Publication date: 06.06.2024
lawyer, 23 years of experience in enforcement.
In addition, the risks abroad depend on the jurisdiction chosen for conducting business, as well as the current restrictions of Ukrainian legislation, in particular regarding currency and taxes.
Starting with choosing the jurisdiction that will register your business abroad, it is extremely important to get accurate legal advice. The truth is that different state laws have specific rules for business incorporation, starting with the tax residency requirement and ending with the citizenship requirement for both the owner and the director. These rules are numerous: a requirement for the availability of employees, a requirement for the payment of a minimum wage, a requirement for calculating the cost of maintaining an office, the impossibility of remote management of accounts, etc.
Audit reporting requirements by companies located in other countries can also be quite specific to domestic businesses, especially if the activity has a limited amount of rotation. Ultimately, the cost of creating and maintaining these reports in some jurisdictions exceeds the annual cost of accounting.
However, understanding the dangers of doing business abroad should begin with studying Ukrainian legislation.
As a result, NBU Resolution No. 18 of February 2022 established a new procedure for buying foreign currency in Ukraine, this procedure was limited to operations that took place on the territory of the country. Given these factors, business financing abroad is complex and primarily involves cash or the involvement of third parties, these issues will become problematic during the implementation of foreign bank regulations.
In addition, DPS employees are actively interested in foreign legal entities, especially after the resumption of business tax audits. As a result, tax officials want to know whether transfer pricing can be applied to previously controlled exchanges between a foreign corporation and a resident. After all, tax control over transfer pricing involves reducing the taxpayer's tax debt to the level of his tax debt, calculated based on the fact that the commercial and financial aspects of this transaction are compared with other transactions specified in the article, these transactions are considered related.
Similarly, the new legislation on CIC reporting adds to the challenge.
Yes, Individual Controllers are required to submit a report on all companies under their control simultaneously with the annual declaration of income and property for the entire calendar year, starting from 2024. Reports for the next fiscal year must be submitted to each owner (controller) of a foreign company in Ukraine: a person who owns more than 50% of the company, or more than 25% and more than 50% together with other owners, or actually controls the company. The penalty for not filing a CIC report for reporting years 2022 and 2023 is $268,400 per report. Late submission of each report - 2684 per day (up to 50 days - 134200). The report must include duly certified copies of the financial statements of the controlled foreign company (financial statements not in English must be translated into Ukrainian with a notarized translation).
In fact, the need to file a CIC report requires maintaining accounting records and creating accurate financial statements for the foreign corporation. In addition, the frequency of tax adjustments and the convenience of applying transfer pricing rules will be significantly increased, which is crucial for the accurate determination of tax liabilities in the presence of CIC reporting.
If we talk about the dangers of doing business in various foreign countries, it is impossible to cover them all, at least initially, within the framework of this article. More than one separate study can be devoted to the danger of tax business in the EU countries.
However, I want to highlight one significant aspect of the potential loss of time and money - the risk of termination of banking activities in a foreign bank and the closure or freezing of an account.
The practice of banking compliance or financial monitoring is common in most jurisdictions. Banks, taking into account the requirements of the FATF on money laundering and other regulatory acts, are very interested in the activities of their customers. In addition, recent entrepreneurial activity and non-resident ownership are of primary importance to financial institutions.
In my practice, I have encountered numerous, lengthy and complex procedures for harmonizing documents with banking specialists who deal with client compliance. Often, clients themselves carried out atypical banking transactions, which were difficult both to confirm and to explain to specialists. For example, a client who purchased consumables for printing in Ukraine used them to package goods originating from Ukraine and intended for the European market. The bank in the Czech Republic withheld payments for a long time until it received comprehensive documentation of the entire transaction. In addition, for a foreign bank, the presence of a business, that is, the presence of an office and employees, is primarily important. However, some of the more confusing cases have led to transaction bans and the actual closing of accounts. In this scenario, it will take more than a month to get a refund from a closed account, provided another account is created and all bank fees are paid.
Therefore, it is useful to have a complete set of primary documents for your compliance department and all documents relating to the residence and tax status of the owners. In addition, it is worth finding local lawyers, which are necessary to unblock banking transactions.
As a result, given the inherent dangers and costs of doing business abroad, it is very important to evaluate the financial benefits of moving to or establishing a business in a particular foreign territory. After all, when setting up a business abroad, it is important to comply with the norms of Ukrainian legislation regarding CIC reporting and avoiding transfer pricing, as well as being able to navigate foreign legislation. Therefore, it is worth finding local lawyers or contacting a network law firm in Ukraine and get help with most formal procedures or solving existing problems with foreign legislation.
Specialists of the legal service "Consultant" will provide legal services for business, services of a business lawyer and help in such matters as preparation of a claim to a debtor, preparation of the contract, preparation of the contract, contract preparation, verification of the counterparty, claim to the debtor, demand to the debtor, and support at all necessary stages to resolve the relevant issue.
