While interacting with foreign customers, we are often asked about the possibility to open a representative office of a foreign legal entity in Ukraine. This topic is especially relevant to the big cities of Ukraine (Lviv, Dnipro, Odessa), and, of course, to the capital of Ukraine - Kyiv. As a rule, the foreign branch offices are willing to carry out their activities in these business centers of our country. Most customers who ask for advice in this regard, even having been acquainted with the procedure of drafting and submission of the set of documents, personally, still do not have a comprehensive view concerning the legal status of foreign representative office and other matters related to its presence and activities in Ukraine. The point here is that today’s realities of Ukrainian legislation make non-residents confused in this matter. It’s difficult to understand this issue without consulting a specialist, so let’s take a look at overall situation in several stages.
First of all, we have to pay attention to significant differences between the registration of representative offices of foreign legal entities and registration of PE or LLC with non-resident as a founder. Both cases have its pros and cons. The primary question, of course, affects the cost of registration. To register a representative office of foreign company in Ukraine it is necessary to pay a state fee in amount of USD 2500 (not taking into account the significant expenses for preparation of required documents and payment for services of specialists), while when registering a company with foreigner as a founder the cost of preparation of required set of documents and state registration will make approximately 15-20% of that amount only.
But everything is not that simple, because the representative offices of foreign companies have to obtain a foreign employee service card to hire a foreign citizen, while LLC (PE) have to obtain a work permit for employment of the foreigners, and this process is quite difficult and costly (state fee for work permit is 4 minimal salaries), also work permit shall be renewed annually. Another benefit is especially important, particularly for European and American companies entering the Ukrainian market, - a possibility to operate on behalf of the parent company. Name and reputation (Goodwill) play very important role and form a solid asset in business relations around the globe.
Most of the laws that governed this issue previously have lost their power. Therefore, new formalities in the registration process as well as in the list of documents to be submitted appeared and it is necessary to adhere to them to avoid a denial of registration.
The Law of Ukraine "On Foreign Economic Activity" gives a definition of a foreign representative office, defined as a person or organization whose power to represent the interests of a certain business entity of non-resident
in Ukraine is properly registered. Concerning the status we have to notice the following: a foreign representative office is not a legal entity within the meaning of the law, and therefore has no right to carry on business independently.
In its activities it is primarily governed by the provisions of the power of attorney issued by the main (parent) company, which is specified in the registration document, acting on behalf of this company and in its interests. It is
clear that the establishment operates strictly in accordance with the rules and requirements of Ukrainian legislation. Management is performed under the authority of the main (parent) company mentioned above. If you plan to perform
economic activities, it is also necessary to register the foreign representative office in Ukrainian tax authorities. Thus, it obtains the status defined in the law as a permanent establishment. Actually, this status
is a necessary and sufficient ground for business activities of the foreign representative office in Ukraine.
Taking all the aforesaid into consideration, we can see that there are only two possible types of foreign representative offices in Ukraine:
Regardless of its purposes, representative office shall pass the process of registration in the Ministry of Economic Development and Trade of Ukraine. Documents for registration shall be considered within 60 days from the moment of submission, in accordance with Instruction No.30, which describes the order of registration and list of documents required for registration.
Please, note that in addition to notarization of documents in the country of issuance, it is necessary to legalise them in the Consulate of Ukraine or affix an Apostille stamp in accordance with international law (unless otherwise provided by law or international treaties) and notarized translation into Ukrainian language. One important point to remember is that all the documents shall be submitted to the Ministry within 6 months from the date of issue. After the submission of documents, the Ministry shall issue a receipt with details for payment of registration fee, which is USD 2500.
After consideration of documents the Certificate of registration of foreign representative office shall be issued, which is the ground for obtaining the Certificate from the State Statistics Service containing the list of types of economic activities of foreign representative office. The Certificate of registration includes the following information: full name of foreign representative office, number of its employees, assigned registration number and address of foreign representative office and its branches (if any), legal status (with the right to perform business activities or without this right). Permanent establishment shall open a “P” type account, while any other representative office which has no right to perform business activities shall open a "N" type account.
Depending on the status of foreign representative office, after the procedure of accreditation (authorization), it may be necessary to register it in tax authorities. It is reasonable to expect that registration is provided for the purposes
of further taxation of operating profits of such a representative office. It is necessary to submit the following documents within 10 days (starting from the day of registration in the Ministry of Economics):
After that the permanent establishment obtains the status of income tax payer with inclusion to the register of taxpayers-non-residents.
Economic activities of permanent establishment of non-resident have its benefits. It is also necessary to bring into focus the activities of non-commercial representative offices with limited reference. Their main goals are Market Analysis, consumer opinion analysis, other types of non-profitable research. Peculiarities of national legislation provide penalties and other types of liability for any testaments of business activities according to the Tax Code. That is why it is very important to decide the goals and appropriateness of activities for the company establishing the foreign representative office in Ukraine. Depending on the chosen direction, the respective procedure of registration and further activities shall be performed.
Lion’s Mark Law Company will provide you with a full consultation concerning the issues of registration of foreign representative office in Ukraine, prepare the set of required documents in accordance with the law, represent your interests
in registration authorities, help with lease contract relating to office premises or registered office address address and provide legal assistance during further activities in Ukraine.
