Two Ukrainians — three CFCs, or Why a foreign company is a must-have for certain types of business

The latest wave of tax reforms in Ukraine is being carried out under the banner of aligning tax law with European rules and integrating with international procedures and business standards. Diia City, CRS, the hunt for tax non-residents, the formal simplification of document flow, the SEPA connection and similar novelties are on everyone's lips. But the truth is different: some types of business simply cannot be built without a foreign company.

A CFC for international e-commerce

The total number of Ukrainian sellers on international platforms is estimated at roughly 100,000. There is, of course, no reliable data on total turnover, but individual indicators allow us to gauge the scale.

Take the data of a single platform, Etsy. Ukraine ranks 8th in the world by total number of sales on the platform. In total, foreign buyers have purchased almost 14.4 million Ukrainian items. The average online basket on international platforms is around USD 125. Ukrainians on Etsy have one of the highest sales-per-shop rates in the world: on average, a Ukrainian shop sells twice as many items as a typical US shop.

Using indirect estimates based on advertising budgets, which start at USD 30–50 per day, the most conservative calculations put total advertising spend at USD 25–50 million per month. If we assume that advertising and marketing costs account for 15–25% of the product price, the estimated revenue of this group of sellers may reach USD 1.2–2 billion per year.

At the same time, Ukraine has no access to worldwide payment services such as Stripe (the most popular solution for Shopify and proprietary e-commerce) or PayPal (only limited P2P functionality, not business accounts). To accept payments at all, sellers use Payoneer as an interim option — a virtual bank account in the US or the EU.

On top of that, Ukraine's Tax Code, written in “pre-platform times”, contains restrictions that make it practically impossible for entrepreneurs to comply 100% with tax law while staying within the requirements of the simplified tax system. For example, receiving revenue into the shop owner's Payoneer account by analogy with a sole trader's account in a Ukrainian bank is simply not envisaged. The costs a sole trader incurs to produce goods, platform fees or payment-system fees “hang in the air”, while customs clearance and international shipping force everyone to reinvent the wheel in search of a balance between economic benefit and legal compliance.

This is exactly why Ukrainians register foreign companies in the US, the UK or other European countries — to gain access to the ordinary tools for selling on platforms. Can Ukraine do anything for these sellers? Apart from a clumsy law on taxing income from digital platforms, probably nothing. Is opening a foreign company a good option? Absolutely yes.

The IT industry and cross-border freelancing

This is a good moment to mention the special tax regime Diia City.

As of the end of March 2026, the number of Diia City residents exceeded 4,000 companies, employing more than 148,000 IT specialists. The IT sector accounts for 77–80% of all residents (2,844 companies). The Ministry of Digital Transformation states that the number of residents has doubled over the past year and that the industry is growing at a furious pace. But there is something that goes unsaid.

Despite significant tax benefits and attempts to introduce elements of English law, Diia City will never become a direct substitute for a US C-Corp in Delaware or for other foreign structures.

Why does a Ukrainian IT company with Diia City resident status lose out to Delaware?

Venture investor confidence

For American and European venture funds, a Delaware C-Corp is the gold standard. Investors expect to use all the working instruments of a C-Corp — shares, options, liquidation preferences. A Ukrainian LLC is not designed for that. An IPO or a company sale is realistic when the parent company is registered in the US. No large buyer will acquire a Ukrainian jurisdiction as the main holding entity.

The court system and English law

Although Diia City introduced English-law instruments (convertible loan, option, representations & warranties), they operate on top of the Ukrainian Civil Code. In a shareholder conflict in Delaware, the case is heard by the specialised Court of Chancery with vast experience. In Ukraine, the dispute goes to a regional commercial court whose judges are unlikely to have deep expertise in complex investment contracts. US court decisions rest on case law and are predictable on the basis of decades of practice. In Ukraine, enforcement within Diia City is only at the dawn of its formation.

Currency controls and capital movement

This is a genuine pain point. Ukrainian companies depend on the National Bank's currency restrictions. Operations such as transferring currency abroad (dividends, payment for services) may be restricted, blocked or create unpredictable tax consequences.

And we are not even touching on intellectual property protection, tax stability or risks related to martial law.

So it turns out that for every promising startup, founders build a structure with a parent company in the US or Europe, while the Diia City resident company is used as a local structuring tool.

Even small Ukrainian development companies prefer to set up an Estonian e-Residency company with a 0% tax rate on distributed capital, registration in 15 minutes online, easy Stripe and PayPal integration and accounts with Wise, Revolut and other neobanks.

In a structure with a Diia City resident, Estonia often acts as the “wallet”, the holder of capital. Clients worldwide pay the Estonian company, part of the profit stays in Estonia, and the rest is transferred to Ukraine (Diia City) as payment for software development. In Ukraine these funds go to salaries and gig-contract payments with low taxes. Capital is legally accumulated in foreign currency in EU accounts, while the team in Ukraine can still be paid officially — with the option of military-service deferral.

These are just two examples of the most common reasons why a foreign company is a necessity in the structure of a Ukrainian business. But there are also importers and exporters, authors of creative, educational and media projects, and simply businesses looking for new opportunities.

Perhaps you are one of them.