Liquidation of a foreign company representative office in Ukraine: procedure and documents

Liquidation of a foreign company representative office in Ukraine is a quite difficult, long and expensive registration procedure. This is due to the fact that a large number of actions are to be completed as well as absence of satisfactory legal regulation of such liquidation procedure.

Some registration actions still don’t  have define term for documents reviewing by the authorities, other actions don’t have a specified list of documents upon which this review is conducted and / or the procedure of such review. As a result a great deal of time and effort is spent for arrangements with necessary representatives of the authorities responsible for carrying out registration actions.

General reasons for the liquidation of foreign company representative office are  defined in section 15 of the Regulations on the registration of representative offices of foreign business entities in Ukraine № 30 approved by the Ministry of Finance on the 18.01.1996. It states that the activities of a foreign company ceases:

• Upon liquidation of a foreign company that has a representative office in Ukraine;
• Upon termination of the agreement with a foreign country if the representative office was founded under that agreement and it is expressly stated by the provisions of the agreement;
• As a decision of the foreign company which founded a representative office;
• As a result of violations of Ukrainian legislation (through court proceedings).

The most common among these reasons which requires completion of all registration action is a liquidation of a foreign company representative office after the decision of a foreign company which founded the representative office (in other cases liquidation of an office is possible through enforcement order). It is formalized as the decision or protocol of a foreign company body that has legal powers to liquidate a representative office abroad. For such procedure to be implemented in Ukraine the decision must be duly legalized (through legalization in consular establishments or by being apostilled) and translated into Ukrainian with certification of an interpreter seal.

The dismissal of all office employees, the closure of accounts, exclusion from the registers in the Pension Fund, tax and statistics authorities as well as exclusion from the register of the Ministry of Economic Development and Trade is performed on the basis of such decision. In addition for some actions from the above it may be necessary to make a decision on appointment of a liquidation commission (liquidator) which also must be properly legalized and translated.

In practice the contents of these decisions are often published in one of the official printed media and information about closure is announced to all known creditors on the territory of Ukraine as well as to the state authorities. Such actions are required because the order of representative office liquidation is not defined so one should follow the analogy with the liquidation of a legal entity. However such publication and announcing is more of a good manner than a duty since a representative office of foreign company a priori is not a legal entity and such actions are not required by any legislative act.

The dismissal of employees of a foreign company representative office and closure of its accounts in Ukrainian banks is performed on the basis of these documents. At the same time there is no particular order of a representative office accounts closure in the legislation. Therefore one will have to close the account using general order defined in section 20 of the Instruction on opening, operating and closing of accounts in national and foreign currencies № 492 approved by the National Bank of Ukraine on the 12.11.2003.

According to the mentioned document closure of a client bank account is possible either on the basis of a client application or as the result of the decision of the authority to which it was assigned to liquidate the legal entity (the liquidator). Taking into consideration the fact that representative office is not a legal entity it is quite easy to make an agreement with a bank on closing the accounts on the basis of a simple application filed by an authorized person of a foreign company (liquidator for example). If the agreement cannot be achieved additionally to the application it will be required to attach a copy of the foreign company decision on liquidation of its representative office and a notarized card with signature of the liquidator and the seal of the representative office.

But in any case one current account should be left if a need arises to conduct settlements with state authorities. Closure of this last account is made based on the liquidator application on closure of the account.

For deregistration in the Pension Fund Resolution of the Pension Fund of Ukraine№ 21-6 dated 27.09.2010, requires providing copies of the following documents:

• Administrative document (decision) of the owner or the authorized body on liquidation;
• Administrative document on the establishment of the liquidation commission;
• Administrative document on termination of individual’s independent business activities.

Unfortunately this Resolution does not allow the provision only one of these documents (for example the decision to liquidate a representative office) so Pension Fund authorities may easily require not only the liquidation decision but the decision on establishment of a liquidation commission. Moreover these documents must be submitted within 10 days after the liquidation decision that can be difficult to complete since it is required to legalize and translate them. But it gives additional reasons for nit-picking by the Pension Fund of Ukraine.

After submission of these documents authorities of the Pension Fund are obligated to perform documentary verification of calculation and payment of the unified social tax correctness. But since representative offices usually "have nothing to give in return" the starting date of the verification is often delayed which may be solved through negotiations. After verification a verification certificate is signed by the liquidation commission and the final settlements with the Pension Fund are made on its basis. Thus in the case of arrears of single fee payment the Pension Fund authorities will issue a debt certificate one copy of which shall be directed to the liquidation commission. After the final settlements the foreign representative office is deregistered at the Pension Fund and its case is closed.

At the same time deregistering of a representative office is conducted at the State Tax Service of Ukraine bodies. In order for this to be achieved section 5.5. of the Order on monitoring of taxpayers and fees № 1588 approved by the Ministry of Finance on the 09.12.2011 requires to provide a notice of termination of business activities (written in any form), calculation of tax liabilities of a non-resident and statement of defined in the Tax Code taxes payment to the state budget. It is also required to perform income tax and other taxes and fees settlements with the state budget.

Then within 10 days the State Tax Service must decide on deregistering of a permanent representative office as an income taxpayer in the register of non-resident taxpayers.

Deregistration of such representative office from tax monitoring is performed according to section 5.8. of the Order on monitoring of taxpayers and fees on general basis. This means the conduction of unscheduled tax audit of a foreign representative office under section 78.1.7. of the Tax Code of Ukraine. The term of such audit is not provided by the legislation and may be defined only by analogy with similar unscheduled audits during legal entity subdivisions liquidation.

If the audit proves the existence of a tax debt the STS will have to issue a notice of money liability and tax debt according to the form number 10. If these facts are not discovered or arrears of taxes, fees and fines are paid then the STS will have to issue a certificate of deregistration using form number 12-OPP. The representative office is considered to be deregistered at the bodies of State Tax Service since the issuance of such certificate if the corresponding entry was made in the Register of representative offices.

The decision to deregister an office in the Register of representative offices is made by the Ministry of Economic Development and Trade of Ukraine. The specific list of documents on which a decision is made is not defined by the law. But in practice it is required to provide a legalized decision of a foreign company on liquidation of a foreign representative office and registration certificate of such representative office (the second one is detached). Additionally if there were foreign employees working at the representative office their service cards issued by the Ministry of Economic Development and trade are subject to return. Term of the decision to deregister a representative office in the Register of representative offices is not specified by the legislation either and therefore in practice it is settled as the result of agreement between the parties. After the decision is made an authorized representative of the foreign company representative office shall be notified of the decision.

After the mentioned actions are completed it is necessary to apply to the statistics authorities with the request for exclusion of foreign representative office from the Unified State Register of enterprises, organizations and institutions. In accordance with the Regulation on the Unified State Register of enterprises, organizations and institutions number 118 approved by the Cabinet of Ministers on the 22.01.1996 in order to perform this action one must submit the following documents:

• Notification for the Ministry of Economic Development and Trade of Ukraine about deregistration in the Register of representative offices;
• Certificate on the deregistration at the State Tax Service;
• Completed monitoring card for deregistration from the Unified State Register of enterprises, organizations and institutions.

Term of foreign representative office exclusion from the Unified State Register of enterprises, organizations and institutions is not defined.

After the procedures mentioned above have been completed it becomes possible to destroy the seal and close the last available bank account.