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Entry of French pharmaceutical company onto Ukrainian market

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A French company (non-resident) specializing in production of medicinal drugs contacted our law firm in order for us to provide legal support of its entry onto Ukrainian market. The company was primarily interested in organizational form for its presence on pharmaceutical market of Ukraine (permanent representative office or subsidiary legal entity) as well as the most beneficial system of taxation.

The main peculiarity of the situation was the fact that Ukrainian branch office had to perform not only auxiliary functions but also a number of other functions concerning representation of foreign company’s interests in relations with third parties: directly in relations with customers (distributors), bonded warehouse, transporters, etc. It was planned for Ukrainian enterprise to act as an agent in the interest of French pharmaceutical company and be funded by the latter.

While analyzing client’s case, it was determined which form of branch office is more beneficial from the point of view of foreign company’s taxation: permanent representative office or company. Also, our attorneys determined whether it would be worth to open both permanent representative office and LLC as well as explained options in regard to possible founders of Ukrainian enterprise: non-resident company or third parties.

Special attention was paid to issues of financial transactions and taxation. In particular, the client was advised on the most optimal way of payment for the services of agency: by means of money transfer from France or by allowing agent company to withhold certain margin prior to transferring payments from Ukrainian distributors to the non-resident company.

Additionally we provided information about peculiarities of Ukrainian legislation in regard to form and content of international agency contract, which was planned to be entered into between foreign company and its established subsidiary.

It should be mentioned that we do not only provide clients with legal advices on legislation currently in force but also draw their attention to tendencies of law in general and legal realities. Thus, while summarizing analysis of client’s situation, it was noted that as time went by, the position of tax authorities concerning certain questions was becoming more and more strict. In particular, if a foreign business entity conducted its activities and received income by means of any presence (except auxiliary or preparatory activities) in Ukraine, tax authorities would consider this foreign legal entity liable for payment of taxes from income received in this country. At the same time it is still possible to carry out a scheme according to which foreign company establishes legal entity, the major (usual) activities of which consist of provision of services of agency. Moreover, this scheme often involves resident company from a country with the most advantageous system of taxation (Cyprus, British Virgin Isles) which are the ones causing the greatest increase in price. 

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