Ukraine has a huge potential in many areas of business: huge agricultural and technical sector, labor cost is one of the lowest in Europe, while the labor resource with its professionalism is one of the best in the world. At the same time, the country still has an underdeveloped market of both products and services, low GDP per capita.
Business in Ukraine: Foreword
Investors are needed to develop a country’s economy. But is it so easy to start a business for a foreigner? Many foreign entrepreneurs can write books about the problems they faced at the beginning of their entrepreneurial journey in Ukraine.
The bureaucratic machine has a well-polished and well-coordinated mechanism that works without interruptions, so a foreign citizen needs to be patient in order to go through all the horrors of the administrative system of Ukraine. A future Ukrainian businessman with a foreign passport should be stress-resistant, energetic, calm, be loyal and have flexible thinking, and most importantly – learn quickly. The Ukrainian system of doing business quickly imposes its rules and either absorbs or develops – it all depends on the foreigner’s behavior towards officials.
We should not forget about the past of our country – Ukraine is a post-communist state and the thinking of many personnel of the older generation (and even the younger generation, which was taught by ex-forefathers of the communist regime) has remained the same, which a foreigner will read in small print in the contract, if he notices these remarks.
The weakening of the bureaucratic yoke could be observed after the revolution of 2013-2014, but a full trough attracts the hungry. The “new” faces who have gained power want to get the maximum, so the concept of corruption has not gone anywhere, it is just not publicized so clearly. Another of the problems of the post-Soviet model is that a manager has to sign several times, sometimes on the same sheet of paper. This puzzles many foreign businessmen.
But, having created a successful business in Ukraine, an entrepreneur will be able to do business in any other country, because the symbiosis of those conditions in which they have to work is unique: a combination of severe economic, political and military problems.
Ukraine is a country that can make no worse leap than the “Asian tigers”, increasing exponentially the country’s production indicators. It can, but the only question is when?
Ukrainian market: problems
Ukraine attracts foreigners by the simplicity, at first glance, of starting a business: no need to attract large investments, low taxes and wages compared to Europe. But starting a business, foreigners do not even suspect the depth and strength of the bureaucratic apparatus. Significant inhibition of business begins with customs. Investors also note the long and complicated procedure for obtaining permits and the impossibility of buying land to build the same office or warehouse space.
The main obstacle for foreign investors is corruption. There is a tendency that is quite familiar to us, but not quite understandable for a foreigner: the higher the position of an official, the more connections and, accordingly, the easier and faster all issues are solved. The judicial system is also unfavorable (frequent unfounded court decisions and the possibility of double interpretation of laws, impunity of judges), as well as the image of the country (on the world stage Ukraine is associated with large-scale corruption and military conflict).
Almost all foreign investors try to build a business here using their experience, forgetting that Ukraine is a specific country with a special mentality, difficult legislation and other factors that can affect the development of a company. Another mistake foreign businessmen make is to believe that they will work according to European standards, so they do not pay attention to the specifics of local business.
Economic instability affects currency hikes, which creates certain inconveniences for those business areas that are engaged in the sale of products.
The real estate market is not a bad investment: buying an apartment in the capital, you will have to pay up to 1.5 thousand euros per square meter, and the rental yield will be about 13% per annum, which is much more profitable than, for example, in Paris, where the cost of housing — 8 thousand euros per square meter, and the rental yield does not exceed 4% per annum. And real estate agencies in Kiev with foreign capital no more than 15, and in Paris — more than 1000.
Business in Ukraine: tips for beginners
Tip #1: Become your own
Ukraine is a large country with a distinctive culture. The mentality of the inhabitants of each region can be radically different . Для того, чтобы успешно развиваться на украинском рынке нужно не только хорошо изучить предложение, но и спрос для конкретного региона: в Западной части страны более популярна национальная символика, чем на Востоке, рынок сыра местного производства слабее развит в южных областях, чем на Севере или Западе.
Investors should pay attention to all nuances and study the peculiarities and differences between Ukrainian and international business practices. For example, Ukrainian businessmen are not inclined to purchase goods or services if the final cost is not determined, which explains the low popularity of consulting companies with hourly wages. To understand Ukrainians – you need to live here, or, at the very least, hire a local manager whom the entrepreneur trusts.
Tip 2: Let’s be friends: me to you, you me to you
Diversity of views, different approaches to the same problem is a great opportunity to develop a business. Therefore, when starting a business, it is necessary to study in detail all conditions, background, potential partners and competitors, not forgetting about human characteristics (see tip #1). After Euromaidan, a network database with a lot of business information became open to the public(https://sfs.gov.ua). There you can find all the information about a partner: unpaid bank loans, unresolved disputes, reputation and other issues.
Friendship is a good thing that can help a foreign entrepreneur to develop: to make documents faster, to build a point in a profitable place, to get unrealistically low interest rates on a loan.
Tip 3: You — not you when in RF or Europe.
When entering the Ukrainian market, you should not use the indicators of the CIS or EU markets. This will lead to delusion and distortion of the real state of the Ukrainian market. For example, the rent of space in shopping centers in Kyiv is close to the cost of rent in Milan, and in Dnipro – almost like in Amsterdam. However, specific local peculiarities are not taken into account here – it is practiced to fix special rates in the lease agreement at a price lower than the existing one.
One should not rely on studies of neighboring countries, because, for example, coffee consumption in Dnipro is the same as in Kutaisi, but they differ significantly in terms of consumption of beer and other beverages.
The best way to get reliable data — personal experience (see tip #1).
Business registration for foreigners: legislative framework
The basic laws governing the establishment and operation of a business are set forth in the Civil and Commercial Codes and the Law on Joint Stock Companies.
According to Article 26 of the Commercial Code, citizens of other states and stateless persons who stay in the state legally have similar rights and obligations as persons with Ukrainian citizenship (except for cases determined by the Commercial Code, other legislative acts or international documents of Ukraine). All of the above is duplicated in the Commercial Code of our state.
Article 42 of the CG emphasizes that everyone has the right to engage in commercial activities not prohibited by law.
Ukrainian law also defines:
The legality of a foreigner’s stay on Ukrainian territory is confirmed by the presence of one of the documents:
- an identity document (registered in the appropriate order);
- evidence of residence on a permanent basis;
- evidence of temporary residence.
To fulfill the above points, you should familiarize yourself with with part 1 of article 6 of the Law of Ukraine “On Freedom of Movement” which states that a foreigner or stateless person legally staying in Ukraine is obliged to register at the territorial subdivisions of the State Migration Service of Ukraine at the place of real residence or stay within 10 days after arrival. In this case, the following papers shall be submitted:
You may need others, but they will tell you which ones on the spot.
A foreigner can obtain a registration number in the regional bodies of the State Fiscal Service. To register, it is also necessary to submit a notarized, translated into Ukrainian identity document. It must specify:
It is also necessary to fill out a registration card on Form No. 1DR, which can be obtained on-site or electronically from the SFC website. The registration number will be available two weeks from the date of submission of Form No. 1DR
Business registration
A company may be established by a Ukrainian and/or persons without Ukrainian citizenship. Companies are established and operate on the basis of documents of title, charter or memorandum of association. The documents of title must contain the following information:
Liquidation of a company
Companies have the right to terminate their activities by reorganization (merger, consolidation, division) or dissolution. When a company is dissolved, its property, rights and obligations are transferred to its successors. The company may be liquidated by a decision of the founders/shareholders or by a court decision. After dissolution, creditors’ claims, if any, are satisfied in accordance with the procedure established by the Ukrainian legislation. After payment of creditors, the remaining property is distributed among its participants in accordance with the procedure stipulated by legal documents.
Open Joint-Stock Company
It is a company with authorized capital divided into a certain number of shares with equal par value. Shareholders are liable for the company’s obligations for as many shares as they own, which means that shareholders are not obliged to make any additional contributions other than their contributions to the share capital and are not liable for the company’s obligations.
The authorized capital of a JSC is not less than 1,250 minimum wages of Ukraine (or UAH 400,000). All shares are registered and may exist only in book-entry form (record of ownership).
Limited Liability Company
This is a company in which the members of the company are liable for the same amount as their contribution. For example, a member is not concerned with any risks associated with the entire company’s operations, except to the extent of the value of his contribution. A member who systematically violates obligations to the company may be excluded from the company if other members holding more than 50% of the company vote in favor of such a decision.
The authorized capital of an LLC is not less than one minimum wage based on the rate in effect at the time of the company’s formation.
Additional Liability Company
This form of organization is similar to the previous one. The only difference is that participants are liable with their (personal) property if the company’s property is insufficient to secure debts.
Natural person: conditions for registration of a foreigner
This type of activity has a simpler procedure of state registration compared to other forms of commercial activity:
Conditions for registration of a foreigner physical entrepreneur:
- Legal stay on the territory of Ukraine.
- Registration of residence within 10 days of arrival.
- Staying at the place of residence registration for 6 months from the date of registration.
- Obtaining the number of the registered taxpayer’s record card.
To register, an individual who is going to become a businessman, or an attorney, submits such documents to the state registrar in person (send by mail, with an inventory of attached documents, or by electronic mail, with a list of documents in electronic form) or through an authorized person:
- Card for state registration of a physical person. To be filled out in block letters.
- A copy of proof of payment of the registration fee.
Before doing so, it is important to determine the type of activity according to the Classifier of Economic Activities (CED: https://kved.ukrstat.gov.ua/).
Legal entity registration
To register a legal entity, you will need:
Results
Despite the steps taken by the state to attract foreign capital, many “moneybags” are in no hurry to open their purse in our country. The reason for this is not only the corruption and bureaucracy of local authorities, but also the impossibility of being sure of the reality of ownership. For this, it is worth recalling the bitter experience of the French winemaker Christophe Lacarin, who, having leased land for fifteen years, was even left without vineyards, which were uprooted by builders.
Or another one: in 2006, Russians did not like the quality of gasoline at Privat’s gas stations and excluded about 250 gas stations from the network. “Privat lost 5 million dollars at that time.
The next problem is the temporary residence permit, which is valid only for a year. If necessary, it can be continued, but this involves a number of peculiarities unfamiliar to most foreign investors – there is no guarantee that the permit will be continued.
You can wait up to 4 months for a work permit in Ukraine, and if your competitors “assist” you may not get one at all.
The next problem is the inability to adequately repatriate capital. The NBU is still preparing the law “On currency liberalization”, because the existing currency legislative framework is outdated. It does not stimulate the market.
Ignorance of a foreign language by officials remains unimportant. At least English. This makes it difficult for foreign entrepreneurs to communicate with government agencies and causes misunderstanding and fear of failure. And this, in turn, alarms and deters foreigners from starting a business in Ukraine.
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