Legal Eye: Know before you go East

With Poland becoming a secure investment location, eyes are turning further east for that next great opportunity. Fortunately, Poland and Ukraine have not only made political gestures of friendship, but treaties and some similar legal institutions help to smooth investment from Poland to Ukraine.

Treaties

All the talk of the tax problems of Poles working in the United Kingdom brings into the spotlight the importance of otherwise dry bi-lateral treaties.

Fortunately, for anyone thinking of "going east," Poland and Ukraine have already signed a treaty on avoiding double taxation. The benefit of this treaty for Polish businesses investing, and individuals working, in Ukraine (or vice-versa) is that the treaty specifies where profits and earnings are to be taxed.

More importantly, it allows these taxes to offset. In other words, if I have taxable earnings in Ukraine, I could apply the amount of that Ukrainian tax against my Polish tax. Frankly, though, as a lawyer, I would most likely want to come in under the professional exemption, pursuant to which I wouldn't have to pay tax in Ukraine in the first place. This treaty contains a number of interesting nuggets that may be worth exploring with your tax advisor before crossing the border.

Poland and Ukraine have also entered into a Treaty on Legal Assistance and Legal Relationships in Civil and Criminal Matters. Much of this treaty is devoted to legal arcana that only a lawyer could love, such as who is a legal person, which law applies to a contract, and how to serve notice in a lawsuit. But this legal mumbo-jumbo forms the background rules for doing business (and resolving disputes, if they arise) between Poles and Ukrainians. For example, not too long ago, one of the hassles for foreign investors doing business in Poland was the need to legalize various documents. Pursuant to this treaty, Poland and Ukraine recognize each other's official documents, and legalization is not necessary.   

Neither of these treaties, nor any of the international conventions to which Ukraine and Poland are signatories, such as the Vienna Convention on International Sales of Goods, will replace a well-written agreement. But, in considering Ukraine, you need not worry about re-inventing the legal wheel.

Similarities in investment basics

One of the first things to do in considering an agreement with a company is to make sure that the company exists and that you are speaking with an authorized representative. Similarly to Poland, Ukraine also has a national register of companies. The information in this register is public.

The types of Ukrainian companies that a Polish investor may invest in will come as a pleasant surprise. A review of a list of these entities reveals many equivalents, from the ever-popular limited liability company (Sp. z o.o.) to a lawyer's favorite, the limited liability partnership (or spółka komandytowa, Sp. k). To be envied in Ukraine is the declared three-day time period for registering a new company. One of the items on my Christmas wish-list is for Santa to bring expedited registration of new companies to Poland.

Finally, Ukraine allows foreign companies to set up branch and representative offices. In this case, though, the registration procedure can take up to 60 days.

Go East, but do a little homework first.

Judith Gliniecki is the Managing Partner of Rymar and Partners; e-mail: j.gliniecki@rymar.pl