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 “Юридические услуги”
To choose the most optimal scheme for your business, taking into account all the risks and benefits, please contact us]]>

Options for IT companies structuring in Ukraine (part 1)
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A new law on virtual assets: the picture is formed, but without details. On September 8, 2021, the Verkhovna Rada has finally adopted the long-awaited law "On Virtual Assets", which clarified many ambiguous points. This is especially true for the status of cryptocurrency and the rules of its circulation in the country. Let`s take a closer look at novelties. An ambiguous term Let's start with what the legislator actually means by "virtual assets". There are the following features:  they are an intangible good (cannot be represented on tangible media)  fall under the list of objects of civil rights (that is, they can be owned and be disposed of)  represent an electronic form of a set of data (essentially, they are blocks of information put in order);  the existence and circulation of assets are due to software tools (specific electronic environment). From these features we can draw the following conclusion: virtual assets are not limited to cryptocurrency. Digital currency is part of the concept, but other instruments, such as tokens, NFTs, or even in-game items, fall under the definition. Actually, the actual existence of most digital products, having a certain value, is due to the software environment (ecosystem), either it is blockchain technology, a trading platform, or an online game server. It should be noted that the attempt to define virtual assets was already made in the adopted Law of Ukraine in counteracting money laundering. In this act, they understand it as digital means of payment, which goes against the new definition. As a result, there are now two different explanations for virtual assets, which causes significant confusion not only in regulation but also in interpretation. It is definitely necessary to expect clarifications from competent state bodies. Let's return to the new law. Its application covers legal relations in which the "Ukrainian element" is present:  provider or recipient of services represented in Ukraine;  an agreement according to which the turnover of virtual assets is carried out in accordance with Ukrainian legislation;  the acquirer of assets (or both counterparties) is a resident(s) of Ukraine. The law also introduces an interesting division of all virtual assets into two groups: secured and unsecured. Here again, there is a problem of interpretation. The first category includes products exchanged for (state) currency, the second category includes instruments that can be exchanged only for other digital assets. There is an alternative opinion: that the turnover of secured assets is supported by real goods (money or other property), while unsecured ones are not supported by anything. The latter interpretation is the most credible, as the new law stipulates that virtual assets are NOT means of payment. Moreover, they cannot be exchanged for real goods, be they property, services or money. This significantly narrows the potential for the use of virtual assets not only for commercial but also for civilian purposes. About obligatory licensing The new law states that in some cases, the use of virtual assets will require licensing. The 4 types of activity are mentioned:  storage and management of virtual assets (or its` keys)  servicing of exchange operations with virtual assets (both for other analogues and for real goods);  translation of digital assets;  any intermediary services. A list is quite impressive, but there are some important exclusions:  if your service works with cryptocurrency wallet (it means users can dispose of accumulations into cryptocurrency independently);  If your service works on smart contracts or decentralized protocol, based on which internal transfers are performed. As to intermediary services, everything is more compicated. Actually, any mediation is based on the public share offering. That is why it is subject to licensing. How to get a license? A company that wishes on legal grounds to engage in virtual assets must satisfy legislative requirements. The key role is played by the minimum amount of the statutory capital, which equals 1,19 million hryvnyas (for non-residents it is 5,95 million hryvnyas) in case of storage and administration. For other types of activity (trading, translation and mediation services) the minimum size of the statutory capital amounts to 595 thousand hryvnyas (for non-residents is 2,98 million hryvnyas). The order of the registration of license:  to compose an application and prepare documents.  to pay state fee (68-136 thousand hryvnyas for residents and 340-680 thousand hryvnyas is for non-residents).  to pend review of the request (30 days).  to get a license. The duration of the license is 1 year. 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The adoption of the law by the parliament is a significant step forward in adjusting and legal market of virtual assets creation in Ukraine. However, the new rules haven`t come into effect yet - their term of introduction depends on making amendments in the Internal Revenue Code. It is yet unknown, when a legislator will decide to enter the renewed system of taxation for such assets. Being "IT-hub" and territory, where cryptocurrency enjoys large popularity, the question of taxes must be decided maximally safely. Despite the presence of obvious gaps in interpretation, a new law on virtual assets gives the official narrative of what takes place and that, how the legal relationships related to cryptocurrency will be regulated. It is to be hoped that in the nearest time the Ministry of digital information will give out the detailed explanations concerning debatable norms.
20/01/2022

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