In this article, we discuss the procedure for company registration in Ukraine.
Why register a company in Ukraine?
- Registration is simple, transparent, inexpensive, and does not require a significant investment
- It takes from 1 to 14 days depending on the type of company.
- Ukrainian citizens and foreigners have equal rights to open and do business in Ukraine.
- Tax may be at the rate of 5% and 2% during martial law.
What type of business to choose?
Sole proprietorship allows an entrepreneur to do business without setting up a company. This type of business is suitable for those who are going to provide services or sell goods to end consumers.
You can register as a sole proprietorship within 10 minutes online if you have a scan of your passport, a Ukrainian identification number, and a confirmed place of residence in Ukraine (a residence stamp in your passport, or a temporary residence certificate for foreigners).
Other benefits of registering as the sole proprietorship include an easy tax reporting procedure, no need to draft articles of association, build up share capital, hire a director and an accountant, and ability to dispose of money as it comes in from counterparties.
The sole proprietorship is liable for its business obligations with its own personal assets.
Limited Liability Company (LLC)
LLC is the most common form of business in Ukraine. LLC allows to do business together with other interested parties, no minimum share capital requirement, and compensation for losses is limited to company assets.
LLC is established by one or more individuals or legal entities. The members of an LLC build up a share capital by making contributions (any property or money). The share capital is divided into shares. The size of the share of each member determines its right to manage LLC and what income he/she gets from LLC business operations.
Only a Ukrainian citizen can be appointed as a director of an LLC at the time of the LLC registration. If the LLC owners wish to appoint a foreign director, they appoint a Ukrainian citizen as a director first and then on behalf of the company obtain a work permit for a foreigner to employ him as the company`s director. Once the work permit has been granted (within 2 weeks), the owners can appoint the new foreign director.
Joint Stock Company (JSC)
JSC is a suitable type of business for a big enterprise. In JSC, share capital is divided into equal shares, the corporate rights to which are certified by stocks. Both individuals and companies can own company stocks. The minimum share capital in Ukraine is about UAH 8,375,000 (US$282,996).
A representative office is not deemed to be a company, it is under the control of the parent company and is accountable to it.
The representative office acts on the basis of a regulation drawn up by the parent company, is entitled to own property and to open bank accounts, as well as liable for tax payments. The parent company is legally responsible for the contracts concluded by the representative office on behalf of the company.
Foreign companies may open their representative offices in Ukraine. The registration procedure is more complicated and longer than company registration.
Other types of companies
According to Ukrainian law, there are also other types of companies: an additional liability company (a variation of LLC in which members are additionally liable with their own property to the same extent), a general partnership (subsidiary liability of the members with all their property), a limited partnership (subsidiary liability of the general members with all their property, the liability of other members is limited to their contributions), a private enterprise (operates based on private ownership of an individual or a company).
A foreigner or a foreign company wants to register a business in Ukraine. What type of company to choose?
The best option is to run a foreign business in Ukraine through LLC. The reasons are as follows:
- Easy registration, possible through an authorized representative, within 24 hours, free of charge.
- No minimum share capital requirement (note that everyone can see the share capital amount in the company registry - a share capital of US$100 may make counterparties suspicious of the reliability of the company).
- Low tax rates.
Another common option is a foreign representative office of the company in Ukraine. As usual. representative offices are chosen if there is a need to employ foreign. Also, a representative office may be profitable from the point of view of income taxation when withdrawing it in the owner's state. Finally, direct cooperation with the parent company through the representative office may arouse more trust among counterparties than with a company set up in Ukraine.
What else is to be done before registration?
- To obtain an identification number if the owner of the company is an individual. A foreigner is entitled to obtain it in person or through a representative within 2 days.
- To choose a unique Ukrainian company name, additionally a name may be chosen in a foreign language.
- To prepare documents for registration in Ukrainian, additionally in a foreign language.
- To determine the legal address of the company, which must be stated in the registration application. This can be the place of the owner`s registration, confirmed by the residence stamp in his passport, or temporary residence certificate for a foreigner; the company's immovable property address, confirmed by the company's certificate of ownership, a lease agreement concluded on behalf of the company (e.g., lease of an office in a business center).
What documents are to be submitted for registration?
- Completed registration application.
- Decision on company formation and appointment of a director, signed and notarized by the owners.
- Articles of association signed and notarized by the owners.
- If the owner is an individual, his copy of the passport and identification number; if the owners are legal entities, a copy of their articles of association. All these documents must be notarised, apostilled or legalized.
- If the owner is a foreign company, an apostilled or legalized extract from the foreign registry of that company.
- Company ownership structure and copy of the passport of UBO, certified by a notary.
Where to apply for registration?
Documents for registration are submitted to the state registrar or a notary. The state registrar accepts documents free of charge at the registration centers where the company is located. The notary registers a company for a fee, but the advantage is that he will immediately check whether all documents have been submitted and whether they have been executed correctly.
Who may submit the documents for registration?
Documents may be submitted by the company owners, the director if he is authorized to carry out registration actions, or by the owners' representative (e.g., a lawyer) if authorized by a notarized power of attorney. A foreign power of attorney with translation is also suitable for registration.
How long does it take to register a company?
Within 24 hours of receipt of the documents, excluding weekends and public holidays.
What else needs to be done after registration?
- Opening a corporate bank account in any Ukrainian bank. A director may open the account remotely or at a bank office within 1-3 days.
- Hiring an accountant. It is not legally binding for a sole proprietorship or LLC, however, the accountant will save you the hassle of preparing tax reports. JSC is to employ an accountant.
How to register for tax?
Simultaneously with the state registration, the registrar transmits information to the tax authorities about the registration of the sole proprietorship or company. Along with the registration documents, the owners can apply for the simplified taxation system and register their company as a VAT payer.
What are tax rates?
Sole proprietorship and company may choose to be a taxpayer on the general or simplified tax system.
A tax rate on the general system is 18% on the income. In addition, a sole proprietorship or company pays a unified social contribution (USC) of 22% and a military levy of 1.5% of their employees` income. The taxpayer on the general system has no restrictions on the type of activity, the annual volume of income, or the number of employees.
The simplified system provides for a flat tax rate of 5% (during martial law - 2%). There are restrictions on the types of activities (e.g., prohibition on the sale of excisable goods), the number of employees (maximum 10 for a sole proprietorship), and the annual income (up to UAH7.5 million, equivalent to about US$250,000). Also, the sole proprietors pay US$50 monthly (exempted for the martial law period) and the company pays the USC and the military levy of 1.5% for its employees` income.
If the profit for the year exceeds 1 million UAH (about US$33,787), the VAT rate is 20%, and for some goods, it is 7% and 0%. VAT is a surcharge on the price of goods or services paid by the buyer but paid to the budget and accounted for by the entrepreneur. Under the simplified system, it is possible to voluntarily pay VAT, then the flat tax rate is 3%.
If the company is owned by foreigners and foreign companies, it cannot be registered as a taxpayer on the simplified tax system.
Is it possible to register a company in Ukraine during the war?
Yes, it is possible.
If you have further questions about registering a company in Ukraine, write to Yana Zdioruk ([email protected]) or reach out to your usual contact at Fortior.