25% of companies opened abroad by Ukrainians since 2022 were registered in Poland. Other popular countries include the United Kingdom (13%), the USA (11%), Cyprus (9%), and Estonia (7%). These statistics come from reports submitted to the Ukrainian tax authorities regarding Controlled Foreign Companies (CFCs). In 2023, every tenth company registered in Poland belonged to Ukrainians. The main reason for this growth is the full-scale war in Ukraine.
Why are Ukrainians so attracted to Poland and Estonia for doing business? What conditions do these countries offer, and how can you start a business there? Ivan Chebotaryov, Business Strategic Development Manager at Finevolution, shares his insights.
Pros and cons of doing business in Poland and Estonia
The popularity of Poland and Estonia among Ukrainians is primarily due to their tax systems, the ability to register and manage businesses online, and the developed IT sector. Poland’s proximity to Ukraine and the ability to open a bank account for a company are additional benefits.
Both countries are also notable for their favorable attitudes toward Ukrainians. For example, many government websites, banks, and other services in Poland offer Ukrainian language interfaces and support. Estonia, on the other hand, has entrepreneurship support programs, such as the e-Residency program, which currently refunds all administrative fees for Ukrainians.
Estonia is considered Poland’s main competitor in terms of business registration and reporting ease. The USA, Romania, and Cyprus are also popular among Ukrainians. The UK is considered due to its use of English law, business incentives, and relatively easy company registration process. However, each of these countries has its tax and legal nuances that are not as attractive as in Poland or Estonia.
How to register a business: Where to start
First, it is important to understand that clear and transparent rules apply to all businesses in the EU. For example, data can be easily tracked through foreign registries, meaning that government oversight bodies, banks, and financial institutions can access all necessary information about you and your companies in Ukraine and abroad. For instance, Estonia has one of the highest levels of digitalization in the world, making it easy to track any of your activities, including financial ones.
In both Poland and Estonia, businesses can be registered online. In Poland, you need to obtain an electronic signature and have an equivalent of the Ukrainian tax number — PESEL. In Estonia, you need to fill out a special online form on the e-Residency website, wait for the verification process, and then collect your digital resident ID card at the Estonian Embassy in Kyiv, for example. This card allows you to securely authenticate yourself and sign documents online using an electronic signature.
After registering a company, there are two options for receiving funds into the company’s account. The first is to open an international account with payment systems like Revolut, Wise, Paysera, and Payoneer. These systems can be an excellent solution when starting a business.
The second option is to open a bank account in the country where the business is registered. In Poland and Estonia, the company owner must personally go to the bank. For example, in one case, a company was registered in Poland, but the bank account was not opened within six months because the director could not visit the country. As a result, the company could not operate, and after six months, it lost its tax number. Although it was restored quickly, these delays caused the start of the business to be postponed by almost a year. Therefore, business owners should consider administrative deadlines from the outset to avoid delaying the business start.
Opening a bank account in the European Union is challenging, especially regarding the detailed scrutiny of company directors before opening an account. To pass this check successfully, the director must provide the bank with a detailed and transparent description of the company’s future activities, including the type of services or products, the main users of the services, and the location of the main contractors. Additionally, the bank may review your official websites and social media pages.
For comparison, it is very easy to register a business in Estonia. Still, to open a bank account, you must have a physical office, employees, and a financial history, which is extremely difficult for foreigners. An optimal alternative is to open an account with the Payoneer payment system, which complies fully with European legislation, or to open a bank account in another accessible European jurisdiction. The company’s bank account does not necessarily have to be opened in Estonia. In Poland, this rule is not mandatory, and companies are often registered at so-called “mass registration addresses.” However, some banks still require the entrepreneur to have a physical office.
You must understand how your company will interact with the market in the country where you register your business. Recently, a Ukrainian entrepreneur wanted to open a business in Poland but had no resources or evidence of plans to operate there. For example, he had no website outlining his activities or lease agreements for premises or vehicles. The bank refused to open an account, as it appeared the entrepreneur was conducting business in Ukraine, with Poland as a transit country, making the need for a company and account in Poland unclear.
Important note for Poland. If you have only one founder, you will have to pay a social tax of about 300 euros per month, which is a significant annual amount. While the business is in its development stage and has not yet started generating profits, it is better to have two owners registered.
A closer look at taxes and other expenses
To calculate the total tax burden on a company, you must consider many factors. These include corporate taxes, which depend on the company’s turnover, the source of money, whether the company has VAT, and personal taxes for the business owner, depending on their tax residency.
- Taxes in Ukraine and Poland are very similar when discussing the equivalent of a Ukrainian LLC. Poland also has a corporate income tax. For businesses with an annual turnover of up to 2 million euros, it is 9%. If the turnover exceeds this amount, the company is categorized as small or medium-sized, and a standard tax rate of 19% applies. This tax is not reduced back to 9% even if the turnover falls below 2 million euros. The tax is paid monthly in advance. At the end of the year, a return must be filed to claim any overpaid taxes.
- In addition to corporate taxes, after paying the annual tax and submitting all reports, dividends must be distributed and taxed accordingly. According to the double taxation avoidance agreement between Ukraine and Poland, the rate is 15%. Additionally, a mandatory 1.5% military tax must be paid in Ukraine.
- In Poland, a company owner who is also a director may choose not to pay themselves a salary or compensation for directorial services, which are taxed at 20%.
- Estonian taxation also requires the involvement of specialists to calculate taxes correctly. However, reporting for e-residents is simpler and more automated. A double taxation avoidance agreement between Ukraine and Estonia also applies. One of the advantages of Estonia is that the corporate income tax can be deferred until dividends are paid. If the profit is not distributed as dividends, the tax is zero. The tax rate on distributed profits is 20% of the distributed amount (20/80). The effective rate is 25%. The Ukrainian dividend tax rate for individuals is 9%, and there is also the mandatory 1.5% military tax.
The financial burden of maintaining a company for a year in both countries is relatively low. These expenses include fees for a legal address, accounting services, and bank commissions. From our experience, an IT company in Poland pays about 150 euros per month for accounting services and about 250 euros per year for a legal address. In Estonia, accounting services cost about 170 euros per month, and a legal address costs from 150 euros per year.
Hiring specialists: The nitty-gritty
In EU countries, all company employees must be officially employed. If you hire an employee, it must be a proper employment arrangement, not other forms of engagement. European countries (including Poland and Estonia) strictly monitor compliance with laws.
In some cases, specialists can be engaged as sole proprietors (JDG in Poland and FIE in Estonia, similar to Ukrainian sole proprietorships). This approach is simple, convenient, and advantageous from a tax perspective. Cooperation agreements between you and your contractor mustn’t include employment characteristics, such as working hours, workplace, or subordination. Otherwise, such a contract may be considered hidden employment, leading to further problems for the company.
Starting a business abroad offers new prospects and opportunities for expansion, development, and entry into new markets. However, it is essential to comply with the laws and regulations of the country where you are starting a business. Pay close attention to the tax system and the specific incentives offered by each country. Communicate with government agencies and banks to clarify details immediately. To avoid issues, don’t hesitate to seek help from specialists who can provide detailed advice on your specific case. Please leave a request through the form below Viber, Telegram chat, WhatsApp chat.
