The Ukrainian parliament voted in the first reading for a bill that allows foreign tech specialists to register businesses and pay taxes in Ukraine online.

The so-called e-residency is expected to bring $1.5 million to the state budget annually, according to Ukraine’s Minister of Digital Transformation Mykhailo Fedorov. 

The parliament will vote for on the bill in its second reading in September but foreign techies can already apply for e-residency for free.

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As of today, nearly 2,500 foreigners have decided to become e-residents of Ukraine, most of them from Pakistan and India, according to Oleksandr Bornyakov, deputy minister of digital transformation. 

Tech specialists from Southeast Asia and Eastern Europe are most likely to sign up for e-residency in Ukraine, Bornyakov told the Kyiv Post. According to him, techies from these countries better understand Ukraine’s legislation and are willing to pay a low 5% income tax.

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Tech businesses from the U.S. or Western Europe usually become digital residents of Estonia, where e-residency has existed since 2014, bringing 63 million euros to the state budget in the last seven years. Even German Chancellor Angela Merkel and Microsoft founder Bill Gates became e-residents of Estonia.

With its affordable taxation and booming tech industry, Ukraine wants to repeat Estonia’s success. E-residency will help the country to attract money, improve its image and bring its tech industry closer to the rest of the world, Fedorov said.

How to become e-resident

To start a business in Ukraine now, foreigners have either to obtain a work permit or hire a Ukrainian citizen to register the company for them. Foreigners also need lawyers or local consultant companies to protect the interests of their businesses in Ukraine — it requires a lot of time and money and entails risks.

E-residency is different. To apply for it, foreign tech entrepreneurs need to fill a form on the website and visit the consulate of Ukraine abroad to confirm their identity. 

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After Ukraine’s Security Service (SBU) and Ministry of Internal Affairs verify the application, foreigners can become e-residents — open bank accounts in Ukraine, use the country’s state services and sign official documents with a digital signature.

E-residency allows foreign techies to do business in Ukraine just like local specialists do: to register as private entrepreneurs and pay a 5% income tax using the mobile app called Diia.

Techies registered as e-residents won’t receive an actual residency permit or a visa — they would need to submit a separate application for this.

The government has restricted the list of countries that can apply for e-residency in Ukraine. Only citizens of Pakistan, Thailand, China, Israel, Bangladesh, Germany, Slovakia, India, Belarus, Moldova and Poland can apply. 

“The U.S. is excluded from the list because its specialists have no need to go to Ukraine,” Bornyakov said. 

Why Ukraine

With e-residency, foreigners can avoid the country’s notorious ‘spravka culture’ that requires dozens of documents to work legally in Ukraine. E-residents, in turn, can work remotely and sign all the documents online.

In Ukraine, e-residents can work for one of the country’s tech companies as freelancers or register their legal entity here. The country has over 212,000 tech specialists that earn up to $2,500 a month. Ukraine’s tech sector grew by 20% over the last year as other businesses suffered amid the pandemic. 

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At first, only programmers, game developers, system administrators and different tech businesses will be able to obtain e-residency but the government will add specialists from other creative industries, including artists, musicians and designers, in the future.

Bornyakov said that Ukraine started the e-residency experiment with the information technology industry because of the industry’s familiarity with it. Tech specialists are also less likely to accept payments in cash and can thus can avoid fraud. 

Pitfalls

Before giving e-residents access to its state services and bank accounts, Ukraine has to check whether they are not under sanctions or members of a terrorist group. This is the work of Ukraine’s security service, the SBU.

Bornyakov said that his ministry had “a battle” with Ukraine’s law enforcement who wanted to spend 30-50 days verifying just one application. “We said this system doesn’t work like that and convinced them to do verification in just a few days,” he added.

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Another problem is privacy. E-residents will give Ukraine’s government sensitive data that has to be protected thoroughly. As of today, the bill submitted by the Ministry of Digital Transformation lacks specific security measures to guarantee the protection of e-residents data, according to Ukrainian lawyer Oksana Dukhovna.  

When asked about it, Bornyakov told the Kyiv Post that the government takes security issues seriously. “There will be multiple layers of protection of e-residents data,” he said.

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