Publication

Payment of unified social contribution by technical assistance projects needs streamlining in Ukraine

12/02/2025

Roman Riabenko

Senior Associate, Attorney-at-Law

PPP and Procurement,
Real Estate and Construction,
Transport and Infrastructure

Vitalii Meliankov

Senior Associate

Data Protection and Product Compliance ,
IT,
Labour and Employment

Vladyslav Ivanov

Associate

Data Protection and Product Compliance ,
IT,
Labour and Employment

Daryna Liudvyk

Junior Associate

Corporate and M&A,
Real Estate and Construction,
Transport and Infrastructure

The number of international technical assistance projects in Ukraine has increased more than by half during 2024. The number of organisations that implement them has also increased dramatically with an increase in their staff in Ukraine.

Per the records about the projects published on the government’s website in December, more than half of the implementers are situated or hold dedicated units in Ukraine. Those include Ukrainian manufacturers, research and educational institutions, non-governmental organisations, state and municipal authorities, as well as foreign and international organisations that opened offices in the territory of Ukraine. Other foreign legal entities implement projects jointly with local legal entities, either controlled or independent, including through entering consortiums when that may be necessary per the task’s technical requirements, or they carry the activities out on their own.

The ability to operate directly is specific to this sort of activity. A foreign entity may operate as an implementer of an international technical assistance project in the territory of Ukraine immediately after the project’s registration and the implementer’s accreditation in the Secretariat of Cabinet of Ministers of Ukraine. It includes opening bank accounts, staff employment, obtaining vehicle registration plates, etc. In other words, the fastest possible receipt of assistance in Ukraine is controlled and ensured at the governmental level by accreditation of a foreign entity directly to operate in Ukraine for project implementation without incorporation and registration of another legal entity or an office. For automation of that process, the government has adopted the Procedure for Maintenance of Register of Projects (Programs) of International Technical Assistance by Resolution dated 11 October 2024 No. 1163 which should further speed it up.

The implementer which is a foreign entity is unburdened with formalities imposed on local entities and dedicated offices, such as bookkeeping or tax reporting and disclosure of the ownership structure in Ukraine.  This is reasonable since the aid is not aimed at profit, the implementers are selected by the development partners, and the supply of goods and services is relieved from value-added tax under respective international agreements.

This does not exclude other formalities for certain activities. For instance, to notify the tax authorities about account opening, the bank requires the tax number of the implementer, which is subsequently used for identification in transactions and control over the application of tax exemptions. Thus, implementers that are foreign entities have to apply for tax registration due to the lack of information exchange between systems similar to the exchange existing for Ukrainian legal entities as well as, after the amendments in 2024, for offices of foreign entities.

The issue of performance of employer obligations becomes more pressing. In particular, the laws of Ukraine oblige the employer to pay the unified social contribution, individual income tax, and military contribution. However, the regulatory conditions provide implementers with no opportunity to pay the unified social contribution directly. The practice developed alternative solutions, each having substantial drawbacks in comparison to direct payment of the unified social contribution. We describe the particularities of such solutions in detail in the table.

In 2019, the Ministry of Finance of Ukraine tried to solve this problem by adopting a new application form for registration of a unified social contribution payer, which included the implementers of international technical assistance as an option with a reference to paragraph 6 of clause 1 of part 1 of Article 4 of the Law of Ukraine "On payment and accounting of unified contribution for compulsory state social insurance" No. 2464-VI dated 08 July 2010. However, the tax authorities strongly disagree with that approach and refuse to register the implementers as unified social contribution payers because the effective Article 4 of that law, which determines employers for the purposes of payment of the unified social contribution as well as other payers of the unified social contribution, does not mention the implementers of international technical assistance, in particular those which were incorporated under the laws of other states and has no registered offices in Ukraine.

An amendment of the mentioned article of the Law could become an appropriate solution, which could extend the list with a separate clause, such as: "implementers of international technical assistance projects in case of them employing insured individuals in the territory of Ukraine".

Because the respective payments are financed from the funds of international technical assistance as expenses anyway, that solution, from a practical perspective, would not impose on implementers which are foreign entities new obligations but would significantly simplify the implementation of international technical assistance projects in Ukraine, including the payment of unified social contribution and the reservation of employees from military service, as well as simplify the ensuring of the rights of the employees, in particular as insured individuals.

Alternatives to direct employment Disadvantages Other particularities
Engagement by the project implementer of persons registered as individual entrepreneurs in Ukraine as contractors and performers under civil agreements on the performance of works or provision of services.
  • Lack of labour guarantees under labour laws, such as vacations, sick leave, bonuses, and any employee benefits, since the relationship is not employment.
  • The contractor’s independence does not allow such contractor’s subordination to internal labour rules in a way similar to labour relations.
  • Risk of re-qualification as employment relations in case of granting guarantees or exercising control over the activities of the contractor in a way similar to employment relations. Consequences: a fine (UAH 80 000 for the first violation) and an obligation to pay taxes and fees for the whole period of unduly formalised employment relations.
  • Impossibility to reserve from military service individual entrepreneurs who are liable for military service.
  • Direct relations without other entities’ engagement, including for calculation and performance of payments.
  • Entrepreneur’s independence, in particular, full responsibility for services being rendered and independent payment of taxes and fees by the individual.
Engagement through outstaffing agencies’ services, which formally enter into labour relations with employees at the expense of and in the interests of a project.
  • Extra expenses on outstaffing agencies’ fees, which reduce the funds available for project implementation and employment remuneration.
  • Non-disclosure, non-compete, non-solicitation, confidentiality, intellectual property co-authorship, and restrictions on direct relations with employees are inconvenient conditions that often burden the agencies’ services.
  • Intervention by the agency as the formal employer into employment matters, in particular, vacations and severance pay.
  • Impossibility of reserving from military service the employees who are liable for military service when the agency is not recognised as critically important.
  • Labour benefits and guarantees for the employee.
  • Legal liability of the agency for compliance with labour laws.
Direct employment relations with delegation of payroll and payment processing to the Directorate General for Rendering Services to Diplomatic Missions (GDIP).
  • Perception of the agency as the employer, in particular in case of liability of the employer, because of it performing payments and reporting. This deters the agency from facilitating employee engagement.
  • Intervention by the agency as the formal employer into employment matters, in particular, vacations and severance pay.
  • It fails to scale because such services are currently only provided by GDIP.
  • Labour benefits and guarantees for the employee.
  • Direct employment relations allow reservation from military service of employees liable for military service.

Authors: Roman Riabenko, Vitalii Meliankov, Vladyslav Ivanov, Daryna Liudvyk

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