Date of publication: 20 April 2017
Vitali Galitskihh, Head of Tallinn Office
Business immigration and labor migration are two big differences. The problem occurs when people and businesses leave and do not return, but for the development of the country it is very useful when people travel, watch the progress of operations in other countries, gain the new experience and return to their states in order to participate in the development of the country applying their newly gained experience. The same thing happens to business, sometimes you need to know how they do it abroad in order to implement it inside.
Ukrainian business more and more frequently increases the number of representative offices in other jurisdictions and it happens for various reasons. For many large companies with progressive views – this is an opportunity to achieve a new level, to prove themselves in competition with global players. For others – this is an escape from uncertainty, corruption and nepotism. In Ukrainian IT business, in particular, there is a tendency according to which there are a lot of young, ambitious and really talented people in the country for whom the infrastructure in the IT area, in general, throughout the country, does not meet their needs for a long time, and for this reason they simply are forced to look for countries with more favorable conditions, for instance, such as Estonia, which traditionally positions itself as an E-state, where IT support is a priority of the government, and all public services for citizens can be obtained online and as soon as possible.
A large company cannot live without the foreign affiliates, which should possess trading business units, accounts in foreign banks. It is impossible to expand the business into a large-scale company only at the expense of internal market. But in order to enter the EU market, for example, the company’s structure itself; its operations mechanism should run like clockwork. In other words, if the company runs smoothly and achieves the results in domestic market then the company is ready to enter the European market at the next stage of its development, as entering another market always involves big investments and risks. If the company does not bring any profits in the local market and does not blame its own structure, but sees the problem in clients or in the country as a whole, then the risks of entering the European market for such company are too high and the costs are likely to not pay off. In this case, we can say that the game is not worth the candle, and for such companies it is better to stay in their own countries.
Usually, offices abroad are opened by solid businessmen that are able to maintain a foreign office during the setting stage. The spheres of activity of such companies are very different, but from personal experience I can say that these are either large companies for whom the opening of a representative office does not present a financial problem, the trading companies for which the foreign office is a matter of image building, either the service companies that have already achieved the high quality of their services in the local market and decided to enter other markets. Such companies employ more foreign personnel; they try to attract the foreign specialists to maintain the quality of the services they provide.
In my experience the most attractive countries for Ukrainian businessmen to expend their business to are Estonia, Cyprus, Holland, Hong Kong, United Arab Emirates.
Cyprus has always been considered the traditional place for opening the business in the EU territory. This has usually been related more to the tax planning than to the really operating office. Although the times have changed, now the tax authorities require not only the de jure established office, they want to observe the actually working representative office. Cyprus appeared to be unprepared to the new challenges and many representatives of Ukrainian business are currently actively searching for other jurisdictions. Therewith, it is worth to mention that Estonian jurisdiction is still underestimated. It possesses the unique tax system with zero corporate tax for companies not distributing their profits. Estonia created its model with one goal in order for the companies to invest into their projects constantly developing their business, and not to distribute the revenues. All these efforts had their effect. Estonia is among the most powerful countries in IT area. IT startups are supported at the highest level, and IT solutions became an inseparable part of Estonians. The firm may be opened in just 30 minutes together with the bank account. Tax declarations have been submitted online since 2000. The voting process is also conducted online, as well as the paperwork and signing of documents with electronic signature. Practically all public services may be obtained online. The state announced its plan, which suggests storing all data in the cloud in order not to be dependent on a particular territory.
There are just a few countries, which attract the investments into their IT projects. Definitely, the list of such countries is quite short and includes Estonia, Finland, Belgium, Ireland and Portugal. Usually, these are small and flexible countries able to swiftly implement any IT project.