How to start an IT company in Ukraine

That’s how to start an IT company in Ukraine

IT company

How to start an IT company in Ukraine. Source: depositphotos.com

Since the introduction of an innovative Diia.City portal, IT businesses in Ukraine have finally got a competitive tax and investment environment. Despite the ongoing war, most businesses continue their operations in the country, with the goal of maintaining the country’s economy. Moreover, Ukraine’s leading IT trade association insists that the country remains open for business and able to deliver technology projects to foreign clients.

Decide on the type of company

Before registering any kind of business, you need to realise your financial needs, define the type of services you’ll provide or products you’ll create, the problems you’re going to solve, the approximate size of your team (and whether you need it at all), type of incorporation, and other aspects of your future activities.

Before starting an IT company, you need to clearly understand why you are creating this business. You should roughly outline the mission and basic goals of your project at the very beginning. Think about your target audience: local or international community. Consider the type of projects you’d like to perform: fintech, gaming, e-commerce, etc.

The most popular legal structures used for IT companies in Ukraine are:

  • LLC (limited liability company)
  • PE (private enterprise)

Registration as a private entrepreneur

Registering an IT company is no different from registering any other business. Ukrainian legislation defines a single registration procedure for all legal entities and individuals in the country, though the form of organisation may be different.

Registration of an IT company as a PE is common among startups, freelancers and small digital agencies. This form is mainly chosen by specialists who provide services in Internet marketing (SMM, PPC, SEO), programming, web design, website creation, etc.

You can register your startup as a private enterprise online using the Diia portal. To do this, you need an e-signature (which is easy to get via PrivatBank or other accredited key certification centres).

Alternatively, you may fill in a paper application form and submit your documents in person at the Centre for Administrative Services (CNAP). You can also contact private registrars or notaries having access to both the state register of movable property and the register of legal entities. By in-person submission, you need to verify your identity with a passport and ITIN (taxpayer identification number).

Foreign citizens can register as a PE in Ukraine too, as long as they legally stay on the territory of Ukraine, having a temporary or permanent residence permit.

While you are filling an application form, the main questions which may confuse you are the NACE codes and taxation type.

NACE is a standard nomenclature of economic activities which allows to classify all businesses according to the services they provide.

If you wish to develop IT products (games or apps) and sell them online, pay attention to the following NACE:

  • 62.01 Computer programming activities
  • 58.21 Issuing computer games
  • 58.29 Issuing other software
  • 63.11 Data processing, hosting and related activities
  • 18.20 Replication of sound, video and software
  • 47.41 Retail sales of computers, accessories and software in specialised stores
  • 47.91 Retail sales via delivery services or via the Internet

For those IT professionals who work through outsourcing, the suitable NACE are:

  • 62.01 Computer programming activities
  • 62.02 Information consulting activities
  • 62.09 Other information technology and computer service activities.

As for the taxation type, you may choose a general or a simplified taxation system – whichever suits your needs better. The advantage of the general system over the simplified one is that taxes are paid not on the total income, but on the profit. Profit (net taxable income) of a private entrepreneur is their income reduced by the allowed expenses.

If you expect significant operational expenses, the general system may be more advantageous. Moreover, according to the Tax Code of Ukraine, individuals and legal entities – non-residents may not be single tax taxpayers of the first – third groups. Thus, they are limited in their options to the general taxation. In all other cases, you should stick to a simplified system and pay a single accumulated tax instead of many small ones.

There are four groups of single tax taxpayers in Ukraine. To decide which one you belong to, you can use a simple quiz. The main factors influencing the amount of taxes you’re going to pay are: the number of employees you’re going to hire, whether you’re going to deliver services and products abroad, and your expected revenues.

Registering as LLC

If you decide for your company to function as LLC, clarify the next points:

  • Determine the number of participants or founders. Ukrainian legislation stipulates that the company’s director must be either a Ukrainian resident or a foreigner with employment authorisation. For those relocating their business from abroad, it would be necessary to appoint a Ukrainian resident as a temporary director until the non-resident director gets an employment authorisation.
  • Organise and document a meeting of the founders.
  • Compile a shareholder’s agreement.
  • The information on the company development plans and directions should be included in the agreement.
  • Explicitly distribute rights and obligations between owners. Specify scenarios for withdrawal from the company.
  • Determine how earnings are distributed between co-owners. Calculate the stakes, considering contributions to charter capital, the time invested in the business, and the responsibilities of each founder.
  • Choose a registration address. To register a business, you need to rent an office or lease a physical address from a specialised company.

The registration of LLC also takes place in the Centre for Administrative Services (CNAP) with the help of private registrars and notaries who work in state registers with legal entities. For registration, you shall submit the minutes of the founders’ meeting, which will include the names of participants, their interest and the nominal value of shares, as well as the charter of the company. It can be both jointly compiled (model one) and written by the parties separately.

In the Diia portal, there’s also a possibility to register LLC with a model charter. The one condition is that the ultimate beneficial owners – residents of Ukraine – should have one of the biometric documents (ID-card, biometric passport) to fill in the Unique number in the register (UNZR).

Once you’re registered

After all incorporation documentation is ready, you should open a business account in a Ukrainian bank, unless you don’t own one already.

Besides, you should prepare to raise the seed capital. For starters, your personal savings may suffice to rent an office, buy necessary supplies/equipment, design your corporate website, promote your services, hire some staff, etc. And yet, quite soon you may wish to expand your activities. Thus, start looking for connections within the IT community and investors.

Beware of the legal issues related to your industry. It’s important to protect your intellectual property right away, so you’ll need a legal adviser to do it properly.

You can look for first orders on Upwork and in comments under relevant posts on social media. In addition, you can leverage word of mouth, networking, intermediary agencies, tender platforms, conferences/exhibitions, and roadshows.

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