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Ukraine is a large emerging market providing expanding businesses with strategic positioning in the heart of Europe, with good connections to Russia and the Middle East. However, starting a business or expanding operations into the country is an administrative nightmare, swamped in bureaucracy and costly procedures, which is why having local help is paramount.
A recent World Bank and International Finance Corporation report revealed that Ukraine ranks 137th among 185 economies globally on the ease of doing business, up 15 places from the previous year. Despite this improvement, challenges remain for local entrepreneurs, with the country ranked among the bottom 20% of economies in five of 10 areas of regulation measured by the report. Indeed, Ukraine has the worst rankings in Eastern Europe and Central Asia on registering property and resolving insolvency.
This shows that, despite the wealth of opportunities that await successful businesses, having local help is crucial when doing business in Ukraine.
Starting a Business
Starting a business in Ukraine is an arduous process, involving seven procedures and 22 days. Unlike legislation in other countries, Ukrainian law does not allow investors to set up a partnership in the country or convert a representative office into a company. This means a limited liability company is the most widely used method for foreign investors to start a business in Ukraine.
Dealing with Construction Permits
Ukraine ranks 182nd in the world for ease of dealing with construction permits, and businesses have to contend with 20 procedures that can take more than a year to administer. What’s more, the cost ($1,262) is well above the OECD average of $78.7. It takes 74 days just to request and obtain approval of project design drawings and estimates by comprehensive state expertise, which epitomises the rigorous process.
It can take up to 285 days to receive power, costing 192.3% of income per capita. The wait of 53 days for the completion and approval of the external connection design by a private electrical design company is the most drawn out task.
Ukraine jumped 15 places for ease of registering a property in the most recent World Bank study, although the improvement still left it in 149th place. At 70 days and 10 procedures, registering a property takes considerably more time than the OECD norm.
Obtaining credit is the easiest step to setting up a business in the Ukraine, relative to the other tasks. The country ranks 23rd in the world and runs a relatively developed financial system.
Ukraine is taking steps to improve the country’s image abroad and offer more protection to investors. It ranks 117th in the world, according to the World Bank, but the government is adopting proactive information strategies, improving the legal environment and working with existing foreign investors consistently.
Paying taxes is by far the most laborious challenge for businesses in Ukraine, requiring 28 payments per year and 491 hours. Unified social contribution and corporate income tax take a considerable amount of time compared to OECD counterparts.
Trading Across Borders
Despite its ideal location, trading across Ukraine’s borders is a complicated ordeal. It requires six documents and 30 days to export, with heavy costs associated with both importing and exporting containers.
Behind obtaining credit, enforcing contracts is one of the most streamlined processes in Ukraine. It takes 343 days compared to the 510-day OECD average, although the associated costs are quite steep.
It takes 2.9 years to resolve insolvency, well above the OECD average. Costing 42% of the estate, it is also an expensive process.
We have the local knowledge to help you navigate these minefields. Whether you want to set up in Ukraine or just want to streamline your Ukraine operations, talk to us.