How to Register a Company in Ukraine?
Ukraine has undoubtedly become one of the most attractive markets for foreign investments. It currently ranks 64 among 190 countries in the ease of doing business. Moreover, the Ukrainian government is in the process of making legal changes to simplify the business registration process further to make the country even more appealing for future investments.
For those interested in starting a business in Ukraine, the process of registering a company depends on the business structure you choose.
A Limited Liability Company (LLC) is the most common business structure in Ukraine, preferred by locals and foreigners for their new ventures. There are over 650,000 LLCs registered in Ukraine at present.
Another business structure in Ukraine is the Joint Stock Company (JSC), which has more than 13,000 companies registered under it. Most enterprises with local subsidiaries of operating businesses prefer LLCs because they are cost-efficient and simple. JSCs are more regulated and generally cumbersome at the early stages of a business.
But before we dive in into registering a company, it is important to note that Ukraine’s legal system is based on civil law. The formation and regulation of business entities is covered under the:
- Commercial Code of Ukraine.
- Civil Code of Ukraine.
- Law of Ukraine ‘On State Registration of Legal Entities, Private Entrepreneurs, and Public Formations.’
- Law of Ukraine ‘On Business Companies.’
Advantages of doing business in Ukraine
There are numerous advantages of establishing a business in Ukraine, some of the most important being:
1. Abundance of skilled labor
Whether you want to start a tech venture or a brick-and-mortar business, many skilled employees are available in Ukraine. Most millennials are college-educated, and technical education is a major focus, so you will easily find qualified workers.
2. Low wages
For western start-ups, Ukraine offers an ample supply of skilled labor at just the right prices. In technology, Ukraine already has over 200,000 IT specialists, and the number is increasing by 10% each year. It is worth noting that software developer salaries in this country are significantly lower than most European nations.
3. Low level of competition
Recovering from years of oppressive Soviet Union rule, Ukraine is now a growing economy. It has less competition than major countries worldwide, making it the perfect place to start your new business venture and take advantage of the abundantly available skilled labor.
4. Ease of doing business
According to a study, Ukraine has ranked 64th out of 190 countries in the ease of doing business. It also ranks well in terms of costs involved, time required, and the overall procedure to start a business.
Generally, processes such as registration, getting a permit, paying taxes, and setting up teams, are relatively business-friendly in Ukraine.
5. Simplified system of taxation
The taxation system in Ukraine is relatively simpler than many countries in Europe. The government is also in the process of making things legally straightforward to attract foreign investments and transform the nation into a business hub.
6. Lower tax rates
The tax rate in Ukraine is amongst the lowest in Europe. So by starting a business in Ukraine, you have access to the entire EU market while paying comparatively lower taxes.
7. Time zone
Ukraine is about two hours ahead of the United Kingdom and an hour ahead of other countries within the European continent. This is advantageous if you serve the European market in sectors that require a real-time response.
The tax laws of Ukraine
In the tax code of Ukraine it is stated that businesses fall under the general tax system or the simplified regime. Even though businesses come under the former by default, they can choose the simplified tax system if they meet certain requirements. These requirements generally depend on annual turnover, type of business, number of employees, etc.
The code aims to support small businesses and companies in paying a unified tax amount instead of multiple taxes at varying rates, under the general taxation system. Taxes are usually filed quarterly, but some can be paid annually.
Business structures in Ukraine
There are many legal types of companies in Ukraine. You can choose the ideal one for you depending on your corporate structure, number of partners, scope of business, management complexity, etc.
The different types of companies in Ukraine are:
Limited Liability Company (LLC)
LLC is the most popular business structure in Ukraine, with close to 90% of all legal entities falling under it. With an LLC, the liability of the members/shareholders is limited to their investment in the company. Their personal assets are safe from business liabilities; so in case of bankruptcy, LLC shareholders are not legally obligated to pay the company's debt.
In Ukraine, both individuals and companies can register an LLC. The number of participants or founders of an LLC is unlimited. Also, a unique feature of this structure is that the share capital is divided into parts, and not in number of shares.
An LLC can be established as a sole proprietorship, so a single person owns and operates the company. The director of such a company is thus its only owner.
The various rights and obligations of an LLC’s director or CEO are imposed by the Charter/articles of association, which defines the company's purpose and specifies regulations for its operations. The document also outlines how to accomplish tasks within the organization, such as preparing and managing financial records and the process of director appointments.
Since June 2018, a corporate agreement between directors is allowed. This agreement is confidential and regulates relations, duties, and rights between them. This has made the company law in Ukraine more flexible.
To run a stable and successful company, you must have a clear distribution of rights and obligations between founders and the board and choose the right tax rate for your business.
As an LLC, you must choose between:
- Corporate tax (18% on profit), with or without VAT (up to 20%, depending on the product or service).
- Fixed-rate tax (5% on revenue), with or without VAT registration.
Documents required for LLC formation in Ukraine are:
- Copy of the shareholder's or founder's passport.
- Ukrainian tax code, i.e., identification number.
- Power of attorney or physical presence in Ukraine.
For foreign legal entities i.e., companies and corporations:
- Power of attorney.
- Copy of articles or a memorandum of association.
- Registry extract or an extract from the register of companies.
- Certificate of incorporation.
The registration can take up to seven working days.
The LLC formation process in Ukraine is simpler and cheaper than the establishment of a Joint Stock Company.
In Ukraine, there are two types of sole proprietorship:
- Fizichna Osoba-Pidpriyemets or FOP, which is 'Natural person entrepreneur' in English. This type of enterprise is created without forming a legal entity. The profit tax rate here is 15%.
- Private Pidpriyemstvo or PP, which is 'Private enterprise’ in English. This type of sole proprietorship is registered as a legal entity and has the profit tax rate of 18%.
In both of these, sole proprietors have the right to engage in any business activity that is not prohibited by the law (this can include production, commerce, construction, services, information, research, technologies, etc.). However, they have unlimited responsibilities for their company’s obligations. They are allowed VAT registration.
Joint Stock Company (JSC)
In a Joint Stock Company, its status, formation process, and corporate management rules are regulated by Ukrainian laws 'On stock companies' and 'On business companies.'
The procedure for setting up a public JSC in Ukraine is more expensive and difficult than other company types. Also, the minimum share capital is equivalent to 1250 minimum wages.
The two types of Joint Stock Companies in Ukraine are Public JSC and Private JSC.
Public Joint Stock Company features:
- A stockholder can sell their stocks without approval from other stockholders and/or the company.
- A company can conduct both public and private placement.
- During the SPO, shareholders do not hold preferential rights to purchase additionally placed shares.
- The company must be listed and be in the stock register of at least one stock exchange.
- It's necessary to have an independent auditor prepare the company's annual financial statement.
- Cumulative voting is needed for the Supervisory Board and the Audit Commission Member's election.
Private Joint Stock Company features:
- More than 100 shareholders are not allowed.
- Only a private share offering is allowed.
- Shareholders have a preferential right to purchase additional shares.
- Shares cannot be acquired or/and sold on any stock exchange.
- Securities depository service is mandatory.
- No requirement to disclose financial statements in the stock market.
JSC formation has to be approved by the Ukrainian financial authority, i.e., the National Securities and Stock Market Commission.
Things to keep in mind when registering a company in Ukraine
All businesses in Ukraine do not require a corporate seal. If you wish to have one, you can.
According to the laws in Ukraine, foreigners require a permit to work unless they are permanent residents.
Ukrainian law doesn't require you to notify tax authorities or register as a social security taxpayer. These are set up as soon as you take the initial steps to start your business.
Companies that operate in Ukraine must have a local bank account. The general cost and time required for opening one depends on the bank you choose. The documents required to open a bank account are:
- Power of attorney for your representative.
- Signature card.
- Tax ID and any other documents for individuals referred to in the card.
- The completed application form.
Registration process of a company in Ukraine
In recent years, the business registration process in Ukraine has become significantly more straightforward due to several reforms. Moreover, to appeal to the foreign investors, the government of Ukraine stated that the basic cost of opening a company in Ukraine is no longer applicable.
You can register a business in less than three days as long as the mandatory documents are ready.
Company registration requires various documents, some of which being:
- The completed application for business registration.
- A Ukrainian tax ID for each founder.
- The Charter and decisions made by founders regarding the business.
- An application for registration as a unified taxpayer or VAT payer.
- Extract from the Unified State Register of Legal Entities, Individual Entrepreneurs, and Public Organizations.
- Employment agreements, if necessary.
- Power of attorney in case you have a representative.
The main documents for business registration by foreigners include those listed above, alongside their passport and a tax certificate issued in Ukraine. These documents must be legalized where required. Once the documents are ready, please file for registration with the Unified Register.
You should check the Ministry of Justice of Ukraine portal to track your application.
Now that your company is in operation, you can start adding great professionals to your team. You can begin the process quickly by contacting us.
If you are looking to build a remote team, this article is a great starting point to understand its advantages and disadvantages.
At Starkflow, we offer a cost-effective service to quickly and legally employ your Ukrainian workers. You don't have to take the risk of hiring contractors; we are ready to help you in the hiring process, complying with every Ukrainian employment law.
As the employer of record, we ensure every detail is attended to during the hiring process and while setting up payroll. We keep employees happy with their work agreement and have a rapid, transparent onboarding. We offer them great benefits and a reliable employment contract compliant with local regulations. We ensure that the agreed monthly salary is paid on time and that our employees are always taken care of.
If you're looking for more information, feel free to contact us.