Options for IT companies structuring in Ukraine (part 2)

In our previous publication http://legalaid.ua/ua/article/varianty-pobudovy-struktury-it-kompanij-v-ukrajini-chastyna-1 we have analyzed the initial scheme of IT companies, which usually is a basis for all the following.
Next scheme which naturally follows from the previous one, involves a simple intermediary – an individual entrepreneur that is entrusted with organizational functions and control functions.
This option usually applies if a foreign customer (often outsourcing company) recruits development team in Ukraine for one or more projects.
A foreign customer in this case is not interested in creating a separate entity in Ukraine (subsidiary or representative office) because all contractors working within its project, transmit all IP rights, and the project is owned by a foreign company or its final client.
This gives the foreign companies some flexibility, because after the closure of the project no issues arise regarding the termination or restructuring companies or representative offices in Ukraine.
The client chooses one person who actually manages its business in Ukraine. Such a person shall be registered as private entrepreneur, performs the function of project manager, receives all or part of payments, distributes them to the costs for project development and for the services payment to other individual entrepreneurs.
Often such person is a lessee of the office and can sublease workplaces for other project executors.
This scheme has certain nuances and drawbacks.
The first group of limitations in this structure include quantitative restrictions relating to the payment amounts and composition of the team.
The income of an individual entrepreneur who is on the third group of the single tax can not exceed UAH 5000 000 a year. Thus, with large incomes and a large team PE can not receive and distribute all payment for services to all developers.
The given scheme is rarely used for a large number of performers, as with the growth of team the risk of leaving the legal framework for such activities increases.
Another nuance is the issue of office premises and fixed assets.
If one person performs the function of the office lessee and also takes on a significant part of payments for teams from abroad, it can cause a question from controlling authorities, because such scheme has signs of a foreign business without registration, tax evasion and concealment of labor relations.
Regarding the fixed assets and computer equipment, there may be questions about their owner. In fact, the customer can not directly buy them for his business in Ukraine, because de jure he does not have business here. Problems may arise in case of damage or theft of property (including by team members) or during searches or audits.
Finally, it is worth noting that often the main problem of the functioning of this structure is the lack of its understanding by the participants themselves.
Thus, developers are not always aware that they are working under contracts on providing services, are independent contractors and do not work for the Ukrainian company as such does not exist.
Foreign customers, in their turn, do not always understand that certain payments or cost compensation schemes in contracts with Ukrainian side are not possible to prescribe, because it just cause the output of the structure beyond the legitimate operation.
Therefore, considered scheme is recommended for small short or medium-term projects of foreign clients in Ukraine and is not appropriate for large Ukrainian startups or own projects, even when foreign investors are involved.
These and other schemes see in the next our publications.
Nataliia 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 2)
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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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