Embassy of Ukraine in the United States of America

, Kyiv 21:13

Information for Entrepreneurs

To make a specific request, please, contact Economic and Trade Office of the Embassy by e-mail: vitalii.tarasiuk@mfa.gov.ua or oleksii.chernyshev@mfa.gov.ua


Attention to the U.S. Companies operating in Ukraine

FAQ about the Executive Order (EO) 13685 “Blocking Property of Certain Persons and Prohibiting Certain Transactions with Respect to the Crimea Region of Ukraine” which prohibits certain transactions with residents of the temporarily occupied Crimea.

On December 19, 2014, U.S. President Barak Obama signed the Executive Order (EO) 13685 “Blocking Property of Certain Persons and Prohibiting Certain Transactions with Respect to the Crimea Region of Ukraine” which prohibits certain transactions with residents of the temporarily occupied Crimea. The EO’s date of coming into force was February 1, 2015. A number of the U.S companies have had certain transactions with individuals, entities based in Crimea and, naturally, became concerned with the correct interpretation of the EO 13685, and the General Licenses (GL) related to this EO.

Below you may find some explanations given by the representatives of the OFAC and the U.S. Department of Commerce regarding issues brought up mostly by the representatives of the U.S. direct selling companies operating in Ukraine.

Q1. Which services can direct selling companies provide to the clients/consumers and independent distributors located in Crimea or which sell to Crimea after February 1, 2015? Which services they can’t? Is the delineation based on the type of product/service? In particular, can merchandise still be shipped to Crimea if the independent distributors and/or clients prepaid for the order before February 1, 2015?

A1. The EO prohibits, generally, all transactions originating from the U.S. and/or from a U.S. person to the territory of the temporarily occupied Crimea or to the person registered there (Ukraine has a system of “registration” whereby a person associates him/herself with a particular address in Ukraine, normally the address where the person permanently resides) starting with February 1, 2015.

Certain sales of goods and services have been allowed by GLs 4-8, notably agricultural commodities and medicines because the intent of the EO is not to create a humanitarian disaster in the area. The same applies to transfers of funds by individuals to individuals for personal – but not business – purposes.

The definition of agricultural commodities, medicines and other products for which there is a GL allowing transactions therewith is provided by the U.S. law (specifically not by the laws and regulations of Ukraine). In particular, Agricultural Trade Act of 1978 definitions of commodities would be used to make determinations, as well as the Export Administration Regulations, 15 CFR parts 730 et seq. (EAR).

One type of products which is allowed under the GL4 is cosmetics which are derived entirely from plant materials.

Notice that the exportation / re-exportation issues may fall under the authority of and should be addressed with the Bureau of Industry & Security (BIS) which is part of the U.S. Department of Commerce rather than OFAC which is part the Department of the Treasury. In particular, the EAR issues, definitions of product/service categories, and the eligibility of products/services for the purposes of certain GLs are normally under the BIS authority.

Q2. Can products purchased (a) before December 19, 2014 and/or (b) between December 19, 2014 and February 1, 2015 be refunded, i.e. can funds be returned if the independent distributors or clients/consumers wish to return the products?

Can warranty service or product support be provided with regard to the products purchased by clients/consumers in Crimea and/or independent distributors in Crimea or selling to Crimea, if the products were purchased (a) before December 19, 2014 and/or (b) between December 19, 2014 and February 1, 2015?

A2. The EO renders all contracts between the U.S. persons and persons in Crimea null and void for any warranty, product replacement, supply of spare parts, etc., i.e. contracts concluded prior to February 1, 2015 are explicitly not to be honored when it comes to warranty etc. (regardless of whether they were concluded prior to December 19, 2014 when the EO was issued or after).

Naturally, if there is a global product recall, the U.S. companies would want to minimize the potential negative effects to the consumers and recall a product without discrimination as to location. In such cases OFAC and the Department of Commerce encourage affected companies to seek an individual license for transactions involving Crimea.

Companies which want to accept return of products/issue refunds could apply for individual licenses.

Q3. Can companies continue to employ citizens of Ukraine with official residence (“registration”, using Ukraine’s legal term) in Crimea, whether or not they physically reside in Crimea? Note that while sales are done by individual distributors who are not employees of the direct selling companies, there are some individuals who are actually employed by Ukraine-registered subsidiaries of the U.S. companies. Ukraine has a rather employee-centered labor laws and terminating these employees on a short notice may mean severe fines for the U.S. direct selling companies’ subsidiaries.

A3. The U.S. persons are prohibited by employing individuals who ordinarily reside in Crimea by the EO (Ukraine’s “registration” is normally used for determining the place of residence). At the same time, if a person is “registered” in Crimea but there is a preponderance of evidence that he/she ordinarily resides outside of Crimea (e.g. in Kyiv), the U.S. persons can employ or otherwise interact with this individual.

Subsidiaries of the U.S. companies which are registered in Ukraine and are thus not U.S. persons could potentially employ individuals who ordinarily reside in Crimea provided the decision is NOT made by a U.S. person (e.g. a U.S. citizen holding a management position within the Ukrainian subsidiary or the management of the U.S. “mother” company).

Q4. After February 1, 2015, can companies pay the sales volume-based bonuses/commissions to the independent distributors for the periods ending before February 1, 2015? The bonuses/commissions are often earned on a monthly basis and thus can’t be calculated until the end of the month, which means the payment will have to occur after February 1, 2015. Not paying the bonus would violate the contract between the company and the independent distributor who could then seek remedies in court.

Payments of volume-based bonuses, commissions and other payments which for some reason could not be made prior to February 1, 2015 could potentially be made to individuals who ordinarily reside in Crimea after applying for an individual license (this type of transactions should be wrapped into a roster specifying individuals, amounts, and the purpose of/justification for payment).

Q5. The U.S. companies are concerned that, due to the current visa-free travel regime between Ukraine and Russia, some less scrupulous independent distributors – despite the companies’ instructions/prohibitions – may purchase merchandise in Ukraine, transport into Russia which is not covered by the EO and then transport to the illegally occupied Crimea thus creating potential for the U.S. companies to appear to be in violation of the EO. Will such situation indeed cause the companies to be in violation of the EO? In fact, even photographs of original packaging could potentially be used for propaganda purposes, i.e. “creating evidence” that the U.S. companies are violating the EO (as one executive suggested, this may be used in Russia to try to undermine the perception of the seriousness of the U.S. sanctions). Also, some independent distributors have their up/down-links in Russia, and these up/down-links may be selling to Crimea (in which case, the U.S. companies’ subsidiaries in Russia may also be concerned about the potential EO violations).

The exportation / re-exportation issue should be addressed with the Bureau of Industry & Security (BIS) which is part of the U.S. Department of Commerce. Normally, the “one transaction vs. separate transactions” rule is applied to determine whether there is a violation of the EO, e.g. if the same number of the same product units is ordered by an independent distributor who is known to sell the products in Crimea and then he/she submits a report (or it becomes otherwise know) that these same products were indeed sold to customers in Crimea then there is a violation of the EO. If an independent distributor had certain products in inventory and then sold them to customers in Crimea in a number of unrelated transactions, then the company is not in violation of the EO.

If the independent distributor spends some time in the temporarily occupied Crimea, the residence test may be hard to utilize, in which case business generation test may be used (i.e. if the independent distributor continues to sell in Crimea on a regular basis, this could be viewed as a violation of the EO; if the distributor goes to Crimea for personal reasons and is not involved in business there, the company is likely to be in compliance with the EO).

The companies should undertake the appropriate risk-based policy measures to prevent sanctions violations. There is a strict liability regime for sanctions, but discretion will be used by OFAC to determine whether the company had good controls which would means less severe action by OFAC. Policy manuals and new contracts with independent distributors should include language related to the EO and sanctions, similarly to the anti-corruption/anti-bribery policies which many U.S. companies issue to comply with the Foreign Corrupt Practices Act (FCPA).

General Note

Direct or indirect involvement of U.S. persons is the key in determining the potential violation of the EO. If the decision is made wholly outside of the U.S., the decision may not be in violation of the EO.

If the U.S. companies operating in Ukraine directly or via Ukraine-registered subsidiaries have additional questions with regard to the EO and the GLs, they should write in for interpretive guidance.

The U.S. companies could also request individual extended wind-down period in case the circumstances warrant that. The extended wind-down period could be granted upon the discretion of the U.S. government.

(Based on the materials of the U.S.-Ukraine Business Council)

Memorandum of Understanding between the Government of Ukraine and the Government of the United States of America

The Government of Ukraine and the Government of the United States of America (hereinafter “the Parties”), Confirming their intention to cooperate with the aim of developing relations between the two countries in the area of investment;

Desiring to ensure favorable conditions for investment including the principles of equality and mutual benefits and the provisions of the Treaty Between the United States of America and Ukraine Concerning the Encouragement and Reciprocal Protection of Investment, with Annex, and Related Exchange of Letters, signed at Washington March 4, 1994; and With regard to the situation which has developed in connection with the investment of Alliant Techsystems Inc. to ensure operation of closed- end Joint Stock Company Alliant Kyiv;

Achieved the following understanding:

Section 1

The Parties welcome and admit the importance of the agreements that are envisioned to be concluded between the U.S. Overseas Private Investment Corporation (hereinafter: OPIC) and an economic entity (hereinafter– the Enterprise), selected by the Government of Ukraine with OPIC’s approval, as described in Section 2 of this Memorandum of Understanding, and, in accordance with their respective national laws, intend to facilitate the implementation of these agreements.

Section 2

The Parties take into account the agreements (hereinafter – Agreements) regarding resolution of the situation involving the investments of Alliant Techsystems Inc. into Alliant Kyiv. These Agreements envisage that:

(i) OPIC would transfer to the Enterprise the rights assigned by Alliant Techsystems Inc. to OPIC in connection with the payment made by the latter (hereinafter – the Rights). The transfer of rights would be made in accordance with the legislation of Ukraine.

(ii) The Enterprise, in its turn, would transfer money in favor of OPIC in the amounts and during the time period specified by the Agreements.

The Parties support OPIC’s willingness to consider the full and proper performance by the Enterprise of the payment and due implementation of other obligations under the provisions of the Agreements, as mentioned in the paragraphs (i) and (ii) of this Section as final resolution of the situation that emerged in connection with the investments of Alliant Techsystems Inc. in Alliant Kyiv.

Section 3

The U.S. Government confirms that OPIC will resume support of investment projects implemented in Ukraine by U.S. private investors, upon satisfaction of the conditions outlined in the Agreements for the resumption of such support.

Section 4

Parties acknowledge that the provisions of this Memorandum of Understanding do not constitute and should not be considered as constituting any admission on behalf of the Ukrainian Side of any commitment, debt, complaint or other claim of any company, including those involved in the resolution of the situation with regard to the investments of the Alliant Techsystems Inc.

Section 5

Each Side will endeavor to resolve any differences regarding the interpretation and/or application of provisions of this Memorandum of Understanding by holding consultations between the Parties.

Section 6

The Memorandum of Understanding enters into force upon signature by authorized representatives of the Parties.

Modifications and additions that are integral part of this Memorandum of Understanding can be incorporated into it upon mutual written consent of the Parties.

Signed in duplicate at Kyiv on November 10, 2008, in the Ukrainian and English languages. Both copies have equal value.

For the Government of Ukraine:

For the Government of the United States of America:

Trade and Investment Cooperation Agreement between the Government of Ukraine and the Governmet of the USA

The Government of Ukraine and the Government of the United States of America (individually a "Party" and collectively the "Parties"):

Desiring to enhance the bonds of friendship and spirit of cooperation, to expand trade, and to strengthen economic relations between the Parties;

Recognizing the importance of fostering an open and predictable environment for international trade and investment;

Recognizing the benefits the Parties can derive from increased international trade and investment, and that trade-distorting investment measures and protectionist trade barriers can reduce these benefits;

Seeking to promote transparency and to eliminate bribery and corruption in international trade and investment;

Recognizing the essential role of private investment, both domestic and foreign, in furthering growth, creating jobs, expanding trade, improving technology, and enhancing economic development;

Recognizing the increased importance of trade in services between the Parties;

Taking into account the positive impact of reducing non-tariff trade barriers in order to facilitate increased trade among the Parties;

Recognizing the importance of providing adequate and effective protection and enforcement of intellectual property rights and observing the obligations of membership and adherence to conventions for the protection of intellectual property rights;

Recognizing the importance of providing adequate and effective protection and enforcement of worker rights in accordance with each Party's labor laws and of improving the observance of internationally recognized labor rights;

Recognizing the importance of protecting and preserving the environment in accordance with each Party's environmental laws, and desiring to ensure that trade and environmental policies are mutually supportive in the furtherance of sustainable development of the Parties;

Desiring to encourage and facilitate contacts between enterprises and other private entities in the territory of each Party;

Acknowledging the desirability of resolving trade and investment problems between the Parties as expeditiously as possible;

Desiring to reinforce the multilateral trading system by entering into further reciprocal and mutually advantageous arrangements under the auspices of the World Trade Organization ("WTO");

Confirming that this Agreement is without prejudice to the rights and obligations of the Parties under the agreements, understandings, and other instruments related to or concluded under the auspices of the WTO;

Noting the Treaty between The United States of America and Ukraine Concerning the Encouragement and Reciprocal Protection of Investment ("Bilateral Investment Treaty"), signed on March 4, 1994, between the Parties and affirming that this Agreement is without prejudice to the rights and obligations of the Parties under that Treaty;

Seeking to create a mechanism for further dialogue on initiatives for expanding trade through enhanced cooperation and more comprehensive agreements,

HAVE AGREED as follows:

ARTICLE ONE

The Parties affirm their desire to promote an attractive investment climate and to expand and diversify trade in products and services.

ARTICLE TWO

1. The Parties hereby establish a Ukraine-United States Council on Trade and Investment ("Council"), comprising representatives of each Party. The Ukrainian side shall be chaired by the Ministry of Economy of Ukraine; and the United States' side shall be chaired by the Office of the U.S. Trade Representative ("USTR”). Both Parties may be assisted by officials of other government entities as circumstances require.

2. The Council shall meet at such times, in such places, and through such means as the Parties may agree. The Parties shall endeavor to meet no less than once a year.

ARTICLE THREE

The Council shall:

1. monitor trade and investment relations between the Parties, identify opportunities for expanding trade and investment, and identify relevant issues, such as those related to the protection of intellectual property rights, worker rights, and the environment, that may be appropriate for negotiation in the framework of the Council sessions;

2. consider specific trade and investment matters of interest to the Parties;

3. identify and work to remove impediments to trade and investment between the Parties; and

4. seek and receive the advice of the private sector and civil society, where appropriate, on matters related to the Council's work.

ARTICLE FOUR

A Party may refer a specific trade or investment matter to the Council by delivering a written request to the other Party that includes a description of the matter concerned. The Council shall take up the matter promptly after the request is delivered unless the requesting Party agrees to postpone discussion of the matter. Each Party shall endeavor to provide an opportunity for the Council to consider a matter before taking actions that could adversely affect trade or investment interests of the other Party.

ARTICLE FIVE

This Agreement shall be without prejudice to the law of either Party or to the rights and obligations of either Party under any other agreement.

ARTICLE SIX

This Agreement shall enter into force on the date that the Parties notify each other in writing that they have completed any internal procedures necessary to implement the Agreement.

ARTICLE SEVEN

1. Any disputes between the Parties that may arise from the interpretation and/or implementation of provisions of this Agreement shall be resolved through consultations and negotiations between the Parties.

2. On mutual agreement, the Parties may amend this Agreement. Such amendments shall be in writing and shall constitute an integral part of this Agreement.

ARTICLE EIGHT

Either Party may withdraw from this Agreement by providing written notice concerning its intention to withdraw to the other Party. The withdrawal shall take effect on a date the Parties agree or, if the Parties cannot agree, 180 days after the date on which the notice of withdrawal from this Agreement is delivered.

IN WITNESS WHEREOF, the undersigned, being duly authorized, have signed this Agreement.

DONE at …………….., this …………… day of ……….. 2008, in two copies each the English and Ukrainian languages, both texts being equally authentic.

FOR THE GOVERNMENT OF UKRAINE

FOR THE GOVERNMENT OF THE UNITED STATES OF AMERICA

Registration of a Representation

Law of Ukraine on Foreign Economic Activities (City of Kyiv, April 16, 1991, №959-XII)

Article 5. Right to foreign economic activities

"… Foreign business entities, which carry out foreign economic activities in Ukraine, have the right to open their representative offices in Ukraine. Registration of these offices shall be carried out by the Ministry of Economy of Ukraine within 60 days since the date the documents are submitted for registration. For the registration of a representative office of a foreign business entity on the territory of Ukraine there shall be submitted:
· application for registration of a representative office in free form;
· extract from the trade (banking) register of the country, where the foreign business entity is officially registered;
· reference from the banking institution, where an applicant’s account is officially kept;
· power of attorney to carry out representative functions issued in accordance with the law of the country where the office of the foreign business entity is officially registered;

The above documents shall be certified by a notary at the place of issue and dully legalized in consular institutions of Ukraine, if international agreements of Ukraine do not provide to the contrary. Foreign business entities shall pay for the registration of a representative office in the amount, fixed by the Cabinet of Ministers of Ukraine, which shall not exceed real expenses of the country, connected with this registration.

Should The Ministry of Economy of Ukraine refuse in registration of a representative office of foreign business entity or take no decision on its registration within the established 60-day term, the foreign business entity may appeal such refusal in judicial bodies of Ukraine.

There shall be prohibited to demand from a foreign subject of economic activities re-registration of previously registered representative office in Ukraine.

Should any change of name, legal status, legal address of a foreign business entity or its bankruptcy take place, the respective representative office in Ukraine shall inform about that The Ministry of Economy of Ukraine within the 7-day period.

Economic, including foreign economic, activities of foreign business entities on the territory of Ukraine, shall be regulated by the laws of Ukraine, where it concerns the procedure for implementation of economic activities in Ukraine. If this activity is connected with foreign investments, it shall be regulated by the relevant laws of Ukraine…"

List of Documents Necessary for Registration of a Representation of a Company in Ukraine

1. Application for registration on a letterhead of a company signed by Head of a company and with seal affixed. Form is free. Application has to contain:
· name of a company;
· address of a company;
· telephone and fax numbers;
· name of a city, in which a representation is established, and future address of a representation;
· if subsidiaries are envisaged, please name cities of their location;
· number of foreign employees in a representation;
· date of establishment of a company;
· name of a bank and number of account;
· field of activities of a company;
· purpose of establishment and field of activities of a representation (representation activities only), information on business relations with Ukrainian partners and prospects of cooperation development.
Original of application with a signature of Head of a company attested by notary is submitted.

2. Extract from Trade Register of a country of location of an officially registered central management body (office) of a foreign business entity is attested by notary.

3. Certificate of a bank, in which account of a company is opened, containing the number of account. Original of certificate of a bank is submitted. Signature of a bank employee, which issued certificate is attested by notary.

4. Warrant in the name of concrete person for execution of representative functions in the territory of Ukraine, listing authorities of a representative.

Original of warrant with signature of Head of a company attested by notary is submitted.

Originals of documents listed in Paragraphs 1,23,4 have to be duly legalized in consular offices, representing interests of Ukraine.

The documents have to be translated into the Ukrainian language. Translation is attested by a seal of an official translator only.

The documents have to be submitted to Ministry of Economy of Ukraine no later than 6 months after their issuing in a country of location of a company.

Under acceptance of documents for registration, an applicant is given the number of account for payment of registration fee, amounting to 2 500 USD.

Doing Business in Ukraine

The Ukrainian Civil Code (No. 435-IV, dated January 16, 2003, effective January 1, 2004) and Economic Code (No. 436-IV, dated January 16, 2003, effective January 1, 2004) in combination provide for virtually any type of companies. Despite the dazzling range of business structures offered under Ukrainian law, foreign investors typically choose one of the following four alternative business structures:

· representative office (which is not a legal entity, and can be either commercial or non-commercial);

· wholly-owned foreign subsidiary or enterprise (usually with limited liability provided in the founding documents);

· "joint ventures" — companies with foreign participation (either in the form of a closed stock company or a limited liability company); or agreements on joint cooperation and production, which do not require registration of a separate legal entity, including toll manufacturing or production outsourcing agreements.

Resident vs. Non-resident Status

One significant consideration in selecting the appropriate business structure involves Ukrainian foreign currency legislation, which categorizes the above structures as either non-residents or residents, depending on the type of activities carried out.

Non-commercial representative offices are "non-residents" under currency regulations and tax legislation, while commercial representative offices, subsidiaries and joint ventures are classified as "residents" because they are legal entities, registered and residing in Ukraine for more than 183 days per year. While the distinction is not clearly expressed in other laws, it is significant in terms of tax consequences and the ability of foreign businessmen to effectuate transactions in foreign or Ukrainian currency.

Both subsidiaries and joint ventures have the status of separate corporate entities and, thus, both limit an investor's liability to its initial investment. As Ukrainian corporate entities, joint ventures and subsidiaries are considered to be "residents" under Ukrainian currency regulations and they are subject to a different financial regime than "non-residents" (such as representative offices). For instance, resident companies may only transact business in Ukrainian currency.

Representative Offices

By definition, a representative office of a foreign company is not a separate legal entity, but is viewed as an "arm" of a non-resident company. As such, a representative office is not incorporated under Ukrainian law. A representative office simply represents the interests of a foreign legal entity on Ukrainian territory and, consequently, there is flow-through liability for the parent company.

Another consequence: representative offices that are accorded "non-resident" status under the Ukrainian taxation system are subject to a special financial regime under tax laws and currency regulations. Foreign companies initially prefer to register their presence as non

resident representative offices, particularly in case of import-export activities or simple research of the market opportunities and conditions.

The key function of such non-resident representative offices is to service existing contracts between the non-resident company and a local customer, but not to engage in commercial activities on its own behalf. Engaging in the so-called "commercial activities" (executing contracts in its own name, accepting payment for goods, etc.) may result in a representative office's re-classification as a "resident," thereby being taxed based on local revenues derived from its activity in Ukraine.

Moreover, the Ukrainian corporate tax legislation places non-residents into two categories: those which effectuate profit-generating activities in Ukraine (a) through a permanent representative office (active), or (b) without a permanent office (passive). Different tax rates and payment procedures attach to each category. This significant distinction is aimed at closing the loophole by which non-resident representative offices circumvented currency regulations and paid lower (if any) taxes in Ukraine on activities typically performed by resident companies.

Residents: Joint Stock and Limited Liability Companies

Wholly-owned foreign subsidiaries and joint ventures usually take the form of either closed joint stock companies or limited liability companies, depending on the particular requirements of the project. Both structures are considered to be "residents" under the Ukrainian currency regulations and tax laws, and both have the corporate shield, limiting the liability of founders or shareholders to the value of their contributions to the company.

Several differences exist between the above companies. For example, in a limited liability company, the founders own equity in the company, expressed by a percentage of ownership (i.e., such a company does not issue shares of stock). The main difference between a limited liability company and a joint stock company, however, lies in the degree of structural complexity. Limited liability companies are relatively simplistic and accommodate the interests of minority owners. In sharp contrast, joint stock companies can be extraordinarily complex, particularly in cases of highly negotiated joint ventures with state-owned enterprises, and do not give minority shareholders very much protection.

The management structure of a stock company and that of a limited liability company is very similar with a few minor variations. The three-part structure is headed by the "general assembly of shareholders" (or in case of a limited liability company, "general assembly of participants") which represents the interests of the company owners. The next level, the "supervisory council" (a.k.a. the "board of directors") is optional in both structures; it is commonly employed in the stock company structure, but smaller companies tend to disregard it. The final level, the management board, performs the company's day-to-day functions.

In practice, simple joint ventures or 100% foreign-owned companies usually register in the form of a limited liability company. This company structure allows a relatively small number of people to avoid a complex multi-layered management structure composed of a general assembly, supervisory council and management organs and to avoid the registration of shares of stock. It is particularly attractive in cases of 100% foreign-owned companies because the charter (by-laws) can provide for one executive organ where the founder has complete and unequivocal control.

Capitalization Requirements

The Law "On Economic Associations" governs the formation of joint stock companies and limited liability companies, and contains no limitations on the size of share capital for joint stock companies, provided however that the company's authorized capital is divided into shares of stock of equal nominal value.

The minimum capitalization for registration of joint stock companies is 1,250 minimum monthly salaries, while for limited liability companies it is 100 minimum monthly salaries. As of January 1, 2007, one minimum monthly salary is equal to UAH 400 (from July 1, 2007 it will increase to UAH 420 and from December 1, 2007 to UAH 460). Note that increases of the minimum monthly salary are common; therefore, please verify this information before calculating authorized capital, fines, fees, etc. Contributions to the authorized capital of a company may be either in cash or in-kind.

Shareholders of stock companies and founders in limited liability companies must make initial pre-registration deposits towards their contributions prior to registration. According to the Law "On Economic Associations," 50% of a shareholder's contribution must be paid prior to registration if the shares are originally distributed amongst the founders of a joint stock company or a limited liability company. The remaining sum must be paid in its entirety, no later than one year after registration of both types of companies.

Company Registration

On July 1, 2004, the Law of Ukraine No. 755-IV "On State Registration of Legal Entities and Physical Entities-Entrepreneurs," dated May 15, 2003 (hereinafter the "Law"), came into force. The Law was specifically tailored to correspond with the Civil and Economic Codes of Ukraine, which simultaneously came into effect on January 1, 2004. The discussion below focuses on the registration of legal entities.

State registration in Ukraine evidences the creation or liquidation of legal entities, as well as any other registration activities which require an entry into the Unified State Register of Legal Entities and Physical Entities-Entrepreneurs (the "Register"). The Register should be fully up and running in 2006, including a "one-window" registration point.

Registration is performed by a duly qualified state registrar. They are responsible for registering legal entities, reserving names of legal entities (a novelty in Ukraine) providing information to various state authorities from registration cards, creating and storing registration cards, filling out and issuing certificates of registration and extracts from the Unified State Register, registering amendments in the founding documents of legal entities, registering terminations of activity.

Document Preparation

All documents to be submitted for any registration activity must be personally submitted or sent by registered mail and must be written in Ukrainian. Registration cards must be typewritten or handwritten in print and signed (in case of dispatch by registered mail, the applicant's signature must be notarized). All founding documents (charters, founding agreements, if applicable, regulations) must completely conform to the requirements of Ukrainian legislation.

Please note that documents, which are executed and issued in a foreign country, must be duly signed, notarized with a certification of the notary's signature by the authority in the foreign country authorized to certify such signatures and, finally, legalized with the Ukrainian Consulate in the foreign country or certified by an Apostille, provided that the foreign country has recognized Ukraine as a member to the 1961 Hague Convention Abolishing the Requirement of Legalization for Foreign Public Documents.

After a legal entity or entrepreneur is entered into the Unified State Register, the relevant state registrar will create a registration file and assign it a registration number.

Registration Process

The registration of a legal entity usually entails submission of the following documents:

· a duly filled in registration card for carrying out the state registration of the  company;

· a copy of the resolution of the founders or their authorized bodies on the  creation of a legal entity;

· two counterparts of the founding documents (according to the Civil and Economic Codes, the charter is the founding document of most types of companies,including joint stock companies, limited liability companies and enterprises);

· the document evidencing payment of the registration fee for the state registration of a legal entity; and for legal entities established by a foreign legal entity (foreign legal entities), a duly legalized (certified by Apostille) extract from the trade, banking or court register in such entity's (entities') country of location, which extract evidences registration in such country.

Again, we stress that if the above documents are issued in a foreign country, then such documents must be notarized, certified and affixed with an Apostille stamp in accordance with the 1961 Hague Convention (or legalized in the Ukrainian consulate in the country of origin) to use them officially in Ukraine. Importantly, "state registration" does not include mandatory registration with the social security funds, the Pension Fund of Ukraine, the Employment Center and the tax authorities.

In addition, the state registrar must provide to the statistics bodies, the state tax authorities, the Pension Fund of Ukraine and the social security funds (hereinafter "Registration Authorities") notice on the state registration of the company with an indication of the number and date of registration and all information in the company's registration card. This act alone will be the basis for the inclusion of the company into the registers of the aforementioned state authorities.

Individuals, who carry out commercial activities including the manufacturing and sale of products, the rendering of services or the performance of certain jobs, must also register as entrepreneurs for tax purposes. As a brief overview, the state registration of entrepreneurs includes the submission of a duly executed registration card and a copy of the individual's certificate evidencing registration as a taxpayer and payer of other mandatory payments and the payment of the registration fee.

Country profile of Ukraine 

Digest of Ukrainian Chamber of Commerce and Industry "Business Herald International" 

Useful links