Starting a Business

 

General information about doing business in Ukraine

 

The principal forms of doing business in Ukraine are: a limited liability company; a private or public joint stock company; a joint venture (particularly in the oil and gas exploration sector); a representative office (common for foreign companies that are only planning to perform marketing, promotional and other auxiliary activities) and a branch or PE of a foreign corporation.

Foreign investors contemplating carrying out active business operations may choose to establish a legal entity in Ukraine, instead of opting for a representative office.

If a foreign investor chooses to do business in Ukraine in a form other than a legal entity, it is important to determine whether such foreign company’s presence in Ukraine will lead to the creation of a PE under Ukrainian tax legislation.

It is also possible to perform certain types of business activity in Ukraine without establishing a representative office or without any other formal presence in the country, e.g. one-time contracts or joint production agreements with Ukrainian partners.

Formalities for setting up a company

A Ukrainian business is established and operates on the grounds of its constituent (foundation) document (charter). A constituent document should contain specific information required by law for each type of business. A Ukrainian entity (either a limited liability company or a joint stock company) may not have a sole founder, if 100% of the founder is owned by a single corporate shareholder.

To set up a company, the following documents are required:

  • Completed registration card;
  • Application to elect for the simplified taxation system, if required, and/or application for voluntary registration as VAT taxpayer, in the approved form;
  • Original or notarized copy of the decision of the founders or an authorized body on incorporation of the legal entity;
  • Two copies of incorporation documents (either a charter for LLC, JSC, or a foundation agreement for full partnership (Povne Tovarystvo) and limited partnership (Komandytne Tovarystvo); one copy, if provided in electronic format); and
  • Document confirming the state registration of the shareholder (shareholders), if the shareholder is a nonresident legal entity (i.e. extract from the commercial, banking or court register).

Individual shareholders (beneficial owners) must be disclosed when a legal entity is registered with the state and in case of merger or acquisition.

Forms of entity

Ukrainian legislation provides for a number of different forms of legal entity for carrying out business activities. The two most common are a limited liability company and a joint-stock company. The latter may be public or private.

The main legislative acts regulating these types of legal entity are the Civil and Commercial Codes of Ukraine and the Laws of Ukraine “On Business Entities” and “On Joint Stock Companies”.

A Ukraine-based company or partnership is considered to be a legal entity once it has been registered with the state.

Requirements for a limited liability company

The limited liability company (Tovarystvo z Obmezhenoyu Vidpovidalnistyu or LLC) and private joint stock company (Pryvatne Aktsionerne Tovarystvo or PrJSC) are the most popular corporate vehicles for foreign investors in Ukraine. As with a PrJSC, shares of an LLC cannot be transferred without the consent of other shareholders. The financial and reporting requirements for an LLC are less burdensome than those for a PrJSC.

Capital. There are no legal restrictions on the amount of authorized share capital of an LLC. Shareholders are obliged to pay the full value of their shares within one year from the company’s state registration.

Founders, shareholders. Participants in an LLC have limited liability, which does not exceed their contribution to the company’s authorized share capital. Individuals and legal entities, as well as the state or the territorial community owning shares, are recognized as shareholders of the company.

There are no restrictions regarding the residence or nationality of the shareholders.

Management. The supreme management body of an LLC is the general meeting of its participants. The frequency of meetings of the participants is to be specified in the LLC’s charter; however, the legislation requires such meetings to be held at least twice a year, and additional meetings to be held as and when necessary. The general director/director of the LLC is responsible for day-to-day operation of the LLC.

Types of share. Under Ukrainian legislation, an LLC has no right to issue shares (securities). Participants in an LLC hold a share (or part of a share) in the authorized share capital of the LLC of a nominal value equivalent to each participant’s contribution to the share capital.

Taxes and fees. No taxes are payable at the time of registration or on subsequent increases in share capital. No fees are required on registration; however, a fee of 0.05 times the minimum wage applies to increases in share capital (approximately UAH 69).

Requirements for a joint-stock company

Joint-stock companies may be public (Publichne Aktsionerne Tovarystvo or PJSC) or private (Pryvatne Aktsionerne Tovarystvo or PrJSC). Along with a limited liability company, a PrJSC is the most common and most popular corporate vehicle for foreign investors in Ukraine.

The main difference between public and private joint stock companies is that the shares of a PrJSC are distributed exclusively among the founders, while the shares of a PJSC are offered for public subscription or may be sold publicly on the stock market.

Capital. Both'. The minimum amount of authorized share capital is set at 1,250 times the minimum monthly wage (as at 1 January 2016, the minimum monthly wage is fixed at UAH 1,378). PrJSC: The founders must pay at least 50% of the amount of authorized share capital in order for the company to be allowed to perform activities other than those related to the purposes of its foundation. Each founder of the joint stock company must pay the full value of the purchased shares before the date of confirmation of the results of the placement of the initial share offering. Shareholders may use cash funds, property, property and nonproperty rights, and securities (except for promissory notes or any debt securities issued by the PrJSC) to pay for their shares in the authorized share capital of the PrJSC.

Founders, shareholders. PJSC: The shares of a PJSC are offered for public subscription or may be sold publicly on the stock market. A PJSC may have an unlimited number of shareholders. Subject to certain disclosure requirements, a PJSC is the only form of legal entity whose shares may be openly traded. PrJSC: The shares are distributed exclusively among the founders. The shareholder of a PrJSC may transfer its shares to a third party subject to the consent of the other shareholders in the PrJSC. Shareholders are not liable for the obligations of the company. Shareholders bear the risk of losses only to the extent of their shares (limited liability). The frequency of shareholders’ meetings is specified in the Charter; however, there should be at least one meeting each year.

A joint stock company may be set up by one person or may consist of one person where all the shares are purchased by one shareholder. The number of shareholders of a private joint stock company may not exceed 100. For public joint stock companies, the number of shareholders is unlimited.

Management. Both'. If a joint stock company (either public or private) has more than 10 shareholders, a supervisory board must be established. The shareholders’ meeting is responsible for electing the supervisory board. The day-to-day management functions are performed by the entity's board of directors (or a director). There are no legislative limitations on the number of members of the board of directors. An audit committee controls and supervises the board’s activities.

Types of share. Both'. Under Ukrainian legislation, both public and private joint stock companies may issue the following types of share:

  • Ordinary shares - give their owners the right to obtain a part of income of the joint stock company (dividends), participate in the JSC’s operation and obtain a part of the JSC’s property in case of its liquidation, and other rights with respect to foundation, activities and winding up of the JSC).
  • Preferred shares - give their owners priority rights over the holders of ordinary shares, and voting rights on a limited number of issues as specified by legislation and the company's charter (e.g. amendments to the company's charter intended to limit the rights of holders of preferred shares, etc.)

All ordinary shares issued by a JSC have equal rights to vote and to the distribution of profit. There are various classes of preferred share granting different rights to their owners. Unlike shares (participation) in an LLC, shares in a joint stock company may be effectively pledged as securities.

Taxes and fees. No taxes are payable at the time of registration or on subsequent increases in share capital. No fees are required on registration; however, a fee of 0.05 times the minimum wage applies to increases in share capital (approximately UAH 69).

Branch of a foreign corporation or Representative office

A representative office (RO) of a foreign business in Ukraine is not a legal entity, but rather an “extension” of its parent company. The representative office may either simply represent its foreign parent company in the market and carry out various auxiliary activities (a “noncommercial representative office”) or conduct business activities that may give rise to a taxable PE (a “commercial representative office”).

All ROs are legally required to register with the Ministry of Economic Development and Trade of Ukraine (Ministry of Economy or “MEU”). Commercial ROs also must register with the local tax authorities and social security funds. In practice, noncommercial ROs will typically do so, although this is not a legal requirement.

Registration with the MEU involves:

  • Filing a package of registration documents required by law, and payment of the state registration fee (USD 2,500);
  • Review of the documents by the MEU (within 60 working days);
  • Approval or rejection of the registration (may be appealed against in court);
  • After approval, the RO is included in the Unified Register of Representative Offices and issued with a Registration Certificate;
  • Registration of the RO with the tax authorities and the State Statistics Service of Ukraine within 10 days after its registration with the MEU; and
  • Approval of the RO’s official seal and opening of the RO’s bank accounts.

Upon completion of the above procedures, the registered entity has the right to apply to:

  • The relevant departments of the Ministry of Internal Affairs of Ukraine for visas and registration of passports of its employees; and
  • Traffic police offices for registration of vehicles owned by the representative office.

The RO must file the required documents with the tax authorities in the region/district where it is located and by the next business day after the submission of the documents, the tax officer must decide whether to approve or reject the registration. In case of approval, the state tax authorities will issue a certificate of registration for a corporate income taxpayer.