“Google tax law” in Ukraine. Procedure of registration of foreign company, providing electronic services as VAT payer in Ukraine

“Google tax law” is the simple informal name of the Law on the Amendments to the Tax Code of Ukraine Regarding Abolition of Taxation of Revenues Received by Non-Residents from Production and/or Distribution of Advertising and Improvement of Value Added Tax Administration Procedures as it Pertains to the Operations on Electronic Services Provision to Individuals by Non-Residents (hereinafter – the law).

The law entered into force on July 2, 2021.

The law will apply to foreign companies from January 1, 2022. Foreign entities that will meet VAT registration criteria in 2021 must register as VAT payers until March 31, 2022 through the application Diia (https://diia.gov.ua). 

Which foreign companies will pay VAT in Ukraine?

According to the Law, the Ukraine will tax foreign companies, which do not have permanent establishment in Ukraine and sell electronic services to Ukrainian individuals and private entrepreneurs, who are not payers of VAT, for total amount exceeding UAH 1 million per year. Such foreign companies must get registered and pay 20% VAT from revenue generated in Ukraine as defined above. 

Electronic services include provision of access to electronic services through the electronic interface, providing technical, organizational, informational and other opportunities by means of information technology and systems, establishing contacts and agreements between sellers and buyers and / or provides of such electronic services under intermediary agreements under its own name, but on behalf of the electronic service provider.

The following foreign companies will be exempt from tax:

  • Those supplying electronic services under intermediary agreements, if the invoices (receipts) provided to customers of electronic services specify the list of such electronic services and their actual supplier;
  • Those carrying out exclusively processing of payments for electronic services and do not participate in the provision of such electronic services;
  • Those providing electronic services directly through their permanent establishment in Ukraine. 

What are electronic services

Electronic services (taxable) according to the Law are the services provided via the Internet and are automated, using information technology and preferably without human intervention, including by installing a special application or application on smartphones, tablets, TV sets or other digital devices. Such services, in particular but not limited to, include:

a) providing electronic copies, providing access to images, texts and information, including but not limited to, subscription to electronic newspapers, magazines, books, providing access to and / or uploading photographs, graphics, videos;

b) providing access to databases, including the use of search engines and directory services on the Internet;

c) supply of electronic copies (electronic-digital information) and / or provision of access to audiovisual works, video and audio works to order, games, including provision of services for participation in such games, provision of services for access to television programs (channels) or their packages, except for access to television programs simultaneously with their broadcasting through a television network;

d) providing access to information, commercial, entertainment electronic resources and other similar resources, in particular but not exclusively, hosted on platforms for sharing access to information or video materials;

e) the provision of distance learning services on the Internet, provision of which does not require human participation, including by providing access to virtual classrooms, educational resources in which students complete tasks online and get grades automatically, without human participation (or with marginal participation);

e) provision of cloud services as it pertains to providing computing resources, storage resources or electronic communications systems using cloud computing technologies;

f) supply of software and updates to it, including electronic copies, providing access to them, as well as remote maintenance of software and electronic equipment;

g) provision of advertising services on the Internet, mobile applications and other electronic resources, provision of advertising space, including by placing banner advertising messages on websites, web pages or web portals.

Services exempt from taxation

For the purposes of taxation, the following operations shall not be considered as electronic services:

  • supply of goods / services, ordering (booking) of which is carried out via the Internet, using mobile applications and other electronic means, and the actual supply is carried out without the use of the Internet (in particular, accommodation services, car rental, catering services, passenger services and other similar services); 
  • supply of goods and / or other services, other than electronic services, which include electronic services, if the cost of electronic services is included in the total cost of such goods / services;
  • provision of distance learning services on the Internet, if the Internet is used exclusively as a channel of communication between teachers and students;
  • supply of copies of works in the field of science, literature and art on physical storage medea;
  • providing consulting services by e-mail;
  • providing access to the Internet.

How would controlling bodies define that a foreign entity generates revenue from electronic services in Ukraine?

According to the law, origination of Internet traffic or customer equipment location will serve as a criterion, based on which the services will be considered as those consumed in Ukraine. Internet traffic will be considered as originated in Ukraine, if a customer uses local Internet providers’ services (fixed-line or mobile carriers). If Internet connection was established with the use of access card or similar media, location of the customer equipment will be considered (for example, IP address). 

Additionally, customers of electronic services will be identified by their payment address, bank details and other commercially important information.

Procedure for registration of a foreign company that supplies electronic services as a VAT payer

The law provides for a simplified registration procedure by submitting an application in electronic form.

Such an application shall be submitted by 31 March of the relevant calendar year following the year in which a foreign company has exceeded the amount equivalent to UAH 1000000.

A foreign company that has not exceeded this amount, but considers it appropriate to register voluntarily as a taxpayer, may apply for registration not later than 10 calendar days before the beginning of the reporting (tax) period from which such foreign company will be regarded as a taxpayer.

The application shall be submitted to the State Fiscal Service of Ukraine (SFS of Ukraine) in electronic form through a special portal solution for foreign company users that provide electronic services by means of electronic identification.

Documents to be submitted for registration:

  • application for registration as a taxpayer (the application form is approved in the Ukrainian and English languages by the SFS of Ukraine).
  • copy of an excerpt from a relevant business register (commercial, banking or other register that establishes the fact of state registration of a company or organisation) issued in the country of registration of a foreign company,
  • document confirming the assignment of identification (registration, accounting) number (code) of a foreign company in the country of its registration, if the extract from the respective business register does not contain information on such number (code),

The application shall contain information on:

  • registration of a foreign company in the foreign company’s country of residence,
  • foreign company identification data, will be subject to electronic identification,
  • details of its representative,
  • electronic address,
  • bases for registration,
  • information on confirmation of the fact and period of reaching the amount exceeding UAH 1000000, as well as foreign currency (EUR or USD) in which the foreign company will pay the tax.

The deadline for making a decision on registration as a VAT payer is 3 working days after receipt of the application.

Registration of a foreign company as a taxpayer and interaction with the controlling authority is carried out by means of electronic identification using a domain name of a foreign company and/or, using other permitted technologies for electronic identification of a taxpayer.

The procedure of electronic identification is approved by the SFS of Ukraine, its official translation into English is placed on a special portal solution for foreign company users that supplies electronic services.

Registration of a Foreign Company with the Tax Office in Ukraine

On January 1, 2021, the Law of Ukraine of “On Amendments to the Tax Code of Ukraine and Other Laws of Ukraine on Ensuring the Collection of Data and Information Necessary for Declaring Certain Objects of Taxation” dated December 17, 2020 № 1117 (hereinafter – Law № 1117) entered into force.

Law No. 1117, inter alia, amended paragraph 60 of subsection 10 of section XX of the Tax Code of Ukraine (hereinafter – the Code), according to which foreign companies with a representative office in Ukraine, registered at the Ministry of Economy shall within three months from 01.01.2021 submit to the tax authorities the documents for their registration (as foreign company) in accordance with the procedure established by paragraph 64.5 of Article 64 of the Tax Code.

This three-month period was postponed by the Order of the Ministry of Finance of Ukraine # 62 dated 08.02.12021 “On approval of Amendments to the Procedure for Registration of Payers of Taxes and Fees”, which entered into force on 19.03.2021 (hereinafter – Order # 62). 

Under Order # 62, foreign companies are required to register with the tax authority within two months of the entry into force of the Order, i.e. by 19.05.2021.

For this, a foreign company shall submit to the tax authorities in the city / town where its Representative office in Ukraine is located the following documents:

  1. Application form 1-OPN (a new one, approved by Order № 62), and a cover letter. 
  2. Attached to the application shall be copies of the following documents (with presentation of originals):
    • an extract from the relevant national business register (trade, banking or other register, which records the company registration), legalized in the prescribed manner, unless otherwise provided by international treaties, the consent binding nature of which is provided by the Verkhovna Rada of Ukraine, and accompanied by a notarized translation into Ukrainian;
    • a document containing the identification number (registration or accounting code) of the foreign company in the country of its registration, if the extract from the relevant business register does not contain information about such a number (code), accompanied by a notarized translation into Ukrainian;
    • a document confirming the authorisation of the foreign company’s representative. If such a document is issued in the country of registration of the foreign company, it must be legalized in the prescribed manner, unless otherwise provided by international treaties approved by the Verkhovna Rada of Ukraine, and accompanied by a notarized translation into Ukrainian.

    In this case the representative shall, along with the power of attorney to submit documents to the tax authority, have the right to represent the interests of the foreign company in Ukraine, and the data on such a representative shall be given in the application form in the columns “manager” and “chief accountant”. A copy of the passport, identification code and/or other document containing the information specified in the application form for the representative shall be submitted together with the power of attorney.

    • a document confirming the accreditation (registration, legalization) of the representative office of a foreign company located in Ukraine (the Representative office). 

In the case of establishment of a Representative office, the foreign company shall register itself with the tax authority within ten days after the registration in Ukraine of the Representative company at its registered address in Ukraine.

At the same time along with the registration of the foreign company shall be the registration of the Representative Office of the foreign company.

The Tax Code also provides for other grounds for compulsory registration of a foreign company with the Ukrainian tax authority, namely:

  • acquisition of real estate or obtaining property rights to such assets in Ukraine;
  • opening a bank account in Ukraine;
  • acquisition of title to an investment asset in Ukraine from another foreign company which doesn’t have a representative office in Ukraine.

Consequences of non-compliance with the legal requirements regarding registration with the tax authorities by a foreign company.

If the tax authority, based on the results of tax control, discovers that a foreign company is conducting business in Ukraine, including through a Representative office, without registration of the foreign company in tax authority, the supervisory authority shall appoint an audit for the further inspection of such business activities.

Based on the results of an inspection, the tax authority may draw up an act of inspection, and on the basis of which it may unilaterally register the foreign company in Ukraine.

In accordance with subparagraph two of paragraph 60 of subsection 10 of section XX of the Tax Code, audits (inspections) of foreign companies engaged in business activities in Ukraine, which under requirements of the Tax Code should have been registered with the Tax Office and which have not fulfilled such requirements, may be instructed from 1 July 2021.

Clause 117.4 of Article 117 of the Tax Code states that a foreign company which carries out its activity through a Representative Office without being registered for tax purposes as provided for by Tax Code, shall be fined UAH 100,000.

The above amendments have raised many questions but unfortunately the tax legislation has no direct answers to them.

In order to eliminate ambiguous interpretations of certain provisions of the tax legislation, the Ministry of Finance of Ukraine by its Order No. 277 dated 19.05.2021 approved a general consultation with regard the registration of non-residents with the tax authorities and the performance of their obligations as corporate tax payers in Ukraine, as well as providing answers to 6 main questions.

In this article we focus on two of these questions that in our view are the most important for business.

The first: who now exactly has to pay corporation tax, the foreign company-taxpayer himself directly or his Representative office?

The Ministry of Finance has clarified that tax shall be paid by the foreign company through its Representative office, subject to due authorisation (powers).

That is, a Representative office may pay income tax on behalf of a foreign company, provided that the head of the Representative office is authorised to do so as a representative of the foreign company under a power of attorney.

The second question is whether a foreign company that is not registered as a corporate tax payer in Ukraine nor forms a permanent establishment there (i.e. carries out preparatory and auxiliary activities) but which does have a tax authority registered Representative office in Ukraine, whether it should now also be registered with the tax authorities?

The Ministry of Finance has clarified that in this case the foreign company must be registered with the tax authorities without registering as an income taxpayer.

We admit that the procedure for registering a foreign company in connection with their activities through Representative Office, including a permanent establishment, is new and has many nuances, and the supervisory authorities are continuing to clarify them and make amendments that should be taken into account when collecting, preparing and submitting documents to the supervisory authority.

Laudis Law Firm as always will be pleased to assist you with any such registration, to establish a representative company office in Ukraine and with all related procedures.

Galina Bastieieva

Laudis Legal & Accountancy

Permanent residency for investor in Ukraine

The process of obtaining a permanent residence permit based on investment in Ukraine is time-consuming and involves collecting a lot of documents.  

What is investment for immigration purposes?

To qualify for immigration on this basis, an investor must invest money into the economy of Ukraine in a manner stipulated by the law. This can be in the form of a contribution into the authorized capital of a company in Ukraine of which you are the owner or ultimate beneficiary. 

The contribution must be minimum of USD 100,000 and can be paid in any foreign currency. Please keep in mind that the amount of contributed money should be no less equivalent than USD 100,000 on the day the share capital is replenished.

Please note that private purchase of real estate by a foreigner in Ukraine is not considered an investment into the economy of Ukraine and cannot be used as grounds for obtaining a permanent residence permit. However, it is possible to purchase real estate under the ownership of a company in which you have invested money. The Government does not control the further use of invested funds by the company.

Investment account

The investment as described above should be done through a special investment account, which is opened by the investor in Ukraine. Only international banks operating in Ukraine are recommended for this. The investment account can be deposited into from a personal account of the investor, and also from the account of a foreign company legally connected to the investor. 

The advantage of investment through an investment account is the simplified withdrawal of capital from Ukraine in the future.

Immigration permit

After you have deposited money into the company account, you can proceed with obtaining an immigration permit, which is the first step towards obtaining a permanent residence permit. The period for consideration and approval of documents for the application can take up to one year.

Quota for immigration based on investment

The government limits the number of foreigners who can be issued an immigration permit in the current year on the basis of investment in the economy into a quota, which is further divided separately for each region. The quota is established for each category of foreigners by the Cabinet of Ministers of Ukraine once a year. 

Documents for obtaining an immigration permit

For an immigration permit, you need to collect a package of documents, including:

-Information from a bank which confirms that you have contributed to the authorized capital of your company in Ukraine to the amount of USD 100,000 or more. At this stage you may encounter difficulties as not every certificate is suitable for the migration service. It is important to remember that the funds must go to the account of the Ukrainian company in a foreign currency, and not in hryvnia. The funds should be accrued to company account from an investment account (of investor or company) as mentioned above. 

-Certificates confirming that you do not abuse alcohol, toxic substances, drugs and do not suffer from certain infectious diseases. These certificates can be issued in Ukraine, many private clinics provide them. The cost of a package of certificates is on average $ 100. We accompany the foreigner to the appropriate medical institution and check the document for compliance with the required form.

– A police clearance certificate issued in the country of your residence. It must be apostilled, translated into Ukrainian, and the translation must be notarized already in Ukraine. Please note that if you are resident in multiple countries, immigration services require clearance certificates from each of the countries. 

-A document confirming the investor’s place of residence abroad. This can be a certificate, your internal civil passport, or driver’s license.

– A document confirming the investor’s place of residence in Ukraine. It must be a notarized statement from the flat owner that he allows you to register as the place of residence his apartment or certificate №13 if you have temporary residence permit.

-Also you need to provide your passport along with its notarized translation into Ukrainian.

After you have submitted the package of documents to the migration service, you need to wait for up to a year for the immigration permit to be issued. The document will be delivered to the registered official address of the foreigner in Ukraine. 

During this period, the Migration Service of Ukraine will verify your identity. The verification requires the collection of information, in particular by Interpol.


After you receive an immigration permit, you need to obtain a D visa for immigrants (D-01 visa) from an Embassy of Ukraine abroad (ie outside Ukraine) and then it is possible to apply for a permanent residence permit in Ukraine. If you have an existing valid temporary residence permit, you need not obtain a D-01 visa for the application. 

There are countries whose citizens are not obliged to observe visa-D requirements: Azerbaijan, Armenia, Belarus, Georgia, Moldova, Russia, Uzbekistan. They may apply immediately (except for Russian citizens, they need to re-enter Ukraine). 

Obtaining the permanent residency permit

After getting the Visa D you can submit the documents mentioned above for a permanent residency permit. 

Your permanent residence permit will be ready within 15 working days. 

A permanent residency certificate is granted for 10 years with the following prolongation. 

Laudis Legal&Accountancy is always ready to provide qualified professional assistance and assist you in obtaining an immigration and permanent residency permit.

Alina Mykolaichuk

Lawyer, immigration and corporate law specialist
Laudis Legal & Accountancy

Taxation of real estate in Ukraine in 2022

Below you will find key information about taxation of real estate in Ukraine for individuals who owns property and for legal entities. You will see the difference in taxation between residents and non-residents

It should be noted that defining foreigner individual as resident or non-resident from tax perspective does not relate directly to having temporary or permanent residency certificate in Ukraine. Below we provide explanation about how the tax residency should be defined and proved to notary, registering the deal and eventually reporting to tax authority about the tax amount payable by the seller. 

1. Taxes from the sale

1. The seller is individual resident or non-resident

  • In the case of buying, the buyer usually pays 1 % duty on obligatory state pension insurance, 
  • Seller or parties jointly pay 1 % of state duty from the deal price (but not less than price of the estate, proven by independent estimator). 

Seller should pay the following taxes:

Residential estate, apartment:

  • personal income tax 18 % (residents pay 5% instead).
  • military tax 1.5 %

Special cases taxation:

  • If the individual (either resident or non-resident) has owned the property for more than 3 years and for the last 1 year hasn’t sold any other real property, there is no tax. 
  • In case the real estate is inherited – the condition of ownership of the property for more than three years in this case does not apply, ie you can sell the property immediately. When selling such real estate, income is also not taxed. 

Commercial estate, offices etc:

  • personal income tax 18 % (residents pay 5% instead).
  • military tax 1.5 %

The above rates applies to residents and non-residents independently on the term they own estate and the fact of sale of real estate during a year.

2. The seller/buyer is LLC, registered in Ukraine (both commercial and residential estate)

When the legal entity is the seller:

  • Corporate profit tax is 18 % and will be calculated based on income and expenses. 
  • 1 % of state duty from the deal price

When the legal entity is the buyer:

  • 1 % duty on obligatory state pension insurance

Wnen the legal entity buys property from the individual, it is the tax agent for individual income tax payment (so the tax if any withholds from the price of the estate and paid to the state budget).

3. The seller/buyer is private entrepreneur individual

The property should be bought and sold by individual (not as a private entrepreneur). Theoretically, the private entrepreneur can be party to the deal, but in practice there is no benefits from that and in case of liquidation of private entrepreneur status, the real estate should be deregistered on the individual, ex private entrepreneur. 

The private entrepreneur registered on the simplified tax system, may rent out individually owned property. This is provided by law.

4. The seller/buyer is foreign legal entity

According to Art. 64.5 of Tax Code of Ukraine (TCU) foreign companies, which acquire real estate or rights to it (construction investment), should register themselves at tax authority of Ukraine.

In case of obtaining of further income, such companies will be taxed as legal entities in Ukraine through registered in Ministry of Economy Represented office or agent in Ukraine. 

2. Taxes from the rent fee

A property can be rented out by a Ukrainian legal entity, the representative office of a foreign company or a private entrepreneur (who is the owner of the property as an individual). 

A. Individual renting out the property

The taxes from the rent are as follows:

  • personal income tax 18 % 
  • military tax 1.5 %

The individual should submit their tax return annually up to the1st of May of the following year (the next one) and pay tax (PIT) up to 1st of August of the following year. 

In case a company rents from an individual – the company pays his taxes being his tax agent. Still, the individual is obliged to a submit tax return. 

B. Private entrepreneur registered in Ukraine renting out the property 

There are some limitations on real estate which are able to be rented by private entrepreneurs. The private entrepreneur can provide this activity on:

  1. The common system of income tax (18+1.5% of tax from profit); or 
  2. On the 3rd group of single tax, which is 5 % of income. Income amount is limited in 2021 to UAH 7 mln per annum.

The limitations regarding size of property to be rented out by private entrepreneur starting from January 1, 2021 according to Art. 291.5.3. of TCU are as follows:

  • renting of land up to 0,2 hectares;
  • renting of a residential property up to 400 sq.m.
  • rent of a non-residential property up to 900 sq.m.

As was mentioned above, the private entrepreneur may rent out his personally owned estate. 

C. Non-resident individual is renting out the property

According to Art. 170.1.3. of TCU, real estate owned by a non-resident individual may be rented out exclusively through a private entrepreneur or a Ukrainian legal entity who perform representative functions of such non-resident on the basis of a written agreement and act as its tax agent in respect of such income. 

When and if a rental is to be transferred to a non-resident owner of property abroad, a withholding tax (at rate of 15 %) additionally to personal income tax should be applied, if otherwise is not provided according to a Double Tax treaty between Ukraine and the country of residency of the non-resident of Ukraine. 

D. Legal entity of Ukraine/ Representative office of foreign company in Ukraine is renting out the property

Corporate profit tax is 18 % and will be calculated based on income and expenses. 

E. Foreign legal entity is renting out the property

According to Art. 64.5 of TCU as was mentioned above, foreign companies, which acquire real estate or rights to it (construction investment), should register themselves at tax authority of Ukraine.

In case of providing further activity such as renting out the office or apartment, such foreign company would pay relevant taxes (corporate profit tax and VAT in some cases) through:

  1. Representative office registered in Ministry of Economy in Ukraine.
  2. Agent representing the foreign company in Ukraine and responsible for non-resident company taxes.

3. Taxes on ownership

According to Art. 266.5.1 of the TCU, tax rates for residential and / commercial real estate owned by individuals and legal entities are set by decision of territorial communities in accordance with the law and the long-term plan for the formation of communities, depending on the location (zoning) and types of such real estate, in an amount not exceeding 1.5% of the minimum wage established by law on January 1 of the reporting (tax) year, for 1 sq.m of the tax base. 

A. Residential estate, apartment:

The law provides in 2021 that real estate tax should be paid in the case where a person owns an apartment of more than 60 sq.m or a private house of more than 120 sq.m, or 180 sq.m. total in case of owning both an apartment and house. The maximum tax rate is 1.5 % of the minimal official salary (in 2021 this is UAH 6000 per month, so 1.5 % is 90 UAH, which is to be paid in 2022), per each meter above this minimum quantity of meters. In cases where apartments are more than 300 sq.m and houses are more than 500 sq.m, the rate is plus 25000 UAH per each object.  

B. Commercial real estate, offices etc:

The rate of real estate tax is conditional and depends on  the decision of local authorities (if there is no decision, there is no tax). The maximum rate is 1.5 % of the official minimum salary (in 2021 this is 6000 UAH, 1.5% is 90 UAH) per meter.

Residential status of individual owner of the property

Please note that mentioned above rates for residents and non-residents individuals are stipulated in the Tax Code of Ukraine, which also has a definition of who is considered to be a resident. Tax residency matters for determining tax amount, and the tax residency is not determined by citizenship or residency (temporary or even permanent) in this case.

If a foreigner becomes a tax resident of Ukraine at the date of sale, he is entitled to tax rates applicable to residents of Ukraine.

Before the deal the state register, which is in most cases public notary carrying out functions of state register, estimate the taxes payable by the seller of real estate. Eventually upon the deal the notary submits form 1ДФ to tax authorities with determination of the tax, even if this is 0 % tax. 

So, how can we determine tax residency of foreigner, selling the real estate and what practically matters to define him as tax resident of Ukraine

According to Art. 14.1.122 and 14.1.213 of the Tax Code of Ukraine (TCU), the tax residency is being defined by several thresholds, the main one is the place of permanent living/residence. 

Still public notaries may not rely on counting days in passport of foreigner (should be 183 days during a year or more, in Ukraine), because he is entitled to provide only residency permit for the deal, not passport, he may also have other passport etc. So, there are other ways of defining tax residency applied.

Extract from Art. 14.1.213 of TCU, defining tax resident:

“If a natural person also resides in a foreign country, he / she is considered a resident if such a person has a permanent residence in Ukraine; if a person also has a permanent residence in a foreign country, he is considered a resident if he has closer personal or economic ties (center of vital interests) in Ukraine. If the state in which the individual has a center of vital interests cannot be determined, or if the individual does not have a permanent residence in any of the states, he is considered a resident if he stays in Ukraine for at least 183 days (including the day of arrival and from during the period or periods of the tax year.

A sufficient (but not exclusive) condition for determining the location of the center of vital interests of an individual is the place of permanent residence of members of his family or his registration as a business entity.

If it is impossible to determine the resident status of a natural person using the previous provisions of this sub-clause, a natural person is considered a resident if he is a citizen of Ukraine.”

To define tax residency precisely, also the Double tax Treaty (DTT) between Ukraine and the country of citizenship or other place of permanent residency should be considered, because the definition of resident for tax purposes can slightly be different in DTT and Tax Code of Ukraine and in that case the DTT will prevail. 

Based on TCU’s definition of tax resident above, permanent residency in Ukraine can be considered as granting tax residency in Ukraine. But as you may see from definition above there still can be options to choose other tax residency even when foreigner has permanent residency. 

There is another important paragraf in the Article 14.1.213 of TCU:

A sufficient basis for determining a person as a resident is his / her independent determination of his main place of residence on the territory of Ukraine in accordance with the procedure established by this Code, or his registration as self-employed person (private entrepreneur status).  

From the definition above it is clear that temporary residency by itself doesn’t provide the right to become a tax resident of Ukraine. There are additional measures that need to be taken to be considered a tax resident of Ukraine. 

We provide more detailed consultancy on this question as our experts are tax lawyers and financial specialists.

We would be pleased to advise you more in details for your particular case.

Kateryna Timchenko

Managing Partner
Laudis Legal & Accountancy

Immigration to Ukraine of highly qualified employees in 2022

According to Art. 4 of the Law on Immigration, a foreigner has the right to obtain an immigration permit if he is a highly qualified worker. The immigration permit is the first step in obtaining a permanent residence certificate or Ukrainian citizenship.

Immigration permits for highly qualified professionals are issued within established quotas.

In 2021, the Ministry of Economic Development, Trade and Agriculture of Ukraine approved a list of specialties in need in Ukraine and the qualification requirements for them.

To be eligible for immigration, an work candidate should meet the mandatory requirement set out in the list and, at least one additional requirement.

Such a requirement as work experience can be confirmed by one or any combination of documents, for example:

  1. the employee’s employment record book or its analogues;
  2. letters of recommendation confirming the provision of services in the relevant field;
  3. agreements on the provision of services in the relevant field;
  4. protocols of acceptance of provided services in the relevant field;
  5. other documents confirming work experience issued in the applicant’s country of residence.

The document attached to this article contains a complete list of professions and requirements for them. Here are some eligable professions as an example:

Technical manager/director – quota 500 persons

Mandatory qualification requirement:

  • confirmed work experience in the information technology industry-, and for not less than 3 years.

Additional qualification requirements:

  • higher education in a technical field of expertise;
  • income for a certain professionfor the previous calendar year to the equivalent amount of 24,000 US dollars or more;
  • certificate from Massachusetts Institute of Technology in a relevant field.

Software engineer/ Programmer (database)/ Application programmer/ System programmer – quota together with other IT specialties is 3013 persons

Mandatory qualification requirement:

  • confirmed experience in the profession in the relevant field  – for not less than 3 years.

Additional qualification requirements:

  • higher education in one of the technical areas of training: “Computer Engineering”, “Cybernetics”, “Mathematics”, “Applied Mathematics”, “Computer Science”; 
  • income for a certain profession for the previous calendar year to the equivalent amount of 24,000 US dollars or more; 
  • higher education in one of the technical areas of training: “Computer Engineering”, “Cybernetics”, “Mathematics”, “Applied Mathematics”, “Computer Science”; 
  • certificate from Massachusetts Institute of Technology in a relevant field.

Laudis Legal&Accountancy is always ready to provide qualified professional assistance and accompany you in obtaining an immigration permit. 

Compulsory notification on the ultimate beneficial owner of a legal entity in Ukraine to state registrar

On April 28, 2020 the Law of Ukraine “On Prevention and Counteraction to Legalization (Laundering) of Proceeds from Crime, Financing of Terrorism and Financing of the Proliferation of Weapons of Mass Destruction” (hereinafter – Law № 361-IX) came into force. According to the law, legal entities were obliged to submit information about the ultimate beneficial owner to the extent specified by the Law along with the ownership structure to the state registrar within three months from the date of entry into force of the regulatory legal act approving the form and content of ownership structure.

Accordingly, the Law of Ukraine “On State Registration of Legal Entities, Individual Entrepreneurs and Public Associations” (hereinafter – the Law on Registration) was amended and all newly created legal entities are obliged to submit information and documents on the ultimate beneficial owner to the state registrar within 14 calendar days  each calendar year following the year of registration of legal entity. Also entities should further notify the state registrar of any changes within 30 working days from the date of their occurrence and submit documents confirming these changes.

We reported about this in a previous article “Compulsory notification of the State Register about ultimate beneficial owner”

Form and Content of Ownership Structure is approved, countdown started

On June 11, 2021, the Government Courier published Order of the Ministry of Finance of Ukraine # 163 of March 19, 2021 “On Approval of the Regulations on the Form and Content of Ownership Structure” (hereinafter – Order № 163), which enters into force July 11, 2021, and therefore the specified period of 3 months will finally begin its countdown from 12.07.2021.

According to Order 163, the ownership structure by form is an official document that is a schematic representation of the ownership structure of a legal entity, showing all persons who directly or indirectly own this entity alone or jointly with other persons or regardless of formal ownership have the ability to significantly influence the management or activities of the legal entity.

Samples of the schematic representation of the ownership structure are published on the official website of the Ministry of Finance.

The beneficiary about whom detailed information should be provided

The Law # 361-IX, according to which the Order 163 was adopted, stipulates that the ultimate beneficial owner is:

for legal entities – any natural person who has a decisive influence on the activities of a legal entity (including through the chain of control) is the beneficiary in respect of which detailed information must be submitted;

for trusts – the founder, trustee, defender (if any), beneficiary (beneficiary) or group of beneficiaries (beneficiaries), as well as any other individual who has a decisive influence on the activities of the trust (including through the chain of control / ownership );

for other legal structures – a person who has a status equivalent to or similar to the persons specified for trusts. 

Indications of direct decisive influence on activity is the direct ownership by a natural person of a share in the amount of not less than 25 percent of the authorized capital or voting rights of a legal entity.

Indications of indirect decisive influence on the activity is the possession by an individual of a share of at least 25 percent of the authorized capital or voting rights of a legal entity through related natural or legal persons, trusts or other similar legal structures, or exercising decisive influence by exercising control rights, possession, use or disposal of all assets or their share, the right to receive income from the activities of a legal entity, trust or other similar legal structure, the right to decisive influence on the formation, voting results of governing bodies, as well as transactions that determine the basic conditions economic activity of a legal entity, or the activity of a trust or other similar legal structure, to make binding decisions that have a decisive impact on the activities of a legal entity, trust or other similar legal entity, regardless of formal ownership.

In this case, the ultimate beneficial owner may not be a person who has a formal right to 25 percent or more of the authorized capital or voting rights in the legal entity, but is a commercial agent, nominal owner or nominal holder, or only an intermediary for such a right.

That is, despite the reflection in the ownership structure of all persons who directly or indirectly own a legal entity, the application form provides information only about those persons who meet the definition of the ultimate beneficial owner, enshrined in Law # 361-IX and the document specified in the law is given only in relation to this person (persons).

List of documents to be submitted

According to Art. 17-1 of the Law on Registration to confirm information about the ultimate beneficial owner of the legal entity, the following documents are to be submitted:

  1. application for confirmation of information on the ultimate beneficial owner (form 6);
  2. ownership structure according to the form and content determined in accordance with the legislation;
  3. an extract, certificate or other document from the commercial, banking, court register, etc., confirming the registration of a non-resident legal entity in the country of its location – if the founder of the legal entity is a non-resident legal entity;
  4. a notarized copy of the document certifying the person who is the ultimate beneficial owner of the legal entity for a non-resident individual and, if such a document is issued without the use of the Unified State Demographic Register (book format passport issued before July 2016) for a resident individual.

Additional documents required in some cases

The Order also stipulates that in certain cases, it may be necessary to submit additional documents with regards the ownership structure.

Thus, if there are foreign legal entities and / or persons who are not citizens of Ukraine and are citizens (subjects) of another state or states, trusts, and or other similar legal structures in the ownership structure of the legal entity, official documents are to be submitted (their copies, in particular notarized copies) confirming the ownership of these persons, trusts and / or other similar legal entities of corporate rights in a legal entity, except when information about the relevant entities is available in the Unified State Register of Legal Entities, Individuals persons – entrepreneurs and public formations.

If there is a final beneficial owner in the ownership structure of a legal entity, information on the possibility of exercising a decisive influence on the management or the activities of the legal entity are not clearly tracked according to the Unified State Register, to carry out the registration action in the package of documents together with the ownership structure the schematic representation of the ownership structure must also be accompanied by official documents (copies, including notarized copies), confirming the ability to exercise decisive influence on management or activities of the legal entity by control / possession.

In particular this can be:

  • a contract of sale or gift of corporate rights (shares in the authorized capital); 
  • the decision of the general meeting of participants (the decision of the sole participant) of the legal entity to determine the size of the authorized (composed) capital and the size of the shares of the participants; 
  • the act of acceptance-transfer of a share (part of a share) in the authorized (composed) capital of a legal entity; 
  • account statement in the depositor’s securities;  
  • statement of account in the securities of the nominal holder; 
  • property management agreement; trust agreement; 
  • trust declaration and / or agreement; 
  • marriage certificate; 
  • extract or other document from an official source, including trade, banking, court register; 
  • other documents confirming the exercise of decisive influence (control) on the activities of the legal entity.

Can a limited liability company not have beneficial owners?

We are awaiting clarification from the Ministry of Justice on this issue. To date, the practice is such that registrars do not require information on beneficial owners in the case when the shareholders of a limited liability company are joint stock companies (both Ukrainian and foreign) and non-profit organizations.

Procedure of submitting documents

The application and documents are submitted in paper or electronic form, in person (representative) or by post. In the case of filing an application for state registration by post, the authenticity of the applicant’s signature must be notarized.

In the case of the application of documents not by the head of the legal entity, or the case of creation not by the founder (another person authorized by the meeting), the documents are also accompanied by the original (notarized copy) of the document certifying the authority of the representative such as power of attorney (unless information about the authority of this representative are contained in the Unified State Register).

Regarding the amount of the administrative fee for submitting information on the ultimate beneficial owner, if the legal entity submits documents within the above three-month period, the administrative fee is not charged. In case of simultaneous changes to the Unified State Register of the legal entity or expiration of three months from the date of entry into force by a normative legal act approving the form and content of the ownership structure, the administrative fee will be levied for the sum of the amount established by Article 36 of the Law on Registration (0.3 of the subsistence minimum for able-bodied persons, which amounts to UAH 714 in 2021).

Сonsequences the company would suffer if it fails to comply with the law?

The Code on Administrative Offences of Ukraine shall impose a fine on the manager(s) of a company which fail to comply with above mentioned requirements. The amount of fine is between 1000 to 3000 non-taxable minimum incomes (means 17 000,00-51 000,00 UAH).

Laudis Legal&Accountancy is always ready to provide qualified professional assistance and accompany you in the procedure of notifying the state registrar about the ultimate beneficial owners.

Galina Bastieieva

Laudis Legal & Accountancy

Tax planning in international secondments

The exchange of employees between companies has become common practice amongst international companies in Ukraine. The word "secondment" no longer attracts the question "What is it?" but rather is used in HR circles instead of long explanatory phrases like "a business trip/assignment to work abroad for a certain period of time to acquire knowledge, skills and share experience". (Secondments may also be for the purpose of implementing projects, introducing new processes and management technologies, etc.). 

The concept of secondment

Despite the fact that the general meaning of secondment is clear, namely the transfer of an employee to work abroad, in international companies neverthelss, secondment does not refer to the transfer of an employee to another company. In general, and depending on the structure of the employment relationship for the period of the work abroad, international companies distinguish between the following two options for relocating employees:

  • secondment – an employee maintains an employment relationship with his/her employer (the sending company) and is sent to work in a foreign company (the receiving company) for a certain period of time. The employee is paid at the place of employment (i.e. by the sending company), but performs his or her work by order of the employer – at the place of the receiving company and in accordance with its instructions.
  • transfer – the employment relationship between the employee and the sending company is terminated for the period of employment abroad and a new relationship is established with the foreign, i.e. receiving company.

Also, in practice, a dual employment option can be applied, where the employment relationship with the sending company is maintained and at the same time a new work relationship is also established with the receiving company for whatever reason (e.g. due to legal requirements of the receiving country). Dual employment is not prohibited by the law of Ukraine.

Below we consider tax planning options for secondments in situations where a Ukrainian company sends its employee to work for a foreign company, as well as situations where, in order to optimise tax costs, it is advisable to transfer the employee instead of secondment.

Tax planning in the formation of an employee's compensation package

When deciding whether to undertake the secondment or transfer of an employee,  an important issue to consider is the nature of the employee's compensation package, and whether it includes elements and arrangements that encourage the employee to work abroad. If however the tax efficiency of the compensation package is not assessed, it may not be cost-effective nor attractive for the company or the employee.

When forming the employee's compensation package, it is important to consider the tax liabilities that arise in both countries so as to avoid double taxation of the same income (i.e. wages, compensation payments, additional benefits) in the respective countries. With a secondment, any remuneration from the Ukrainian company is be subject to taxation in Ukraine. The same remuneration may also be subject to taxation in the receiving country.

At the tax planning stage, the following issues need to be taken into account: 1) the employee's residence status for tax purposes in both countries (tax residency), 2) the source of  remuneration and 3) the period of residence in the receiving country.

Let's consider and analyze why these questions are important.

Criteria for international taxation of individuals

The right to tax the income of an individual is traditionally based upon factors that determine the relationship of that individual with the tax jurisdiction of a particular state. The concept of tax jurisdiction includes the right of a state to tax certain entities in its territory.

There are two criteria that determine the limits of the tax jurisdiction of the state with respect to individuals:

Tax residency – implies taxation of the income earned by a resident both in and outside the country of residence.

Source of income – defines the tax obligations of both residents and non-residents only in relation to income derived from a source located on the territory of the state.

Tax residency 

Among the general criteria for tax residency of individuals used in various countries are the following:

  • Length of stay in the country;
  • Homeownership in the country;
  • Centre of vital interests, that is, the closest personal or economic ties (family, work or business, real estate, etc.);
  • Citizenship.

However, the criteria for determining residency may differ from country to country. Therefore, a situation may arise where the same individual may be recognised as a tax resident in more than one country.

To solve this problem, international agreements known as double taxation treaties provide rules that take precedence over domestic legislation. These treaties allow for a test in which the individual's ties with specific countries are judged according to the following criteria:

  • Homeownership in the country;
  • The close personal and economic ties;
  • The country of permanent residence;
  • Citizenship.

If this test does not establish the tax residency of the individual, then the issue shall be resolved by mutual agreement between the countries.

The concept of "tax resident of Ukraine" is set out in Article 14.1.213 of the Tax Code of Ukraine (hereinafter, the Tax Code). The Tax Code provides a consistent procedure for determining residency status according to the following criteria (whereby compliance with one previous criterion (its availability) no longer requires the availability (compliance) with subsequent criteria):

  • a place to live in Ukraine (owned or rented); 
  • a place of permanent residence in Ukraine. The tax legislation does not define the concept of "place of permanent residence" and the period from the expiry of which a person is deemed to have a place of permanent residence in Ukraine. By analogy with other areas of law, it can be considered that such a period must exceed 6 months per year;
  • centre of vital interests in Ukraine;
  • staying in the country for at least 183 calendar days during the period or periods of the calendar (tax) year. If it is not possible to determine the residency status of an individual using these criteria, an individual is considered to be a resident of Ukraine if he/she is a citizen of Ukraine.

Thus, in most cases an employee is deemed not to be a tax resident of Ukraine where he/she has moved to work in another country for an extended period (more than 6 months), his/her family has also moved to that country and he/she has spent most of the year in another country.

The source principle

In contrast to the residence principle, which binds an individual to a tax liability if there is some connection between the individual and the state, the source principle establishes a tax liability if there is some connection between the state and the income (the object of taxation). The criteria for determining source are the following:

  • place of business (in the case of entrepreneurial activity);
  • location of the payer of income. Used for passive income, for example, if the payer is located in a particular country, the income is recognized as having a source in that country;
  • location of the property. Used for real estate income;
  • place of actual work. Used in determining the source for income from employment.

Domestic legislation of a country may establish a list of income and rules for determining the source of income. For example, source income from Ukraine includes (Article 14.1.54 of the Tax Code) dividends, interest, income from the rental of property, wages from a Ukrainian employer and wages from a foreign employer for work performed in Ukraine.

General rule of taxation of individuals in Ukraine

Ukrainian residents are taxed in Ukraine on all income received from various sources, both in Ukraine and in other countries. Non-residents – only on income originating from Ukraine.

Avoidance of double taxation

In international secondment tax planning, particular attention should be paid to the issue of avoiding double taxation of an employee's income, which may arise when both the employee's home country and the host country are entitled to tax the same income under the local laws of each country. This issue can be resolved by international double taxation treaties where the member states agree between themselves which is entitled to tax the income of an individual. Such treaties are drawn up on the basis of model tax conventions. The most commonly used is the Model Tax Convention of the Organisation for Economic Co-operation and Development (hereinafter referred to as the Convention). Such treaties prescribe the rules for taxation of certain types of income, mechanisms and procedures for avoiding double taxation.

Let's take a closer look at how the Convention regulates the double taxation of income from employment.

This type of income is dealt with in Article 15 of the Convention, which provides the following rule. If an individual resident in country A is sent by company A to country B to be employed by company B, the remuneration received by the individual from employment in country B may be taxed in country B (if required by domestic law). However, such remuneration will only be taxable in country A (and exempt from tax in country B) if the following conditions are met:

  • the period of stay of an individual in country B does not exceed 183 days in any twelve-month period beginning or ending in the reporting year (some treaties specify the stay limit as 183 days in a calendar year), and
  • the remuneration to the individual was paid by company A, which is not a resident of country B, and
  • the costs of remuneration are not borne by the permanent establishment or permanent base that the employer has in country B, nor are these costs recharged to company B.

If these conditions are not met, the remuneration may be taxed in country B. Then the issue of double taxation is resolved through other mechanisms provided for by the relevant international treaty. The most common one is a tax credit – when one country (namely the country of residence of an individual) sets off the tax paid in another country against its own tax.

The procedures for applying double taxation treaties have practical features in each country. For example, in Ukraine, in order to offset the tax paid in another country against the Ukrainian tax on the basis of the relevant international treaty, it is necessary to submit to the tax authorities along with the tax return an original document issued by the competent authority of another country, confirming the amount of income received and tax paid.

Let's consider examples of applying the above rules in practice.

Case 1

In 2019, Ukrainian company A sent its employee to work in Germany at company B. The employee remained an employee of company A. No employment contract was concluded with company B. The remuneration in Ukraine was taxed at the source of payment. The duration of the secondment was 1 year; the period was from the end of May 2019 to the end of May 2020. The employee's stay in Germany in 2019 was 195 days. The worker's family stayed in Ukraine. In accordance with the domestic legislation of both countries and the Treaty on Avoidance of Double Taxation between Ukraine and Germany (hereinafter referred to as Treaty 1), the employee was a tax resident of Ukraine. The employee's remuneration for work in Germany was also subject to taxation in Germany in accordance with domestic law (the employee had to file a tax return and pay tax at the end of 2019). The tax rate in Germany is much higher than in Ukraine (a progressive scale from 15% to 42% is applied). Company A did not recharge the remuneration expense to Company B.

Case study

In this situation, double taxation arises though can be eliminated in two ways.

1) Pursuant to Treaty 1, the employee's remuneration is not taxable in Germany if his/her stay in Germany does not exceed 183 calendar days in a calendar year. Thus, when planning an employee's secondment to Germany, the beginning of the secondment could be moved to mid/late June or early July 2019 (taking into account possible short-term departures from Germany) and thus the employee's stay in Germany could be reduced so that it does not exceed 183 days. This approach could also be applied to the end of the 2020 secondment.

2) If it is not possible to comply with the "183 days" condition, then under Treaty 1, Germany is entitled to tax the employee's remuneration. Tax paid in Germany can be offset against Ukrainian tax on the basis of a document issued by the competent German authority confirming the amount of tax paid. However, this method of resolving double taxation issues is less beneficial, as the tax rate in Germany is higher than in Ukraine, therefore, the company or the employee will incur additional expenses. Also, in practice, refund of tax that has already been paid in Ukraine (when remuneration was paid by company A) is a rather complicated and time-consuming procedure.

Case 2

Ukrainian company A sent its employee to work in Kazakhstan at company B. The employee remained an employee of company A. No employment contract was concluded with company B. The remuneration paid by the Ukrainian company is source income from Ukraine and, in accordance with the Tax Code, is taxable in Ukraine unless other rules of taxation are provided by the Treaty on Avoidance of Double Taxation between Ukraine and Kazakhstan (Treaty 2) (i.e. the Ukrainian company must withhold and pay tax on the remuneration until such time as there is no reason to apply other rules under Treaty 2). The duration of the secondment is 3 years and the period is from the end of January 2017 to the end of January 2020. The employee's stay in Kazakhstan each year exceeds 183 days. In accordance with the domestic legislation of both countries and Treaty 2, the employee was a tax resident in Kazakhstan. The employee's remuneration for work in Kazakhstan was taxable in Kazakhstan under domestic law (the employee was required to file a tax return and pay tax at the end of each year).

Case study

In this situation, double taxation arises. This can be eliminated on the basis of Treaty 2, which provides for taxation of the employee's remuneration only in Kazakhstan. However, in accordance with the Tax Code, the application of the provisions of Treaty 2 for the exemption of taxation of the employee's remuneration in Ukraine is permitted only if the employee provides the Ukrainian company with a certificate confirming his status as a tax resident of Kazakhstan by the end of the reporting year. Such a certificate must be issued by a competent authority of Kazakhstan, duly legalised and translated into Ukrainian.

Thus, in this situation the elimination of double taxation on the basis of Treaty 2 is only possible if the procedure described above is followed. Failure to obtain and submit the above-mentioned certificate to the Ukrainian company in due time will result in double taxation and negative tax consequences for the Ukrainian company. This risk cannot be ignored. Therefore, in this situation, the preferred option is to replace the secondment with the transfer of the employee – to terminate the employment relationship with the Ukrainian company and to conclude an employment contract with the company in Kazakhstan.

In order to keep the employee in the social insurance system of Ukraine, it is possible to consider the option of double employment with a minimum amount of remuneration in Ukraine.


Tax planning is an essential part of the process of organizing an international secondment, and should help to optimise the employee's compensation package by reducing tax liabilities and eliminating possible double taxation.

In addition to the application of international treaty rules, avoidance of double taxation and the reduction of tax liabilities for international secondments can also be optimised by planning the working hours and conditions of the employee's stay in the other country (manipulating the tax residency status). This can also be achieved by choosing the source of remuneration to the employee and by determining the optimal structure of employment for the particular situation.

Import of a car to Ukraine without paying customs duty for those who got permanent residency in Ukraine

According to Article 384 of Customs code of Ukraine the person who obtained permanent residency in Ukraine is entitled to import to Ukraine without payment of customs duties the goods intended to meet the usual daily needs of the person and the initial arrangement, which are imported (shipped) by him in connection with relocation to a permanent place of residence in Ukraine.
The car for the import should weigh less than 3,5 tons and it can be one car for one individual who reached 18 years old.
The permanent resident of Ukraine (ex-foreigner) can import his own car without payment duty, meeting the following conditions:

  • import of vehicles is carried out within six months from the date of issuance of a document confirming the right of a citizen to permanent residence in Ukraine
  • until the date of issuance of the document confirming the right of a citizen to permanent residence in Ukraine, the citizen has lived in the country from which he came for at least three years
  • prior to the date of issuance of the document confirming the right to permanent residence in Ukraine, the citizen was the owner (or co-owner) of the vehicle imported by him for at least one year
  • a vehicle imported by a citizen has been on permanent registration (registration) with the relevant registration authorities of the country of permanent residence of the citizen for at least one year, if he is subject to registration in that country.

That vehicles imported by individuals when relocating to a permanent place of residence in Ukraine are subject to temporary registration for up to two years with registration of a vehicle registration certificate for the right of temporary operation of such vehicles valid for two years without the right of alienation or transfer for use by others.

International contracts. Concepts and essential terms

The main requirements and terms of international contracts are defined by the Law of Ukraine “On Foreign Economic Activity” № 960-XII dated on 16.04.91 (hereinafter referred to as the “Law № 960”).

An International Contract (hereinafter referred to as the “Contract”) it is an agreement between a company founded in Ukraine and an international company, and is aimed at creating, modifying or terminating their mutual rights and obligations in international trade.

International Contracts are executed in either a written or electronic form.

In the case of export of services (other than transport services), the Contract may be concluded by accepting a public offer, by exchange of e-mails, or in other ways, such as issuance of an invoice in electronic form for the services provided.

In cases where parties decide to enter into an agreement in electronic form, they shall be guided by the requirements of the Law of Ukraine “On Electronic Commerce” and the Law of Ukraine “On Electronic Trust Services”.

Executing the Contract

The main requirement of an electronic form of contract it is that the parties shall sign the contract using electronic digital signatures or facsimile signatures.

In practice there are difficulties with these methods of signing.

The complication of using an electronic digital signature lies in the legal acceptance of signatures between Ukrainian and foreign electronic signatories.

One of the conditions for acceptance of foreign digital signatures in Ukraine is the conclusion of an international treaty with Ukraine; however at the time of publication of this article no such treaty has yet to be concluded with any country, though such treaties are planned for the future.

The complication for using facsimile signatures is that the parties must beforehand execute a separate contract (with wet signatures) and agree on the terms of using facsimile signatures. Such a contract must also contain specimens of their respective handwritten signatures.

This type of electronic signing can be comfortable and convenient to use for parties who, for example, have long term business partnerships in Ukraine and often make multiple transactions.

Governing Law

Parties to the Contract are entitled to choose the governing law (also known as applicable law), but that doesn’t mean that the terms of the contract are allowed to contradict Ukrainian legislation.

Law № 960 sets forth that a Contract may be judged by a court to be invalid if it does not meet the requirements of Ukrainian law or with international treaties made by Ukraine.

Therefore, notwithstanding the right to choose the governing law, the Contract shall comply with the requirements of the Civil Code of Ukraine, the Commercial Code of Ukraine and other legislative requirements of Ukraine for a particular type of contract.

Essential (material) Contract Terms

All Contracts shall include essential terms as:

  • Subject (scope of the contract), Consideration (reciprocal exchange of value) and Term (duration of the contract);
  • terms that are defined by law as essential or mandatory for certain types of contracts;
  • all those terms on which, at the request of at least one of the parties, agreement shall be reached.

Particular attention shall be paid to the place where the contract is concluded and the place of dispute resolution. This may in effect determine what the governing law will be (unless there is a specific clause to that effect), what taxation will be imposed and what costs the parties will incur to resolve a dispute should one arise.

Mandatory (Imperative) Rule of Law

As discussed at the outset of the article, regardless of the selected governing law, the effect of the mandatory application of the law of Ukraine governing the relevant relations of the Contract cannot be limited.

An example of such a rule is the mandatory notarization of conveyancing agreements and their registration by the state.

Furthermore, if one deals with an international contract then it is also necessary to comply with the mandatory rules established by the National Bank of Ukraine (NBU) with regards international settlements.

One example of a NBU mandatory rule is a set deadline for cross-border transactions of 365 calendar days.

In other words, it is legally stipulated that payment under an international contract, as well as the delivery of goods, services and works, must be made within 365 days. Failure to comply with this requirement will result in the imposition of penalties.

This deadline does not apply to transactions related to Contracts of less than UAH 400 000.00 (or its equivalent in foreign currency).

We are happy to have presented in this article the main terms relating to international contracts. Rest assured, subject to correct contract drafting, foreign trade in Ukraine is not complicated to carry out.

Furthermore and finally, Ukrainian Law does not require special permits nor licenses for companies or entrepreneurs of Ukraine to participate in foreign trade.

Galina Bastieieva

Laudis Legal & Accountancy

International Financial Reporting Standards in Ukraine: obligatory or voluntary implementation?

Rapid expansion of information technologies, globalization, international cooperation, multinational corporations – all these factors have been accompanying our lives for almost a century.

Different countries and different laws, but what about financial reporting? To be able to read financial statements, the approaches to compilation must be identical, and financial statements must be clear to all users without exception.

The only way out of this situation was implementation of a common reporting standard, which would implement a unified approach to the preparation of financial statements. Such a unified approach is implemented with the International Financial Reporting Standards (IFRS).
In Ukraine, the implementation of IFRS began with the reform of accounting, and the adoption of the Law of Ukraine dated 16.07.1999 № 996-XIV “On accounting and financial reporting in Ukraine” both with the implementation of Local Accounting Principles (UA GAAP) which in almost all aspects meets provisions of IFRS.

Clear accounting and financial reporting prepared in accordance with the requirements of IFRS is a kind of a “quality mark” and confirmation that information provided in the reporting is reliable. For those companies planning to enter international markets, with shares listed on stock markets, attracting investments from international donors (both private companies and financial institutions such as EBRD or IMF) IFRS standards for the financial statements are mandatory.

Most of the accountants in Ukraine are focused primarily on tax accounting and tax consequences. However, the Tax Code of Ukraine foresees maintaining the accounting practices whether according to Local Accounting Principles or IFRS, which are also a basis for taxation. So importance of accounting cannot be ignored. Is there a choice? Who should decide how to maintain the accounts: according to local accounting principles or IFRS?

Part 2 of Article 12 of the Law № 996-XIV provides a list of enterprises for which the application of IFRS is mandatory:

  • enterprises of public interest
  • large enterprises
  • public joint-stock companies
  • enterprises engaged in the extraction of minerals of national importance
  • enterprises engaged in economic activity by types, the list of which is determined by the Cabinet of Ministers of Ukraine

The rest of the companies can choose IFRS as a conceptual basis for accounting at their own discretion.

So, IFRS or UA GAAP? What is the best choice for the company if your activity is not found in the list above? However, if you are focused on long-term development, attracting investments, entering international markets – the earliest application of IFRS will clearly simplify and facilitate the life of the company.

The transition to accounting in accordance with the IFRS system requires a change in accounting policy and certain actions aimed at harmonizing (transforming) accounting between UA GAAP and IFRS. Transformation means to identify and implement discrepancies in accounting between UA GAAP and IFRS. Transformation should be completed in accordance with IFRS 1 “First-time Adoption of International Financial Reporting Standards”.
The indicative algorithm for the transition to IFRS is as follows:

Step 1. Determine the date of transition. This is usually January 1st, but the period would be different if reporting users set a different reporting period for the fiscal year.

Step 2. Develop an accounting policy in accordance with the requirements of IFRS. The provisions of this accounting policy to previous periods are applied retrospectively, which will be reflected in the transformation adjustments.

Step 3. Prepare a trial balance on the accounts in accordance with UA GAAP.

Step 4. Analyze the remnants of each of the accounts for their compliance with IFRS and accounting policy.

Step 5. Make transformational (corrective) records to reconcile with the identified differences. These can be, for example, differences in the amount of depreciation, disposal or recognition of certain items, reclassification of assets/liabilities and so on.
Important! Transformation records should not affect the financial result of the year, so they should be made through the account of retained earnings (loss).
An example of such a transformation table is given below.

Step 6. Make a transformed trial balance.

Step 7. Based on the transformed trial balance, prepare financial statements.

In addition to the usual practice for every accountant report to consist of a balance sheet (statement of financial position) and statement of financial performance (statement of profit and loss), the IFRS reporting package includes a statement of equity, a statement of cash flows and a notes part.

Perhaps the most important component of financial statements is the notes section.

The notes reveal:

  • general information about the company;
  • basics of preparation, approval and submission of financial statements;
  • significant provisions of the accounting policy;
  • significant judgments and assumptions;
  • disclosure of information regarding fair value use;
  • reclassifications in the financial statements for the reporting year compared to the financial statements of the previous year and correction of errors;
  • disclosure of information, which confirms the articles submitted in the report.

It is also necessary to take into account the transition (comparative period). In accordance with the requirements of clause 30 of IFRS 1 “First-time adoption of International Financial Reporting Standards”, there should be two comparative periods for each type of reporting and three for the income statement.
Thus, implementation of IFRS as a conceptual basis for accounting and reporting is evidence of the reliability of information, its complete coverage and, accordingly, such reporting fosters more confidence among its users. The need to use unified accounting approaches is caused by market conditions, so IFRS is being implemented by more and more companies in Ukraine.

Wishing you good luck on the way of transformations!

Maria Vasilenko

Junior accountant
IFRS consultant
Laudis Legal & Accountanc