How to move IT-business to Ukraine | Question and answer about the foreign IT companies relocation
This article aims to answer the most frequently asked questions of our clients regarding the relocation of their IT business to Ukraine.
We have been receiving similar requests even before, but now, due to the events in the neighboring Republic of Belarus, their number has increased several times.
The number of IT companies whose owners are willing to move their business to our cities: Kyiv, Lviv, Kharkiv, Odesa, etc., is growing almost day by day.
First of all, I will briefly inform you on how the IT business actually works in Ukraine.
The business of most IT companies operating in Ukraine is organized and structured as follows:
1. A Ukrainian or foreign company acts as a service provider/product seller (hereinafter – the Company).
Usually, the Company is incorporated in the form of a limited liability company (hereinafter – LLC). Nowadays it is the most optimal organizational and legal form of a company for running business in Ukraine.
Main advantages of LLC:
1) the founder can be both an individual and a legal entity (including foreign ones). The founder can be one person or several;
2) the founder and the head can be the same person. Moreover, if the head of the company is a foreign citizen, he/she is obliged to obtain a work permit. Without this document, he/she will not be able to work in Ukraine;
3) Ukrainian legislation does not contain requirements for the size of the authorized capital of an LLC (it can be anything). At the same time, the authorized capital can be formed not only by cash but also by other assets (land, other real estate, property, trademarks, etc.);
4) the profitability of an LLC on the general taxation system is not limited;
5) the possibility of attributing income to costs (and, accordingly, reducing the tax burden on the company);
6) the liability of the LLC founder for monetary obligations to third parties is limited to the amount of his/her contribution to the authorized capital of the LLC.
2. Engineers/IT specialists register here, in Ukraine, as natural person-entrepreneurs as well as single tax payers of group III (individual entrepreneurs). The last "work" for the Company as independent contractors on the basis of Development Contracts, Engagement Contracts, Contracts for Work, Labour and Services, or other types of contracts.
Individual entrepreneurs are not employees of the Company to obtain tax benefits (described below).
3. The office for all sole proprietorships is rented by the Company (or another partner company) and subleased to the sole proprietor.
Alternatively, the office is designed as a coworking space.
The main advantages of this organization:
1. Sale of computer programs and software development is not subject to VAT taxation until 01.01.2023 (most likely this period will be extended by the Parliament of Ukraine in 2022).
2. The company pays income tax at a rate of 18% based on the results of annual operations. At the same time, the costs of sole proprietorship services reduce the Company's revenue base.
3. Single tax payer of group III pays a single tax quarterly in the amount of 5% of the total income of the individual entrepreneur for the corresponding period. To maintain the status of a single taxpayer of the 3rd group, the annual income of a sole proprietor cannot exceed 7,000,000 hryvnias (about 250,000 US dollars).
4. In addition to the single tax, the individual entrepreneur, regardless of income, pays a single social contribution at a rate of 22% of the minimum wage every quarter (from 01.09.2020 the minimum wage in Ukraine amounts 5,000 hryvnia, about 180 US dollars).
5. An individual entrepreneur can withdraw funds from his bank account in cash without any problems. Some specifics of the business, if the founders (owners) of the Company and the self-employed persons are the citizen of Belarus (the Republic of Belarus):
1. Citizens of Belarus, like any other foreign citizens, can be founders of the Company. Belarusian citizens – founders will need to obtain a tax number in Ukraine.
2. If the Company plans to employ citizens of Belarus (including general directors), the Company must first obtain a work permit for such citizens.
3. Citizens of Belarus can register as natural person-entrepreneurs as well as single tax payers of group III subject to obtaining a tax number in Ukraine.
At the same time, to be able to stay in Ukraine for more than 90 days within 180 days, individual entrepreneurs (citizens of Belarus) must apply for a temporary or permanent residence permit in Ukraine.
The basis for obtaining a temporary residence permit for an individual entrepreneur (citizen of Belarus) is, inter alia, a work permit.
I hope you have found answers to all your questions regarding relocation to Ukraine, but if not, then please leave your comments below the article, or you are able to contact me directly – Этот адрес электронной почты защищен от спам-ботов. У вас должен быть включен JavaScript для просмотра.
I'd be happy to consult as well as help you with your IT company's relocation.
Best regards,
Alex Shkudun
Attorney at Law
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