Real Ukraine. Doing business

InveInvest in Ukraine. Invest in Kharkiv

Kharkiv, 2017

skymethod.com

Main cities of Ukraine

Kharkiv

Kharkiv2nd largest cityScientific, industrial and IT center of Ukraine142 scientific institutes35 universities82 industrial corporations200+ IT companies

Has all set of awards of Council of Europe

Top-1 Rating. Large European cities of the Future 2016/17 – Cost effectiveness

DniproCentre of heavy,metallurgy and airspace industryHarbor for river-sea going vessels

OdesaMajor tourism center, seaport and transportation hub3 seaports

Top-1 Ukrainian city for doing business

LvivCultural and business center100+ IT companies2,6 mln. tourists per year (2016)

Lviv is World Heritage Site by UNESCO

Dnipro

Odesa

Lviv

Kyiv

KyivCapital of Ukraine

Top-1 Rating. Major European cities of the Future 2016/17 – Cost effectiveness

21 airports

13 seaports

Ukraine is affordable to live in

Rental cost for a 1-bedroom apartmentin Kharkiv, a scientific and businesscenter of Ukraine.

$270

$1.54 Price for 1 Big Mac

$0.82

Average price fora metro single ticket$0.15

Average price for1 cup of cappuccino

$0.81 Average price for petrol per liter

According to Worldwide Cost of Living 2017 Kiev is in Top-10 of the cheapest capitals to live (8/10)

Expats like living in Ukraine

45% of expats saying that the cost of living is extremely

affordable.

TOP-20 – friendliness of the local population rating

Top-5 - finding friends rating

More than 14,000 respondents representing 174 nationalities and 191countries or territories took part and had their say on moving, living andworking abroad in Expat Insider 2016

Kharkiv. City to invest

http://kharkov.moygorod.ua/ru/articles/65/

Investment attractiveness

InvAAThe highest rating among Ukrainian citiesRating of investment attractivenessExcellent investment attractivenessRating agency IBI-Rating, 23/05/2017

City’s Council provides the maximumcomprehensive advisory support toinvestors. They are creating the Navigatorfor the investors that determines the stepsand actions to create and develop the theirown investment project in Kharkiv.

Kharkiv CouncilDepartment of Investment Development

Kharkiv, 2nd largest city in Ukraine has a number of representative offices ofinternational organizations, corporations, business associations, honorary andgeneral consulates.

uaA+Credit rating of KharkivStable credit ratingRating agency IBI-Rating, 23/05/2017

Kharkiv. Scientific and Educational center of Ukraine

3 Nobel Prize

winners

Ilya Mechnikov

Medicine

Lev Landau Physics

were born and

studied in Kharkiv

Simon KuznetsEconomics

142scientific institutes

Kharkiv scientific institutes are well-known in the scienceworld. Institute of Monocrystals and National ScientificCenter Kharkiv Institute of Physics and Technologyparticipated in the creation of Large Hadron Collider.Several inventions in the field of medicine are world-wideused (bloodless blood testing, liquid jet scalpel to performsurgical operations on internal organs, etc.)

13

0

10

5

93

75

71

66

UKRA INE FRA NCE GERMA NY TURKEY UK POLA ND

ENGINEERING GRADUATES PER ANNUM IN EUROPEAN

COUNTRIES Thousand students

35 Universities in KharkivWorld Economic Forum, Forbes, 2014, IVC

281Universities in

Ukraine

Kharkiv. Best IT location in Ukraine

Kharkiv is considered to be a center of the IT cluster inUkraine. Among a great number of foreign IT companiesrepresentative offices there is a wide range of national ITstart-ups that specializes in software development. KharkivNational University of Radio Electronics as well as 4 otheruniversities and dozens of professional courses of ITcompanies has formed the strong personnel reserve ofspecialists in this field

2000IT graduates each year

Services: Software Product

Development Technology

Consulting UX/UI Design Data Science Predictive analytics Big Data analytics Business Applications Internet Marketing Managed IT Services

200 + IT companies

22 000 residents of Kharkiv work in IT companies

Forbes rating 30 under 30 / Enterprise Tech (2017) hasincluded the resident of Kharkiv, founder of GitLab company for

building open source tools to help teams of developers collaboratemore easily and review and deploy code on the go using features suchas wikis and tracking. Millions of programmers and more than 110,000organizations such as NASA, the European Organization for NuclearResearch, AT&T and IBM are users. Since its launch, the Y Combinatoralum has grown to more than 140 employees and has raised $25.6million from investors such as August Capital, Khosla Ventures andAshton Kutcher.

Strategy of development of Kharkiv 2020http://www.city.kharkov.ua/assets/files/docs/zakon/strategy2411.pdf

Sports City

Kharkiv is a home city of famous sportsmen, champions of Olympic Games, European and World Championships in swimming, archery, fencing, artistic gymnastics, tennis.

35 youth sports school

Academy and 2 colleges of physical training and sports

18 stadiums

23 swimming pools

Golf club

90 tennis courts

Viktor Ruban Elina Svitolina Yana Klochkova

Kharkiv International Marathon is an annual marathon,which is included in the Book of Records of Ukraine as themost numerous race. In 2017 there were more than 10Thou participants from 15 countries.

Sports infrastructure:

Support and Protection of Business

http://www.skyscrapercity.com

International business associations

American Chamber of Commerce

European Business association with the offices in Kharkiv, Dnipro, Kyiv, Odesa and Lviv

British-Ukrainian Chamber of Commerce

US-Ukraine Business Council

Chinese Commerce Association

On April, 19th, 2017 six large international businessassociations (U.S.-Ukraine Business Council, ChineseCommerce Association, the International Turkish-Ukrainian Business Association, German-UkrainianChamber of Industry and Commerce, Chambre deCommerce et d’Industrie Franco-Ukrainienne andChamber of Commerce in Ukraine) signed thememorandum on creation of International Council of theBusiness Associations and Chambers in Ukraine/ ICBAC.The goal is to create the new platform to improve theinvestment climate in Ukraine.

More than 50 business associations provide collective support and cooperation forbusiness in dealing with central and local state authorities, foreign andinternational organizations.

EuropeanBusinessAssociation

45% plan new

investment in 2017

117 members of

European Business Association in Ukraine have been interviewed about the Ukrainian business climate in 2017

74% expect

positive growth for their business /56% in 2016/

eba.com.ua

Protection of business in Ukraine Active work is being done in Ukraine tosupport business. If business has anunresolved problem with a state andmunicipal authorities, state-owned/controlledcompanies or officials it can turn to BusinessOmbudsmen Council.

$367 mln. of

financial impact

$207 mln. of

VAT refund

1021closed cases

87% recommendations

of the Council were fulfilled by the

authorities

10 working days –

average time for preliminary review of

complaints

97% of

complainants are satisfied with working

with BOC

boi.org.ua

The BOC is funded through the Multi-donor Account for Ukraine set up at theEuropean Bank for Reconstruction and Development (EBRD) in 2014. The donorsare Denmark, Finland, France, Germany, Japan, the Netherlands, Poland, Sweden,Switzerland, the United Kingdom , the United States and European Union.It investigates complaints concerning alleged acts of corruption and other violationsof legitimate interests of businesses by actions or omissions (including decisions) onthe part of state and municipal authorities, businesses within the scope of theiradministration, and their officials.The Council’s governing body includes authorized representatives from three blocks:Cabinet of Ministers of Ukraine, Independent Business Associations (the AmericanChamber of Commerce (ACC), European Business Association (EBA), etc.) andInternational Financial Institution (the EBRD, Organization for Economic Cooperationand Development (OECD).It is very convenient to submit the complaint – via BOC official websitewww.boi.org.ua

Transparency and Fighting Corruption

sq.com.ua

Transparency and fightingcorruption in Ukraine

The new anti-corruption offices in Ukraine

The new investigative office

the National Anti-corruption Bureau of Ukraine NABU

The new prosecutor office The Specialized Anti-

corruption Prosecutor’s Office SAP

The anti-corruption court

is forming

Electronic declarationAll state officials are obliged to submit e-declarations showingtheir income and property

They as well should declare the income and property of themember of their families as well as the property of anotherperson they make use of

The officials must declare the property abroad

All e-declarations are available online to anybody on the site of Ukraine’snewly created National Agency for Prevention of Corruption (NAPC).That body controls and verifies the declarations of state officials andtheir life style, disclose any information about corruption or abuse ofposition

There is a criminal liability for filing false data. Punishment is alsoprovided for those officials whose lifestyle does not comply with thedeclared data.

Since 2015 the open Register of real estate and property rights has been operating, there it is easy to see the owner of any property. It is also a useful tool to monitor the real property of any state official

Liberalization of business

283456

2015 Now PlannedSince 2015, the government has beenimplementing a program to reduce thenumber of regulatory bodies from 56 to28.Due to changes in the legislation, suchauthorities as the Prosecutor's Office, theEconomic Police Board have lost theirinfluence on business. On the threshold ofreforming is the tax police, whosepressure on business is planned to beovercome by reforming the service in thefinancial police with new personnel andnew methods of work.

Understanding the methods andlevel of work of regulatoryauthorities and the need to easepressure on business, the stateintroduced a moratorium (ban) onaudits of business. Consequentlythe number of audits of businesshas been significantly reduced.

2,068

1,478

0,867

0,402 0,335

0

0,5

1

1,5

2

2,5

2012 2013 2014 2015 2016

Number of audits, mln.

3281The number of activities that aresubject to licensing has significantlydecreased

2009 Now

Public control

11,77%

15,97%

26,89%

45,38%

Other *

Establishment and start ofoperations by anti-corruption…

Simplification and reduction ofregistration, licensing and…

Introduction of the electronic publicprocurements

BIG GEST SUCCESS IN ANTI -CORRUPTION F IG HT

American chamber of Commerce. Ukraine Country Profile, 2017

Ukrainians actively participate in the public control over the activities of theauthorities. There were created public councils of integrity (when selectingofficials for posts), public councils controlling the activities of state bodies,create business associations to protect their interests.

In Ukraine, judicial reform islaunched and the first contest isheld in the Supreme Court with anonline translation of interviews ofcandidates, a relatively transparenttest system of selection andconsideration of public opinion andcontrol. For a country where therehave never been transparentmechanisms to enter a very closedjudicial system, this is quite asignificant progress.

653 candidates

31% candidates

outside the system

*Introduction of the e-public procurement and simplification and reduction of registration, licensing and permitting procedures * No successes * Criminal liability for failure to declare the assets or false declaration * E-declarations * Cannot make a choice

E-procurement system“Everyone can see everything”

In 2015 public e-procurement system of Ukrainehas been reformed. ProZorro, an effective toolof the public e-procurement system, has beenimplemented. The fundamental principle of thesystem - the community and competitors aremore efficient in monitoring public procurementthan the supervisory and regulatory bodies ofthe state.

769 Thouof tenders

4000 tendersannounced every day

Transparent / risky to be corrupt.Everyone can monitor the results ofthe tender, its winner and even thecontract

Easy access, easy use and easyparticipation. Possibility to choose aconvenient market place andmonitor all the tenders in ProZorrosystem

Online tender documentation.Speeds up an operation anddecreases paperwork

Increases quality of work, servicesand goods because of highcompetitiveness

Unique possibility to monitor theprocess of procurement.Convenient statistics and analyticstools on https://bi.prozorro.org/

Convenient tool for onlineappealing

Reducing participation in the shadow economy

€1000 - France

€1500 - Greece

€1700 - Ukraine

€2500 - Spain

€3000 - Italy

Boundary amount of cash settlements:

8,112,4

17,4

25

31,235,5

0

5

10

15

20

25

30

35

40

2011 2012 2013 2014 2015 2016

Non-cash settlements from the total volume of

transactions, %

Ukraine is an official member of the Association of countriesimplementing BEPS Action plan. In January, 2017 it announced theadoption of full-fledged laws to implement 6 of the 15 steps of the BEPSplan, in particular, the taxation rules for controlled foreign companies(CFC) regimes;

Ukraine already uses transfer pricing rules and the arm’s-length principle;

Companies are required to publish data on their final beneficiaries;

Ukraine and the USA have signed the FATCA - Foreign Account TaxCompliance Act. Under this law, Ukrainian banks are required to collectand provide information about their US resident clients;

It is planned to sign the Cooperation Convention between the competentauthorities on the automatic exchange of information on the standard ofCRS (Multilateral Competent Authority Agreement (MCAA).

Doing business

sq.com.ua

Taxes in Ukraine

0

5

10

15

20

25

30

Ukraine EU and EFTA World

Number of tax payments

Profit tax payment Labor tax payment Other tax payments

The tax system of Ukraine isvery simple. It is constantlyon improving the tax systembased on two objectives:attracting investment andimproving the businessclimate on the one hand andfilling the budget on theother hand.

Simplified tax systemfor small business

Small businesses taxthe gross income(revenue) at a rate of5%.Micro businesses paya small fixed amount.

5% or small fixed

amountUnified Social Security Tax

Instead of multipledifferent socialcontributions there isonly one socialpayment.

22%

Corporate tax

Personal income tax18% VAT20%

PwC Global. Paying taxes 2017

VAT refund in Ukraine

It is known that previously the state violated the terms of VAT refund toUkrainian companies. There were many cases of corruption in the areaof VAT refund. The problem of VAT refund has not been fully resolvedyet, however, the government has worked on this issue, implementingthe new mechanism, and since 2017 Ukrainian companies have notedsignificant improvements.

$ 283 Thou

$ 424 ThouAmount of VAT refunded in April, 2016

Amount of VAT refunded in April, 2017

There is an Open register of VAT refund on the website ofMinistry of Finance. http://www.minfin.gov.ua/reestr

The register all the information on all the stages. The ownerof the business can see the entire process of agreeing eachVAT refund amount - the date of the beginning and end ofthe tax audit and appeal its results.

It is possible to monitor the information about the VATrefund of any legal entity knowing only its identificationnumber

Customs and International trade

European Union (28 countries)

EFTA (Norway, Iceland, Switzerland, Liechtenstein)

CIS (Belarus, Moldova, Azerbaijan, Armenia, Kazakhstan, Uzbekistan, Tajikistan, Kyrgyzstan, Turkmenistan)

Georgia

Montenegro

Macedonia

Canada

Negotiations: Israel, Turkey

Ukraine has signed Free Trade Agreements with:

Since 2016 Ukraine startsthe implementation of a“Single Window” concept— obtaining sanitary,phytosanitary, ecologicaland radiological permitsthrough an electronic dataexchange interface

Ministry of Finance is now working at the projectof the Action Plan on customs reform. This planinvolves the implementation of a detailed list ofmeasures within 19 areas (Legislation,Organization and Management, Customs Ethics,Training, Customs Obligations, Post-customscontrol and audit, etc.)

Setting up a business in Ukraine

In order to set up a business in Ukraine the foreign company may establish a legalentity in Ukraine or open representative office for a company.The representative office (RO) is not an independent legal entity. The foreigncompany is the owner of the property of the representative office, and also bearsfull responsibility for all obligations of its representative office in Ukraine.

Pros

• The possibility of employing foreign personnel without work permits

• More control over the activities of the Ukrainian office.

Cons• Long and costly registration

procedure

• To perform trade operations, it should be registered as a tax payer in the State Fiscal Service of Ukraine.

• In the legislation of Ukraine there are a lot of collisions that entail problematic issues of taxation of RO , including the issues of formation of costs and taxation of amounts received from the head office.

RO in Ukraine

60 days review of the registration documents by MEU

$ 2500 state registration fee

Limited-liability company

(TOV)

LLC may be set up by oneperson

Capital. There are norequirements for the size ofthe authorized capital.

Shares . LLC has no right toissue shares. LLC participantshold a part in the authorizedshare capital of the LLCequivalent to theircontribution to the capital.

LLC participants do notanswer for the company’sliability and they bear therisk of losses.

Terms of registration. Takes up to 1-2 days

LLC Private joint stock company

(PrAT)

PrJSC may be set up by oneperson or may consist of oneperson where all the sharesare purchased by oneshareholder

Capital. The minimumamount of the authorizedcapital is 1250 minimummonthly wages – appr. 138Thou Euros*

Shares. May issue two typesof shares: ordinary andpreferred.

The issue of shares isregistered by the NationalCommission on Securitiesand the stock market. (ittakes 2-4 months to get theCertificate)

Shareholders do not answerfor the company’s liabilityand they bear the risk oflosses only to the extent oftheir shares.

Terms of registration. Takes up to 1-2 days

PrJSC

For carrying business activities there are a lot of different forms of legal entity providing by Ukrainian legislation. The most popular for foreign investors in Ukraine are a limited-liability company and a private joint-stock company.

Forms of Legal Entity

* As of May, 2017

© 2017 Oksana Kobzar Law Firm. All rights reserved.