There are many advantages of doing business in Ukraine both as an expatriate and a foreigner. These include low running costs and availability of a big pool of experts. Since the implementation of a bilateral Deep and Comprehensive Free Trade Agreement between Ukraine and the EU, more businesses have started to move to or outsource in Ukraine. The Ukrainian legislation grants several ways by which businesses can operate. These means are outlined in the Civil Code and Commercial Code of Ukraine.
Foreign citizens can start their business enterprises in Ukraine as well. They will have the same legal authority and privileges as Ukrainians. An expatriate can create a Ukrainian legal entity to start their own business or operate through a Ukraine representative office. But, just like in any nation, there is the issue of taxes one has to be aware of and plan accordingly. So, here is an easy-to-understand global tax guide focused on doing business in Ukraine.
Types of companies that operate in Ukraine
Before going into detail with Ukrainian taxes, one has to know what types of companies operate in Ukraine. These companies are governed by different national regulations as well as tax types.
The Ukrainian law incorporates companies into several primary forms as follows:
1. Legal Entities:
▪︎Limited Liability Companies (LLC)
▪︎Joint-stock companies (privately owned or publicly owned)
2. Allied ventures (for example, in gas and oil exploration sectors):
The most common form of business organizations in Ukraine
Limited Liability Company and Joint-Stock Company are the most common forms of business organizations in Ukraine. In these types, there is a pooling together of assets to form a Ukrainian legal entity. The non-monetary properties will be subject to VAT at a rate of 20%. But at the same time, cash contributions are exempt from VAT. Foreign investors can operate an active business in Ukraine with ease. The investors in Ukraine can choose to establish a legal entity.
The legal framework allows direct handling of business affairs. Managing the business through the representative office alone is no longer necessary.
Foreign investors in Ukraine can start business organizations other than a legal entity. In this case, the foreign company needs to set up a permanent establishment (PE) in Ukraine. The PE created must be under Ukrainian tax legislation.
The legal entities incorporated operate by the provisions of Ukrainian legislation. The business integration accords tax resident status to the enterprises. The corporate's personnel are taxable on their worldwide income.
Foreign legal entities registered abroad operate according to foreign legislation. Corporates in jurisdictions overseas will hold foreign tax resident (non-residents) status.
The Tax Code of Ukraine (TCU)
The TCU establishes Ukrainian taxes, levies, and tax protocols. According to the same, all taxes are either classified as nationwide or local. The state budgets collect the state taxes, and the local municipal corporations collect local taxes.
Classification of Ukrainian state taxes
▪︎Corporate Income Tax
▪︎Individual Income Tax
▪︎Value Added Tax
▪︎Duties on Resources
Classification of Local Taxes and Duties
▪︎The fee imposed on parking
▪︎The duty levied on tourist
Salient features of the Tax Code
》Creation of a consistent system for filing taxes, same for all.
》Three year grace period for paying liabilities owed to the state
》Method to calculate penalties for breaking tax rules
determining interest owed for delayed tax payment
procedure to appeal to the state in case of tax anomalies.
Some tax types in detail:
◇ Corporate Income Tax
Business corporations are liable to pay a Corporate Income Tax of 18%. Below is the classification of corporate income taxpayers.
☆ Businesses registered in Ukrainian jurisdiction earn a turnover with their dealings. The turnover is achieved from their transactions both within and outside Ukrainian territory.
☆ Multinational corporations that reap financial gains in the Ukrainian setting.
☆ Permanent establishments in Ukraine belonging to international agencies.
Foreign tax residents will be taxable on two sources of income
▪︎Income generated from the trade or business activities in Ukraine
▪︎Any stream of non-entrepreneurial income from Ukrainian sources. Companies with Ukrainian registration are liable to pay corporate income tax (CIT).
The Tax Code enlists all Ukrainian sources of income of a foreign entity as liable for CIT. The types of transactions classified as income of Ukrainian origin include -
▪︎Payments of interest to the foreign organization by a Ukrainian person or agency
▪︎Dividends generated by the Ukrainian stock market
▪︎Royalties received in Ukraine for the usage of patented technology
▪︎Payments for utilities leased out in Ukraine
Sales of Ukrainian real estate
▪︎Monetary gains from investing in securities
▪︎Fee payment to any Ukrainian agency or broker
▪︎Profits generated from Ukrainian long term agreements
▪︎Income received by the foreign enterprise in its trade and commerce in Ukraine
◇Value Added Tax (VAT)
Ukraine levies value-added tax on taxable transactions within its customs territory:
▪︎Goods supply and services
▪︎The import and export of goods
▪︎All modes of international transport of passengers and luggage
Ukraine is levying VAT currently at the following rates -
》20% for goods and services imports as well as domestic supplies
》7% for imports of Medicals -
- Medicine registered and approved in Ukraine by the Cabinet of Ministers
- Medical products and medical equipment authorized by state authorities for clinical trials.
》0% on Ukrainian exports, duty-free supplies, and free customs
- Excise Duty
Ukraine exacts an indirect tax on specific products. The law deems the items as excisable, and the tax imposed upon them is the Excise Duty. Evaluation of excisable goods includes its excise duty.
Excise duty is payable by the following personnel in the customs territory of Ukraine -
• Manufacturers of materials deemed excisable
• Importers of excisable products
• Exporters of excisable products, both Ukrainian and non-Ukrainian alike
• Wholesalers of electricity
• Licensed resellers of electricity beyond the wholesale margins
• Retailers of specific items