expensive than opening a company. When the liquidation application is submitted, the company will be audited by the tax authorities for the past 3 years of its activity. Sometimes this is a very complicated and long process in and of itself, which is why it is advised to hold your company on a zero activity level for three years before its liquidation. This is an important point, as you may run into trouble with the country´s immigration authorities as well if you do not meet the obligations faced by a legal entity owned by you personally.

In case you are interested in reading more about how some organizations were liquidated after the 2014 crisis, see this 2015 article by Frolova & Gonchar.

Recommendations by Leinonen

We have helped many of our clients establish new businesses in Ukraine, which means we know the process and can give plenty of practical advice. Here are some main things to take into account:
Think of director and legal address

Have at least some statutory capital

Maintain extra level of control

23.09.19


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Tuomas M. Pukkala

Tuomas M. Pukkala

Managing Director

Mobile: +375 29 370 77 26

Email: tuomas.pukkala(at)leinonen.eu

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