Since Ukraine declared its independence in 1991, it has grown into an attractive location for developers and companies. Ukraine has achieved ‘market economy’ status with the USA and EU and has joined the World Trade Organization (WTO). Ukraine is the largest European country, and a member of many international bodies such as the United Nations, and the Council of Europe. Ukraine is taking steps to accede to the EU and NATO, and has partnerships with both.

Though Ukraine has over 40 million citizens, it is relatively underdeveloped and has a low GDP. According to forecasts, however, Ukraine's economy may be poised for growth. Leading Ukrainian economists expect GDP may accelerate to 2.1% in 2017, while inflation is expected to slow from 13% to 10%.

Ukraine is plagued by corruption challenges and has a low-wage workforce, yet is strong in agriculture, mining, and metals. Ukraine’s labor costs are possibly Europe’s lowest, allowing manufacturing to be competitive and helping the country expand its growing high-tech industrial product base. However, navigating Ukraine’s complex regulatory landscape is a significant impediment for many organizations.

As Ukraine continues to enhance its potential as an outpost for international business, companies looking to capitalize on opportunities in Ukraine should familiarize themselves with the country’s unique payroll guidelines and challenging business considerations. Read on for a primer on managing payroll in Ukraine.

Getting Started

Nothing in Ukraine is easy or straightforward, which is the country’s principle barrier to entry. However, working with a partner with local business experience can help.

Economic volatility and frequent changes in legislation sometimes prevent companies from adjusting to Ukraine’s requirements. Bureaucracy in Ukraine is complex and corruption is a problem, so organizations should be prepared to place substantive time and resources into diligence around company set-up, business negotiations, and so on.

The limited liability company (LLC) is the most widely used method for foreign entities to start a business in Ukraine. To launch an LLC, an entity must submit appropriate documentation to the registrar – including an application form, company charter, and information about individual beneficiary owners. From there, they should open a permanent bank account in-country (which can take 1-2 business days) and register with the state tax authority or district tax office to obtain a VAT number.

Employee Rights

In Ukraine, employers complain that current labor code is inflexible. The current code dates back to 1971, but employers are now lobbying parliament to pass a new one.

Labor agreements/contracts (or civil service contracts) are required under Ukraine law to receive employment. Residents do not need a work permit in order to work in Ukraine, but do need to be at least 18 years old at the time of employment. Non-residents have the same rights to work as residents, but must obtain work permits and residence permits in order to obtain employment. Indefinite term, fixed-term, and seasonal work employment contracts are common.

Compensation & Leave Considerations

Minimum wage is regulated by article 95 of the Labor Law Code and article 3 of the Law on payment. These articles state minimum wage is a legally set wage for simple, unqualified labor. The monthly minimum wage in the Ukraine since December 1, 2016, is 1,550 UAH ($57.46; £46,48; €53,51) but is subject to change on a nearly monthly basis.

Ukrainian law stipulates a 40-hour workweek, a 42-hour “weekend,” limits on overtime, protection for women and young mothers, and contract termination only after unions consent. (Under certain labor agreements, some categories of employees are entitled to work shorter weeks.) The day before a national holiday is generally one hour shorter.

Employees receive a minimum annual leave of 24 calendar days unless they’ve been with an employer for less than one year. In that case, the annual leave is granted in proportion to time worked, at a rate of two vacation days per each month worked.

Tax Considerations

As for tax and payroll compliance, Ukrainian and foreign entities are liable subjected to a corporate profit tax at a standard current rate of 18 percent from gross income. The social security contribution in Ukraine is generally 22 percent of the gross earnings, paid by the employer. Unemployment benefits are paid by a State Social Security Fund and are financed by employers. An insured worker pays 0.6 percent of his wages to the State Fund.

Employees pay income tax at a flat rate of 18 percent of gross salary (withheld by the employer) and a military tax of 1.5 percent. The standard annual filing deadline is 30 April of the year following the reporting year.

In Conclusion

Organizations looking to launch or grow Ukrainian operations must be very patient, diligent, and alert to changes. It is advisable to find a trustworthy partner to assist with the administrative labyrinth, red tape, and many cultural nuances. In addition, working with a global payroll managed services provider can reduce much of the uncertainty of changing regulations and tax requirements.

This article is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional.