Managing a Foreign Company from Ukraine: Tax Risks

The author of the article: Denis Korablyov

Modified date: 10 June 2026

Entrepreneurs and IT companies are increasingly asking: is it safe to have a company in Estonia, the UAE, the United Kingdom or Cyprus if the team, clients and decisions are in Ukraine? If you opened a company abroad, hired a nominee director, and actually manage the business from your laptop in Kyiv – for the tax authorities, this may not be an “international structure” but a company without real substance.

Today, invoices, contracts and polished documents are no longer enough. What matters is different: where decisions are actually made, who performs the work, and whether the company has real business activity. The time of “paper” companies abroad is passing – and this is exactly where businesses face the biggest tax risks.

In this article, we will calmly explain what substance is, when a foreign company may be recognized as a tax resident of Ukraine, what the tax authorities can see through CRS and CFC rules, and how to build a structure that can be explained through documents and real people.

What substance is and why a “paper” company abroad no longer works

Substance means a company’s real economic presence where it is registered: people who perform the work, functions, expertise and actual business activity, not just an address and a bank account. Previously, for many international structures, an agreement and a set of documents were enough. Now the approach has changed – both in Ukraine and globally, thanks to international exchange of information.

The logic of the tax authorities is simple: if a company abroad is empty – with no team, no decisions and no real work – questions may arise about its tax status or where the business is actually carried out. And if the answer is Ukraine, the tax consequences may arise here.

Place of effective management: when a foreign company may be recognized as a resident of Ukraine

This is one of the most common mistakes in international structures. Formally, you have a foreign company, a foreign director and properly prepared documents. But if you are the one finding clients, making decisions, the team works from Ukraine, and the director abroad only signs papers – for the tax authorities, this may look like a company without real substance.

Example: A company is registered in Estonia. Formally, the director lives in Tallinn. But all client negotiations are conducted by the owner from Kyiv, who approves budgets, hires employees and manages the team. In this situation, the tax authorities may ask where the business is actually managed from.

Here, the key question is no longer “where is the company registered?” but “where is the business actually carried out and managed?”.

When a foreign company may be recognized as a tax resident of Ukraine

Since January 1, 2022, the Tax Code of Ukraine (subparagraph 133.1.5) has contained a rule that a foreign company may be recognized as a tax resident of Ukraine if its place of effective management is in Ukraine. In that case, such a company may be subject to corporate income tax in Ukraine under the general rules, at a rate of 18%.

As a general rule, the place of management is considered to be in Ukraine if one or more of the following conditions are met:

Important: what matters is actual management, even if a foreign director formally has the authority. At the same time, a company may also voluntarily recognize itself as a tax resident of Ukraine. Whether there is a risk in your case depends on the specific structure, so such issues should be analyzed individually.

“There is consulting, but no people”: royalties, services and business purpose

Royalties and consulting services were often used to shift profits to a foreign company. 

But today the tax authorities look not only at the act of services rendered and the agreement – they ask a simple question: who actually performed this work?

If the company providing the services has no team, expertise, correspondence, work product or evidence, such expenses may not be recognized. The Tax Code of Ukraine has the concept of business purpose (reasonable economic reason) for this – subparagraph 14.1.231: a transaction must produce an economic effect, not merely reduce taxes. Since 2022, royalty expenses and a number of payments for services to non-residents without a business purpose may increase the taxable base.

And then, instead of optimization, the business gets a risk of additional tax assessments. This is close to the logic of business splitting: the form exists, but there is no real economic substance.

Beneficial owner here, account abroad: what the tax authorities see through CRS

Do you have an account abroad? The tax authorities may receive information about such an account through international automatic exchange of information. Ukraine has joined CRS – the automatic exchange of financial account information. The first exchange by the State Tax Service took place on September 30, 2024 (for the second half of 2023), and further exchanges will take place annually.

Typical example: the beneficial owner is in Spain, the company is in England, the developers are in Ukraine, and the account is with a European neobank. For CRS purposes, such a structure may become a signal for additional scrutiny: the tax authorities may receive information about foreign accounts and controlling persons through international exchange even before you explain the logic of the structure yourself.

More details on how the exchange works and what exactly is included in the report are available in the article “CRS: will the tax authorities find out about foreign accounts?”. And information about confirming the origin of funds and account blocking is covered in the material on financial monitoring.

CFC: when a foreign company becomes your reporting obligation

If you are a resident of Ukraine and control a foreign company, the rules on controlled foreign companies (CFCs) come into play – Article 39-2 of the Tax Code of Ukraine. This is a separate obligation: to submit a CFC report and, under certain conditions, pay tax on its profits in Ukraine.

CFC rules and substance are closely connected: first, the tax authorities see that you control a foreign company (including through CRS), and then they assess where its activities are actually carried out. What a CFC is, who must report, what the deadlines and penalties are – all this is explained in detail in a separate article “CFC: control, reporting, penalties”.

How to build a structure that can be explained

Today, the safer option is not a “beautiful” scheme, but a structure that can be explained through documents, people and real business activity. What this means in practice:

• People and functions in the country of registration – someone actually performs the work, not merely signs documents;
• Expertise and results – there are competencies, correspondence, interim materials and a finished product;
• Management decisions are made where the company is registered: meetings, minutes and the director’s powers are real;
• Agreements match the facts – what is stated in the act of services rendered was actually performed by the people indicated;
• Transparent accounts and source of funds – payments have economic substance and are properly documented.

If you carry out foreign economic activity, it is also useful to put the Ukrainian part in order: a proper foreign trade contract and documents for foreign currency receipts, as well as clear payments from abroad. If you plan to do business in the United States, it is worth understanding in advance how to open a company in the USA and how it is taxed.

Common mistakes in international structures

• Relying on a nominee director. If you make decisions from Ukraine, a formal director abroad does not create real substance.
• Thinking that an account abroad “cannot be seen”. Through CRS, the tax authorities may see accounts and controlling persons.
• Arranging royalties or consulting without a business purpose and real providers. Without a team and a result, the expenses may not be recognized.
• Ignoring CFC rules. Control over a foreign company is a separate reporting obligation, not just a “foreign asset”.
• Building a structure “for optimization” rather than for a real business. The more complex and empty the scheme, the higher the risk of scrutiny during a tax audit.