Representation of foreign companies in Ukraine

Representation of foreign companies in Ukraine: peculiarities of organization and functioning

Our region is in the interests of companies in Europe and Asia, North and South, Central and Eastern Europe. Thus, the currently international trade relations of Ukraine are supported with 100 countries of the world.

Taking into account the increased volume in the service sector and the circulation of goods, we have to deal with the question of presence foreign entities.

Taking into account the increased volume in the service sector and the circulation of goods, we have to deal with the question of presence foreign entities.

The right of foreign business entities to open their representative offices in Ukraine is provided in Article 5 "On Foreign Economic Activity” of the Law of Ukraine. In addition, the Act provides the significant difference between such definitions as “foreign business entities" and “representative office of a foreign business entity”.

Foreign business entities is a representative office, a separate division of a legal entity located outside its location, represents and protects interests of the legal entity. Representative office of a foreign business entity - a representative office of a foreign business entity is an entity or a person who represents interests of the foreign business entity in Ukraine and has duly executed powers. (Art.1)

Let`s learn more about the organization and legal status of these representative offices.

At the outset, it should be distinguished between the following categories of foreign companies:

· 1. Non-profitable establishments, those that do not carry on business activities, purpose of their presence is to collect information, market research and other non-commercial objectives.

· 2. Permanent establishments, purpose of their presence is to carry out business activities.

According to the Law of Ukraine "On Foreign Economic Activity" that established the compulsory registration of representative offices of foreign business entities that carry out foreign trade activities in Ukraine. Article 5.5 "On State Registration of Legal Entities and Individual Entrepreneurs» of the Law of Ukraine provides this registration. According to this, representative offices, foreign affiliates in Ukraine should be accredited on the territory of Ukraine in the order prescribed by the law.

The procedure of registration is regulated by the Ministry of Economic Development and Trade of Ukraine (hereinafter - the Ministry) in the order prescribed by the Instruction on the procedure of registration of representative offices of foreign business entities in Ukraine (hereinafter - Instruction), approved by the Order of the Ministry of Foreign Economic Relations and Trade of Ukraine No. 30 dated 18.01.1996.

According to the Instructions, as well as to the Law of Ukraine "On Foreign Economic Activity", a foreign business entity that has no intention to conduct business in Ukraine, should submit the documents according to the list of documents required for registration.

These documents should be notarized at the place of issuance, properly legalized in the consular offices, which represent the interests of Ukraine (unless otherwise provided by law or international treaties), translated into the Ukrainian language and verified with the translator’s seal. All the documents should be submitted to the Ministry within 6 months from the date of their execution. After the submission of the documents, the Ministry shall issue the receipt with details payment of registration fee, the amount of which according to the Act shall not exceed the actual costs incurred by the State costs related to registration. The state fee for registration is established by the Decree of the Cabinet of Ministers of Ukraine “On Representations of Foreign Business Entities in Ukraine", No. 631 dated 12.08.1993 and is US $ 2,500.

If the legislation of the country location of a foreign business entity requires special permission from the state institutions of the country, a copy of the resolution, certified in compliance with the requirements set out in the previous paragraph, may be added to the application. The certificate of registration is issued no later than within 60 working days after payment of the state fee and submitting all the aforementioned documents.

In case of refusal to register a representative office or rejection decision on registration within the prescribed period the foreign business entity has the right to appeal to the Commercial Court to invalidate the decision to refuse registration or prompting the Ministry to carry out the registration of representative offices.

The Ministry of Economic Development and Trade maintains a registry of the registered representative offices. The Certificate of registration includes the data of full name of foreign representative office, given registration number and address of foreign representative office and its branches (if any), legal status (with the right to conduct business activities or without this right).

Representative office of a foreign business entity in Ukraine is considered to be open from the registration date.

If you change the name, the legal status, legal address, or a declaration of a foreign business entity insolvent or bankrupt, its representation, acted on the territory of Ukraine should be obliged to inform the Ministry within one month.

If the representative office intends to carry out economic activity on the territory of Ukraine, this representative office must be registered with the tax authority at its location in the manner prescribed by the Central Tax Authority of Ukraine, and to obtain the status of a permanent establishment. This matter will be considered below.

Using representative for export-import operations. In accordance with Article 3 “On Foreign Economic Activity” representative offices of foreign companies are the subjects of foreign economic activity in Ukraine. However, in all cases, it acts on behalf and by proxy of a foreign business entity specified in the certificate of registration, and performs its functions in accordance with the current legislation of Ukraine. Representative office of a foreign business entity in Ukraine may perform functions related to the implementation of representative services only in the interests of a foreign business entity specified in the Certificate.

In accordance with Article 5 of the Law of Ukraine “On Foreign Economic Activity” all subjects of foreign economic activity have an equal right to carry out any of its form of foreign trade activity, that are not directly prohibited by the laws of Ukraine, regardless of ownership, and other features. According to the Article 5 of the Law of Ukraine “On Foreign Economic Activity”, the forms of foreign economic activity are export and import of goods, currency funds and labor.

Article 7 of the Law of Ukraine "On Foreign Economic Activity» introduces the following regimes for economic entities engaged in foreign economic activity in the territory of Ukraine:

1. national treatment, which means that foreign economic entities have the measure of rights not less than economic entities of Ukraine do. National treatment shall be applied to all activities of foreign economic entities related to their investments in the territory of as well as to export and import operations of foreign economic entities of the countries, which adhere to economic unions with Ukraine;

2. the most favored nation treatment, which means that foreign economic entities have the measure of rights, preferences and exemptions in terms of duties, taxes and levies which are enjoyed or will be enjoyed by a foreign economic entity of any state that has been granted the above mentioned treatment, excluding the cases, when the above duties, taxes, levies and exemptions on them are set within special treatment, defined below. The most favored nation treatment shall be granted on the basis of mutual agreement to economic entities of other states in compliance with the respective treaties of Ukraine and shall be applied in the domain of foreign trade;

3. special treatment, applied to the territories of special economic zones under Article 24 of this Law, as well as to the territories of customs unions, adhered by Ukraine, and in the event of institution of any special treatment under international treaties with participation of Ukraine according to Article 25 of this Law.

In most cases, national treatment is applied to the representative offices of foreign business entities in Ukraine.

Peculiarities of taxation of foreign representations in Ukraine. In accordance to the Article 64.5 of Tac Code of Ukraine the reason for registration (introduction of changes, re-registration) of the separate subdivisions of foreign companies, organizations, including permanent establishment of non-residents, is proper accreditation (registration, legalization) of such subdivision on the territory of Ukraine in accordance with the law.

It should be noted that there are permanent establishments and those that are not under this category for the purpose of taxation. Thus, according to subparagraph 14.1.193 paragraph 14.1 of Article 14 of Section I of the Tax Code of Ukraine, permanent establishment is a permanent place of business through which all or part of the non-resident economic activity is carried out in Ukraine, in particular:

  • A place of management; branch, office, factory, workshop, plant or facility for exploration of natural resources; mine, oil / gas well, mining plant or any other place of extraction of natural resources; warehouse or premises used for the supply of goods;
  • For the purpose of taxation, the term “permanent establishment” includes a construction site, a construction, assembly or installation project or related supervisory activities, if the duration of the works associated with this site, project or activity exceeds six months;
  • Provision of services (other than services on the personnel provision), including advisory services, by a non-resident through employees or other personnel engaged by him for this purpose provided that such activities are carried out (as a single project or a project that is associated with it) in Ukraine during a period or periods the total duration of which exceeds six months in any twelve month period;
  • Residents authorised to act on behalf of such non-resident only, which leads to a non-resident obtaining civil rights and obligations (to enter into contracts (agreements) on behalf of the non-resident; maintain (store) stocks of goods owned by a non-resident from which the supply of goods on behalf of the non-resident is carried out, except for residents with the status of temporary storage or customs license warehouse).

Permanent establishment does not refer to: the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise which belongs to the non-resident; of goods or merchandise which belongs to the non-resident solely for the purpose of storage and display thereof; storage of a stock of goods or merchandise which belongs to the non-residents for the sole purpose of processing thereof by another enterprise; maintenance of a permanent place of business solely for the purpose of purchasing goods or merchandise or for collecting information for the non-resident; assigning natural persons to another person as part of service agreements for the services on the personnel provision; maintenance of a permanent place of business solely for the purpose of conducting any other activity of preparatory or auxiliary nature for the non-resident.

In accordance with the document No. № 6793/6/15-1316 dated 06.08.2003, State Tax Administration of Ukraine explained that the evidence of an auxiliary or preparatory activities carried out by a foreign company, which creates a representative office must be confirmed by the documents showing of its activities, as well as about the implementation of non-resident functions that corresponds to the activities of its representative office in Ukraine.

These documents may be, for example, statutory documents of non-resident company, an extract from the Chamber of Commerce of the country's non-resident certificate from a banking institution, where an account of non-residents was opened, as well as the other similar documents, which are issued in accordance with the laws of a foreign state.

In accordance with the Article 160 of Tax Code of Ukraine for the purpose of taxation, such permanent establishment is treated as a taxpayer who carries out his activity independently of such non-resident.

Representative offices of foreign business entities should be registered in supervisory authorities at the location of tax and fees payers. Permanent establishments, carried out its activities prior to registration in the supervisory authorities shall be considered as those, which evade from taxation, and the received income shall be considered as hidden from taxation.

Since registration of non-resident permanent establishment is considered to be a registered payer of income tax.

In case of imports and exports the tax consequences vary considerably, as in the case of export profit sources are located outside of Ukraine, while non-residents' income sources, carrying out import, located in Ukraine.

Bank accounts According to National Bank of Ukraine Resolution No.492 dated November, 12 2003, depending on the type of representative office, the following accounts may be opened:

— Current accounts of the “N” type in the national currency for official representative offices and representative offices of legal entities — non-residents that are not engaged in business activities in Ukraine;

— Current accounts of the “P” type in the national currency for permanent representative offices; these accounts may be used for any operations. National currency from the current account of the “P” may be used by permanent establishment for buying of foreign currency on interbank money-market of Ukraine for transferring to the account of a legal entity - non-resident, which interests are represented by the representative offices on the territory of Ukraine, amounting received during the implementation of the purchase and sale operations of products, works and services, as well as compensation of employees - non-residents.

Foreign representative offices, with the current account of the "N" and "P" types may also open current accounts in foreign currency.

An important condition for activity of the representative office is a certificate for the avoidance of double taxation for each full or partial year of operation. The certificate is obtained in the in the parent enterprise authorized by the authorities of the country of registration, if necessary accompanied by a notary and apostilled translation.

Due Diligence Representation in Ukraine

© 2016, Tax and legal advice
73, Manuylovsky str, Dnepr, Ukraine
bonus@helpnalogi.com
phone.: +38 098 484-89-56 , +38 050 480-71-49, +38 099 470-43-83.



manufacturing and promotion - 0562.dp.ua
.
+38 098 484-89-56
+38 050 480-71-49
+38 099 470-43-83
73, Manuylovsky str,
Dnepr, Ukraine
bonus@helpnalogi.com
. . . .

Connect with us

  • * Required fields
  • For example: Ivanov Ivan Ivanovich
  • Format: +3800000000
  • Format: example@gmail.com

Public contract

Familiarize