How To Relocate IT Business To Ukraine?
What should you know about the current benefits of running a development company in Ukraine? And what details do you need to pay attention to so that the relocation of your IT business to this very country goes smoothly? Today this topic is more acute than ever.
In this article, we have prepared small research on the Ukrainian conditions for foreigners to set up their IT businesses. We guide you on the details needed to know before the relocation of your company to Ukraine. In particular, you will find out the legal entity and private entrepreneur issues, as well as how to properly organize the process.
Why is Ukraine attractive for foreign IT business?
Ukraine has significant advantages over the jurisdictions of other countries in terms of flexibility in conducting IT business. What are they all about?
- Ukraine is a vast market with great potential (IT revenue is about $4 billion per year).
- Government programs, for example, a simplified taxation system, VAT exemption for the supply of software products before 01.01.2023.
- Diia City is a virtual free economic zone with a special financial, legal and tax regime. We expect the launch at the beginning of 2021.
- Ukrainian engineers are world-wide known specialists in the IT field. They possess a wide range of skills, in particular the present-day programming languages, and are the best educated in the Post-Soviet space.
- The IT infrastructure is rapidly developing, 4G is available in all major cities.
- Starting an IT business in Ukraine is much cheaper than in the European Union. Besides, everyday expenses here will also be significantly lower.
- The launch of the IT Relocate Belarus project aims at attracting Belarusian IT specialists (90 days of continuous stay for 180 days in a row without a visa; reduced prices for housing and office rent). Even better conditions are offered by the Decree of the President No. 420/2020 dated 02.10.2020: the extension of temporary stay to 180 for a period of 365 days in a row for Belarusian entrepreneurs, highly qualified IT specialists and their family members, simplified procedures for registering temporary residence permit, getting a work permit, registration of individual entrepreneurs.
Diia City – Ukrainian special legal regime for the IT industry
In the next few years, Ukraine plans to become one of the world’s largest IT hubs. And in the future, it is going to increase the market volume to $12 billion. For this, the Ministry of Digital Transformation has developed a special legal regime, Diia City.
Diia City is a favorable economic environment within the country. Here the high-tech sector will be able to fully realize its potential and make the Ukrainian IT business competitive in the international arena.
The project provides complex conditions and opportunities for technology companies to set up and scale their businesses in the territory of Ukraine, including for opening R&D offices. The status of Diia City resident can be obtained by Ukrainian or international IT companies, high-technology businesses, investment funds, startups, educational companies that meet the following requirements:
- the size of the average monthly employee’s compensation is at least $1400 at the official rate as of the 1st January 2021;
- the number of company employees is more than 9 people;
- the amount of the legal entity’s net income from the sale of products (goods, services) is at least 90%;
- is a legal entity that exclusively carries out one or more of the following tech fields: cloud-based computing technology, agrotech, AI, Fintech, aviation and space technology, Internet of things, trading platforms, UAVs, blockchain and related industries, business process outsourcing, graphics, animation, audio, marketing and promotion, E-sports.
What will Diia City residents receive?
- Favorable tax and legal conditions
Diia City offers special tax and legal conditions for IT business. In particular, they include the tax on withdrawn capital at a rate of 10% instead of income tax, labor tax (5% personal income tax), SSC (22% of the minimum wage) and military tax (1.5%). A special regime for IT specialists will operate throughout the country. It will not be possible to make legislative changes to it for 15 years.
- Special employment conditions
A novel form of GIG employment combines the flexibility of the freelance model and social security without increasing the tax burden. The resident company can choose the most convenient format of employment. It means GIG-contract, a standard form of employment under the Labor Code, or cooperation with a private individual.
- Guarantees of IP protection
Legal certainty in the possession of IP for official work. Property rights to computer programs and databases will belong to the employer unless otherwise agreed.
- Foreign venture capital investment
Implementation of investment and management mechanisms that are familiar to venture investors, including Convertible Loan, Shareholders’ Agreement, Liquidation Preference, Option & ESOP, Warranties & Indemnities, Liquidated Damages.
- Guarantees of protection of the person and property against the intervention of security officers
Diia City grants its residents special status in criminal proceedings.
Now Diia City is expected to come. The format of the benefits may be slightly different in the final edition, but still it’s just a noteworthy project. Foreign entrepreneurs from all over the world as well as Ukrainians will have the opportunity to quickly and effectively implement the most ambitious, innovative IT business ideas on the best favorable conditions compared to the ones in other European countries and America.
Options of moving an IT business to Ukraine
There are two questions, the answer to which depends on the option of resettlement:
- Business model question. How to properly organize relationships with specialists and contractors: will the specialists be your full-time hired workers, or do they provide services based on the administrative agreement?
- Migration issue. How to arrange the legal stay of foreigners in Ukraine with a full range of rights and freedoms, without the need for burdensome entries/exits?
Depending on the answers to the above questions, you can make the choice of the optimal way of transferring your business to Ukraine. Here are several options for organizing the relocation of IT business to Ukraine.
Relocation of IT specialists through obtaining the status of a private entrepreneur
The common option of relocation IT business to Ukraine is to open a PE (getting a status of a private entrepreneur) for a foreigner in Ukraine. In this case, you organize your activities on a simplified taxation system. That is, paying taxes in the amount of 5% of income and about 32 euros of social contribution.
A foreigner with the status of an individual entrepreneur has the right to provide services to both Ukrainian and foreign companies or perform such functions within the framework of entrepreneurial activity. In addition, obtaining the status of an individual entrepreneur does not prohibit official employment in a Ukrainian company under a labor contract.
For registering as a private entrepreneur, you need to get a tax number and open a current account in one of the Ukrainian banks. You also should have in mind that getting the status of a PE is not a basis for a legal stay in Ukraine. Therefore, for example, a citizen of Belarus cannot stay in Ukraine for over 90 days within a six-month period. However, for Belarusians, conditions continue to improve. Most likely, soon it will be even easier and better to relocate their IT businesses to Ukraine.
Relocation through employment
For this, you create a Ukrainian legal entity. Subsequently, it accepts all specialists as employees (notice: for freelancers, the option of employment is possible in an already existing company). As a result, each specialist will be able to:
- obtain a work permit in Ukraine for up to three years;
- issue a residence permit for a similar period which will provide a foreigner with the rights and freedoms relatively similar to citizens of Ukraine. In particular, it will allow the employee to legally stay in the country during the entire period of work.
Such a stay can be continued an unlimited number of times in Ukraine. The advantage of this option is that based on employment, a specialist’s family can also move to Ukraine (having received a family reunification permit).
Let’s look at the steps of relocation IT business through employment in detail:
Step 1. Creation of a legal entity in Ukraine.
Registration of a legal entity requires the presence of the founders or their representatives in Ukraine. For example, employees of a legal company, that provides support, could physically collect and submit the necessary documents for state registration.
When creating a legal entity, you need to have your reliable person in Ukraine. That is a local citizen for the position of director since the employment of foreigners is impossible without obtaining a work permit. To begin with, such a person can be the lawyer himself, who will conduct the company’s affairs until the top managers are registered (in fact, he will organize the employment process).
At the same time, foreigners will be the founders of the company. They will control and decide the fate of the business.
In case of cooperation with the LEGAL IT Group, this stage can be successfully completed on average within 7-10 working days.
Step 2. Obtaining work permits for the director of the company and all employees.
This stage is quite simple since it does not require the personal presence of a foreign representative in Ukraine. The employment procedure is initiated by the Ukrainian employer (can be a reliable lawyer). He only needs a photo of a foreigner and a scanned version of his passport.
IT specialists through employment option of relocation to Ukraine belong to the privileged categories of people. They can obtain a work permit for up to three years (with the possibility of its extension) and without restrictions in the number of wages.
The time of receiving the work permit is 5-7 working days.
Step 3. Registration of tax numbers for employees, signing labor contracts with them.
This step can be started in parallel with the previous step, after the actual entry of a foreigner in Ukraine.
First, you need to register a foreigner in the tax office, having received him a personal tax number. To do this, you need a properly executed minimum list of documents, in particular, a notarized translation of a foreigner’s passport, a correctly completed application form containing information about the foreigner, his date of birth, and address of residence.
After receiving the TIN (Taxpayer Identification Number), you need to conclude a working contract with the employer who has received a permit for the hiring of a foreigner. It must be remembered that such an agreement must be concluded within 90 days from the date of obtaining a work permit. It is not worth delaying the procedure, since the permit will have to be obtained again.
Step 4. Registration of the legal stay of your foreign employees in Ukraine.
Obtaining a work permit for a foreigner is the basis for further getting a residence permit. To clarify, it is a document that equates him to the rights and obligations of a citizen of Ukraine (except for political and social rights of the individual).
At this stage, the personal presence of specialists is required in Ukraine. As a general rule, a foreigner needs to apply for a “D” type visa for long-term entry in the consulate of Ukraine in a foreign state (visa is issued on the basis of the same work permit). Moreover, there is a simplified procedure for the citizens of particular countries that does not require obtaining a visa to enter Ukraine. In particular, specialists from Belarus can cross the state border of Ukraine without a visa.
To obtain a residence permit from a foreigner you need to be personally present in Ukraine, pay the service fees and have duly executed documents. Within 30 days after receiving the form, a foreigner must register his place of residence in the country.
These are only the most common options for organizing an IT business in Ukraine. We recommend you applying for a local legal advisor to help you with administrative matters and a reliable IT partner which has extensive experience in organizing the relocation of the IT business to Ukraine.
We are ready to help in your IT business relocation
Whether you present a growing startup or a multinational enterprise, IT outstaffing company FreySoft https://freysoft.com/ can help you in your way. Hiring offshore developers with FreySoft, you get top tech talents, direct management over your offshore development center, no hassle with the back office. We handle issues related to office management, HR, retention, payroll, taxes.
The legal support in relocating your IT business to Ukraine is offered by the leading LEGAL IT Group https://legalitgroup.com/en/home-page/. The team offers a closed ecosystem and a comprehensive solution that includes full support for the resettlement process.
Contact us today and see how we can help you organize your IT business in Ukraine.