Doing Business In Ukraine

ima logo
/media/301967/ukraine-image-01kyiv-with-caption.jpg
 

How to do Business in Ukraine

What companies should consider when doing business

Ukraine ranks no. 137 (out of 185 economies) in the World Bank's Doing Business 2013 data report

Between 2008 and 2009, Ukraine made some positive changes in the areas of Protecting Investors and Employing Workers. Ukraine also eased the tax burden on business by reducing several social security tax rates (including pension fund, social security fund, and social insurance for accidents at work).

For more information, please contact UKTI; www.ukti.gov.uk

 

Key areas for business

Construction Site Guide
Shipping dock containers

Kyiv stands out from the rest of the country, in terms of business and finance concentration as well as the highest average income which exceeds the country's average monthly wage. Behind Kyiv, the cities of Kharkiv, Donetsk, Dnipropetrovsk, Odessa and Lviv, with populations of over 1 million, can be identified as the most successfully developing cities, with relatively high consumer disposable income.

Kyiv, the capital and seat of government, a region specialising in science and education, retailing, light industry and services. Traditionally, this area has the highest income and lowest unemployment in the country;

Kharkiv, the centre of industrial (machine building, gas producing), agricultural and science-intensive sectors (e.g. aerospace), well-known for its IT-outsourcing capacities;

Dnipropetrovsk, an area of mineral resources and steel production;

Donetsk, located in the mining centre of the country and an area of ferrous metals;

Odessa, southern port city and region of machine building, metal working, food and chemicals.

Lviv, is the main city in the west of the country, located in a region of agricultural/food production and oil processing, well-known for its IT-outsourcing capacities.

 

Market entry and start up considerations

Ukraine is not an easy market to enter but once you've got there you know the efforts were not in vain.

To be successful in the Ukrainian market, as indeed in any new market, you should invest effort, time and money in doing it right.

We would recommend starting with:

  • Market research - similar markets are not the same markets. Simple market research will point out potential pitfalls as well as opening up opportunities that you have never thought about in other markets.

  • Local advice - the most complex problems in entering the market may have simple and affordable solutions, if you seek right and timely legal, tax and accounting advice.

  • Decisions based on the form and scope of your presence in the country.

The following legal forms for foreign businesses are available:

  • general partnership; limited partnership

  • added liability company

  • limited liability company

  • joint stock company

Some industries, including banks and insurance companies, are more heavily regulated and must be established in compliance with specific requirements.

A representative office can carry out marketing, promotional and other auxiliary and preparatory functions on behalf of the company. There is no prohibition for a foreign legal entity to have both a representative office and to establish a wholly-owned subsidiary at the same time.

The most common legal forms for conducting business activities in Ukraine are joint stock companies (JSC) and limited liability companies (LLC).

 

Customs and Regulations

The European Union and Ukraine have signed a Partnership and Co-operation Agreement which became effective on 1 March 1998. Goods originating from EU member countries enjoy preferential treatment/duties. Ukraine has been a member of the World Trade Organisation (WTO) since 16 May 2008.

Import duty is based on the CIF value of the goods. Tariff information can be found, by HS code or word search, on the EU's Market Access Database.

Import controls exist on certain phyto-sanitary products, CFCs, recording blanks and impressions, weapons and other items generally subject to prohibition or licensing requirements. These may be temporary or permanent in nature. Ukraine generally follows international practice in these matters. Pre-shipment control remains a feature in some instances of manufactured products to be imported. Exporters should check with their agents about the latest changes to legislation.

For further customs information, please visit www.ukti.gov.uk

Commercial Samples
There is a tendency to treat commercial samples, unless re-exported, as the product itself on which duties must be paid and certificates of origin etc, supplied. Courier-delivered samples to private individuals seem to be exempt from this treatment, if the total cost does not exceed equivalent of €200 EUR (as declared by the sender, however is commonly re-assessed by the customs authorities).

Temporary Imports
Foreigners have the right for free movement of their personal belongings into the Ukrainian customs territory under temporary import regime, provided that personal belongings are declared in either oral or written form.

Temporary import is the customs regime under which goods may be imported to the customs territory of Ukraine with the obligatory re-export of these goods within 1 year, without any changes except for natural wear and tear or losses under the normal transporting conditions.

An aggregate customs value of the goods should not exceed €1000 EUR and the weight should not exceed 100 kg (or if it is a one-piece, indivisible article, regardless of its customs value and weight). Customs clearance of goods, the total customs value of which exceeds €1000 EUR and/or total weight of which exceeds 100 kg, is carried out according to the procedure foreseen for the subjects of commercial activity, with the submission of cargo customs declaration.

 

Getting your goods to market

The following documents are required to import goods into Ukraine:

  • commercial invoice showing the value of the goods (prepared in English and Ukrainian)

  • international way-bill

    Export Stamp
  • certificate of origin

  • certificate of conformity

Additional documents, depending on the goods, are frequently required by customs to facilitate importation (e.g.: freight documents, packing list, import license for pesticides, pharmaceuticals and hygiene products). The documents required may vary according to the means of transportation. Always confirm with the importer the current requirements.

Exporters should be aware of the possibility of re-exports. A Ukrainian Export Control Organisation has been set up to monitor the export of sensitive goods.

 

Legislation and Local Regulations

Anti Dumping and Countervailing
Ukraine resorts to protectionist measures when threats are perceived to domestic industry. These have included quotas, discriminatory import duties and expensive registration requirements. The EU Commission in the context of the deep and comprehensive free trade agreement (DCFTA) with Ukraine works to remove many of these measures. Companies wishing to do business in Ukraine should be aware that legislation changes are frequent here.

Special Economic Zones (SEZs)
Ukraine has in the past maintained two forms of special economic zones (SEZs): Free Economic Zones (FEZs) and Priority Development Territories (PDTs).

In April 2005, Ukraine cancelled all tax exemptions (i.e. from land tax, corporate income tax, import duty and VAT on imports) to investors in all SEZs to stop large-scale misuse of these zones for tax evasion and smuggling.

While the step reduced corruption and expanded the tax base, the abrupt cancellation of privileges and lack of compensatory provisions caused losses to some legitimate investors.

In November 2005, the Parliament adopted legislation to create technology parks, providing for some government financial support, targeted subsidies and tax privileges for a list of 16 technoparks based on existing scientific and research institutes.

At the end of 2006, the Ukrainian government announced its intention to renew tax privileges granted to businesses operating in some SEZs and to introduce a compensation mechanism for investors, but a draft law on the subject never went forward.

 

Responding to Tenders

Ukraine's procurement rules generally do not restrict foreign enterprises from participating in government procurement, but in practice foreign companies claim that they are rarely able to compete on an equal footing with domestic companies. Foreign companies generally win only a tiny fraction of the total tenders.

Among the problems faced by foreign firms are:
(1) the lack of public notice of tender rules and requirements;
(2) covert preferences in tender awards;
(3) the imposition of conditions that were not part of the original tender requirements
(4) ineffective grievance and dispute resolution mechanisms, which often allow a losing bidder to block the tender after the contract has been awarded.

 

Documentation

We suggest you take proper legal advice before concluding any contracts. A list of local English speaking lawyers is available on request from the UKTI Section of the British Embassy in Kyiv.

 

Labelling and Packaging Regulations

Packaging must be in Ukrainian. Barcodes must be affixed. All labels should contain the following information:

  • Product name

  • Titles of the legislative acts which set the quality requirements for this product

  • Summary of main characteristics of the product

  • Information on any ingredients dangerous for the health and safety of people

  • Information on any genetically-modified ingredients

  • Information about price, terms and conditions of purchase

  • Date of manufacture

  • Requirements to storage conditions

  • Producer's or seller's warranty

  • Rules and conditions of effective and safe use of the product

  • Expiry date, information on required actions of the consumer after the expiry date and possible consequences on not fulfilling these requirements

  • Name and address of the manufacturer, as well as the local representative (importer/distributor) who accepts quality claims and does maintenance if applicable

  • Information on the certification (if applicable)

For detailed certification procedure it is necessary to contact the Ukrainian State Inspection on Consumer Protection who are primarily responsible for setting the standards and certification regime.

At the time of the report, there is a requirement to the importer to utilise the packaging of the imported goods or to sign a contract with a defined state-owned company for such utilisation. Packaging-related legislation remains unstable. One of the recommendations might be to find a reliable local partner who would be able to constantly monitor any changes and adapt accordingly.

 

Standards and Technical Regulation

As there is no bilateral agreement between Ukraine and the UK on mutual recognition of standards, most products (including any which are for onward sale) must be certified locally. More information could be obtained from the Ukrainian State Inspection on Consumer Protection. Please note that UKTI Ukraine would be able to obtain this information on your behalf.

The EU Commission in the context of the deep and comprehensive free trade agreement (DCFTA) with Ukraine, works to agree on mutual recognition of standards.

 

Taxes

VAT
VAT is levied on goods and services at 20 percent, calculated on the CIF value plus import duty. There are excise duties levied on food, beer, wine, spirits, tobacco and fuel.

For more in-depth and up-to-date information about taxes, please see the Deloitte International Tax Ukraine Highlighrts 2013 Report

World Business People

 

Recruiting and Retaining Staffing

The Labour Code of Ukraine stipulates employment requirements such as working hours, safety, minimum wages, non-discrimination, collective bargaining and general relations between employees and employers. It provides that the hours of work should generally not exceed 8 hours per day and approximately 40 hours per working week, regulates overtime work, basic annual paid vacation (not less than 24 calendar days a year).


Salary rates differ from sector to sector. For a general range of rates, please contact www.ukti.gov.uk In Kyiv and big cities you could outsource recruiting to recruitment agencies which provide good and reliable services. Ukraine has a highly educated population, which is a qualified workforce for high-end technologies.

 

Intellectual Property Rights

Ukraine became a member of WTO in May 2008. In relation to that, Ukrainian intellectual property (IP) legislation was marked by harmonisation of Ukrainian Law with international treaties. Most of the introduced amendments comply with WTO's requirements to protection of IP rights within the framework of the Agreement on Trade-Related Aspects of Intellectual Property Rights (the "TRIPS Agreement").

Ukraine is party to the following international treaties: Berne Convention for the Protection of Literary and Artistic Works, 1952 Universal Convention on Copyright which constitute an integral part of Ukrainian legislation, Paris Convention for Protection of Industrial Property; Madrid Agreement concerning International Registration of Marks; International Nice Agreement Concerning the International Classification of Goods and Services; 1994 Trade Mark Law Treaty; Strasbourg Agreement Concerning the International Patent Classification and the Locarno Agreement Establishing an International Classification for Industrial Designs.

Ukraine is also party to the Patent Co-operation Treaty and the Hague Agreement Concerning the International Registration of Industrial Designs. Unlike most European countries, Ukraine is not party to the European Patent Convention (Munich Convention).


Source - UKTI

 

Strategic Partners