The current legislation of Ukraine permits foreign legal entities forming its subsidiaries in Ukraine.

There are 2 types of such formations 1) representative office (not considered as legal entity, non-taxable, with no right to conduct commercial activity) and 2) permanent establishment (not considered as legal entity, taxable, entitled to conduct commercial activity), both of which have limited legal capacity with many restrictions on holding full-fledged commercial activity (e.g. investment activity, etc).

The representative office is not a tax payer, however, only if its functions include purchase of goods for own purposes, search of information, conduct of any preparatory or auxiliary actions to its head office in Ukraine, like some promotional campaigns, participations in exhibitions, etc. If the representative office conducts any other activities, it is recognised as the permanent establishment with respective tax implications.

Legislation lays down special treatment of bank accounts in domestic and foreign currencies for representative office. Representative offices may open bank accounts of “H” type, which may be used only for transactions related to maintenance of its activity. All other transactions through such accounts are very limited comparing to Ukrainian residents). Also conduct of foreign trade activity and possibility of sale-purchase of land in Ukraine are also very restricted.

Currency legislation recognizes representative office as resident, i.e. all payments within Ukraine are to be effected only in national currency – hryvna. Payments in foreign currency require obtainment of individual license from the National Bank of Ukraine. Expatriation of profits by foreign representative offices establishments shall be subject to additional 15% withholding tax.

In addition, a one-time state registration duty for opening representative office in the amount of 2.500 USD is payable to the Ministry of economy of Ukraine (please note that it is only a state duty, which does not include attorney`s fee, translation, apostil and other paperwork expenses). Furthermore, some draft laws, if adopted, shall require additional accreditation of rep. offices in the competent state bodies.

The only advantage of RO comparing to limited liability company is that foreign employees are not required to obtain work permits, while it is obligatory for Ukrainian legal entities.

Alternatively, limited liability company has complete legal capacity with no restrictions or limitations attributable to representative office, mentioned above. In addition, forming LLC takes approx. 700 USD including attorney`s fee, translation, apostil and other paperwork expenses. Thus, advantages are evident.

Based on foregoing, establishment of LLC in Ukraine is more advantageous and, thus, more advisable for foreign companies comparing to registering representative office.

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