Starting a business in Ukraine – how easy it is and what needs to be done
Ukraine becomes more attractive for foreign investments due to the changes in its legislation aimed to simply procedures for starting a business in Ukraine. In this article we will review the most attractive ways to set up a business in Ukraine and the steps to be taken for this.
State registration of a legal entity is rather simple
Ukrainian law has significantly simplified the procedure of the incorporation and state registration of the legal entities and individual entrepreneurs. Due to current development of online registration proceedings, in order to incorporate a legal entity, one shall come to the state registrar (including, Ukrainian notaries) and submit the required documents. The state registration of a legal entity (except for joint stock companies) usually takes 1 (one) business day.
In addition, due to simplified procedure, there is no need to submit the documents to the tax or statistics authorities as well as to social funds. All the registrations with these authorities are made according to the principle of the unified registry, and once submitted to the state registrar, all the details of the registered legal entity are reflected in the registries of other authorities. Due to simplified procedure, Ukrainian law does not provide for any state fees for the state registration of the legal entities.
Furthermore, there is no requirement to an amount of the authorized capital, and there is no need to pay an authorized capital before the state registration as it was previously required by Ukrainian law. In addition, the legal entities in Ukraine are not required to use the corporate seals, and the corporate document may be signed by duly authorized representatives. However, in order to become the director of a legal entity, a foreign citizen is required to obtain a work permit according to procedures established by Ukrainian law.
Advantages for foreign individuals to receive a temporary residence permit
The recent changes in Ukrainian laws provide for additional advantages for foreign individuals during incorporation legal entities in Ukraine. Thus, a foreign individual may obtain temporary residence permit for his/her legal residing in Ukraine, if he/she incorporates legal entity with an authorized capital of EUR 100,000 and confirms its payment during receipt of such a permit.
The most favourable forms for starting a business in Ukraine
It should be noted that the most favourable form for setting up a business in Ukraine is a limited liability company (the ꞌꞌLLCꞌꞌ), a legal entity with an authorized capital divided into participation interests on a pro rata basis to the contributions of its founders.
In order to incorporate the LLC, one shall submit to the state registrar inter alia (i) an application according to the form, established by Ukrainian law; (ii) a decision of a founder to incorporate the LLC (or the Minutes of the General Meeting of the Founders, if there is a number of founders); (iii) the charter of the LLC, which has to contain all the provisions required by Ukrainian law; and (iv) the documents confirming powers to sign the above documents (for example, power of attorney). In addition, Ukrainian law requires the foreign entities, which are the founders of Ukrainian LLC, to submit an extract from the foreign trade, commercial or court registry.
In the case, if the founder is a foreign individual, he/she may either (a) issue abroad the power of attorney for representation of his/her interests in Ukraine or (b) be required to provide his/her passport with certified translation into Ukrainian and identification number. All the documents issued abroad have to be legalized (for example, by way of an apostille), translated into Ukrainian and the translation has to be certified by the Ukrainian notary.
Many individuals in Ukraine prefer also to set up a business by their state registration as individual entrepreneurs. In this case the state registration is made by the state registrar (including, a notary) within 1 (one) business day, and the list of the documents includes an application, passport and identification tax number.
Since an individual entrepreneur is registered at the place of his/her residence, a foreign individual may be required to submit a temporary residence permit.
Other key issues
Opening a bank account and formation of an authorised capital
In order to perform commercial activity, every undertaking (whether a legal entity or an individual) has to open bank account. It should be noted that Ukrainian law requires the banks in Ukraine to make identification of the persons for their compliance to anti-money laundering legislation. Furthermore, the banks require to submit details of an ultimate beneficiary of a legal entity (i.e. an individual, who, in particular, indirectly and individually or jointly with other individuals and legal entities owns at least 25% votes of the authorised capital of a incorporated legal entity).
After opening a bank account, the founders of a legal entity have to form its authorised capital, and they are required to pay it up in full within 1 (one) year after state registration of a legal entity. It should be noted that the founders, which are foreign entities and/or foreign individuals, have to make their monetary contributions into the authorised capital of a legal entity, in a foreign currency, which is further converted in Ukrainian Hryvnias.
Employment of the director and other employees
Under Ukrainian law, a legal entity may hire employees subject to tax notification. Such a notice has to be submitted 1 (one) day prior to the start of actual employment. It should be noted that in the case of breach of this law requirement, a legal entity may be subject to essential penalties imposed based on the results of the examination by the Ministry of the Social Policy of Ukraine (approximately UAH 100,000 or EUR 3,150).
After the state registration of a legal entity, Ukrainian law requires it to submit tax declarations and other tax documentation in order to comply with reporting requirement. Although under Ukrainian law, the director of a legal entity has powers to prepare and submit those documents, many companies prefer either to employ an accountant or enter in the accounting services contract with an audit company.
By Oleksandr Ruzhytskyi