The Real Reasons Startups Move Their R&D Offices to Ukraine
R&D office sounds like a big risk — and rightfully so. It implies spending large sums of money, and you gotta be sure about the location choice.
The Silicon Valley used to be the synonym for a successful IT enterprise; however, nothing is forever, and their crown has been steadily been slipping over the current decade. Unfortunately, fame comes with the price tag, so calling San Francisco an overpriced venue is a fair assessment: costly staff and rent are two major factors that hold it back.
Western European countries seem like a better choice but also suffer from high expenses, especially in larger cities. Although London and Berlin share two top spots in terms of a raw startups number, in these areas, salaries are no different from what you expect in a typical US megapolis.
The burden of local laws should also be taken into consideration — yes, the “Western World” is not like that, even when it comes to the regulations. Taxation is also what can keep you away from taking regions like the US or most of the European regions because they tend to have high taxes depending on how developed the region is.
So what is the saving grace? Most businesses view Ukraine as the country that provides the largest number of benefits with very minor drawbacks when it comes to moving your R&D office to develop a stellar startup. Today, I will try to describe why startups choose this location to open a new development division specifically, in Ukraine.
As I started this text with the pricing issue, this is a great reason for startups to move to Ukraine.
First, the taxation is very loyal to various kinds of businesses — not only is it low but also very simplistic: the corporate income tax is at the 18% mark while the interest and dividend tax rates are both 15%.
Simplified tax is also set at a 15% rate and is easy to obtain if your entity is eligible for performing legal business activities. As a rule, local officials are loyal to the outside companies and make the registration process smooth and fast.
The social security contribution is a 22% payment that is deducted from the employee’s salary and does not affect the company. This may seem like a hindrance on the way to hiring the local workforce, but don’t worry; it is greatly compensated by the local salaries’ level. Even on the higher tiers of developers, senior Java devs earn up to $40k a year in Ukraine; meanwhile, their western European and American peers earn no less than $80k and $100k accordingly. You get more than twice as much value for the same price, which is a crucial feature for any startup activity where the money should be spent wisely.
Ukraine is huge. And it’s not a desert, instead, it’s a well-populated country that has more than 40M inhabitants, which results in a great talent pool that can outshine larger countries, especially if we talk about a dev-per-citizen ratio.
And it’s not only about the education that makes them good; many of the local talents are the self-taught gems who strived at making software for the international companies and now have hands-on experience. The competition and the will to make a high-quality product for a fair price are two major factors that pushed this country forward to take a top 5 spot in terms of the number of software engineers.
The IT professional is also the most desired job in the country — it’s so popular that the number of people outside of it trying to become the tech specialists can barely be measured and has led to labeling Ukrainians as the “IT nation.” Whether it is the media or the overall ratio of IT salaries to the national average that has made it so great — the fact is that people love this job and show great effectiveness in their attempt to create stellar products.
You’re not alone
Ukraine is also not outlandish when it comes to the proven companies presence on the market. You might be surprised, but there’s a ton of startups that have their R&D offices there and have taken advantage of it to become unicorns.
Whether we talk about Grammarly, Petcube, Ring, Jooble, or Readdle, all these ventures have one thing in common — an R&D office in Ukraine. What once was a risk, became a great example of what a wise choice can bring: allocating your resources for the workforce instead of costly offices is the best way to make your startup pay off big time.
You won’t also be left alone: the level of English is steadily growing, and now more than 40% of Ukrainian IT pros are fluent in it and roughly 39% use it at an intermediate level. In essence, there’s no company that would use anything but English for their meetings or presentations, let alone external communication.
At X1group, we adhere to Agile methodology, which implies constant sprints in English and regular contacts with clients. You will get to communicate constantly with the devs, and they are on the same page as you and understand everything you would like the project to be. It’s important to know that the people responsible for the project will grasp all the wishes you need and make adjustments as soon as possible.