Possible alternatives for outstaffing in Ukraine

The use of “outstaffing” in personnel policy of business entities has been popular in Ukraine for the last few years.

The technology of “outstaffing” involves one enterprise (the outstaffer) leasing to another enterprise (provider) working personnel to perform specific work at the provider’s enterprise.

Such personnel are officially employed by the outstaffer. The provider uses the outstaffer's working staff and pays him a rent for using the working staff. And the outstaffer, in turn, pays wages to the employees.

Related article: Outstaffing. Experience of our company.

Now, unfortunately, the legal regulation of outstaffing is at the implementation stage, which complicates the whole process. In our material, we will consider the opportunities and risks of carrying out similar activities in Ukraine, in the present context.

We will also answer the question: How can a foreign company get an employee hired for them in Ukraine, without the participation of an outstaffing company, but under the same conditions?

Obtaining a permit to carry out "outstaffing" in Ukraine

The procedure for issuing permits for the hiring of workers for their further work in Ukraine for another employer is established by the Cabinet of Ministers of Ukraine. This procedure was approved by the Resolution of the Cabinet of Ministers of Ukraine of May 20, 2013 No. 359. But this resolution has not yet entered into force, therefore, in fact, a permit cannot be obtained.

Due to the existing contradiction and insufficient regulation, the outstaffing activity itself, if it is carried out, quite often comes under closer scrutiny from fiscal authorities. We have encountered cases of issuing a tax notice-decision  (TND) from fiscal authorities for both the outstaffer and the provider.

Possible negative consequences of TND:

• additional accrual by fiscal authorities of taxes and penalties based on the assumption of the lack of real economic relations;
• understatement of value added tax by a significant amount of money for the lack of fact of the reality of business operations.

Our services page: Legal Service of Appeal Against Tax Violation Notification Letters in Ukraine.

However, in the practice of our company, there is a case that demonstrates how it is possible to legally use the “rent” of not only employees, but also companies for business needs. You do not need to:

• set up a company;
• hire staff
• solve a number of bureaucratic issues, which in any case will occur during full-scale setting up a business in Ukraine.

We offer an alternative to the “classic” outstaffing.

Our practical experience

The essence of the case. In the winter of 2019, we were approached by a foreign Client who wanted to use hired labor to carry out work for his representative in Ukraine.

We explained that for this he would need to:

• set up a company in Ukraine as its founder;
• employ at least a director;
• get a taxpayer ID number;
• if he wants to be the director of the company himself, he will additionally need to obtain  a work permit and a residence permit ;
• get a  person (a desired specialist) hired at your company;
• pay taxes through your own effort, submit reports to regulatory authorities and fulfill other obligations that the company will have.

The Client realized that this option was not suitable for him, as he did not want to have any obligations in relation to the management of the company. In fact, he did not want to set up a company, receive additional permits for this, or have other bureaucratic obligations.

It was important for him that his representative could perform specific work in Ukraine and be officially employed.

Related article: Helped to Set Up a Business in Ukraine for a Foreigner Without a Personal Presence

Our actions. Having discussed all the possible options for fulfilling the Client’s order, we decided to set up a company in Ukraine, with our founder and director. After that, we employed the Client’s representative at this company.

How did our solution meet the needs of the Client?

1. Personally, the Client has no obligations in Ukraine, both in relation to the company where his representative works and in relation to the person who works at this company;
2. The Client does not need to worry about tax and other obligations of the company and be personally present in Ukraine;
3. Considering that the founder and director of the company was a citizen of Ukraine, there was no need to receive additionally a taxpayer ID number, a work permit and a residence permit, which saved the Client not only money, but also a large amount of time. Normally, obtaining a  taxpayer ID number, a work permit and a residence permit takes about two months.

The person who was employed at the set-up company also was a citizen of Ukraine.

The result of our work

As a result, in the shortest possible time, we were able to employ the Client's representative at the set-up company, and he (the Client) only pays for the services under the agreement with the set-up company, not having anything to do with either the company itself or its employees.

Our company provided full legal support and further support in the legal and financial sphere of organizing this process.

Regarding the classic “outstaffing” in Ukraine, neither the current legislation nor the judicial practice can give an unambiguous answer about its legality.

Therefore, business entities must ensure compliance with the requirements of the law on “outstaffing” and be prepared to defend their legal position in the courts in disputes that may arise with fiscal authorities.

As for our option for resolving the issue, there is no doubt about its legality. The law allows competent Ukrainian citizens to set up companies, and have these companies employ workers and provide services to individuals and other legal entities, including foreign ones.

If you plan to carry out this kind of business activity in Ukraine, our company can provide legal advice on this issue and offer several options for your business activity.

We have helped companies to start outstaffing business in Kiev, Odessa and other Ukrainian cities, so we are ready to help You! 

View our offer for foreign Clients.