Ukraine, the second-largest country by area in Europe after Russia, shares borders with Belarus, Poland, Slovakia, Hungary, Romania and Moldova. At war with Russia since 2014 and with tensions increasing dramatically since Russia’s invasion in February 2022, Ukraine has faced harsh economic challenges such as high levels of public debt, large budget deficits, high inflation, infrastructure damage and trade disruptions. Resilient and forward-looking, the country is implementing aggressive economic and structural reforms aimed at improving the business environment, creating jobs and attracting investment from multinational companies (MNCs).
- Prior to the war, Ukraine enjoyed a relatively stable political and economic environment. It is a member of the European Union’s Deep and Comprehensive Free Trade Area, which sets common trade regulations and presents additional investment opportunities for MNCs.
- Ukraine is home to a large, highly-educated population, with a high percentage of the workforce holding degrees in desirable fields such as engineering, computer science, and mathematics. Additionally, many Ukrainians speak English and other languages, which makes the integration of cross-border teams easier. Labor costs are also lower than in most other European countries.
- The median age in Ukraine is around 39 years old, according to the United Nations, which is lower than the median age in most developed countries. This young population of digital natives is both an attractive consumer and labor market.
- The country is a hotbed for key industry sectors, including manufacturing, agritech, robotics, blockchain, cybersecurity, gaming and more. Ukraine’s IT industry is well established and is advancing the country’s reputation as an outsourcing destination for software development and other technology-related services.
- Ukraine has a growing number of startups and innovation-focused companies developing new products and services across a range of industries, especially IT, agritech, healthcare and energy. Among lower middle-income economies, the country ranks fourth in the world for innovation.
Does Ukraine have a complex business environment?
Companies operating in Ukraine must be aware of the various laws and regulations that apply to their business. However, business laws and the general landscape in Ukraine can be complex and are subject to changes – especially as the ongoing war with Russia challenges and reshapes the country’s economy. For example, new legislation implemented in 2023 introduced obligations for employers when it comes to maintaining military records for employees.
While the tax system in Ukraine is undergoing a series of gradual reforms and simplification, it can still be challenging for foreign businesses to understand and follow. Compliance with various industry-specific regulations is also important for companies operating in Ukraine. For example, companies in certain sectors, such as healthcare or finance, need to observe specific operating regulations and obtain necessary licenses.
In particular, companies must follow the various laws and regulations that apply to their employees – including those related to hiring, termination and compensation. There are also several laws that regulate how companies employ foreign nationals in Ukraine.
What are some of the challenges of setting up a business in Ukraine?
The process of registering a business in Ukraine is known for being time-consuming, with a series of forms and processes to complete. Companies must also obtain various licenses and permits, such as those related to taxes, employment and workplace safety.
The Russo-Ukrainian War has triggered unprecedented difficulties and lengthy delays for these processes, which can be challenging for any MNC looking to expand or hire in Ukraine.
Furthermore, even when a business is established, the company will be tasked with regulations for reporting, taxation and employment.
How are labor laws determined in Ukraine?
Ukrainian Labor Law has inherited a significant number of concepts and approaches stemming from the Soviet era. Notably, the country’s labor framework has remained highly employee-centric.
Relations in the field of employment are governed by the Labor Code of Ukraine, the Law of Ukraine on General Compulsory State Social Insurance Against Unemployment and other legislative acts.
There are a number of government agencies responsible for supervising and controlling labor law compliance, including the Ministry of Social Policy of Ukraine, the State Labor Service and the Ministry of Health Protection.
How do employment contracts work in Ukraine?
An employment relationship is formally established through an employment agreement.
The Labor Code states employment agreements should generally be concluded in writing and signed in hard copies. If these terms are not met, the contract will not be considered relevant.
The agreement must include the terms of employment, such as the job title and position, description of work duties and remuneration. It also outlines the obligation of the employer to ensure adequate and safe working conditions.
Employment agreements in Ukraine are generally for an indefinite term. Even though Ukrainian labor law allows for fixed-term employment agreements, these should be only for work that is of limited duration (e.g. it is possible to determine the last day of employment).
The law requires all official documents that certify a citizen’s identity and legal status to be issued in Ukrainian. In practice, Ukrainian subsidiaries of multinational companies often prepare and approve bilingual documents.
Are probation periods allowed in Ukraine?
A probation period cannot exceed one month for blue-collar employees or three months for other employees. The probationary period can be up to six months for some employees (e.g. state officials).
The duration of the probation period does not include the days when an employee does not work, irrespective of the reasons.
The terms of the probation period must be stated in the employment agreement. During this time, the employer can dismiss a non-performing employee by stating the performance is not satisfactory.
A dismissal notice should be issued three days in advance to an employee on probation. However, an employee is not required to give any notice if he or she resigns during the probation period.
What are the regulations around termination?
Parties may terminate employment only in the circumstances listed in the Labor Code.
- termination upon agreement of the parties
- expiration of a fixed-term agreement
- at the employee’s will (with two weeks’ notice)
Grounds arising from the employer’s initiative include:
- employee’s failure or inability to fulfill employment duties
- insufficient qualifications
- deteriorating health conditions
- disciplinary violations
Ukrainian law prohibits the dismissal of certain categories of employees. This includes pregnant women and women with children under 3 or under 6 for children with medical conditions, as well as single mothers who have disabled children or children under 14.
Why are many MNCs choosing to engage an Employer of Record (EOR) partner for hiring in Ukraine?
The World Bank’s most recent “Doing Business” report ranks Ukraine 64th out of 190 countries globally in terms of ease of doing business. While this represents an improvement from previous years, MNCs still face challenges such as bureaucratic delays and language barriers.
The Russo-Ukraine War has also made business operations increasingly difficult in Ukraine. In particular, the war has posed difficulties for MNCs wanting to set up shop and expand into the country. At the same time, despite unprecedented challenges, the economy of Ukraine has shown resilience and there are key sectors ripe for investment and hiring.
While establishing and managing a foreign-owned entity can be difficult in Ukraine, it is a requirement for directly employing workers. By partnering with a local EOR, such as GoGlobal, the MNC can avoid the pitfalls of setting up a legal entity and administering cross-border payroll.
When the right EOR partner is by their side, companies can test market potential, deploy sales teams and focus on core business development in Ukraine – all with controlled risk.
What makes the GoGlobal hiring experience different?
Our goal at GoGlobal is to infuse the global hiring experience with agility, speed and peace of mind for our clients. At the same time, client-workers enjoy an outstanding employee experience that ensures they can focus on their core duties and grow professionally. We work with them in their time zone and in their language.
Before we onboard the worker, our local team on the ground in Ukraine will meet one-on-one with him or her to go over how the EOR arrangement works. Our dedicated team stays on board to help both the client and the client-worker throughout the arrangement. We’re here whenever a question comes up pertaining to payroll, taxation or benefits.
Companies expanding and hiring in Ukraine may choose to enhance GoGlobal’s EOR solutions with our Recruit & Hire solution, which covers talent sourcing, onboarding, benefits and offboarding. This innovative offering can help companies hire hard-to-fill roles, such as technology, sales and client services.
With our proven expertise in local requirements and business culture, we are committed to helping our clients grow in Ukraine with quick, compliant and superior solutions.