Business guide

Doing business in Ukraine

In Ukraine, common corporate forms are a limited liability company (“LLC”) and a joint stock company (“JSC”).
A company in the form of LLC can be registered within 2-3 business days (including registration with fiscal, statistics and social security authorities, as well as opening a bank account). Submitting the documents to the State Registrar, consideration of the documents and registration with the State Registrar, fiscal authorities and pension fund should be accomplished within 24 hours. Following consideration of the documents, an applicant obtains an excerpt from the USR. Upon request of the applicant, the timing could be significantly reduced (i.e., up to 2 and 6 hours). In such case, the additional registration fee is to be paid.

Unlike LLC, JSC is entitled to issue shares, which are subject to registration with the National Securities and Exchange Commission. Keeping this in mind, the registration of JSC is more time-consuming process and usually takes up to 2-4 months. In the majority of cases, foreign investors prefer to set up a company in form of LLC, rather than JSC. Similarly to JSC, liability of LLC’s shareholders (participants) is limited to their investment in the share capital. In addition, requirements to the incorporation and operation of LLC are more straightforward than those of a JSC.

LLC may be established by a sole shareholder unless the latter itself is held by a sole shareholder. A person is not allowed to be a sole shareholder (participant) of more than one LLC. When the number of LLC shareholders exceeds 100, it shall be transformed into a public JSC. JSC may be either public (when its shares are traded publicly) or private (when its shares are privately held).
Since 2014, all Ukrainian companies are obliged to disclose their ultimate beneficiaries in the course of the incorporation and then regularly update this information. This information is publicly available in the USR.
Currently, there is no minimum share capital requirement for LLC. Founders of LLC should contribute 100% of the declared share capital within one year from the date of incorporation. Otherwise, the declared share capital needs to be reduced.

If at a later stage, LLC intends to raise capital through IPO, or the number of its participants exceeds 100, its reorganization into a public JSC will be required.

The minimum share capital of JSC is set at 1,250 minimum monthly salaries as set by the state.

Shareholders of JSC shall pay their shares in full before the state registration.

Both JSC and LLC are required to have three internal bodies, namely:

• general meeting of shareholders (“GMS”);

• executive body (either board of directors or a sole director); and

• audit commission as a controlling body.

JSC may decide to establish an audit committee or appoint an internal auditor within its corporate structure. Under recent legislative amendments, a supervisory board may establish an audit committee as its internal commission. LLC should also have an audit committee; however, no sanctions are prescribed for LLC for non-compliance with this requirement.

A public JSC should arrange for an annual external audit of its financial statements and file the audited financial reports with the National Securities and Exchange Commission. Any JSC can be required to arrange for an external audit upon request of the shareholder(s) holding at least 10% of its shares.

Though an external audit is generally not mandatory for LLC, LLC’s shareholders have the right to request performing of the audit of the company by an external audit firm.

LLC’s shareholder (participant) may alienate its shares in the LLC’s capital to third party, unless otherwise provided in the LLC’s charter. In this case, other LLC participants would have priority in purchasing its shares. In case of withdrawing from the company, a participant is entitled to a share in the company’s assets proportionate to its share in the LLC’s capital. A participant may be expelled from the company under a GMS’ resolution if he (she) violates corporate obligations or prevents the company from achieving its goals. Shareholders of a public JSC may alienate their shares without restrictions. Shareholders of a private JSC, however, may be restricted in this freedom by the right of the first refusal granted to other shareholders (if such right is formalized in the JSC’s charter).

In addition, the Law of Ukraine “On Joint Stock Companies” contains a series of generally recognized legal instruments to protect rights of minority shareholders, namely:

  • cumulative voting rule for election of a supervisory board and an audit commission;
  • selling of shares of a minority shareholder to the holder of a controlling stake at a fair market price;
  • claiming buyout of shares by a company in case of material changes related to the company’s business (e.g., reorganization, changes in share capital, etc.);
  • compliance with special requirements to be met by the company (e.g., obligation to enter into material transactions and transactions with affiliated parties); and
  • derivative lawsuit that minority shareholders can file to the benefit of the company.
Reorganization under the Ukrainian law can be effected through merger, acquisition, split-up, spin-off or transformation of a corporate body. Reorganization is usually initiated by a resolution of GMS.

In certain instances (e.g., when a company is abusing its monopoly position), the Antimonopoly Committee of Ukraine may require the company to proceed with the split-up procedure.

As a result of reorganization, all rights and liabilities of a company are transferred to its successors. Reorganization requires a number of stages to be followed, e.g., a tax audit to be conducted by the tax authorities, a written notification forwarded to creditors, and repayment of obligations prematurely, clearance with the antimonopoly authorities (in certain cases), etc.

Ukrainian companies are required to implement a number of anti-corruption measures in their activities. Managers and owners of businesses are obliged to assess corruption risks in their business activity on a regular basis and apply adequate measures to prevent and mitigate such risks. Management can engage external specialists to implement such measures, including audit. Implementing anti-corruption measures is mandatory for companies involved in state procurement the exhaustive list of mandatory measures prescribed by law. Additional measures can be implemented at the discretion of businesses. A Compliance Officer should be appointed as the person responsible for implementing anti-corruption measures. The law establishes criteria applicable to Compliance Officers, including conflict of interest and independence requirements.
  • Corporate profit tax - 18% (Flat CPT rate)
  • Value added tax - 20%/7%/0% (General/pharma/export)
  • Personal income tax - 18% + 1.5% (Flat PIT rate + flat temporary military tax rate)
  • Social insurance contribution-employer’s contribution - 22%/0% (Salaries are taxed in amount up to the cap)
  • Social insurance contribution-employee’s contribution - No contribution payable by employees
  • SIC cap - UAH55,845 (15 minimum salaries)
  • Immigration regulations

    There are three types of entry visas for Ukraine (depending on the purpose of visit) – long-term,short-term, and transit visas.

    Foreigners who wish to stay in Ukraine for more than 90 days within a 180-day period need toobtain a long-term visa.

    Those foreigners who intend to work in Ukraine (either in a Ukrainian company or in a RO of aforeign company) are required to apply for a long-term visa. This type of visa provides formal grounds for obtaining a temporary residence permit in Ukraine, i.e. a document that allows entering and staying in Ukraine without any restrictions during the period of the permit validity (usually 1 year).

    Foreign individuals who do not need a visa to enter Ukraine (i.e. who originate from visa exempt countries) or those who enter Ukraine on a short-term visa may stay in the country during up to 90 calendar days (in the aggregate) within a 180-day period starting from the day of the first entry into Ukraine. Otherwise, they should register with the local immigration authorities.

    A temporary residence permit is obtained on the basis of the permit to use labor of foreign citizens (a work permit) issued to the employer by the State Employment Centre (or its local divisions). Foreign employees may then be registered at the place of temporary residence in Ukraine and obtain the residence permit valid for the period of permit (usually 1 year).

    Currently, citizens of the following states are not required to obtain any visa to enter the territory of Ukraine: member states of the European Union, the USA, Switzerland, Norway, Canada, Japan, Israel, Turkey, Panama, Serbia, San-Marino, etc.

    A foreign national can be hired in Ukraine following receipt of awork permit. The full application package for a work permit shall befiled with the State Employment Centre of Ukraine and shall includea convincing statement of reasons for a foreigner (as opposed to a Ukrainian national) to be employed with a Ukrainian company. However, the statement of reasons is not necessary if the foreigneris a founder and is going to hold a managing position at company’s business (e.g., reorganization, changes in share capital, etc.);
    • compliance with special requirements to be met by the company (e.g., obligation to enter into material transactions and transactions with affiliated parties); and
    • derivative lawsuit that minority shareholders can file to the benefit of the company.

    Labor regulations

    The main legislative act regulating employment relations in Ukraine is the Labor Code of Ukraine (“Labor Code”). The Labor Code applies to all companies, institutions, and organizations in Ukraine, irrespective of their legal form, type, or area of activity, and to individual entrepreneurs who hire employees.

    Employment of foreign nationals in Ukraine is generally subject to the Ukrainian labor and immigration laws, unless otherwise provided in the effective international treaties to which Ukraine is a party.

    Employment can be formalized through an employment agreement or an employment contract which should be concluded in a written form only.
    In Ukraine, the length of a working week should not exceed 40 hours. Overtime may not exceed four hours during two consecutive days or 120 hours per year with compensation provided at triple rates.

    Employees are entitled to an annual leave of at least 24 calendar days (unless a longer term is established by the law).

    Women are entitled to paid maternity leave for 70 calendar days prior to and 56 (sometimes 70) calendar days after childbirth. A woman is also entitled to unpaid leave until the child reaches the age of three (in rare cases up to the age of six) with the payment of financial aid as provided by the law for this period. The Ukrainian labor legislation also provides for different employee guarantees, such as:

    • wages for time spent off work while performing a trade union mission, appearing in c urt, voting and fulfilling other state or social responsibilities
    • the right to keep one’s position when on a training program
    • wages while hospitalized for medical examination (when such examination is prescrib d by the law) several payment in certain cases
    Employees are entitled to organize trade unions and participate in the management of a company (although in practice this rule would not be strictly applied).
    Employee’s remuneration may not fall under the minimum salary threshold. Salaries cannot be lower than the minimum monthly salary as laid down in the law. This threshold is set at UAH 4,173 as of 1 January 2019.

    Salaries should be paid at least twice a month. The gap between installments should not exceed 16 days, and the salary must be paid within 7 calendar days after the end of the period to which it is attributable.

    The Ukrainian labor legislation requires that a labor book should be kept for each employee working for more than five days with the company. This is a basic document containing records on the employee’s employment history.
    Employment can be terminated on the legal grounds prescribed in the Labor Code. If an employee wishes to terminate her/his employment, she/he as a rule should give a two-week written notice to the employer. Dismissal of employees should at all times be substantiated by reference to grounds for termination prescribed in the Labor Code. If the termination of employment is initiated by the employer, the latter should substantiate its decision by reference to one of the legal grounds for dismissal as stipulated in the Labor Code.

    The most common legal grounds for unilateral dismissal of employees are as follows:

    • layoff of personnel;
    • liquidation of the employer or reorganization of the employer’s corporate structure;
    • employee’s incompatibility with the occupied position (e.g., due to insufficient qualifications or poor health conditions);
    • systematic failure to perform employee’s duties without a good reason provided that the employer has already applied disciplinary measures to the employee for such a failure;
    • absence from work without any reasonable reason (including absence from work for more than 3 hours during a business day); or
    • dismissal of employer’s officials.
    In some cases a company has to pay a compensation to the dismissed employee (namely, if the company dismisses its official (e.g. director), it shall pay compensation in the amount not less than 6 month’s salary to the dismissed employee). Termination of employment may also be executed upon mutual agreement between the employer and the employee, or upon circumstances, being independent of the parties’ will.
    An employer may be subject to financial penalties (from 1 to 30 minimal salaries) for violation of labor laws.

    The highest penalties (30 minimal salaries for every case of violation) are prescribed for a permit of an employee to work without the formalized employment agreement.

    As per the general rule, an employee is not responsible for financial losses of the company and can be ordered to compensate only direct damages incurred to company in the amount not exceeding the average monthly salary of this employee. However, in accordance with the recent changes to the Labor Code, management of the company can be liable for financial performance of the company.

    Municipal investment projects implementation

    Investment proposal (concept of investment project) is submitted to Lviv Investment Office by Lviv City Council division, legal entity or individual.

    Concept includes: project proposal, forecasted volume and type of investment, planed investment in the development of infrastructure, number of new jobs created, data on market analysis, economical efficiency and feasibility, terms of implementation, data on land plot or municipal property (if available).

    Lviv Investment Office forms investment object and submits for Lviv City Council approval.

    Department of Economic Development together with contractors or potential investors prepares and approves feasibility study, which includes organizational, marketing, production, implementation and financial plans, risk analysis, economic and social forecast, forecast for revenues of budget and state target funds.

    Lviv Investment Office or potential investor prepares and submits for Lviv City Council approval an investment project, which includes investment proposal, land documentation (if needed), feasibility study, specifications for utilities connection (if needed), other data depending on project type.

    Investment Commission, which consists of City Council deputies and officials, approves date of tender announcement, terms and conditions and tender documentation.

    Lviv Investment Office publishes the announcement of investment tender, which includes name and location of investment object, data on investment object, date and time of investment tender, volume of participation fee, requirements to tender participants, volume of works to be financed by the investor, terms and conditions of investment agreement.

    Potential investor has 30 days after the announcement to submit a proposal.

    Proposal should include application for tender participation, information about participant, payment order for payment of registration fee, financial reports, data on experience and financial and organizational capabilities, investment proposal.

    Proposals are disclosed and evaluated by Investment Commission.

    Investment Commission approves investment tender winner.

    Investment agreement is concluded between the winner of the investment tender and the authorized executive body of the City Council.

    Investment agreement is approved by City Council Executive Committee.

    Investor and City Council fulfill their obligations according to investment agreement.

    Municipal land purchase / rent

    City Council decree on land plot allocation and sale / lease via auction

    City Council decree on approval of land plot allocation documents

    Only Ukraine-registered company can participate

    Land sale / lease based on best price offer

    Sale-purchase / land lease agreement signed

    Agreement approved by City Council

    Lviv Investment Office Lviv City Council
    79006, Ukraine, Lviv Rynok sq. 1

    +38 032 254 60 06
    invest@lvivcity.gov.ua