The article examines the risks associated with foreign companies in the structure of the Ukrainian IT business and suggests ways to minimize these risks in 2024.
A dangerous foreign country
Three main threats
The presence of a foreign component in the business structure may cause the following problems:
- A foreign company can be recognized as a controlled foreign company (CFC), which obliges the owner to report and pay taxes on its profits in Ukraine.
- A Ukrainian company can be classified as a permanent representative office of a foreign firm, imposing fines and obliging it to pay income tax.
- Relationships between Ukrainian and foreign companies may be subject to transfer pricing requirements, which involves additional reporting and potential financial sanctions.
Signs of a permanent representative office
The main signs by which tax officials can recognize a Ukrainian company as a permanent representative office of a foreign firm are:
- The place of effective business management is located in Ukraine.
- A representative in Ukraine signs contracts on behalf of a foreign company.
- A Ukrainian company receives binding instructions from a foreign company.
- A foreign company pays for the office of a Ukrainian firm.
- There are external signs of connection between companies (branding, names).
- The sale is made in Ukraine, and the payment comes from a foreign company.
- Employees use the corporate mail of a foreign company.
Recommendations for minimizing risks
To secure business, it is recommended:
- Assess the structure of business and the degree of interconnection between Ukrainian and foreign companies.
- Get rid of obvious signs of permanent representation (corporate emails, instructions from a foreign company, etc.).
- If it is impossible to make changes, consider the options of registering a foreign company as a tax resident or closing it down.
Glossary
- IT business - an industry engaged in the development and introduction of information technologies.
- KIK (controlled foreign company) - a foreign company controlled by residents of Ukraine, the profit of which is subject to taxation in Ukraine.
- Transfer pricing - setting prices in transactions between related parties according to the principle of "arm's length".
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Discussion of the topic – A foreign company in the structure of IT business - challenges of 2024
In 2024, Ukrainian IT companies with foreign structures face new challenges and risks. This column examines strategies for adapting and securing business in new realities.
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Олексій
In fact, the situation with foreign companies in the IT business structure is becoming more and more complicated. Tax pressures are increasing and risks are increasing. 👀 However, there is a way out - to rebuild the business model in accordance with the new requirements, while maintaining tax efficiency.
Марія
Indeed, you need to be very careful with foreign companies in your structure. 😐 Taxpayers closely monitor KIKs and representative offices. It is better to review the scheme and adapt to the new rules than to pay huge fines.
Адам
Don't worry, these are all temporary difficulties. 😎 Our lawyers are already working on a new strategy that will preserve the advantages of foreign companies and at the same time not violate the law. Soon we will tell you about it in more detail.
Ганна
It seems to me that it is better to abandon foreign companies in the structure altogether. 🤔 Too many risks and trouble. Why not simply transfer the entire business to Ukraine and work openly and transparently?
Гжегож
But no! 👺 All these new rules are just vain whims of officials that interfere with normal business. I'm not going to change anything in my structure, and all these fines are nonsense!
Катерина
I believe that it is better to act ahead of time and optimize the business structure in advance. 💻 For example, we have already restructured the company by transferring the foreign component to a jurisdiction with a more favorable regime. They also hired specialists in transfer pricing.
Марсель
In general, current challenges only increase the need for comprehensive legal support for business. ⚖️ It will not be easy to understand all the intricacies of CICs, transfer pricing and representation status on your own. Professional help is needed here.
Соня
Remember, ignoring the problem is the worst way out of the situation. 🚨 The sooner you bring your structure in line with the new requirements, the less problems you will have with tax authorities later. You should not take risks and delay.