Kompas

Branches and representative offices (hereinafter “representative offices”) of foreign legal entities and Ukrainian legal entities may engage foreign personnel in their activities.

1. Employing Foreigners to Work with a Representative Office

In accordance with the Law on Employment (Art. 42), the following categories of employees can work without a work permit:

• Foreign citizens permanently residing in Ukraine
• Employees of foreign representative offices that are registered in the territory of Ukraine as required by law
• Foreign citizens who have arrived in Ukraine to participate in the implementation of international technical assistance projects

To engage foreign citizens for work, you must comply with the following procedure:

1. Obtain a Type D visa (long-term visa)
2. Obtain a temporary residence permit from the Migration Service

A long-term visa is issued to foreign citizens to enter Ukraine for the purpose of processing documents granting the right to stay or reside in Ukraine for a period exceeding 90 days. To obtain a temporary residence permit and visa, you must provide an invitation from the representative office and a document certifying that the representative office is accredited in Ukraine. Foreigners who arrive in Ukraine to work with a representative office and receive a temporary residence permit have legal grounds to reside in Ukraine.

An employee of a representative office who receives income in Ukraine must have a tax number assigned. Only foreigners with diplomatic privileges or certain religious convictions are exempt from obtaining a tax number. The procedure for obtaining a tax number is straightforward, and they can typically receive it within approximately one week.

Foreign employees can work with the representative office based on an employment contract concluded with either the head office or the representative office. When working under an employment contract with the representative office, a foreign employee is subject to all the rights and obligations granted to an employee who is a citizen of Ukraine.

1. Employment of Foreign Citizens with a Ukrainian Legal Entity

The grounds for the stay of foreigners and stateless persons in Ukraine are defined in Article 4 of the Law of Ukraine “On the Legal Status of Foreigners and Stateless Persons” (hereinafter “Law on Foreigners”). Foreigners who arrive in Ukraine for employment, receive a permit from the State Labor Service for the employment of foreigners, and obtain a temporary residence permit are considered legally residing in Ukraine for the period of their employment.

Before obtaining a residence permit for employment with a Ukrainian legal entity, a foreigner must receive a Type D visa. The basis for issuing a temporary residence permit for employment includes the application of the foreigner, a valid health insurance policy, a permit for the employment of foreigners, and the employer’s obligation to notify the Central Executive Authority about the early termination or cancellation of the employment contract.

Taxation of Income of Non-Residents Under a Contract with the Head Office

If a foreign employee is under contract with the head office and performs tasks “on-site” or during a business trip in Ukraine for less than 183 days, and receives wages from the head office (not through the representative office in Ukraine), the wages are taxed in the country where the head office is registered. The foreign employee does not acquire the status of a tax resident of Ukraine and is not required to submit an annual tax return in Ukraine.

If a non-resident becomes a tax resident of Ukraine by staying for more than 183 days in a tax year, they must submit an annual tax return indicating income from Ukrainian and foreign sources. The non-resident must independently pay the amount of the tax liability specified in the tax return. In this case, the representative office will not be a tax agent for the non-resident individual.

All health insurance and travel expenses must be borne by the head office. If these expenses are covered by the branch, they become taxable at 18% personal income tax and 1.5% military tax.

Taxation of Income of a Foreign Employee Working Under a Contract with the Representative Office in Ukraine

The peculiarities of regulating labor relations of foreigners and stateless persons working in Ukraine are defined in Article 54 of the Law on Private International Law. Labor relations of foreigners and stateless persons working in Ukraine are not regulated by Ukrainian law if:

• They work in diplomatic missions of foreign states or representative offices of international organizations in Ukraine, unless otherwise provided by an international treaty of Ukraine
• They have concluded employment contracts with foreign employers outside Ukraine to perform work in Ukraine, unless otherwise provided by treaties or international agreements of Ukraine

At the conclusion of an employment contract between the representative office in Ukraine/Ukrainian legal entity and a foreign employee, such labor relations will be formalized and regulated in accordance with Ukrainian labor legislation. Personal income tax is 18% and is deducted from the employee’s income.

Taxation of personal income of both residents and non-residents is regulated by Section IV of the Tax Code of Ukraine. According to subclause 162.1.2, a payer of personal income tax includes a non-resident individual who receives income from sources within Ukraine. Income originating from Ukraine (subclause 14.1.54 of the Tax Code) includes any income received by resident or non-resident individuals, including payments and remuneration by foreign employers.

A non-resident individual who receives income originating from Ukraine and enjoys diplomatic privileges and immunity established by an international agreement of Ukraine (clause 162.2 of the Tax Code) is not regarded as a taxpayer. According to subclause 170.10 of the Tax Code of Ukraine, income originating from Ukraine that is accrued (paid, granted) to non-residents is taxed according to the rules and rates established for Ukrainian residents.

Unified Social Tax – 22%

Foreign nationals working in representative offices of foreign companies located in Ukraine are not required to pay the unified social tax under Ukrainian law and are not subject to compulsory state social insurance. No unified social tax is charged or withheld from the salaries of non-resident individuals by branches/representative offices of foreign countries located in Ukraine.

Military Tax – 1.5%

The military tax is deducted from the employee’s income. According to clause 161 of subsection 10 of Section XX of the Code, payers of the tax include persons determined by clause 162.1 of Article 162 of the Tax Code, namely a resident or non-resident individual receiving income from sources within Ukraine. The taxable item for the military tax includes wages, additional benefits, and other income accrued to individuals, including non-residents. The taxable item for a non-resident is their total monthly (annual) taxable income from sources within Ukraine, which is finally taxed at its accrual (payment, provision) (Article 163 of the Code).