Options for IT companies structuring in Ukraine (part 1)

Development of IT business in Ukraine causes a constant search for the best, legitimate and profitable schemes of activity in this field.

Despite the fact that the IT industry often involves freelance, sooner or later the need for a specific organizational form raises that would allow to present the company in the market and would protect against tax and financial risks.

In this series of articles, we review the main forms of IT companies in the Ukrainian and international markets, their basic advantages and risks.

For a start it should be noted that actually at every scheme a foreign element is presented. Since the presence of foreign customers or companies in foreign jurisdictions are present in the majority of IT projects in Ukraine, we will analyze exactly such schemes.

So the first and the simplest scheme that starts almost every IT business in Lviv and not only there:

1)      Client (foreign company) – PE (Ukraine)

Ukrainian freelancers have possibility to receive orders from foreign companies in many ways. After all, high and wide offer of Ukrainian specialists in the field of software development are well known in the international market.

If one, several or team of developers (private entrepreneurs) are working on the same project for the customer without creating their own company, in any case they need to receive money from abroad.

Recent Ukrainian legislation greatly simplified the opportunity to receive funds from foreign companies for freelancers (the possibility of using invoices instead of acts of rendered services, cancellation of compulsory translation of written contract, etc.). However, many problems still remain.

Advantages of such a scheme business include the following:

– It is often the best to start pilot projects or business

– Allows you to receive money in foreign currency (other than the mandatory conversion of revenues)

– Minimum organizational costs (accounting for PE is simple, there are not corporate or employment regulations);

– Independence and autonomy of each freelancer.

Disadvantages of this simplified option are:

– The majority of customers in large projects want to work with the company, not individuals

– When extending of the project at a certain stage the question of positioning its business in the market as a separate unit raises

– Tax risks and risks in relations with regulatory authorities such as place of business, office sublease, contractors recruitment, the issue of business activity etc.

With the proper legal arrangement of relations with the customer and good knowledge of their rights, most risks can be avoided or reduced.

But again, the increase of the project and the team, increase fees and entry to the market in the field, eventually face the need to create some organizational and financial “center” for such activities.

Key options: private entrepreneur-intermediary (project manager with the functions of office lessee, person who receives and distributes funds, exercises control), the company in a foreign jurisdiction, the intermediary company in Ukraine, coworking and more.

These and other schemes see in the next our publications.

Natalia Vasylechko, Senior Associate of IT Law department, Attorneys at Law “BK Partners”

To choose the most optimal scheme for your business, taking into account all the risks and benefits, please contact us

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Oleksandra Petrenko

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Nataliya Vasylechko

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Taras Bachynskyj