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  • Legal Ideas

HOW TO OPEN IT BUSINESS IN UKRAINE

Updated: Sep 30, 2019


We would start first with the question “Why do you need an IT company in Ukraine?”.


This is a very tricky question and we can discuss it for hours.


If you do a research of start-ups in Silicon Valley you will see that many of them were actually found in Ukraine or by Ukrainians. To name a very few:

PwC rates Ukraine as the 5th biggest IT outsourcing country in the World while Outsourcing Journal gives Ukraine the 1st place in Western Europe.


At the same time why many Ukrainian IT businesses move to the US, Israel and other counties? Some say that this is because of corruption in Ukraine, some say this is because better living standards outside Ukraine, some say – because Ukraine has bad IP protection legislation.


Any version may be true in some part but the main reason in fact – IT goes where its market and customer are. If your investor or customer is in the North Pole, then you open a company in the North Pole, generally speaking.


However, usually opening a headquarter in some foreign country Ukrainian IT business still has its R&D and Dev departments in Ukraine. There are 2 main reasons for that:

  • expertise of Ukrainian IT developers compering to their cost of labor. In plain words Ukrainian devs are cheap while of super quality.

  • taxes. Ukraine is virtually an offshore hub for IT providing as little as only 5% tax imposed on IT business.

PROCESS


The process of registration of an IT company does not differ anyhow from the registration of any other company:

  • Getting a package of documents prepared;

  • Submission of these documents to the state registrar office.

Everything takes 2 days.


DOCUMENTS


1. Registration application.

It is a standard form approved by the Ministry of Justice of Ukraine. It is made in the Ukrainian language only, signed either by founders personally or by their attorney under a notarized PoA issued by each of the founders.


That is not that difficult to fill it out because you specify there your company’s name, address, contacts, and the same information about the company’s shareholders and director.


Everything you need is understanding of the Ukrainian language or a friend who can help you out here.


The most difficult and important part there is choosing codes of types of business (aka “КВЕД”). In most of cases you can use these types of business and codes for an IT company:

62.01 Комп'ютерне програмування (основний); 62.02 Консультування з питань інформатизації; 62.09 Інша діяльність у сфері інформаційних технологій і комп'ютерних систем; 63.11 Оброблення даних, розміщення інформації на веб-вузлах і пов'язана з ними діяльність; 70.22 Консультування з питань комерційної діяльності й керування


Wrong or unnecessary codes may result in higher taxes and extra interest from the state tax services.


2. Resolution of the founders on incorporation of the company.

It is made in the Ukrainian language or may be bilingual and has to be signed either by all of the founders personally or by their attorney(s) under a notarized PoA issued by each of the founders.


3. Charter of the Ukrainian company.

There is a simple standard charter that can be used by default. To read its provisions follow this link and use Google Translate. It is incorporated by the company merely by referring to it in the company’s registration application. So, you actually even do not need a lawyer to get a correct charter for your IT company.


However, a specially tailored charter can be drafted meeting your specific needs.

You need a specially tailored charter when you want to limit or expand standard powers of the company’s director, or when you need to have a board of directors with certain powers for each of them; when you want to set special payment terms for the company’s director; and so on. Also, a specially tailored charter can also be used for the purpose of saving on salary and social taxes at the very beginning of your company’s activity until it starts gaining profit.


4. PoA.

A power of attorney is needed when the documents are submitted by a representative instead of the founder(s) personally.


Submission


There are 3 ways to submit your documents for company registration:

  1. At a state registrar office. It is the most standard option. You just go there and submit your documents. It is free of charge. There are some disadvantages of this variant though. First, you have to go there. Second, usually you need to stay for hours in line waiting for your time. Third, state officials in Ukraine often try to find something in your documents to turn you around.

  2. At a notary office. Most of notaries now can register companies. Notaries charge for this service so it will be more expensive than visiting an office of a state registrar. However, at a notary office you will not stand for hours in line and if a notary finds some mistake in your documents, then you will be able to correct it easily.

  3. Online. This option is very convenient of course yet it is possible only in case you used the standard template for the company’s charter. Companies with customized charters cannot be registered online. You also need to have a certified e-signature to be able to apply online which is actually not a big problem because if you have accounts in some Ukrainian banks (e.g. Privatbank), then you can get such an e-signature free of charge, online and in a matter of minutes.


Summary


Everything above is pretty much standard for doing almost any business. Actually, your IT company can start with this and be okay.


However, usually doing IT business needs some more preparations, documents, and deeper depth of knowledge, skills and expertise to start like a rocket and grow fast.


Let’s name a few most common matters we advise you to consider seriously before starting up:

  • IT companies are usually founded by a team of founders. Each member of the team has his/her own business and professional area of responsibility and profit share respectively. Founders want to agree on their shares, contributions, dividends, rules of selling their shares, rules of letting investors in, etc. A shareholder agreement is signed in such cases between the founders;

  • an IT start-up usually starts with an idea, sometimes there is already some minimum viable product (MVP) and an IT company is created around these. In this case you need to decide who should own intellectual property rights on this MVP, how the company is going to use it, how you can protect it;

  • which taxation system is more favorable for your IT company right now and when and maybe it should be switched to another one;

  • how to structure your company’s business activity so you can wisely and legitimately optimize its and your own taxation;

  • you better want to hire staff or to contract freelancers? In both cases you want to be sure that your IP rights are protected from infringement and that your devs will not go work for your competitor;

  • if your IT product or service is supplied to another country, then you want to be sure that you comply with the legislation of that country;

  • and many more.

And the last thing, it is not difficult to register a company, but do it wisely. Otherwise, you will not get a company registered but a problem registered.


DAILY ROUTINE


Running an IT company you will deal the following matters and documentation in your everyday activities:

  • IT business structuring;

  • Software Development / Website / Web-design / Licensing / SEO & Paid Search / IT outsourcing / IT out-staffing contracts;

  • NDA / NCA / T&C / T&U drafting;

  • Copyright and TM protection;

  • IT taxation optimization;

  • IT labour costs optimization;

  • M&A / S&P / Investment deals support;

  • GDPR / Privacy Shield compliance and optimization.


ESTIMATED BUDGET


Company registration

From free of charge to $100. For example, if you choose a simple standard charter and will not hire a lawyer, then company registration may cost you zero.


Director’s salary

The minimum salary that a company is obliged to pay its director is UAH 5091.06 including taxes. However, this sum may be also decreased as was explained above or if the company’s director works only part time.


Developer’s salaries

Average net monthly pay check an IT professional receives in Ukraine varies from USD 600 to 4000 per month depending on the positions (trainee, junior, middle, senior, team leader, etc) and a programming language.


There are many resources you can check a market wage of a developer of a particular level and programming language, for example here.


Taxes

You can choose 18% standard corporate tax that is paid out of the company’s profit meaning that the company does not pay the tax as long as its expenses exceed its profit.


Or you can choose 5% simplified tax that is paid out of the company’s cash flow.


Office lease

Office lease rates are somewhere around $5 to $40 per m2 depending on location, size, condition & equipment. In Kyiv, for example, there are plenty of co-working spaces where you can get a place for $8 per day.


Check-out our list of TOP 5 legal problems IT companies face in Ukraine and proposed solutions to them.