What a Foreigner Needs to Know About Taxes When Opening an LLC in Ukraine

You are a foreigner who wants to start a business in Ukraine. You already have an idea, perhaps partners, but face the first challenge: which organizational form to choose and which taxation system is more beneficial? To avoid unnecessary costs or fines, it is important to understand these key details from the start. This is what we will discuss in our article.

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LLC in Ukraine: Why It Is the Most Popular Business Form

The most convenient form for starting a business in Ukraine is an LLC (Limited Liability Company). It is an ideal structure both for a single founder and for a group of investors. However, before deciding to create an LLC, it is important to carefully weigh both the advantages and disadvantages.

The main advantages of registering an LLC are:

• Flexibility in structuring the business. The ability to efficiently organize business operations, including legally defining the rights and responsibilities of each owner (if there are multiple founders).

• Limited liability. Owners bear minimal responsibility for the business, limited to their contributions to the authorized capital. In case of debts or bankruptcy, the LLC is liable for its obligations with its own assets only (the owners’ personal property and accounts cannot be seized).

• No income limits. An LLC is not subject to a maximum profit cap, allowing for growth opportunities.

• Trust from partners. LLCs are viewed as more reliable counterparties, especially in the B2B sector.

• Higher investment appeal. The ability to attract creditors and investors.

The main disadvantages of registering an LLC are:

• Significant tax burden with high profit margins. If the business is highly profitable, the general taxation system may be financially disadvantageous.

• The need to develop internal documents. It is mandatory to prepare internal policies and work rules (for example: Accounting Policy, Work Regulations, Discount and Loyalty Program Policies, etc.).

• Full accounting requirements. An LLC is required to maintain full accounting records, including financial, tax, personnel, and military records.

• Complex liquidation procedure. In case of business closure, liquidation either takes a long time through government authorities or involves expenses for so-called “alternative liquidation.”

So, after weighing the pros and cons and choosing an LLC as the optimal business form in Ukraine, the next important step will be selecting the taxation system. This will affect not only your tax base but also future expenses, reporting structure, and even the company’s business reputation.

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Taxation System Options for LLCs in Ukraine

When planning to register a company to conduct business, you need to choose a taxation system. In Ukraine, there are two options: general or simplified. Let’s take a closer look at each of them.

This system is recommended if you expect a high income or plan to engage in foreign economic activities. Features of the general taxation system include

• Conducting any legal activity (according to the Classification of Economic Activities - KVED)

• Hiring any number of employees

• Entering into contractual relationships with clients of all taxation systems (including individuals)

• Engaging in foreign economic activities (import/export of services and goods)

Under the general taxation system, the LLC is taxed not on its total revenue but only on its net profit. The corporate income tax rate is 18%.

For example, an LLC provided services worth 500,000 UAH (excluding VAT) during the reporting period and incurred expenses of 230,000 UAH (excluding VAT). The taxable net profit is 270,000 UAH (500,000 UAH − 230,000 UAH).

The income tax amounts to 48,600 UAH = 270,000 UAH * 18%.

The net profit after taxation for the LLC is 221,400 UAH.

In this example, the profit margin is 46%, and it would be more beneficial for the company to choose the simplified taxation system, paying a 5% single tax (500,000 UAH * 5% = 25,000 UAH).

However, if the business margin were 20%, it would be more advantageous to remain on the general taxation system, as the income tax would be 18,000 UAH.

Simplified Taxation System

The simplified taxation system (Single Tax) allows businesses to pay taxes through a simplified procedure, reducing the number of reports and simplifying accounting.

The single tax rate for the third group is calculated based on total income for the reporting period (calendar quarter) and is 3% if the company is a VAT payer, and 5% if not. Additionally, a 1% military tax on income is paid.

Taxes Paid and Reporting Requirements for an LLC*