Benefits and problems of registering a company in Ukraine in 2023
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Benefits of Ukraine company registration
- It is possible to register a company in Ukraine with only i) one individual shareholder or two corporate shareholders and ii) a minimum share capital of €1. The whole incorporation process is straightforward and can be completed within three weeks. There is no requirement for our Clients to visit Ukraine: registration and bank account can be arranged with Power of Attorney;
- Our Clients registering a business in Ukraine will benefit from an abundant supply of qualified staff at low costs. Average salaries are only recorded at €160 in 2014 and barely reach €250 in the country’s capital city of Kiev;
- The federal Ukraine government encourages foreign investment and has recently eased restrictions on business startup. They have recently simplified tax compliance through the introduction of an electronic filing system and are continually improving this service;
- Ukraine has signed Double Taxation Treaties with more than 60 countries around the world, including i) most of the EU countries ii) Russia iii) China iv) India v) the United States vi) Singapore vii) Malaysia and viii) Indonesia. These agreements providing relief from withholding tax on dividends, interest and royalties and follow the Organisation for Economic Cooperation and Development (OECD) model.
- Ukraine and the EU have applied for the Deep and Comprehensive Free Trade Agreement (DCFTA) for a range of agricultural and industrial products since 2016. As a result, these companies incorporated in Ukraine can benefit from their access to the dynamic consumers market of the European Union as well as the SMEs can receive support from the EU under its SME Flagship Initiative.
Problems with Ukraine company registration
- Foreign investors starting a company in Ukraine will increasingly face difficulties to remit their earnings abroad. The local currency (the Ukrainian Hryvnia) has lost 400% against the USD since early 2014 and the Central Bank has recently forbidden all Ukrainian banks to sell foreign currencies to their Clients;
- The banking industry is on the verge of collapse, so we recommend our Clients to open an additional corporate bank account outside of the country, at least to receive payments from their international customers;
- Ukraine is not part of the European Union. Our Clients registering a company in Ukraine to export products to the EU will not enjoy duty free access and other benefits of the Single European market;
- Our Clients running a business in Ukraine must be prepared to meet the difficulties listed below:
- All directors of a company incorporated in Ukraine must obtain a work permit. If needed, we can provide our Clients with nominee services for one director during the time required to obtain a work permit for the foreigner to be permanently appointed to the position;
- It will take time for a manufacturing company to be fully operational: it takes on average 9 months to obtain an electricity connection;
- Exporting and importing products from Ukraine involves plenty of red tape and takes on average one month, to be compared with an average of less than two weeks amongst other OECD countries;
- Close to 73.1% of companies in Ukraine report having to pay bribes to the public administration. Corruption is widespread in the country, which is ranked as the most corrupt in Europe by Transparency International.
- Our Clients forming a business in Ukraine will also be subject to high taxation, because:
- While corporate tax rate is 18%, businesses are required to pay social security contributions representing 39% of the gross salaries of their employees;
- Dividends remitted to countries which have not signed a DTA with Ukraine are furthermore subject to withholding tax at a standard rate of 15%;
- The threshold of sales for value added tax registration is set at only US$45,000 (UAH1 million). VAT rate is 20%;
- Ukrainian companies are furthermore often expected to provide “gifts” and informal payments to tax officers. Half of the companies surveyed by the World Bank have reported having done so in 2014.
- It is important that our Clients are aware of their personal and corporate tax obligations annually. Let us know if you need Healy Consultants’ help to clarify your annual reporting obligations