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Moving Easily, or How Can Foreign IT Businesses Open in Ukraine

17/ 11/ 2020
  Tetiana Sheremet. Tax Expert of Accountor Ukraine Ukraine is becoming increasingly attractive for international IT businesses. Recent political and economic developments have shown that IT companies from post-Soviet countries are no less interested in relocating their businesses, and that they are more and more frequently asking how to move to Ukraine. Why is Ukraine Attractive for Foreign IT Businesses? Ukraine is a huge market with a big potential (IT revenue is approximately $ 4 billion per year). State programs: e.g., VAT exemptions for supplying software products until 01.01.2023, simplified taxation system. Ukrainian IT specialists are among the best educated in post-Soviet states. IT infrastructure is developing, with 4G being available in all big cities. There is no language barrier when doing business with CIS countries. The Diia. City project: a virtual temporary free economic zone with special tax, financial and legal regime (launch expected in autumn 2020). Launch of the IT Relocate Belarus project, aimed at attracting Belarusian IT specialists (90 days of continuous stay over the period of 180 consecutive days without a visa; reduced prices for housing and office rent). Even better conditions are offered by Presidential Decree # 420/2020 of 02.10.2020: extension of temporary stay to 180 over the period of 365 consecutive days for Belarusian entrepreneurs, highly skilled IT specialists and members of their families, simplified procedures for registration of temporary residence permits, obtaining work permit, registration of individual entrepreneurs. The procedure for registering a company is quite simple. There are no obstacles for foreign natural and legal entities who want to start a business in Ukraine. However, one should keep in mind that:    There are no restrictions on the amount of the authorized capital, even if it is 1 hryvnia only. If no other cash inflows are planned at the start-up stage, the authorized capital must be sufficient to cover the costs until the company becomes self-sustaining; Registration address usually means the address of rented office premises. The cost of office space in business districts of Kyivstarts from $15 per 1m2. Many IT teams often use coworking platforms with excellent conditions costing from $55 a month. At the registration stage, the company must appoint a citizen of Ukraine as its Director. After the company is registered and all required work permits obtained, the citizen of Ukrainian may be replaced by a foreigner. When starting a legal entity in Ukraine, it is important to choose the taxation system: either the general system or the simplified system. Under the general taxation system, the tax rate is 18% of the companys profit. Also, if  the amount of taxable supplies exceeds  UAH 1 million (VAT excluded), the company is obliged to register as a VAT payer (voluntary registration as VAT payer is also possible at any time). Until January 1, 2023, some IT services are VAT exempt. When choosing the tax system, it is important to plan the expected revenue of the company as accurately as possible. After all, the simplified taxation system has a limit of UAH 7 million. revenue per year. If this amount is exceeded, the company automatically switches to the general taxation system. With a simplified taxation system, the company may choose to pay either 5% of gross revenue for non-payers of VAT, or 3% of gross revenue for VAT payers. For the IT industry, where most transactions are not subject to VAT, it is generally more advantageous to opt for the 3% single tax rate plus VAT. However, one should consider the complexity of VAT administration. One of the important issues when opening a company in Ukraine is staff employment. The following taxes must be paid for full-time employees: 18% personal income tax and 1.5% military tax, deducted from wages, and 22% unified social contribution, paid at the expense of the company (by the employer). The company may consider the option of receiving services from individual entrepreneurs. In this case, when choosing individual entrepreneurs categorized as Group 3 of single tax payers (as this group may provide services to legal entities), the individual entrepreneur  will have to pay 5% tax of the proceeds plus UAH 1,100. unified social contribution per month (calculation based on the minimum wage applicable on 01.09.2020). Hence, most expenses of IT companies in Ukraine are related to salaries, rent, work organization and taxes. If the Bill on Peculiarities of taxation of information technology industry subjects is passed into law, a significant tax reduction may be expected. So, how do you take this step and start a successful business in Ukraine? Most importantly, it all depends on you and your business. However, what can really protect you and your company from most pitfalls and ensure your business is plain sailing is having a reliable accounting and legal services provider who would know all the intricacies of taxation matters and who would be also experienced in recruitment.

Tetiana Sheremet

Tax Expert of Accountor Ukraine

Ukraine is becoming increasingly attractive for international IT businesses. Recent political and economic developments have shown that IT companies from post-Soviet countries are no less interested in relocating their businesses, and that they are more and more frequently asking how to move to Ukraine.

Why is Ukraine Attractive for Foreign IT Businesses?

  1. Ukraine is a huge market with a big potential (IT revenue is approximately $ 4 billion per year).
  2. State programs: e.g., VAT exemptions for supplying software products until 01.01.2023, simplified taxation system.
  3. Ukrainian IT specialists are among the best educated in post-Soviet states.
  4. IT infrastructure is developing, with 4G being available in all big cities.
  5. There is no language barrier when doing business with CIS countries.
  6. The “Diia. City” project: a virtual temporary free economic zone with special tax, financial and legal regime (launch expected in autumn 2020).
  7. Launch of the IT Relocate Belarus project, aimed at attracting Belarusian IT specialists (90 days of continuous stay over the period of 180 consecutive days without a visa; reduced prices for housing and office rent). Even better conditions are offered by Presidential Decree # 420/2020 of 02.10.2020: extension of temporary stay to 180 over the period of 365 consecutive days for Belarusian entrepreneurs, highly skilled IT specialists and members of their families, simplified procedures for registration of temporary residence permits, obtaining work permit, registration of individual entrepreneurs.
  8. The procedure for registering a company is quite simple.

There are no obstacles for foreign natural and legal entities who want to start a business in Ukraine.

However, one should keep in mind that:   

  • There are no restrictions on the amount of the authorized capital, even if it is 1 hryvnia only. If no other cash inflows are planned at the start-up stage, the authorized capital must be sufficient to cover the costs until the company becomes self-sustaining;
  • Registration address usually means the address of rented office premises. The cost of office space in business districts of Kyivstarts from $15 per 1m2. Many IT teams often use coworking platforms with excellent conditions costing from $55 a month.
  • At the registration stage, the company must appoint a citizen of Ukraine as its Director. After the company is registered and all required work permits obtained, the citizen of Ukrainian may be replaced by a foreigner.

When starting a legal entity in Ukraine, it is important to choose the taxation system: either the general system or the simplified system.

Under the general taxation system, the tax rate is 18% of the company’s profit. Also, if  the amount of taxable supplies exceeds  UAH 1 million (VAT excluded), the company is obliged to register as a VAT payer (voluntary registration as VAT payer is also possible at any time).

Until January 1, 2023, some IT services are VAT exempt.

When choosing the tax system, it is important to plan the expected revenue of the company as accurately as possible. After all, the simplified taxation system has a limit of UAH 7 million. revenue per year. If this amount is exceeded, the company automatically switches to the general taxation system.

With a simplified taxation system, the company may choose to pay either 5% of gross revenue for non-payers of VAT, or 3% of gross revenue for VAT payers. For the IT industry, where most transactions are not subject to VAT, it is generally more advantageous to opt for the 3% single tax rate plus VAT. However, one should consider the complexity of VAT administration.

One of the important issues when opening a company in Ukraine is staff employment. The following taxes must be paid for full-time employees:

  • 18% personal income tax and 1.5% military tax, deducted from wages, and
  • 22% unified social contribution, paid at the expense of the company (by the employer).

The company may consider the option of receiving services from individual entrepreneurs. In this case, when choosing individual entrepreneurs categorized as Group 3 of single tax payers (as this group may provide services to legal entities), the individual entrepreneur  will have to pay 5% tax of the proceeds plus UAH 1,100. unified social contribution per month (calculation based on the minimum wage applicable on 01.09.2020).

Hence, most expenses of IT companies in Ukraine are related to salaries, rent, work organization and taxes. If the Bill on Peculiarities of taxation of information technology industry subjects is passed into law, a significant tax reduction may be expected.

So, how do you take this step and start a successful business in Ukraine?

Most importantly, it all depends on you and your business. However, what can really protect you and your company from most pitfalls and ensure your business is plain sailing is having a reliable accounting and legal services provider who would know all the intricacies of taxation matters and who would be also experienced in recruitment.

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