Ukraine is a very popular destination for IT outsourcing especially, due to the amount of talent Ukraine´s sizeable workforce. In addition to IT outsourcing, foreign companies are often looking to hire Ukrainians for project-related work or various consulting services. This is not as easy to accomplish as for example in the EU, where a foreign company can just register as a foreign employer and tax payer without having a legal entity in the country. In Ukraine such a registration is unfortunately as of yet not possible. This means that foreign companies are left with several options to employ Ukrainians:
1. Establish their own legal entity inside the borders of Ukraine. This can be a LLC or a representative office depending on the goal of the business. In this way the foreign company employs Ukrainians through their Ukrainian subsidiary. Normal payroll taxes are applicable.
2. Use an Employer of Record or (EOR) company in Ukraine. These are companies already established inside Ukraine, which provide employment services. In this option the local EOR company employs the Ukrainian staff and pays their salaries and applicable taxes. The EOR company then invoices the foreign company for the salary costs plus their premium for the service.
3. Purchase services from Ukrainian individuals who have registered themselves as individual entrepreneurs. This is in effect a B2B arrangement instead of employment. The foreign company remunerates the Ukrainian individual by way of paying their invoices. This arrangement is facilitated by a service agreement for consulting or other services. This arrangement is popular especially in the IT sector due to the low taxes involved, but there is a new draft law in the making which will likely make this arrangement more difficult in the future.
4. Direct employment between the foreign company and the Ukrainian individual by way of a labor agreement. In this arrangement the Ukrainian individual is responsible to pay applicable payroll taxes in Ukraine on their own and declaring their foreign income annually. Questions regarding the applicable labor laws and taxation may arise with this arrangement.
Feel free to contact Leinonen Ukraine if you are looking for options to employ Ukrainian workers or Ukraine-based individuals for your business. We will be happy to provide more information about the available options and the taxes and risks involved in each of them.
