software, IT development outsourcing to Ukraine

An Expert's View about Investment Opportunities in Ukraine

Last updated: 22 Feb 2013

Why is it beneficial to outsource software, information technology (IT) development to Ukraine?

In today’s global economy, all companies try and cut costs wherever they can. One way to do this is by making better sourcing and distribution decisions. Outsourcing software, information technology (IT) development to Ukraine enables quickly and effectively optimize costs, because production moves to countries offering lower expenses.

A member of the WTO, Ukraine has a competitive, free-market economy. Today Ukraine is one of the world’s competitive & emerging markets and experts believe that in years to come its economy will be among the strongest in the whole CIS and Eastern Europe region. Ukriane also has modern and up-to-date legislation in line with the EU acquis communitaire and many other advantages. Ukraine enjoys modern and up-to-date investment legislation in line with international standards (Ukraine ratified and transposed the WTO Agreement on Trade-Related Investment Measures (TRIMs), Convention on the Settlement of Investment Disputes Between States and Nationals of other States (Washington, 1965) and International Centre for the Settlement of Investment Disputes Agreement (Seoul, 1966).

In addition, Ukraine is the country with great number of free trade agreements. Importantly, the EU and Ukraine shall be linked by a comprehensive Free Trade Agreement (FTA), under which all customs duties and almost all non-tariff barriers to trade shall be eliminated. This makes Ukraine even more attractive destination for apparel outsourcing and FDIs in the future.

Mostly companies from the European Union take advantage of IT outsourcing to Ukraine, which saves them a great deal of time and money due to the following reasons:

Substantial tax incentives for IT business

IT compa¬nies suffer mainly from the tax burden with respect to wages, which are their main cost. Business development policies of Ukrainian government include substantial tax reductions  and other incentives, which in turn make the price better for foreign clients. Therefore, Ukraine introduced major tax benefits to the IT industry:
• VAT exemption till 1 January 2023;
• 5% profit tax till 2023 (general rate 21%);
• For a period of 4 years, the base for social contributions will be two minimum salaries for each employee and engaged individual (including non-residents);
• 5% personal income tax for each employee (general rate 17%).
In order to enjoy these incentives, IT companies must be included into special register. Newly registered IT companies will be able to apply such tax regime after half a year of activities.

The business development policies of Ukrainian government include tax reduction, support of private initiative and investments in logistics and technology, education and other infrastructure.

Entrepreneurship in Ukraine is easier than before and encouraged by government (Ukrainian VAT and corporate taxes are the lowest in Europe; one can also switch to flat tax).

Visa free regime with developed countries

Residents of the USA, Canada, Japan and the EU may come to Ukraine without necessity to obtain visa.

Cheap and fast company formation in Ukraine

Making the decision to enter or expand in a foreign market comes with lots of challenges, from understanding business environment, to properly preparing all regulatory documentation and laying the groundwork to support the newly founded venture.

The most common legal forms for conducting business activities in Ukraine are joint stock companies (JSC) and limited liability companies (LLC). In choosing between a LLC and a closed JSC in establishing a wholly-owned subsidiary, LLCs appear to be more popular than closed JSCs, due to simpler establishment procedure and less burdensome operation of a LLC.

You can get up and running your company registration in Ukraine for a minimum amount of time – e.g. LLC formation in Ukraine takes up to 15 days. In addition, setting up a business in Ukraine does not require physical presence of foreign shareholders (owners) – we can take care of all formalities based on power of attorney. You may come here when your Limited Liability Company has been already established in Ukraine.

For a one-off fee, we will prepare under “Turn-key” conditions all documentation and requisites required to quickly start up your business in Ukraine (before the ink is dry on the incorporation paperwork). Establishing company in Ukraine includes:

- Choosing proper legal form for an enterprise, which will best meet the customer’s needs and goals;
- Preparation of Constituent Documents (foundation minutes, articles of association, charter, foundation agreement), which shall meet requirements of legislation and latest business trends;
- Company registration with local state registration authorities of Ukraine (obtaining state registration certificate (certificate of incorporation), EDRPOU code);
- Choosing optimal taxation system (flat tax, simplified or general taxation), registering with the local state tax inspection, obtaining tax office registration certificate as well as tax identification number for foreigners;
- Registration with Local State Statistics Committee and production of respective Certificate;
- Registration with 4 State social insurance funds (Pension Fund, Social Safety Fund, etc);
- Getting permit for and production of a company seal;
- Opening of a bank account;
- Registration (accreditation) with local customs office (obtaining a Customs record card).

Cheap and qualified labour

Over the past several years many leading foreign companies outsource to Ukraine, since the local workforce is low-cost and qualified. The Ukraine's undisputable strengths and advantages comparing to other countries are: an educated, skilled, flexible and highly qualified Ukrainian workforce is lower in cost comparing to European countries, which makes the price for finished products very competitive; as well as innovative, competitive, cutting edge research, technologies and production process.

Favourable geographical location & excellent infrastructure

Extremely favourable & strategic geographical location (between Europe and Asia, North and South Europe) and proximity to the EU market makes Ukraine closer to the European clients, which enables substantially cut transportation and logistics costs and delivery time comparing to China and India

Ukraine is an entry point to the Europe and Asia; it administers all major rutes, and thus most traffic. Ukraine is, at the same time, a gateway to CIS countries and Eastern Europe. This geographical position has a growing importance in view of the new 27 European Union and especially after formation of free trade zone between EU and Ukraine that will lead to the birth of the one of the world's largest transhipment area. In fact, it is able to intercept trade flows from/to Asia, EU area and countries of the CIS.

National logistics and telecom equipment is based on a set of infrastructures and logistics hubs that have allowed Ukraine to develop its transport/IT/telecom sector. Ukraine has extensive well-developed infrastructure (transportation, communications, storage facilities, Internet, etc).

Based on foregoing, IT outsourcing to Ukraine is definitely a win-win situation for both the European/global brand owners and Ukrainian producers. Accordingly, a great synergy effect is achieved! copyrigt Marketplace UkrRos LLC www.kpl.net.ua


Posted: 03 February 2013, last updated 22 February 2013

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