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How to do business related to e-commerce in Ukraine

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Often, the e-commerce industry is difficult to regulate and not the easiest to do business with. Of course, more often than not, experienced firms have a well-tried scheme of doing business, which can be tried to apply when entering a foreign market, including the market of Ukraine.

However, not only is it necessary to have specific knowledge of the market and the nuances of local legislation, but there are also unique business models that are not easy to implement in Ukraine.

We will tell you about such cases, offering you an understanding of how e-commerce and its related activities are regulated in Ukraine.

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The essence of the case: an unusual business model

We were approached by a Client - Turkish e-commerce platform, which wanted to enter the Ukrainian market. The client was interested in tax consulting, possibility of company registration in Ukraine and many other things. First of all, he was interested in testing his non-standard business model.

The Client's business model was to look like this:

  • the buyer orders the offered goods at one of the leading Ukrainian marketplaces, while making a payment to the account of a Ukrainian enterprise (e.g. a non-profit representative office) established by our Client;
  • The Ukrainian business entity paid for the services of contractors: marketplace, bank delivery service, etc. In addition, the Ukrainian entity had to pay the cost of goods to the Turkish manufacturer, with which our client had the appropriate arrangements.;
  • as a result of settlements with all contractors, the Ukrainian entity had to balance the income received from buyers with the costs of contractors and maintenance of the office, and therefore there should have been virtually no tax liabilities in terms of doing business. Import of goods into Ukraine should also have enjoyed a special preferential customs regime, as the goods were sent directly to the buyer, and their value did not exceed the relevant preferential limit;
  • the main income was to be generated in Turkey, where the state supports exports by returning a percentage of the export transaction amount.

The main problematic aspects of this business model were related to the sphere of tax and customs law of Ukraine, respectively, we offered the Client advice of the company's lawyers responsible for these issues.

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Consultation of a lawyer on tax law of Ukraine

With regard to the Client's situation, we have come to the following conclusions:

  • the use of a non-commercial representative office in Ukraine does not allow receiving funds for goods, which means that it is necessary to create a commercial office or change the status of non-commercial representative office. And, of course, to pay additional taxes;
  • the registration of the enterprise will not allow to realize the Client's plan in full, as having reached the mark of 1 million hryvnias (400 000 USD), such subject would have to be registered as a payer of value added tax (VAT), which would not allow him to get a tax credit for absolutely all expenses in future. Consequently, the activity should be conducted with subsidies from the Client or the cost for the consumer should be increased, which would be too good for the Client's competitors, and therefore - not profitable;
  • an alternative option would be to organize activities through agency/commission or assignment contracts. But for such services, one had to find a professional agent;
  • to implement the option with intermediary agreements, we advised to get individual tax advice from the tax authorities;
  • in addition, we have warned the Client about the potential possibility of tax courts, as tax advice cannot cover all aspects of business, and the business model of the Client in general will definitely raise questions from regulatory authorities.

Having considered all variants, we could as a result offer the Client the optimum scheme of an exit on the market of Ukraine.

If you want to start your business in Ukraine, and you are thinking about how to do it legally - call us. We will take care of your legal and safe entry into the Ukrainian market.

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