legal environment for foreign business in …...legal environment for foreign business in ukraine...

LEGAL ENVIRONMENT FOR FOREIGN

BUSINESS IN UKRAINE

Zagreb, Croatia

February 2020

Alexander Borodkin, partner

10Tax & FX Regulations

5Legal Aspects of Doing Business

6Local Presence

16Business Opportunities

3Investment Environment

13Workforce

Contents

Government Agreements

• Agreement on Friendship and Cooperation 2002

• Agreement on Economic Cooperation 2013

• Agreement on Encouraging and Mutual Protection of Investments 1997 with Protocol of 2016

• Double Taxation Treaty 1996

• Agreement on Mutual Assistance in Customs Affairs 2007

• Sector-specific agreements

3

Investment Regime

• No visa for 90 days entrance

• Simplified legalization – apostil

• National regime and preferential treatment

• Protection of investments against requisition, nationalization, expropriation

• Assistance in civil, family and criminal cases

• Recognition and enforcement of foreign arbitral awards

4

Know Your Partner

• Company register: shareholders, UBO, address, capital, activities

• Court cases register

• Assets registers: titles and encumbrances

• Other open registers: bankruptcy, licenses and permits, tax indebtedness, cadaster, IP

• https://vkursi.pro/

• Full-scale due diligence: legal, financial, tax, other

5

Local Presence

6

Limited Liability Company Representative Office

Status Legal entity Branch of a foreign company

Minimum Capital No requirements No capital

Time for registration 3 – 5 days 30 – 45 days

Documents Extract from company register; information on UBO

Extract from company register; bank account details

Expenses EUR 500 EUR 500

Tax position Tax payer May be non-commercial

Equity financing Registering capital increase No formalities

Receiving loans From any persons From mother company only

UBO disclosure Yes No

Employment of foreigners

Employment permit No permit required

Starting Business in Ukraine

• Director

• Registered office

• Accounting

(all services available in the market from professional advisors)

• Bank account.

(instant opening. Foreign banks: Raiffeisen, BNP, Credit Agricole, OTP, ProCredit, ING, Unicredit-Alpha, Sberbank. State banks: Ukrgas, Privat, ExIm, Oschad)

7

Contracts

• Written form. Mandatory notarial certification for real estate and some other contracts.

• Ukrainian language.

• Ukrainian currency –hryvnia. Foreign currency in agreements with foreign companies.

8

• Mandatory essential conditions for certain types of agreements: land, lease, financial services. Typical agreements.

• Ukrainian law, other than agreements with foreign companies.

Courts

• Specialization of courts: civil, commercial, administrative, criminal.

• Instances: first, appellate, cassation. 2-3 months each.

• Jurisdiction of Ukrainian state courts by default.

• Residents may refer disputes to national arbitral tribunal.

• International arbitration allowed if one party is a foreign company or subsidiary.

• Foreign and arbitral awards are recognized and enforced through state courts.

9

• CPT 18%

• VAT 20%

• PIT 18%

• Defense tax 1,5%

• Social funds 22%

• WHT 15%

• DTT:

– dividends 5% at 25% share and 10% if not

– interests 10%

– royalty 10%

10

Customs

• Business matters:

– Employ customs brokers for clearance and advisory services

– Ukraine recognizes electronic certificates of origin issued by other countries: Austria, Switzerland, the Netherlands, China, Korea, UAE

• Private matters:

– 20% import VAT on deliveries over EUR 100

– 10% import duty on deliveries over EUR 150

– EUR 10 k free cash transfer

11

Currency control

• 365 days maximum term for settlements in cross-border transactions since February 2019

• Regular accounts for foreign entities since February 2019

• No regulation on interests since February 2019

• No mandatory currency sale since June 2019

• No limitation of dividends since July 2019

• E-licenses for up to EUR 100 000 transfer since December 2019

12

Employing Workforce

• Minimum salary UAH 4723 (EUR 180). Average in Kyiv EUR 700

• Unlimited employment term

• Overall taxes approx. 41,5%

• Employment permits for foreigners for up to 1 year

• Minimum salary for foreigners – UAH 47 230 (EUR 1 800)

• Outstaffing and outsourcing

• Private contractors

13

Private Entrepreneurs

• Unified 5% tax

• Up to UAH 5 mln (EUR 188 k), from 2020 – UAH 7 mln (EUR 264 k)

• Concealed employment?

14

Ukrainian entity

Office lease

Foreign entity

Equipment

Administrative stuff

Private Entrepreneurs Private Entrepreneurs

service contract service contract

Other Legal Considerations• Merger clearance: "30 + 4 + 4" and "150 + 8" rules

• Mandatory corporate laws

• UBOs disclosure

• Certain restrictions in land, licensing, privatization and other laws

15

Business Opportunities• Agriculture.

• Renewables.

• Outsourcing & outstuffing.

• Public tenders.

16

Key Agricultural Laws

▪ Land lease for 7 years and more.

▪ Other assets may be in ownership: silos, machinery, buildings and facilities, etc.

▪ Infrastructure belongs to the state: ports, railway, roads; private companies may operate.

17

▪ Special tax regime for agricultural producers: they pay certain fixed percentage of land value instead of CPT, PIT, property tax, and water use rents.

▪ Land moratorium to be lifted soon.

Feed-In Tariff• No "local component" requirement. Benefits for using equipment of

Ukrainian origin.

• Fixed in EUR – no currency fluctuation risk. Green auctions

• Valid until 2030.

18

▪ Public authorities and companies purchase about UAH 600 billion (EUR 20 billion) worth of commodities, services and works through ProZorro

▪ Public tender requirements are unified and may not be biased

▪ Bids admitted, conducted and awarded online and do not require visiting the client before announcing the winner

▪ The bids are admitted by qualifying criteria and the winner is defined automatically

▪ https://prozorro.gov.ua/en

19

Leonardo Business Centre

17/52A Bohdan Khmelnytsky

Street

Kyiv 01030 Ukraine

E: borodkin@vkp.ua

Т: +380 (44) 581 77 77

www.vkp.ua

Contacts