How to open a representative office in Ukraine? The difference between non-permanent and permanent offices
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A clear understanding of what kind of a representative office you need in Ukraine will help you to:
- Organize its work in the most efficient way possible;
- Receive maximum profit from the work of the representative office;
- Save time and money.
In this article we will break down the steps to choosing an appropriate type of the representative office, proceeding from the primary objective of its establishment. We will also discuss what one may do if the type of an opened representative office doesn’t satisfy his/her needs.
Related article: Registered a representative office of the foreign company in Ukraine
Types of foreign company representative offices
There are two types of foreign company representative offices in Ukraine: permanent and non-permanent. They are often called commercial and non-profit establishments.
Permanent representative office. The Tax Code of Ukraine defines permanent (commercial) representative office as a permanent location of operation, where a non-resident runs his business operation.
These permanent locations include not only an office or factory, but also a structure used for the exploration of natural resources, a mine, and oil and gas wells. Moreover, the term “permanent representative office” shall also be applied to a construction site if the duration of its activities exceeds six months.
Non-permanent representative office. Non-permanent (non-profit) representative offices include:
- Construction sites, where the duration of related works is less than six months;
- Buildings and constructions used solely for the purpose of storing and/or displaying the products of a foreign company, etc.
A representative office can be registered as a non-permanent (non-profit) establishment, if it is not aimed at carrying out economic activity while operating on a permanent basis. It can only represent the interests of the parent company.
Registration and operation of both types of foreign company representative offices
The registration procedure is almost the same for both types of representative offices. The only difference is that one shall submit different forms to the tax authorities to register different types of representative offices.
Related article: Everything the owners of the foreign companies need to know to register a representative office in Ukraine
Note! Neither the Ministry of Economic Development and Trade of Ukraine nor the State Statistics Service of Ukraine divide representative offices into permanent and non-permanent ones.
The State Fiscal Service of Ukraine divides representative offices into two types solely for purpose of taxation in Ukraine. Permanent representative offices are registered as income tax payers and subject to filing tax returns.
The representative offices, which do not fall under the permanent representative office type and are not registered as a permanent representative office, are not income tax payers and are not subject to filing tax returns.
What to do if you realize that the business activity of the representative office no longer complies with your choice or you have initially chosen an inappropriate type of the representative office?
Our experience shows that sometimes representative offices established only for the purpose of presenting the parent company’s products become economic entities over time.
A representative office can be registered at the State Fiscal Service of Ukraine as a commercial establishment at any time. But a commercial representative office cannot become a non-profit establishment.
Unfortunately, the current legislation of Ukraine does not provide for any other mechanism to cancel the status of a permanent representative office other than termination of its activities. And this is a rather time-consuming procedure, which often lasts a year.
Related article: Managed to close a foreign representative office in Ukraine in 8 months
The division of representative offices into permanent and non-permanent bears little relation to thе meaning of these terms. On the other hand, terms “commercial and non-commercial representative offices” better reflect the purpose of their establishment. However, the legislation distinguishes only between “permanent representative office” and those representative offices that do not fall under the permanent representative office criterion. They are usually called non-permanent.
Before you decide to open a representative office of your company in Ukraine, you should make enquiries not only regarding the peculiarities of its registration and operation, but also regarding the most appropriate type of representative office to be opened.
If you are not sure which type of a representative office will better suit your business purpose, contact our specialists to get professional advice. We will help you to assess all risks and choose the most appropriate type for your future representative office.