An Israeli Company Operating in Ukraine: Subsidiary, Representative Office or Direct Activity, Permanent Establishment, Employees and VAT under Martial Law

Israeli companies sell products, technology and services to Ukraine, and take part in reconstruction and infrastructure projects. The decision on how to operate there, directly from Israel, through a representative office or through a subsidiary, affects tax, liability and the ability to bring money back to Israel. This guide summarises the rules in November 2026.

1Which route should an Israeli company take to operate in Ukraine?

There is no single right structure. Direct activity suits occasional sales, a representative office suits marketing and customer contact, and a subsidiary suits ongoing commercial activity, employing staff and contracting with local bodies.

1. Define what the company will do in Ukraine, for how long and with how many people on the ground.
2. Check whether the planned activity creates a permanent establishment under the Ukrainian Tax Code and under the treaty with Israel.
3. Check whether the sector requires a licence, and whether the parties and beneficiaries are clear of sanctions.
4. Choose a structure: direct activity, a representative office or a subsidiary (setting up a subsidiary is explained in the separate guide on opening a company in Ukraine).
5. Plan the money route: how the capital will come in, and how profits will return to Israel under the National Bank's rules.
6. Arrange VAT, payroll, work permits and bilingual contracts before the activity begins.

2When does activity in Ukraine create a permanent establishment?

Activity creates a permanent establishment when the foreign company has a fixed place of business in Ukraine through which it carries on its business, wholly or partly. According to PwC Tax Summaries, the definition in the Tax Code is similar to the OECD model, but the agent tests are stricter, and the tax authorities tend to interpret business activity broadly where there is no treaty protection.

• A fixed place: an office, a place of management, a branch, and also a server.
• Services: services provided by the company's employees in Ukraine on a single project for more than 183 days in a 12-month period.
• Construction: a building site or several related projects lasting more than 12 months.
• A dependent agent: a representative who binds the company. An agent acting for several clients in the ordinary course of its business does not create a permanent establishment.
• Aggregation of activities: activities of related companies may be treated as a single permanent establishment if together they go beyond auxiliary activity.

The tax treaty between Israel and Ukraine may set different tests, so it is checked as well. See Israel's tax treaties by country.

3What changed in the registration of a representative office of a foreign company?

Since 2024 a representative office of a foreign company has been registered with an ordinary state registrar, within 5 working days and for a fee of 3,328 hryvnia in 2026, under Law 3257-IX of 14 July 2023. The law moved the registration of representative offices and branches of foreign companies from the Ministry of Economy to the Unified State Register, and the fee, one subsistence minimum for an able-bodied adult, replaced the 2,500 dollars of the previous regime.

• A representative office has no legal personality. It operates under a power of attorney the Israeli company gives to the head of the representative office.
• The Israeli company is liable for the representative office's obligations.
• Representative office staff do not need a work permit, under the amendment the law introduced into the Employment Law.
• Registering a representative office does not exempt from tax: if the activity goes beyond auxiliary activity, a permanent establishment arises.

4Do you need a local director or legal representative in Ukraine?

It is not mandatory: the law does not require a Ukrainian director in a subsidiary, but a foreign director needs a work permit, and it cannot be obtained together with the company's registration. A representative office operates through a head of office holding a power of attorney from the Israeli company. In practice it is advisable to have an authorised local person who can sign, receive documents and deal with the bank and the tax authorities.

5Does an Israeli company need to register for VAT in Ukraine?

Only if it has a permanent establishment in Ukraine, and then the permanent establishment registers for VAT under the ordinary rules. One exception, as of 2026 and according to PwC Tax Summaries: a foreign supplier of digital services to private consumers registers under a special regime once sales exceed 1 million hryvnia a year.

• Without a permanent establishment: the foreign company does not register for VAT under the regular regime. Usually the Ukrainian customer handles VAT on services it receives from abroad, and imports of goods are taxed at customs.
• With a permanent establishment: it is the permanent establishment that registers for VAT, under the regular rules. The tax authority's system rejects an application by the foreign company itself when it has a permanent establishment.
• Digital services to private consumers: a foreign supplier without a permanent establishment registers under a special regime when sales exceed one million hryvnia a year, charges 20%, files a quarterly return and pays in euros or dollars. It has no right to an input tax refund.
• The regular registration threshold for a local company or a permanent establishment: one million hryvnia in 12 months, and voluntary registration is possible.

6What are the employer's obligations when employing staff in Ukraine?

In 2026 the employer pays a unified social contribution of 22% and withholds 18% income tax and a 5% military levy from the employee, according to PwC Tax Summaries. The minimum wage is 8,647 hryvnia a month, and a foreign employee needs a work permit.

Under martial law, Law 2136-IX on the organisation of labour relations also applies, and it prevails over the Labour Code on the matters it governs. The law allows, among other things, suspension of an employment contract without terminating it, and during the suspension period the employer does not pay salary. Using these tools requires precise documentation and a check of the current wording.

7In which language and under which law should contracts be drafted?

Employment contracts are drawn up in Ukrainian under Language Law 2704-VIII. Commercial contracts are commonly bilingual, Ukrainian and English, with the governing law and a dispute-resolution clause agreed in advance.

• Employment contracts: in Ukrainian, under the Language Law. A translation may be attached.
• Commercial contracts between businesses: in practice a bilingual contract, Ukrainian and English, is customary, with a clause stating which version prevails. Any document filed with a court, bank or authority will be filed in Ukrainian translation.
• Governing law and jurisdiction: in an international contract you can choose the governing law and a dispute resolution mechanism, such as arbitration. Disputes over real estate in Ukraine are reserved to the courts there.
• Currency and payment: it is worth providing in the contract for what happens if the Ukrainian bank does not approve a transfer abroad on time.

On what to think about before a dispute begins, see also jurisdiction clause, arbitration and enforcement.

8Do you need a licence to operate in Ukraine?

Most commercial activity does not require a licence. Regulated sectors, such as financial services, pharmaceuticals, energy, telecommunications, transport and defence activity, require a licence or approval from the relevant authority. The simplified tax regime is also not available to some of these sectors. Check the licensing requirements before signing a first contract.

9How do you deal with the bank and currency restrictions?

The National Bank's restrictions apply mainly to the Ukrainian entity and its bank, not to the Israeli company. Payments from a Ukrainian customer to an Israeli company for goods and services are usually permitted, but there are statutory settlement deadlines for exports and imports, and the bank checks the documents. Dividends and loan repayments are subject to special restrictions.

• Dividends accrued from 1 January 2023 may be transferred up to one million euros a month, with further routes for capital and foreign loans.
• Since Resolution 90 of 10 August 2026, cash withdrawal from a business account has been increased to 200,000 hryvnia a day.
• Settlement deadlines for exports and imports vary by type of goods, so do not set a fixed number of days in the contract without checking.

See also when the bank in Israel delays a transfer: source of funds.

10What is the annual compliance calendar for activity in Ukraine?

The recurring obligations are a VAT return within 20 days of the end of each month, an annual corporate tax return within 60 days of the end of the year and payment of tax within 10 days of the filing deadline, according to PwC Tax Summaries (as of 2026), alongside payroll duties, work permits and reporting in Israel.

11What special risks are there during the war?

The main risks are martial law, which has been extended to 29 January 2027, sanctions, restrictions in combat zones and occupied territories, and frequent legislative changes.

• Duration of martial law: on 26 October 2026 it was extended until 29 January 2027, and so far it has been extended every 90 days.
• Sanctions: Ukrainian courts refuse to enforce arrangements designed to circumvent sanctions. Screening parties and beneficiaries is part of every transaction.
• Location: activity or assets in combat zones and occupied territories are subject to restrictions on registration, audits and enforcement.
• Legislative changes: currency, tax and employment rules change several times a year. It is worth building an adjustment mechanism into contracts.

An advantage for trade in goods: the free trade agreement between Israel and Ukraine, signed on 21 January 2019, has been in force since 1 January 2021 and reduces or eliminates customs duties on goods. It does not apply to services.

12What is checked in Israel when the company operates in Ukraine?

Income of a permanent establishment or representative office is also taxed in Israel, with a credit for the Ukrainian tax under the treaty. A Ukrainian subsidiary requires reporting of the holding in a foreign company and of related-party transactions, and a dividend from it is taxed in Israel with a credit. See our Israel Tax Authority reporting hub, and it is advisable to coordinate with an Israeli accountant.

13How do you start operating in Ukraine?

Start by choosing a structure, then set up a representative office or subsidiary together with local lawyers, draft bilingual contracts, and coordinate with accountants in Ukraine and in Israel on permanent establishment, VAT, employment and currency restrictions. The full sequence of steps appears in the list at the top of this guide.

The information here is general and current as of November 2026, and every case requires individual review.

More on doing business in Ukraine: Setting up a company in Ukraine · Corporate tax and transferring profits to Israel from Ukraine · Commercial disputes and litigation in Ukraine · Comparison of 8 countries · All guides for companies and businesses

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