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Three Points to Consider on Starting or Expanding Business in Ukraine

Freezing winds dominate the global investment climate these days, mainly due to the harsh economic and knotty political situation in the EU and US. Ukraine is also affected, as its most potent industries supply to Western markets and suffer from diminishing demand and funding.

But Ukraine is taking steps to revive its economy and attract business. The country has hosted the hugely successful Euro 2012 championship, reconstructed airports and highways, held energy resources tenders that brought in world oil & gas giants, introduced legislation to reduce red-tape and promote entrepreneurship. Unlike before, Ukraine boasts a stable government busy with practical projects rather than politics. Suffice it to say, this beautiful, hospitable and hard-working country is increasingly catching the eye of savvy investors.

If you are a potential investor thinking about capturing value at this still underestimated market or a successful businessperson expanding an existing venture in Ukraine, let me kindly offer some suggestions that may help you along the way.

Corporate Presence Forms

Organization types are abundant and may suit literally any purpose and configuration of owners. However, the most popular are Joint Stock Company (JSC), Limited Liability Company (LLC) and Representative Office (RepOffice).

JSC is mainly designated for large-scale industrial production, finance-intensive business, a number of shareholders or investors in it. The undertaking is capitalized through issuance of common and preferred shares of stock. JSCs may be public (PuJSC) or private (PrJSC). A PuJSC lists its shares on a stock exchange and may offer them to the general public, whereas a PrJSC distributes shares to its founders/shareholders or to predetermined investors only and cannot trade its shares on the stock exchange. JSCs are governed by a modern, detailed and minority-protecting law and regulated by the National Securiti es and Stock Market Commission (NSSMC). LLC usually suits a small or mid-size venture created by a single individual/entity or a small group of trusted co-owners called 'participants'. They make monetary or in-kind contributions to the authorized capital of LLC and aren't liable for its debts. The participants have 'equity interests' in the company (which, unlike JSC shares of stock, are recorded in the company charter), proportionate to their contributions to the authorized capital. The participants have the preemptive right to buy the equity interests of selling participants.

RepOffice doesn't constitute a legal entity in Ukraine and operates on behalf of its parent company. RepOffice is used to accommodate regular negotiating contracts, advertising and marketing goods and services of the parent company, sometimes - small-scale production and commercial services provision in Ukraine. The head of RepOffice acts pursuant to registered RepOffice regulations and under a Power of Attorney issued by the parent company.

Registration Requirements

Companies are registered by State Registrars, who are part of local State Administrations. Major documents required for the registration include a company charter and the minutes of the founders meeting or a sole founder's resolution on the company's formation. Further, the company must register with local Tax Authority and Pension Fund. JSC must also register its shares with, and periodically report to, NSSMC.

If the company plans engaging in certain activities that may endanger the environment, state security, or the life and health of individuals, it must also obtain a special permit or license from appropriate state agency. Generally, the number of activities subject to licensing is limited and on the decline.

Taxes

Contrary to the common misconception, Ukraine offers a rather liberal taxation regime, further softened by more than 60 Double Tax Treaties. Major taxes include the Corporate Profit Tax (CPT), Value Added Tax (VAT), Personal Income Tax and Unified Social Tax. Usually, a large or mid-size company pays CPT at the rate of 21% (to be gradually reduced to 16% from 1 January 2014) and 20% VAT on its sales (to be reduced to 17% from 1 January 2014). Small firms with no more than 50 employees and UAH 5 million in annual income may opt for the Flat CPT. In this case, its income will be taxed at 5% or, if the company is a registered VAT payer, at a mere 3%.

Author: Vadym Samoilenko
Source: Panorama. – 2012. – #12. – December