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Companies find ways to conduct e-commerce while avoiding Ukraine's heavy taxes; KP Publications launches free email service Gomail

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There are two main methods companies employ to avoid paying Ukrainian taxes in e-commerce operations. The first method involves setting up two companies – one offshore and one in Ukraine. The offshore company hosts the Web site, markets the e-commerce service and handles payment. The Ukraine-based company delivers the goods.

Freeflowers Floral Network, which runs both www.flowersukraine.com and www.ukraineflowers.com, uses such a scheme.

Freeflowers caters to Westerners sending flowers to Kyiv and thus is able to charge Western prices. Through its Web sites, the company can send flowers to virtually any region in Ukraine. But because the stores are not located in Ukraine the company avoids most Ukrainian taxes. The only thing subject to Ukrainian taxes is the delivery and flowers, both of which are carried out in Ukraine. Thus the company is able to take home most of its profits.

Another way Ukraine-based e-commerce companies avoid taxes is to hide their identity. Such companies are based in Ukraine and use content produced in Ukraine. But they remain out of the eye of Ukrainian tax authorities by not registering in Ukraine and by making sure all credit card payments are handled offshore.

“Those [Ukrainian-based e-commerce sites] that charge via credit card schemes usually pretend to be located offshore,” said Felix Starovoytov, General Director of Dom.com, an e-business consulting firm in Kyiv. “Ninety percent of these are porn sites and most of their clientele are Western Internet users [with deep pockets].”

Although their clientele is Western, these companies by law should be registered in Ukraine and subject to Ukrainian taxes. Such companies, because they are not registered and often pay not a kopek in taxes, are strictly illegal, Starovoytov points out.

It's difficult to track down such companies, however. Once the Web masters of the Ukrainian sites obtain credit card information from their clients in the West, they funnel it over to partners abroad for processing.

The laundered cash is then wire transferred back to Ukraine.

According to Starovoytov, most sites engaging in the latter scheme are pornography sites. Such sites are actually breaking two laws: Both pornography Web sites and offshore bank accounts (except with special permission) are illegal in Ukraine.

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KP Publications, which publishes the Kyiv Post, has launched a new free Web-based email service called Gomail (www.gomail.com.ua).

The company is calling the service an ideal way to both obtain a free e-mail account and to keep up with the Kyiv community of Internet users.

Gomail will become one of the few e-mail sites to offer SMS messaging – direct messaging to any mobile phone or pager in Ukraine.

“It's a unique service that only Gomail can offer its users,” said Sergey Leschenko, business development manager for Gomail.

The site, which is available in English, Ukrainian and Russian, has attracted 5,000 users since it was launched in early May, making it already one of the largest e-mail centers in Ukraine.