For investors

The most common for conducting business activities in Ukraine are limited liability companies (“LLCs”) and joint stock companies (“JSCs”), both of which embody the concept of limited liability for investors.
In choosing between an LLC and a private JSC in establishing a whollyowned subsidiary, LLCs appear to be more popular than private JSCs due to the various establishment and operational considerations. The main general corporate benefit of an LLC in comparison with a JSC is that the procedure for the establishment and operation of an LLC is significantly less burdensome and time-consuming. An LLC does not have to issue shares or perform the procedural steps required for issuing shares. The absence of shares in an LLC makes this form of legal entity more mobile and flexible when the participants of the LLC have to change (increase or decrease) the charter capital of the company.

Read more about LLC (pages 26-29) and PJSC (pages 30-34)

The general principles of the Ukrainian tax system, as well as the taxes and duties (mandatory payments) which may be levied in Ukraine, are defined in Law No. 2755-VI of 2 December 2010 of the Tax Code of Ukraine (“Tax Code”). The Tax Code stipulates that tax rates, tax exemptions and the procedures and mechanisms for tax assessments and payments may not be introduced or changed by legislative acts other than those introducing changes to the Tax Code. In addition, any changes or amendments with regard to the determination of tax rates, tax exemptions and procedures and mechanisms for their assessment and payment may be introduced into tax legislation not less than six months before the beginning of a new budget year.

The Tax Code establishes the following general principles for taxation of foreign legal entities:

• Foreign legal entities will be taxed in Ukraine on their profits derived from their commercial activities undertaken in the territory of Ukraine through a permanent establishment
• Income derived from sources within the territory of Ukraine by foreign entities that are not engaged in commercial activities in the territory

The Tax Code provides that a foreign entity is liable for the payment of CIT with respect to all “Ukrainian-sourced” income. Article 141.4 of the Tax Code provides a non-exhaustive list of the types of income, which are, per se, deemed to constitute Ukrainian-sourced income, including:

• Interest payments
• Dividends
• Royalties
• Lease payments
• Proceeds from real estate sales in the territory of Ukraine
• Profits from securities transactions
• Profits from joint activity agreements or long-term agreements
• Broker’s or agency fees
• Other kinds of income derived by a foreign entity from its business activity in the territory of Ukraine

Read about Double Taxation Treaties (pages 49-64) 

“Permanent establishment of a foreign entity” in Ukraine is created:

• through a fixed place of business through which the business activities of such foreign entity are either fully or partially conducted in Ukraine
• through an agent, commissioner or other resident entity acting in a similar capacity

In accordance with Article 180.1 of the Tax Code, any Ukrainian or non-Ukrainian legal entity will be required to pay VAT, if that entity:

• Has sold goods (or provided works or services), including via global or local computer networks, subject to VAT during the last 12 calendar months with an aggregate value in excess of the UAH 1 million threshold (approximately USD 36,000)
• Imports (ships) goods into the customs territory of Ukraine
•  

The basic VAT rate is 20% of the contractual value of the relevant goods (services), but not less than the original purchase price thereof or, in case of the sale of produced goods, not less than the arm’s length value thereof (for goods imported into Ukraine, this value cannot be lower than their customs value with the excise tax and import customs duty included).

A reduced rate of 7% is applied to the sale and import of medicine and medical devices.

A 0% tax rate is provided by the Tax Code for the export of goods.

Effective from 1 February 2015, Ukraine has switched to electronic VAT administration and introduced VAT accounts. On 1 July 2017, Ukraine introduced a system of automatic blocking of risk-bearing VAT invoices (what constitutes a risk factor is specifically determined in the legislation)

Issues of personal income taxation are principally regulated by the Tax Code, including tax rates, tax residency rules and determination of taxable income, tax administration, tax credit rules and others.

Effective from 1 January 2016, the general tax rate applicable to almost all income received by a resident individual in Ukraine is 18%. Tax residents can benefit from certain tax exemptions and reduced tax rates (e.g., 5% applicable to income from sales of real estate and movable property; under certain conditions such income can be exempt). The Tax Code establishes the tax rate applicable to dividends paid by Ukrainian CIT payers at a level of 5% (9% on dividends distributed by institutes of joint investment, foreign entities and entities that do not pay Ukrainian CIT), while interest, royalties and capital gains are taxed at 18%. Winnings and prizes are subject to personal income tax at a flat rate of 18%.

Special rules of taxation are established for inherited property, securities and other specific items.

Reduced tax rates for business income and other incentives are prescribed for certain categories of individual entrepreneurs.

Additional military tax at 1.5% is levied on the income that is subject to personal income tax and a couple of categories of income that are exempt from personal income tax.

The general rule of the Tax Code is that it is the duty of the payer of sourced income, i.e., “tax agents” in the parlance of the Tax Code, to report, charge, collect and remit personal income tax to the government. Thus, employers are deemed to be tax agents with respect to the personal income tax and military tax due on the wages and salaries payable to their employees. The relevant tax returns are filed by tax agents quarterly and the remittance is made when income is paid.

The Unified Contribution to be paid by an employer is not deducted from employees’ salaries, but must be paid by the employer in addition to their salaries.

Effective from 1 January 2016, Unified Contribution is payable at a rate of 22%.

The Unified Contribution is payable by the employer at the time income is paid. All payroll taxes must be paid by wire transfer to the appropriate state treasury accounts at the same time that the employer withdraws funds from a bank to pay salaries to its employees or pays salaries to the bank accounts of its employees.

The maximum taxable base for the purposes of Unified Contribution constitutes 15 times the minimum monthly salary (which is UAH 62,595 (approx. USD 2,240) as of January 2019). Any portion of the taxable base in excess of the maximum taxable base is exempt from taxation for the purposes of Unified Contributions. The same cap, rates and rules apply for resident individuals and foreigners employed in Ukraine.

Types of Tax Audits

• Chamber Audit
• Documentary Audit (Scheduled, Unscheduled)
• “Actual” Audit

The Code of Laws on Labor of Ukraine (the “Labor Code”) dated 10 December 1971, as amended, applies to all Ukrainian and foreign enterprises, institutions and organizations, irrespective of their ownership form, type or area of activity, and to all individuals employing labor in Ukraine.
Employment relationships between enterprises with foreign investment (as well as representative offices of foreign legal entities) and their employees on the territory of Ukraine are governed by the applicable Ukrainian legislation and the bylaws of such enterprises. Thus, all employers (both foreign and Ukrainian) must comply with the provisions of the Labor Code, which apply regardless of whether the employee is a foreign or Ukrainian national. The employment guarantees and the social security benefits granted to employees of both representative offices of foreign companies and Ukrainian companies with foreign investment are the same as those granted to employees of other Ukrainian companies.

Both local and foreign legal entities may engage individuals in Ukraine pursuant to either employment agreements (or employment contracts, where appropriate) concluded in accordance with the Labor Code, or so- called “civil law contracts” concluded in accordance with the Civil Code (eg, an independent consultant agreement).

Ukrainian law distinguishes between an “employment agreement” and an “employment contract.”

The principal advantage of an employment contract (compared to an employment agreement) is the discretion which its parties may exercise in the terms and conditions of employment and the termination grounds.

In addition, employers must properly record employment in the labor books of their employees.

Generally, the amount of the monthly salary accrued to the employee may not be lower than the minimum monthly salary established by law. The minimum monthly salary is subject to frequent indexation. As of 1 January 2019, the minimum monthly salary is equal to UAH 4,173 (approximately USD 150 ). The officially established minimum monthly salary is periodically adjusted by the Ukrainian parliament to reflect increases in the cost of living

Employers must pay foreign employees a minimum salary:

• not less than five times the minimum monthly salary established by law — for foreign employees of civic associations, charitable organizations and certain educational institutions
• not less than 10 times the minimum monthly salary — for other categories of foreign employees, except for the special categories of foreign employees.

Read more  about Equal Job Opportunities, Probation Period, Working Week, Personal Data and more (pages 161 - 173).

Under the Civil Code of Ukraine, dated 16 January 2003, as amended (the “Civil Code”), three types of property ownership (private, state and municipal) exist in Ukraine. In contrast to the former system of state and collective ownership of property in the Soviet era, private ownership is specifically recognized and honored in Ukraine.

Under Article 26 of the Constitution, foreign citizens enjoy the same rights and freedoms and bear the same responsibilities as Ukrainian citizens, including property rights. According to the Civil Code, foreign citizens and legal entities are entitled to own property in Ukraine, unless otherwise provided for in international treaties involving Ukraine or other Ukrainian laws. The Ukrainian courts ensure protection of property rights in accordance with the applicable Ukrainian laws.

The lease of real estate (with the exception of land) in Ukraine is governed by the Civil Code, the Law of Ukraine on the Lease of State and Municipal Property dated 10 April 1992, as amended (the “State Property Lease Law”), as well as other laws and regulations.