German GmbH + Ukrainian Operating Company: How Should Functions, Management and Payments Be Split?
Adding a German GmbH to an existing Ukrainian business can clarify the operating model — or create a second entity with no defensible economic role. The correct starting point is not where to book profit. It is what each company actually does, who controls the relevant risks, who owns the customer relationship and how the two entities transact with each other.
Last legal-source review: 2 October 2026 · Analytical material, not individual legal or tax advice.
A founder living in Germany may conclude that a German GmbH is the natural next step. Sometimes it is. Sometimes the Ukrainian company can remain the principal operating business. In other cases a two-company model is commercially justified because Germany has acquired its own sales, management, contracting, hiring or investment function.
A German GmbH should not be added merely because the founder lives in Germany. It needs a defined function in the Target State.
The analysis therefore runs from functions to contracts and pricing — not from a desired profit split backwards to invented functions.
Before forming a German GmbH, define the problem it is supposed to solve
A second company creates a second taxpayer, a second governance system, separate accounting, separate bank relationships and a new set of intercompany transactions. Those costs are justified only if the German entity performs a genuine role.
Typical commercial reasons may include a German customer-facing contracting function, a German sales team, German employees, local investment, procurement, a separate regulated activity, or a genuinely German management and operating function.
A founder address in Germany, by itself, is not a complete operating function.
If the German GmbH disappeared tomorrow, which real function, contract, people, asset, customer relationship or risk-bearing capacity would disappear with it? If the answer is “none”, the entity role needs to be reconsidered.
Split the business by real functions before splitting the profit
The first structural map should identify the important business functions and then assign them to the entity that actually performs and controls them.
Typical functions may include product development, delivery, sales, marketing, customer contracting, account management, procurement, treasury, hiring, strategic management, quality control, IP development and investor relations.
German transfer-pricing law expressly requires the actual circumstances of the transaction to be analysed, including which party performs functions, assumes risks and uses assets. §1 AStG
Ukraine follows the same substance-over-form direction for controlled transactions: where contractual wording and actual conduct diverge, Article 39 requires the transaction to be characterised by reference to the parties’ actual conduct and factual conditions. Tax Code of Ukraine
The agreement should describe the operating model. It should not be used to manufacture one.
Two companies require two defensible management stories
Creating a German GmbH does not resolve the management position of the Ukrainian company. Each entity must still be tested separately.
The German GmbH should have governance consistent with the functions and decisions assigned to it. The Ukrainian company should likewise have real authority over the functions and risks that remain with it.
If the same founder in Germany continues to approve the Ukrainian company’s ordinary commercial decisions, control its bank accounts, direct senior staff and make its ongoing management decisions, the earlier German Geschäftsleitung analysis remains relevant regardless of the existence of a German GmbH.
Customer contracts should be consistent with the functional and risk allocation
A common two-company model places German or EU customer contracts in the German GmbH and delivery functions in the Ukrainian OpCo. That can be coherent — but only where the German company genuinely performs the commercial role assigned to it.
The review should identify who originates the customer, sets commercial terms, negotiates material deviations, bears credit and warranty risk, manages the customer relationship, controls pricing and has the people able to make those decisions.
If the German GmbH is only an invoice layer while the Ukrainian company still performs the entrepreneurial sales and customer-management function, the legal contracts and the economic reality may diverge.
Conversely, if the German GmbH genuinely acts as principal and the Ukrainian company performs defined development, delivery, support or operational services, the intercompany pricing must reflect that allocation.
People usually reveal where the functions really sit
For each important team, identify the legal employer or contractor, the person who gives day-to-day instructions, who evaluates performance, who can hire or dismiss, where the work is physically performed and which entity bears the economic cost and risk.
A Ukrainian engineering or delivery team can remain in the Ukrainian OpCo while the German GmbH owns the German sales function. But the model should not describe the Ukrainian entity as a low-risk service provider if it actually controls major product, customer or market risks.
Cross-border personnel activity can also create payroll, social-security and PE questions independently of transfer pricing.
The intercompany price follows the delineated transaction
Under §1 AStG, German income from cross-border dealings with related parties can be adjusted where conditions, including transfer prices, differ from those independent parties would have agreed under comparable circumstances.
The German analysis starts with the actual transaction and a functions-and-risks analysis. The Federal Ministry of Finance’s Administrative Principles on Transfer Pricing 2024 apply the international arm’s-length framework and also address business-function relocations.
German documentation obligations under §90 AO include the transaction matrix, factual documentation and arm’s-length documentation for relevant cross-border business relations.
Ukraine
Ukraine’s Article 39 controlled-transaction regime also uses the arm’s-length principle. Current Ukrainian tax guidance states that, where the other statutory conditions are met, the general value thresholds for controlled transactions are annual taxpayer income exceeding UAH 150 million and transactions with the relevant counterparty exceeding UAH 10 million, excluding indirect taxes. State Tax Service of Ukraine, 8 September 2026
Those thresholds are a formal controlled-transaction gate, not a reason to design the commercial relationship without arm’s-length logic. The transaction still needs a coherent business purpose, contract, evidence and accounting treatment.
A management fee is a payment category — not a management solution
Intercompany charges may cover development, support, marketing, sales assistance, back-office functions, procurement, management or other services. Each charge should correspond to a real service, a recipient benefit and an arm’s-length remuneration method.
Charging the Ukrainian company a “management fee” does not by itself prove that management belongs in Germany. If the German founder actually manages the Ukrainian company, that remains a management-nexus question. If the German GmbH provides a genuine management service while the Ukrainian company retains its own corporate management, the scope of the service and decision rights should be separated clearly.
The same principle applies to cost-plus arrangements: cost-plus may be appropriate for a defined routine function, but it should not be selected first and used to force a company with entrepreneurial functions into a routine-service-provider profile.
A payment label does not determine its source-tax treatment
Intercompany payments must be classified before any withholding conclusion is drawn. A service fee, royalty, interest payment, engineering income and dividend are not interchangeable categories for source-tax purposes.
Under Article 141.4 of the Tax Code of Ukraine, Ukraine-source income of a non-resident includes, among other categories, interest, dividends, royalties and engineering income. Article 141.4.2 generally applies a 15% withholding rate to covered Ukraine-source income unless a specific domestic rule or an applicable treaty provides otherwise. At the same time, the catch-all rule in Article 141.4.1 excludes ordinary compensation for goods, works and services supplied by the non-resident, so an ordinary service fee should not be treated as automatically subject to 15% Ukrainian withholding merely because it is paid cross-border.
Where treaty relief is relevant, Article 103 of the Tax Code of Ukraine requires the treaty conditions to be tested, including residence documentation and, where the treaty requires it, beneficial-owner status. Article 103 also contains a domestic anti-abuse overlay, so treaty relief should be prepared as part of the payment file rather than assumed from the invoice label alone.
Germany has its own source-tax rules for specified outbound payments. In particular, §50a EStG can impose withholding on certain payments to non-residents, including remuneration for the use or right to use specified rights and know-how. The German classification must therefore be tested separately for the actual payment.
Service fee ≠ royalty ≠ interest ≠ engineering income. Classification comes before the withholding rate.
Service direction and service character matter
For many B2B services received by a German business, §3a(2) UStG places the service where the business recipient is established. Where a Ukrainian supplier provides a service taxable in Germany and the statutory conditions are met, §13b UStG can shift German VAT liability to the recipient.
On the Ukrainian side, Article 186 of the Tax Code contains service-specific place-of-supply rules. For listed categories such as certain consulting, IP, advertising, personnel and similar services, the recipient location can determine the VAT place. The exact service must therefore be classified before deciding whether Ukrainian VAT applies.
The reverse direction — German GmbH supplying the Ukrainian OpCo — requires the same exercise from both sides. “Intercompany service” is not a VAT category.
Two legal entities do not eliminate permanent-establishment questions
The current Germany–Ukraine treaty remains the 1995 agreement. Its business-profits rule and permanent-establishment framework must be applied to the facts actually in force for the period. BMF treaty record
Article 9 of the current treaty also contains the associated-enterprises arm’s-length concept: profits may be adjusted where related enterprises agree conditions that differ from those independent enterprises would have agreed.
A German GmbH can therefore exist alongside a PE issue. For example, personnel or a place used for the other company’s business may still need separate analysis; similarly, the German company’s people should not habitually perform the Ukrainian company’s contracting or management function without reviewing the consequences.
Treaty transition
Germany and Ukraine signed a replacement treaty on 19 May 2026. As of 2 October 2026 the BMF records that it is not yet in force. Current operations should therefore not be implemented as though the signed 2026 treaty were already operative. BMF 2026 treaty status
Do not move IP on paper while the value-creating functions stay somewhere else
IP ownership is only the starting point. German §1 AStG requires appropriate remuneration where related parties perform functions connected with developing, creating, improving, maintaining, protecting or exploiting an intangible. Actual functions, assets and risks therefore remain relevant to the economic return.
Ukraine’s Article 39 similarly looks at contractual and actual activity around intangible assets and at the functions, assets and risks actually involved.
If a real business function is later moved from the German GmbH to the Ukrainian OpCo, German business-function-relocation rules can also become relevant. The Funktionsverlagerungsverordnung defines a function as an organised business activity and addresses transfers of functions together with associated opportunities, risks, assets or advantages.
IP location, people location and profit location should not tell three incompatible stories.
The correct model depends on what has actually changed
Ukrainian OpCo only
Potentially workable where the genuine operating business remains in Ukraine and a separate German entity has no independent function. Founder residence, German management and PE exposure still need separate analysis.
German GmbH + Ukrainian OpCo
Potentially coherent where Germany has a genuine commercial, employment, contracting or management function and Ukraine retains a defined operating or service function. Intercompany pricing follows the actual allocation.
HoldCo + DE OpCo + UA OpCo
Potentially relevant where ownership, investment, governance, financing or future transactions justify a separate holding layer. It adds another legal and tax layer and should not be introduced merely for visual complexity.
None of the three is a universal default. The Target State should follow the commercial model, the location of people and management, the investor/capital architecture and the applicable legal and tax constraints.
The DE GmbH / UA OpCo allocation map
Entity role
Why does each company exist and what independent function does it perform?
People
Who employs or contracts the people, where do they work, and who directs them?
Management
Which decisions belong to each board or director and where are they actually made?
Customers
Who originates, negotiates, contracts, invoices and manages the customer relationship?
Assets & IP
Who owns and uses the relevant assets, and who performs the value-creating intangible functions?
Risks
Who actually controls and can financially bear market, delivery, warranty, credit and product risks?
Payments
What services, royalties, financing or other flows exist and why would independent parties pay for them?
Evidence
Do contracts, invoices, board records, bank access, time records and communications support the same allocation?
Implementation sequence: Current State → Entity Necessity → function/risk/asset map → management map → customer and people allocation → transaction delineation → TP method → withholding/source-tax classification → VAT/treaty/PE review → contracts and governance → banking/evidence → implementation.
Common structural shortcuts
- Create a German GmbH first and invent its function afterwards.
- Route all EU customer revenue through Germany while the German company has no commercial capability.
- Call the Ukrainian company a routine service provider while it still controls key entrepreneurial functions and risks.
- Use a management-fee agreement to disguise where the Ukrainian company is actually managed.
- Transfer IP ownership without mapping who develops, improves, maintains, protects and exploits it.
- Assume a signed intercompany agreement resolves VAT, PE, withholding or treaty treatment.
German GmbH + Ukrainian OpCo — the essentials
Do I need a German GmbH because I live in Germany?
No. Founder residence and entity necessity are separate questions. A German GmbH should have a genuine function in the Target State; the founder’s move may separately create residence, management, PE or CFC issues.
Can the German GmbH invoice customers while the Ukrainian company does the work?
Potentially, where the German GmbH genuinely performs and controls the customer-facing principal function and the Ukrainian company performs a defined service or operating role. The contracts, functions, risks and transfer pricing must support that allocation.
Can we simply use a cost-plus fee for the Ukrainian company?
Not automatically. Cost-plus may fit a routine service function, but the method should follow the actual functions, assets and risks. A company carrying significant entrepreneurial functions should not be relabelled as routine solely to obtain a desired profit split.
Does an intercompany management agreement prevent German management risk for the Ukrainian company?
No. Company management is tested from the actual conduct and decision-making facts. A services agreement does not replace the separate Geschäftsleitung analysis.
Does a Germany–Ukraine service fee automatically trigger 15% Ukrainian withholding?
No. Ukrainian source-tax treatment depends on the legal classification of the payment. Article 141.4 specifically covers categories such as interest, royalties and engineering income, while ordinary compensation for goods, works and services is not automatically brought into the 15% rule by the mere fact of a cross-border payment.
Are Germany–Ukraine intercompany services subject to VAT?
The answer depends on the direction and character of the service. German and Ukrainian place-of-supply rules, reverse-charge mechanics and any specific exceptions must be tested for the actual service.
When does Ukrainian transfer-pricing reporting become relevant?
Ukraine’s Article 39 controlled-transaction regime depends on the counterparty and transaction category as well as value thresholds. Current guidance uses annual income above UAH 150 million and transactions with the relevant counterparty above UAH 10 million where the other statutory conditions are met.
Current authority used
- Germany — §1 AStG: arm’s-length principle, functions/risks/assets and intangible/function-transfer rules.
- Germany — §90 AO and GAufzV: transfer-pricing documentation framework.
- German Federal Ministry of Finance — Administrative Principles on Transfer Pricing 2024.
- Germany — §50a EStG: source withholding for specified payments to non-residents, including relevant rights and know-how.
- Germany — §§3a and 13b UStG: B2B place of supply and reverse-charge framework.
- Germany — Funktionsverlagerungsverordnung 2022.
- Ukraine — Tax Code, Article 39 transfer-pricing framework and Article 186 VAT place-of-supply rules.
- Ukraine — Tax Code, Articles 103 and 141.4: treaty relief, beneficial ownership, anti-abuse and non-resident source taxation.
- State Tax Service of Ukraine — 2026 guidance on controlled-transaction thresholds and documentation.
- Germany–Ukraine Double Taxation Agreement of 3 July 1995 — currently in force, including Articles 7 and 9.
- Germany–Ukraine Double Taxation Agreement signed 19 May 2026 — signed, not yet in force.
Adding a German GmbH to an existing Ukrainian business?
Map the function of each company, management, people, customer ownership, risks, intercompany flows, VAT, TP, PE and evidence before fixing the legal contracts and pricing.