Starting from 2014, Ukraine has constantly risen in the rankings within the World Bank's Doing Business project. In 2020, the organization rated the ease of starting a business in Ukraine and the country received 91 out of 100 points. In this article, we will tell you how to start a business in Ukraine and what is needed for this. You will learn about the legal registration of a business, taxes, and hiring employees.
Starting from 2014, Ukraine has constantly risen in the rankings within the World Bank's Doing Business project. In 2020, the organization rated the ease of starting a business in Ukraine and the country received 91 out of 100 points. The authors of the ranking gave this rating after studying the registration procedure, its duration, cost, and the required amount of starting capital.
In this article, we will tell you how to start a business in Ukraine and what is needed for this. You will learn about the legal registration of a business, taxes, and hiring employees.
In Ukraine, there are two main legal forms of conducting business - an entrepreneur can be registered as an individual entrepreneur or a limited liability company. These statuses allow for almost any type of business activity on legal grounds. We will consider each legal form in more detail in the context of registering a business by a non-resident, that is, a person who does not permanently reside in Ukraine and/or does not have Ukrainian citizenship.
An individual entrepreneur is the most widespread form of doing business in Ukraine, used by hundreds of thousands of people. It allows for transparent entrepreneurial activity, paying taxes, and avoiding sanctions from the tax authorities. Typically, this form of business is chosen by new companies and small businesses. Depending on the criteria for future business, individual entrepreneurs are divided into three groups:
1 group — the entrepreneur works without hired employees and his annual income does not exceed UAH 1,085,500;
2 group — up to 10 hired employees and an annual income not exceeding UAH 5,421,000;
3 group — an unlimited number of employees and an annual income not exceeding UAH 7,585,500.
An entrepreneur can choose the group independently and this determines the size of the taxes and the reporting that must be submitted to the tax authorities. In addition to the group, the future individual entrepreneur must choose the tax system and the classification of the economic activity (abbreviated KVED). KVED is a code that characterizes the direction of the entrepreneur's work. The number of KVED is unlimited, which allows the direction of activity to be changed flexibly. The tax system can be general or simplified. Most entrepreneurs choose the simplified system, as it significantly simplifies the reporting process.
To obtain the status of an individual entrepreneur non-resident, it is necessary to have proof of temporary or permanent residence on the territory of Ukraine. This document confirms the legality of the foreign individual's stay in Ukraine. The non-resident must also obtain an identification code, which is a personal tax identification number assigned to the person. To confirm their identity, the foreign individual must have their passport translated into Ukrainian and legalized. In all other respects, registering as an individual entrepreneur is no different from the general procedure. The entrepreneur comes to the nearest registration center with the necessary package of documents and fills out the required application. The service is free and takes a few hours. After a few working days, the entrepreneur will be able to pick up the documents confirming the registration.
Limited Liability Company
A limited liability company, or LLC, is a purely commercial organization that has statutory capital and one or several founders. The founders of LLC can be both legal and physical entities in unlimited numbers. Entrepreneurs who have established an LLC do not risk their personal property due to the company's obligations. However, in the case of the organization's bankruptcy, the debts of the company are distributed among its participants.
Ukrainian legislation does not provide for a minimum or maximum size of statutory capital. Each participant of the company must make a contribution to the statutory capital, but this does not affect the distribution of shares. Participants independently decide who and what share of the company receives. Also, the founders of the LLC must decide on the appointment of a director who will manage the organization. Theoretically, one of the founders can be a director, but in practice, especially for foreigners, it is better that this role be performed by a separate person. The matter is that the director is considered a hired worker, so a foreigner will need a work permit to occupy this position.
To register a limited liability company, the following is required:
determine the composition of the founders and come up with a name in Ukrainian or English;
choose a legal address for the office location;
determine the size of the statutory capital;
choose the executive body and define its responsibilities;
form and approve the statute.
Once all the required documents and organizational issues have been resolved, the entrepreneur can start the LLC registration process. Just like in the case of an individual entrepreneur, an identification code and notarized documents will be required for LLC registration. However, unlike an individual entrepreneur, there is no need to have proof of residency in Ukraine to open an LLC. In fact, registering your own company in Ukraine is a basis for obtaining a temporary residency permit. If the foreigner has authorized representatives in Ukraine with signing rights, then almost the entire LLC registration process can be done remotely. The foreigner only needs to personally obtain a certificate of residency.
Comparison of Individual Entrepreneur and LLC
In most cases, entrepreneurs in Ukraine prefer to be individual entrepreneurs due to the simple tax system, straightforward accounting, and quick registration process. However, for foreigners, becoming an individual entrepreneur can be difficult due to the requirement to have proof of residency in Ukraine. For this reason, a Limited Liability Company is a better choice for starting a business in Ukraine. The process of setting up an LLC can be somewhat complicated, but a non-resident will not face serious challenges. With the help of Ukrainian lawyers, a non-resident can legally set up their business in Ukraine without any problems. Furthermore, LLCs have several advantages over individual entrepreneurs:
can have multiple founders, not just one;
easier to obtain credit, cooperate with investors, and other contractors;
can sell the business, unlike individual entrepreneurs;
helps a foreigner to obtain a work permit and residency certificate in Ukraine.
Opening a bank account
To run a business, an entrepreneur needs a bank account in a Ukrainian bank. Ukrainian legislation does not impose requirements on which bank to choose, so it is up to the entrepreneur to decide. There are both state and private banks in Ukraine that usually provide services at a similar high level. They differ in the number of branches and ATMs or the availability of a mobile app.
Ukrainian banks allow to open accounts in different currencies, the three most common of which are the hryvnia, dollar, and euro. The entrepreneur can open an account in all currencies if necessary. For business activities, a foreign entrepreneur will need a current account for a legal entity for non-cash transactions. Banks may have slightly different requirements for documents, so it is advisable to get a consultation before the procedure. In general, to open a bank account as a non-resident, you will need:
the original of the international passport and its translated and legalized version;
documents confirming registration in the Ukrainian tax authorities;
a work permit and temporary residence certificate in Ukraine.
The service of opening an account costs little, and the process in Ukrainian banks is very fast. Ukraine has a well-developed banking system, and after opening an account, the entrepreneur will be able to perform most operations using online banking. Almost every major Ukrainian bank has its own mobile applications, where it is convenient to work with your own accounts and funds.
Entrepreneurs who have registered their business as a limited liability company pay three types of taxes: profit tax, value-added tax (VAT), and various payroll taxes. The profit tax rate for the general taxation system is 18% and 20% VAT. If the company's annual income does not exceed UAH 1,000,000, the entrepreneur is exempt from paying VAT. LLCs also have to deduct taxes from their employees' salaries — 18% plus 1.5% military tax, which is mandatory in Ukraine. The company also has to contribute 22% of the employee's salary amount to the pension fund. There is also a simplified taxation system for LLCs, but to switch to it, a set of conditions must be met. Then the profit tax will be 5% and for entrepreneurs who voluntarily pay VAT — 3%.
Translation: A crucial moment during tax payment by foreigners is the issue of double taxation. Ukraine has agreements with more than 70 countries in Europe, America and Asia to avoid double taxation. It's very difficult to figure out which country and taxes to pay on your own, so it's better to seek help from lawyers and accountants. They will help you avoid double taxation and explain what needs to be done.
In Ukraine, there is a large job market where you can find many highly qualified workers. Ukrainian specialists have already proven themselves as professionals for a long time. At the same time, the cost of labor in Ukraine is quite cheap compared to Western European countries. To find employees in Ukraine, there are online job platforms where you can find the desired resume or post a job vacancy with working conditions. To officially hire an employee, a work contract must be signed with him and the tax service must be informed. The process of registering is not affected by the fact that the owner of the business is a foreign national.
Starting a business in Ukraine is open to anyone who is willing to put in a little effort. Ukraine is a friendly country for entrepreneurs and provides many advantages to those who want to start a business there. It is recommended to consult with Ukrainian lawyers, which will significantly speed up the process of registering a business and help avoid mistakes.