Limited Liability Company – Ongoing Compliance
Post-Registration Compliance Guide
After successful registration of your Ukrainian Limited Liability Company (LLC), you will need to perform certain further formalities depending on type and structure of your business activity (including immediate post-registration tasks, securing applicable licenses/permits, work permits for your foreign directors/other employees, etc).
Furthermore, to keep your Ukrainian company in good standing, you will need to satisfy certain ongoing compliance requirements. Note that failure to comply can lead to penalties and negatively affect your company’s reputation.
This article will provide you with information on post-registration steps and common compliance requirements for Ukrainian LLC to operate legally.
Regulatory Regime in Ukraine
According to the World Bank Report 2017, Ukraine was placed on the 80th place out of 190 countries in the Ease of Doing Business rank. Such a poor rating is caused by corruption, complex legislation, time-consuming dispute resolution and ineffective court system. Additionally, one of the key problem is quite low level of interaction between state bodies and even divisions of same state body. As a result, when operating business in Ukraine, you may have to deal with controversial legislative acts and diverse understanding and implementation of same legal norm.
However, serious efforts are being made to improve all this. Over the last few years, legislation of Ukraine has significantly changed to simplify doing business in Ukraine, including legislation related to registration and administration process. A lot of online services were implemented, including online access to companies’ data profiles, online registration and modernization of state authorities, etc. As a result, in criteria of the Ease of Starting a Business Ukraine ranks #20, which is 4 steps higher that the previous year.
Nowadays Ukraine continues to adopt international standards which in turn requires not only change of law but also re-training of state officials and implementation of higher standards of service quality from government bodies. One of such important changes in reformation of Ukraine’s court system, which was launched in 2016.
Limited Liability Company (LLC) (in Ukrainian – Товариство з обмеженою відповідальністю or ТОВ) is the most popular type of legal entity formation in Ukraine. One of the main reasons investors use LLC is simplicity of its administration compared to other business structures in Ukraine while maintaining the full protection of limited liability.
This article is devoted to post registration tasks and key requirements for LLC arising upon its registration.
Completion of LLC Registration
After filing the documents for company registration with State Registry of Legal Entities, Private Entrepreneurs and Public Formations (hereinafter – ‘Companies Register’), you will receive a document containing description of filed documents and application filing number (hereinafter – “access code”). Using the access code you can follow the registration process on website of the Companies Register.
After the registration is complete, you can view and download (using the above-mentioned access code) scanned copy of the statutory documents of the company and extract on state registration. The extract contains company profile information and registration number, gives information on company director, registered address and other details. For more information on the process of registration of LLC in Ukraine, see our article LLC company registration in Ukraine.
Note that companies registered starting from 1st of January, 2016, do not need to provide to their counter-parties, banks, state authorities etc their statutory documents in paper. Instead, you can provide them with the access code to the files on the Company Register website where they can access these documents directly.
Upon receiving the decision on registration of the company, here is a list of typical post-registration tasks that you should look into:
- Company Seal
Seal is not obligatory in accordance with current Ukrainian law, whereas on practice most companies use seal. Company may avoid using seal only if such provision is included in company’s statutory document. At present no special permissions are required to make a seal. To order a seal, the specialized seal-producing companies will require copy of extract on registration of the company (or access code).
- Registration with Tax Authorities
For registration of LLC with tax authorities you have to file respective application (form 1-OПП) with the relevant office of state tax authorities corresponding to your registered address (e.g. in Kiev this is tax authority of district of Kiev where you have registered address). In the application you have to indicate a person who is responsible for accounting and tax reporting on behalf of the company. Such application has to be sent within 10 calendar days upon registration of the company.
Additionally if company is willing to be a VAT-payer it has to file VAT-payer application (unless such application was already filed within registration of LLC in the Companies Register).
- Social Security Tax Registration
On hiring of each employee, the company must notify state tax authorities responsible for administration of social security tax, not later than 1 day prior to first working day of each employee (including director of the company).
- Open Bank Account
In order to open bank account you will need to file number of documents, including:
- Documents confirming powers of representative of the company (the one filing documents), his/her passport and tax number
- Company Charter (copy) unless LLC will be acting on the basis of model charter. As mentioned above, if LLC was registered after 1st of January, 2016 or amended charter in 2016, instead of copy of its charter you have to provide bank with the access code to provide the bank officials with access to online posted charter and extract from the Companies Register
- 2 Signature cards (notarially certified)
- Copies of passports, tax numbers and documents confirming powers of persons, mentioned in the signature card
- Additionally you will need to fill in and sign application on account opening, questionnaire, ownership structure of the company, other documents on request of the bank.
- Share Capital Injection and Share Certificates
Contributions of shareholders of LLC has to be made in full within 1 year upon LLC registration. Contributions can be made in cash (including foreign currency of 1st Group of Classifier of Foreign Currencies) or as property and/or property rights, including intellectual property. External appraisal of contributions made not in cash (real-estate, property rights, others) is not required by law and contributions are appraised on shareholders’ mutual consent. Contribution of property to share capital of LLC is made through signing of Acceptance and Appraisal Act. Money received as loan or pledged property cannot be contribution to the share capital.According to the legislation, LLC has to issue company certificate to each shareholder who made his contribution in full. However, in practice, share certificates are often not issued in smaller companies. Information on all the shareholders of LLC is available in online Companies Register.
- Accounting Records and Accounting Policy of the LLC
Accounting is usually conducted by accountant of the company-employee. As an option, LLC may define director or owner of LLC to be responsible for accounting or hire professional accounting company/accountant-private entrepreneur to conduct accounting on behalf of LLC. LLC has to comply with national standards or IFRS reporting standards (optional). LLC has to adopt Accounting Policy of the LLC by order of its director. The Accounting Policy has to define type of reporting standards used by the company, methods and principles of accounting etc.
Statutory Registers and Company Documents
As per Ukrainian Company Law, every LLC company is required to keep the following statutory registers and company documents at the company’s registered office address and to provide access to them.
- Document containing description of filed documents within LLC registration process and application filing number (access code) (in scan or in paper)
- Company extract (scan copy or paper copy)
- Charter (signed copy or scanned copy)
- Meeting of founders of LLC on its incorporation, appointment of its governing bodies, approval of charter
- All the minutes of meetings of general shareholder meeting of LLC and other governing bodies (if any)
- Company Seal (if applicable)
- Appointment documents (orders on employment of company’s officials and other employees)
- Financial supporting documents and financial statements/reporting
Statutory Filings and Reporting
Ukrainian Laws require each LLC to comply with the following ongoing reporting/filings requirements:
- Filing notifications to the Companies Register on any change of information regarding the company contained in the Companies Register. There is no specific time limit for registration of amendments to such information except amendments to charter which LLC is obliged to register not later than 3 days after their approval by general shareholders’ meeting. Nevertheless, according to Ukrainian law, information contained in the Companies Register is considered true and valid for third parties. Thus you should ensure that all data contained in the Companies Register is up-to-date. In addition, annually, LLС has to file annual financial statement to the Companies Register.
- Quarterly (by taxpayers whose annual turnover in previous year exceeds UAH 20 million) and annual Corporate Tax Filing with Ukrainian Tax Authority. Note that first reporting period for newly created companies is 1 year.
- Filing Financial Statements to State Statistics Authorities (quarterly and annual)
- Filings with Ukrainian Tax Authority as income tax agent of the LLC’s employees (quarterly)
- Filings with Ukrainian Tax Authority as Social Security Tax-payer (monthly)
- Filings with Ukrainian Tax Authority as VAT-payer (if LLC is registered as VAT-payer) (monthly/quarterly as applicable)
Complying with Employment Law
In Ukraine, employment requires conclusion of employment agreement. The agreement can be in oral or in written form, although employment agreement with some groups of employees, including director and all foreign employees must be in writing. After employment agreement is concluded, director or company owner has to adopt order on employment of each employee. Each employee should have personal labour book, a document, where all the records on his/her employment or dismissal are made by his/her employers throughout employee’s career.
Note that employment of foreign citizens by Ukrainian LLC will require work permit and additionally in most cases residence permit. For more details how to obtain work permit and residence permit for foreign employees see our articles Work Permit for Foreign Employees and Residence Permit for Foreign Employees.
Labour relations are regulated by Code of Laws on Labour of Ukraine dated December 10, 1971 (as amended) which can be characterized as quite out-of-date. A lot of provisions of labour legislation in Ukraine are designated to secure rights of employees (especially socially disadvantaged) and cannot be considered as business friendly, including a wide range of social guarantees, absence of procedure of selection of candidates, limitations of temporary employment, complex procedure of firing of employee etc. In practice, employers often violate labour legislation. Additionally, in Ukraine, unofficial employment is widespread.
At present, Ukrainian Parliament is working on a new draft of Labour Code to modernize labor relations.
Complying with Data Privacy Law
Keeping and processing of personal data requires consent of private individuals so within company’s activity you should obtain consent from employees and other private individuals, whose personal data will be processed, on their personal data keeping and processing.
Before starting your business activities, make sure that your company has obtained all the necessary licenses / permits.
Exclusive list of business activities which require licensing is defined by Law of Ukraine “On Licensing Types of Business Activities” (the “Law”) as amended on the 8th of December, 2015. Among others, such list includes:
- financial services
- professional activities in the securities market
- television and radio broadcasting activities
- educational activity of educational establishments
- manufacture of medical products
- wholesale and retail trade in medical products
- import of medical products (except production of active pharmaceutical ingredients)
- medical practice
- tour operator activities
- mediation in employment abroad
- some types of foreign economic activity indicated in Art. 16 of Law “On Foreign Economic Activity” (automatic and not automatic licensing of import and export of goods)
- others as defined by the Law
Additionally, depending on type of your business you may need to obtain specific permits/certificates (e.g. construction of real-estate of the 4th or 5th category, appraisal activity, production of food products controlled by veterinary service, waste recycling and others) or file declaration on compliance of material and technical base with the permit requirements without actual getting permit.
Cases when company may not use declarative method and needs to obtain permit or certificate are defined by Law “On Permission System in Business Activity” dated September 06, 2005 (as amended) and Order of Cabinet of Ministers dated August 25, 2010 (as amended).
Note that for obtaining specific licence/permit/certificate or to file declaration you may need to secure certain amount of share capital, business structure of the company, qualification of employees, material and technical base etc (as defined by specific license or permit conditions).
In general, LLC may order audit at its own discretion (optional audit); however there are cases when audit is obligatory by law.
In cases when LLC is owned by foreign investor for 10% of its share capital or more, the annual external audit is obligatory. However, in Ukrainian legislation there is no requirement to file such audit to any government authority.