How can an IT company not lose on exchange rate differences in Ukraine when receiving payments from abroad?
For Ukrainian IT companies, the war has brought with it: first, the threat to the lives and health of employees and the functioning of offices, and second, the financial loss due to the exchange rate differences in receiving foreign payments. In such circumstances, the natural step for businesses is to relocate.
Note! By autumn 2022, over 40% of Ukrainian IT companies were partially or fully relocated abroad. By the end of the year 15% more Ukrainian IT-companies are planning to establish their presence in other countries. Trading companies (FEA and export-import sector) are also expanding their activities to other jurisdictions. Relocation destinations include Poland and Portugal, Bulgaria and the Czech Republic, the Netherlands and Germany, Turkey and Spain, Croatia and Romania. At the same time, the vast majority of businesses do not permanently leave Ukraine.
Lawrange attorneys and lawyers team recommends setting up a foreign (non-resident) company as the best way to hedge and minimize war-related damage. In particular, by registering a company in the UK or another jurisdiction, you can avoid losses from exchange rate differences when receiving payments from foreign counterparties. In this case, we are ready to take care of all the paperwork and organizational issues.
Features of opening a legal entity abroad in 2022
Over the last five years, the world has experienced a revolution in cross-border business. Today one has to take into account the trend towards global deoffshorization, the use of financial monitoring (AML and CFT) and the international exchange of tax information. And in light of this, classic offshoring is losing much of its appeal.
Firstly, the jurisdiction of incorporation affects a company’s reputation. A blacklisted or gray-listed country cannot, for obvious reasons, help build a business’s credibility in the market. Secondly, a corporate bank account has to be opened for the company. Payments for goods, services, work or IT products will go into it. Along with this, reputable banks do not currently work with offshore companies.
Note! Mid-shoring and onshore companies are in some cases a better solution than offshore companies. And the perception of an excessive tax burden is far from always true. Many jurisdictions provide preferential tax treatment for representatives of the IT-sector. Also, in some cases, if you do not provide services to local counterparties, you can avoid paying income tax. Lawrange lawyers are here to help, and work out the best option for registering an IT business overseas. Such solutions are listed below.
Registering an IT company in the UK so you don’t lose out on exchange rate differences
For many entrepreneurs, we suggest the UK as a ‘middle-weighted’ jurisdiction for business incorporation due to its advantageous combination of relatively low tax rates with flexible taxation approaches. Advantages of the country include:
- prerequisites for ultra-fast and financially affordable business incorporation;
- reputability that commands respect among partners and customers;
- common law – uncodified British law with its certainty, clarity, transparency and consistency;
- no requirement to appoint a resident director;
- network of double tax treaties – covers about 150 countries;
- payment of dividends is not taxable;
- business can be managed remotely, including online shareholder meetings.
Lawyers Association Lawrange service package «Incorporation of a company in England» includes account set-up with three payment systems, i.e. solves the issue of accepting payments from clients straight away. In the basic solution we offer to set up a company in the legal form of LTD. And in personal order we can work out and realize a company registration plan in another form.
Note! Noteworthy in the UK is such form of business conduct as a partnership – LLP (Limited Liability Partnership). The peculiarity of the partnership is that income tax is paid not by the company but by the owners (partners) at the place of incorporation. On this basis, tax can be paid in the country of residence. This legal form is most suitable for small businesses. However, in contrast to the sole proprietorship, the partner is liable for the company’s obligations up to the amount of its investment in the capital of the LLP.
It will take one to ten days to incorporate a company in the UK. However, on average the procedure does not take more than four days. A standard set of documents should be prepared and submitted to Companies House, including copies of passports and proof of address of the owners of the business.
Information on the founders (shareholders) is filed in a public register. With the support of the Lawrange representatives, all issues on the way to setting up a business, from drafting incorporation documents to leasing a registered office, can be solved without any problems. If necessary, we will take care of obtaining a VAT number from the tax office, accounting services and nominee services.
Registering an IT company in Europe to prevent damage from the euro-hryvnia exchange rate difference
There are several IT-friendly jurisdictions in the European Union. According to Lawrange experts, these include Ireland and Portugal, Estonia and Poland, Cyprus and Malta, Bulgaria and the Czech Republic. These jurisdictions provide a noteworthy range of development prospects and preferences for IT business.
The service package «Registering a company in Europe» includes advice on the location of the incorporation, depending on the size and specifics of the business. At the same time, we have successful experience in establishing and managing various types of IT companies, including products, consultancy and outsourcing companies. Setting up your own company in Europe is an advantageous decision if you have counterparties in the region. It is all about the benefits of making payments in the Eurozone (SEPA). In addition, among the advantages of European jurisdictions for an IT are:
- no “offshore” reputation, which means gaining a foundation to reach solvent counterparties;
- clear and unambiguous “rules of the game” for business, compliance of the legislation of each country with generally accepted EU standards;
- a range of prospects for tax rebates and deductions, as well as the use of preferential tax treatment for high-tech activities;
- flexible and adaptive taxation as well as government support for entrepreneurial initiatives;
- a large selection of reliable banking institutions, and alongside these a multitude of online banks, non-banks, payment processors and other fintech companies, where you can open an account for your company.
Note! In Europe, and specifically in the countries we have listed, bureaucracy is reduced to a minimum. This makes it possible to complete the documentation procedure for a company in a few days. In some jurisdictions the registration is completely online.
An example of a country without bureaucracy and with a high level of digitalisation of public services is Estonia. Company registration in Estonia with Lawyers Association Lawrange is suitable for both temporary and permanent business activities in the EU. The company can be used purely for accounting purposes. Often in Estonia it is a question of opening an OU (counterpart of Ltd). It is possible to run a business remotely or with a power of attorney. In case of proper tax planning, the tax burden will be minimal. Alternatively, it is possible to pay no income tax in the country, unless dividends are withdrawn. Although VAT in Estonia is 20%, a zero rate applies when dealing with counterparties that are EU residents.
Opening an IT company in the US and Canada
Silicon Valley in the state of California is considered one of the world’s main digital pioneers. Contrary to popular misconception, the US remains open to foreign business, especially when it comes to IT. The procedure for registering a company, registering for tax purposes and opening a corporate account is not too difficult. There are, however, a lot of details to take into account to make everything go smoothly.
Note! Business registration procedures in the USA vary from state to state. There are no uniform requirements for entrepreneurs in the country. Therefore, one should not choose the United States as the country of incorporation of a company, but a particular state with its business legislation.
For non-residents, Delaware remains an attractive place to register a business. Among the state’s advantages:
- minimum registration fee for business incorporation;
- corporation tax for LLC companies is paid on profits generated in the US;
- non-residents can be both founders (shareholders) and directors of the company;
- to carry out activities in the IT-sector a business license is not required;
- there is no minimum paid-up capital requirement.
Canada may also be considered as an alternative jurisdiction for the incorporation of an IT company. The country has created a favorable environment for the development of digital projects for many years. Among the advantages of Canada:
- the benefits of using this country’s brand to raise the profile of a business in the eyes of its partners;
- if there are plans for real activity, state support can be counted on, in particular for high-tech developments;
- prospects for dealing with counterparties in the USA – there are economic ties between the countries;
- relatively low costs of maintaining a legal entity;
- good chances of obtaining tax incentives if a number of conditions are met.
The benefits of registering an IT company with Lawrange if you need to avoid losses from exchange rate differences
When contacting our law firm, you will receive an action plan with obvious, and often non-obvious, solutions for business registration abroad. At the same time your IT company in Ukraine will not go anywhere. You can, at your discretion, continue your business entirely here or make a partial relocation to the chosen country.
Under all circumstances we offer comprehensive arrangements, including a fast opening of an account for a company abroad. We have extensive experience of constructive dialogue with bankers from all over the world. Moreover, we have legal partners in a large number of jurisdictions. In a number of cases we offer such a proven and fully justified solution as the opening of an account in a payment system.
What solutions are possible for IT-companies in order not to lose on exchange rate differences in Ukraine when receiving payments from abroad?
There are not many solutions for this problem. The best one among them is to register a non-resident company abroad. It is a question of not receiving income in the state of incorporation, i.e. to keep the status of a resident of Ukraine.
How long does it take to open an IT-company abroad and how quickly can you start receiving payments from clients?
It all depends on the jurisdiction chosen. For example, in a country with well-developed digital services the procedure of company registration and opening a corporate account can take only a few days.
Will you help me optimize my taxation if I open a foreign IT-company to avoid exchange rate differences in Ukraine?
Yes, of course. Our task is for the business to get the maximum benefit. And this is now quite possible in reputable midshores or even onshores.