TAX GUIDE OF DOING IT-BUSINESS IN UKRAINE “A&T CONSULTING” TAX GUIDE OF DOING IT-BUSINESS IN UKRAINE Andriy Tsura Roman Gumeniuk March, 2017

COMMON STRUCTURE OF IT-BUSINESS IN UKRAINE Beneficial owner of the Company (foreign IT-company) Lessor of office 1. Non-Residential Premises Lease Contract IT -Company in Ukraine (Limited Liability Company) 2. Contracts of subletting of workplaces PE 1 (IT-specialist) PE 2 (IT-specialist) PE 3 (IT-specialist) PE 4 (IT-specialist) … PE n (IT-specialist) *PE - private entrepreneur

Features of limited liability company Limited liability Company (LLC) in Ukraine is the most optimal legal form. LLC in Ukraine may consist of one and up to a hundred shareholders. There are no requirements to a minimum share capital of LLC in Ukraine. The share capital shall be paid within 365 days from the date of incorporation. Each member of LLC in Ukraine is liable in proportion to share capital part invested. The liability of the company before third parties (employees, government agencies etc.) is assumed by the Director of the Company. The Director of LLC can be Ukrainian resident or non-resident having a work permit in Ukraine. The Director has the right to access Company account and make all decisions except for the limitations imposed by the Charter. LLC in Ukraine is a legal unit and is authorized to do all the activities stipulated in the Charter, as well as all operations necessary or useful for the attainment of social purpose of the LLC.

Taxation of Limited liability company (one of the following options) COMMON SYSTEM Profit tax – 18 % of the profit Profit = Income – Expenses VAT** (Value added tax) – 20% Other taxes (depends on the activity of the company) SIMPLE SYSTEM Simple tax – 5% of the total income OR Simple tax – 3% + VAT** *Simple system can be used only in case when total income of LLC per year is not more than 5 000 000 UAH (≈ 180 000 USD). This system is preferable for most of IT-company`s in Ukraine. ** VAT is applicable in common system only in case when LLC is registered as VAT payer. The model of VAT in Ukraine is the input-output one. VAT-registered persons deduct the VAT paid on their inputs from the VAT charged on their sales and account for the difference to the tax authorities.

Taxation of dividends A 15% withholding tax is levied on dividends to nonresident companies and individuals. BUT There are a lot of Conventions between Ukraine and other countries for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital. According to the most of them the rate of withholding tax is 5% and this tax can be paid in Ukraine or another country – country of shareholder of Limited Liability Company in Ukraine.

Differences of taxation of employees of the Company and PE Income tax – 18% of the salary (paid by employee). Temporary military tax – 1.5% of the salary (paid by employee) Unit social contribution – 22 % of the salary: max≈ 320 USD (paid by the Company). PRIVATE ENTREPRENEURS Single tax – 5% of the total income (paid by PE). Unit social contribution – 22% of the minimal salary in Ukraine ≈30 USD every month (size of minimal salary is changed sometimes) (paid by PE) Period of payments - every month Period of payments - every quarter (but there is a possibility to pay every month)

Example of taxation of IT-specialist Upon mutual consent IT-specialist will get 100 000 UAH every month IT-specialist – employee UST = 100 000 UAH * 22% = 22 000 UAH Max UST = 8 800 UAH 22 000UAH<8 800 UAH UST = 8 800 UAH Total expenses of the Company = 100 000 UAH + 8 800 UAH = 108 800 UAH Income tax = 100 000 UAH *18% = 18 000 UAH Temporary military tax = 100 000 UAH * 1,5% = 1 500 UAH Net income of IT-specialist = 100 000 UAH – 18 000 UAH – 1 500 UAH = 80 500 UAH IT-specialist – private entrepreneur Total expenses of the Company = 100 000 UAH UST = 704 UAH Simple tax = 100 000 UAH * 5% = 5 000 UAH Net income of IT-specialist = 100 000 UAH – 704 UAH – 5 000 UAH = 94 296 UAH

Main reasons of due organization of business in Ukraine Avoiding of risks of negative tax consequences (If PE will not sublease work-places there will be a risk of defining them as employees. In this case tax authorities will demand to pay additional taxes and will use sufficient penalties to the Company and PE) Higher level of supervising and control by the foreign company Official payments of daily expenses (Internet, telephone communication etc.) Security of business in Ukraine

Always at your disposal) “A&T CONSULTING” Always at your disposal) Ukraine, Lviv - Kyiv tel/fax +38(032) 2256455 e-mail: info@consulting-ukr.com www.consulting-ukr.com