The full-scale invasion since February 2022 has dramatically altered Ukraine’s business environment. Martial law and related policies have introduced new restrictions and incentives, creating a unique landscape for companies.
Businesses have to navigate foreign currency controls, tax hikes and breaks, labour mobilisation and safety requirements, all while the government tries to support economic activity. With a focus on taxation, Vyacheslav Petrashenko, a senior lawyer at BDO in Ukraine, outlines the key changes and covers other crucial aspects such as currency regulations, special regimes and labour issues that businesses face during the war.
Martial law and its impact on business
Martial law in Ukraine has been in effect since 24 February 2022, imposed as a specific legal regime and extended quarterly. This wartime regime has wide-ranging implications for businesses:
- Foreign exchange restrictions: The National Bank of Ukraine (NBU) implemented strict currency controls. Repatriation of profits is limited: for example, foreign investors cannot remit dividends earned before 2024 or transfer retained earnings from earlier years. Only dividends accrued in 2024 and beyond may be paid out, and even then, they are capped at €1 million per month. Similarly, repayment of shareholder loans issued before the war is frozen (though interest payments are allowed within certain limits). In contrast, shareholder loans issued after 20 June 2023 may be repaid, subject to specific conditions. This approach — summarized by the phrase “new money, new rules” — aims to prevent capital flight while encouraging new investment. Additionally, set-offs between local companies and foreign counterparties are currently prohibited to ensure that funds flow directly into Ukraine.
- Trade settlement deadlines: A long-standing rule strictly enforced under martial law is the 183-day requirement — export earnings must be received into a Ukrainian bank within 183 days, and any prepaid imports must be delivered within 183 days. Missing these deadlines triggers heavy penalties (0.3% of the amount per day of delay), putting pressure on businesses to comply with payment schedules despite wartime disruptions.
- Labour and Mobilisation: Under martial law, Ukraine instituted general mobilisation, conscripting most able-bodied men aged 25 to 60 (and some women in medicine) into military service. This has led to labour shortages in many companies, though there are legal deferments for certain cases (e.g. parents of three or more children, students, individuals with health issues). Employers are not required to pay salaries to mobilised employees, but they must retain their positions during the period of service. Companies providing critical services may apply for exemptions to retain key personnel.
- Health and Safety (HSE) requirements: Businesses must also comply with air-raid sirens and other wartime safety mandates. Employers are required to suspend operations during air sirens and ensure that employees have access to nearby bomb shelters. This has become a basic compliance requirement; for instance, during air-raid sirens, staff must proceed directly to a designated shelter for protection.
- Government support measures: Despite the challenges, the government has made the efforts to mitigate the impact. Crucial measures were introduced to stimulate business activity even as the war raged. In fact, when the war broke out, the authorities not only imposed strict restrictions but also rolled out substantial tax relief to help businesses stay afloat.
Taxation changes during the war
Tax policy has been one of the main tools used to support the economy during wartime, resulting in several important changes. While some taxes were increased to raise funds for defence, others were reduced or waived to encourage business operations. Below are the key taxation changes and current rules:
- Personal Income Tax and Military Surtax: Ukraine’s standard Personal Income Tax (PIT) remains 18%, but the Military Tax surcharge on individual has been increased from 1.5% to 5%. As a result, employees now face an effective tax rate of 23% on wages (18% PIT + 5% military tax). This higher military tax is a temporary measure to boost defence funding. Notably, dividends paid by Ukrainian companies to individuals are taxed at a reduced 5% PIT (instead of 18%), plus the 5% military tax — totalling 10%. This pre-war incentive still applies to domestic investments. Dividends from foreign sources (or Ukrainian investment funds) are taxed at 9% PIT + 5% military tax (14% total). There are currently no exit taxes or net wealth taxes in Ukraine. Self-employed entrepreneurs under the simplified tax system may opt to pay a 5% unified tax on income, plus 1% military tax, instead of the standard rates.
- Corporate Income Tax and simplified regimes: The base Corporate Income Tax (CIT) rate is unchanged at 18% of profits. However, banks are subject to a higher rate of 50%, and certain financial service providers pay 25%). Under the long-standing simplified tax regime for small businesses, companies may opt to pay either 3% of revenue (if also registered for VAT) or 5% (if not registered for VAT) instead of the standard CIT. As a wartime relief measure in 2022–2023, the government introduced an extraordinary 2% turnover tax for eligible businesses. This super-reduced rate was temporary and aimed at easing the tax burden during the most difficult period. It is now being phased out as the economy adapts. Another wartime adjustment was the introduction of a 1% “military” turnover tax for certain businesses under the simplified system, representing an additional contribution to the war effort.
- Value-Added Tax (VAT): The standard VAT rate remains at 20% on most goods and services. To support critical needs, Ukraine exempted certain imports from the 20% import VAT, particularly equipment deemed essential for the energy and defence sectors. Goods and equipment intended for the Armed Forces can also be imported VAT-free. These VAT exemptions help reduce the cost of importing generators, military gear, and other essential supplies during the war. However, such incentives are subject to change. For example, the exemption on importing solar panels is expected to expire soon as the government reassesses priorities. Domestically, some special VAT rates of 14%, 7% or 0% apply to specific categories: 14% for certain agricultural products; 7% for medical goods; 0% for exports. Notably, exports of IT services, consulting and certain other services are zero-rated for VAT, an existing policy that continues to support Ukraine’s strong IT sector, even during wartime.
- Controlled Foreign Companies (CFC) rules: In a significant wartime development, Ukraine implemented Controlled Foreign Company reporting for the first time. Ukrainian tax residents, — both individuals and legal entities, — who own foreign entities are now required to disclose those holdings. If the CFC’s annual income exceeds €2 million, the Ukrainian owner may be liable to pay Ukrainian tax on that income. Introduced despite the ongoing conflict, this measure aims to prevent offshore tax avoidance and broaden the domestic tax base.
- Other taxes: Most other tax obligations remain largely consistent with pre-war legislation. Employers’ social security contribution is 22% on gross payroll (with a cap on the contribution base), which continues as usual. Customs duties on imports are still in effect (typically ranging 5–10% for many goods, although humanitarian aid might be exempt). Excise taxes apply to fuel, alcohol, tobacco and vehicles as before (calculated based on the customs value plus duty for imports). Local governments levy real estate tax up to 1.5% of minimum wage per square meter (approximately $3/m²) on property owners (this applies to owners of: 1) apartments with area of over 60 m²; 2) houses over 120 m²; 3) other types of residential property, including their shares, over 180 m²). Local transport tax applies to passenger cars valued over USD 71,000 and less than five years old. Land taxes continue to be assessed based on cadastral value and location. None of these taxes have undergone fundamentally changes due to the war, but they remain important considerations for businesses operating in Ukraine.
Wartime taxation in Ukraine has involved a combination of increased contributions for defence (such as the 5% military tax) and targeted relief measures to support businesses (such as temporary low turnover taxes and VAT exemptions). Keeping track of the latest tax legislation is critical, as the government frequently adjusts policies in response to shifting economic pressures and military needs.
Special IT Regime: Diia.City
One of the most innovative developments is Diia.City, a special legal and tax regime launched in 2022 to boost the growth of Ukraine’s IT sector. Despite the war (or rather, especially because of it), Ukraine continues to promote IT and high-tech sectors via this program. Diia.City offers IT companies and tech startups a favourable tax and regulatory environment, guaranteed by law for 25 years.
Benefits of Diia.City:
- Companies enjoy significantly lower personal income tax. Employees and contractors pay just 5% PIT (compared to the standard 18%), plus the standard military tax (5%), effectively halving their income tax. In addition, social security contributions are drastically reduced: employers pay the 22% social security contributions only on the minimum wage (approximately $40 per month per employee) rather than 22% of the full salary. For companies, corporate tax can be optimized: Diia.City residents may choose to pay a 9% tax on distributed profits (exit capital tax) instead of the standard 18% corporate income tax on total profits. This can be advantageous for growing companies that reinvest earnings.
- Diia.City legal framework allows for the use of “gig contracts” and other flexible employment models. This enables companies to engage talent as contractors under simplified agreements, while still retaining access to all tax benefits. This reflects IT project-based work patterns.
- The regime’s conditions are fixed for 25 years, shielding IT investors from unexpected regulatory changes. The government has committed not to worsen the tax conditions for Diia.City residents during that period, an important assurance amid an otherwise unpredictable environment.
- An added wartime benefit of Diia.City companies are automatically eligible to be classified as critical infrastructure enterprises. This status allows them to apply for military draft exemptions for up to 50% of their employees. In practice, IT firms in Diia.City have been able to “book” key personnel so they are not conscripted, ensuring business continuity. Exempted employees may also receive permits for international business travel — a privilege for military-age men during wartime.
Example: A tech company with 10 employees and annual revenue of $200,000 could pay around $21,000 in total taxes per year under Diia.City, roughly half of what the standard regime would impose. This includes zero tax on reinvested profits (assuming profit is kept in the business), low 5% income tax for employees and minimal social contributions. These savings help explain why over 500 companies, including software developers, R&D centers, and even defence-tech firms, have joined Diia.City despite the ongoing war.
Labor challenges and mobilisation rules
Human resources management has become a critical challenge during wartime. With a large segment of the workforce eligible for military service, companies have to plan for potential disruptions and adapt to evolving labour regulations:
- General mobilisation. As noted, most men aged 25–60 are subject to conscription. The government has established clear rules: if an employee is mobilised, the company is required to grant unpaid military leave — the job position is retained, but salary payments may be suspended for the duration of service. While employers are not obligated to continue paying wages during military service, many choose to provide voluntary financial support.
- Exemptions and deferrals. Certain categories of employees can legally avoid conscription. Employees with three or more dependent children, PhD students and those with certain medical conditions are exempt or can defer from service. Additionally, employees of companies with critical infrastructure status may be temporarily exempted from the draft (typically up to 50% of the male staff can be booked from conscription).
- Critical infrastructure companies. To preserve essential economic functions, Ukraine allows businesses meeting specific criteria to obtain “critical infrastructure” status. Such status enables a company reserve up to 50% of its workforce from mobilisation. The criteria include: 1) paying an average salary of at least ₴20,000 (approximately USD 480); 2) having no outstanding tax debts; and fulfilling one of several strategic conditions, for instance:
- paying over €1.5 million in taxes annually,
- earning more than €32 million in foreign currency revenue per year,
- being in a government-designated strategic industry (like defence or energy),
- being regionally significant,
- or being a Diia.City resident company.
Companies apply through the relevant Ministry (for IT companies, this is the Ministry of Digital Transformation that handles it efficiently online). Once approved, the status is valid for 12 months and can be renewed. This mechanism has been a lifeline for many IT firms, manufacturers and logistics companies, allowing them to keep operations running with retained key staff. See more here about how to obtain Critical Enterprise Status.
- Workforce management during air-raid sirens. Employers have had to incorporate civil defence protocols into HR policies. Regular drills and clearly defined procedures ensure that, whenever air-raid sirens sound, employees immediately pause work and head to designated shelters. Many offices have adapted basements or nearby shelters into protected safe zones. Ukrainian labour law mandates compliance with these safety measures, and no employee may be penalised for seeking shelter during a siren.
In summary, companies that can meet critical status or otherwise adapt to wartime conditions have better chances of maintaining productivity. In contrast, those unable to shield their key staff from mobilisation often face greater operational strain. The legal adjustments around labour aim to strike a delicate balance between national security imperatives and the need to keep the economy functioning.
Steps to start a business in Ukraine during wartime
Remarkably, Ukraine continues to welcome new businesses amid ongoing war. The basic procedure for starting a business remains straightforward (and some steps have been streamlined under martial law):1. Choose an organizational form. Select a legal structure. Common options include:
− Sole Proprietorship (FOP) for individuals (simple and low-tax for small-scale ventures),
− Limited Liability Company (LLC) for most SMEs (flexible and limits owners’ liability),
− Joint-Stock Company (JSC) for larger enterprises planning to issue shares, or
− Representative Office if you’re a foreign company without establishing a separate legal entity.
Each form has its own registration and reporting requirements.
3. Register the company. Submit the incorporation documents to the state registrar. This includes charter documents, information on founders and identification of the Ultimate Beneficial Owners (UBOs). Disclosure of UBOs is mandatory: Ukraine requires transparency to ensure no sanctioned individuals (e.g., russian or belarusian owners) hide behind shell companies. Company registration has been partially digitized and under martial law, authorities have made efforts to expedite processing to support economic activity. Once approved, the company is officially listed in the Unified State Register.
4. Open a bank account. Open a corporate bank account with a Ukrainian bank. As part of standard due diligence, banks will verify the company’s registration details and UBO information. Given currency controls, companies often open both local currency (UAH) and foreign currency accounts to manage different transactions.
5. Obtain licenses and permits. Determine whether your business operates in a regulated industry. Sectors such as finance, energy, education, healthcare, manufacturing, construction or communications require special licenses or permits to operate. Under martial law, the government has streamlined some licensing procedures and temporarily suspended certain inspections to reduce hurdles for businesses. For example, an IT company may not need any license, whereas a pharmaceutical importer would require multiple permits. Ensuring compliance from the start avoids penalties later on.
6. Hire employees. Start building your team in compliance with labour laws. The standard approach is to use employment contracts, which clearly define the rights and responsibilities of both employer and employee. Alternatively, company may use civil law contracts for contractors or freelancers (project-based employees). If your company is in Diia.City, you have the option of gig contracts, providing even more flexibility in hiring tech talent. When hiring foreign nationals, remember a work permit is generally required (unless the individual has permanent residency or is assigned to a foreign representative office). The martial law regime has eased many bureaucratic processes: business registration and work permits are handled relatively quickly to attract investment even in these environment.
Despite the war, thousands of new businesses have been registered in Ukraine since 2022. The country’s entrepreneurial spirit remains strong, supported by government efforts to keep the startup ecosystem alive. Whether it’s a local startup or a foreign investor setting up a branch, follow these steps and consult legal advisors closely (especially on evolving wartime regulations) are essential for a smooth launch.
Compliance and other considerations
Operating under wartime conditions requires companies to stay vigilant about compliance beyond just taxes and incorporation. Here are additional considerations:
- Reporting obligations. Routine tax filings (monthly, quarterly or annually depending on the tax and company size) remain mandatory. The government has not suspended reporting, though deadlines were extended at the very start of the war. For corporate income tax, large firms file quarterly, while small businesses can file annually. Payroll taxes are filed monthly. Late filing of a company with no underpayment typically results in mild penalties — often just a few hundred hryvnias. For instance, submitting a return past due with no underpayment might incur a nominal fine (~ 340-1020 UAH). However, underpayment of taxes can lead to interest charges and higher fines. Ukraine’s tax policy encourages voluntary correction: if you identify an error and files an amended return with payment, only a 3% penalty on the shortfall applies. In contrast, if the error is identified during an audit, heavier penalties may be imposed. Companies are thus advised to proactively review and correct any reporting mistakes to avoid unnecessary risks.
- Licenses and inspections. As noted, many industries in Ukraine require special permits. During martial law, certain regulatory inspections have been suspended or minimised to avoid burdening businesses unnecessarily. Nonetheless, companies are still expected to comply with applicable standards (for example, product safety for manufacturers, financial solvency for banks or insurers, etc.). It’s expected that full regulatory oversight will resume post-war, so compliance now will prevent issues later.
- Adapting to legal updates. Perhaps the most persistent challenge for business in Ukraine is the fluid legal environment. The government frequently updates laws and regulations in response to evolving military and economic conditions. For example, currency control rules have been periodically relaxed or tightened, tax incentives have been introduced and withdrawn, and labour regulations have been adjusted as the conflict evolves. Businesses in Ukraine must closely monitor the new decrees from the National Bank, tax law amendments passed by Parliament, and Cabinet of Ministers resolutions. Engaging local legal counsel or joining business associations can help companies stay informed.
- Future outlook. Ukraine’s approach suggests that many wartime measures (such as the currency restrictions and additional military tax) will remain until active hostilities subside. In the meantime, the government is looking for ways to broaden the tax base without stifling growth. This includes initiatives like CFC rules and potential upcoming tax reforms. On the positive side, the experience of operating under extreme conditions is pushing Ukraine to modernize government services (e.g., digital processes for status applications and filings) and to create robust support systems for investors. International aid and the prospects of eventual EU accession are also driving alignment with global standards, which may influence future regulations.
Conducting business in Ukraine during wartime is undoubtedly challenging. Martial law has introduced unprecedented controls over finance and labour, but also unprecedented support in terms of tax relief and special regimes. Companies that understand and adapt to these changes, — by leveraging incentives like Diia.City, obtaining critical status if eligible and rigorously complying with evolving rules, — have not only managed to survive, but in some cases even thrive. The situation continues to change and resilience and knowledge are key. With the war ongoing, agility and awareness are essential for any enterprise operating in Ukraine. The government’s message to investors is clear: we will do what it takes to defend the country, and also what it takes to keep the economy open for business.
If you need assistance with any aspect of doing business in Ukraine, BDO in Ukraine’s experts in tax, legal, accounting and business advisory are always ready to help. Submit your request using this Online Form.
