Staff Outsourcing and Taxes in Ukraine: Expenses, VAT and Risks for the Client

The key change: the client doesn't pay payroll taxes

When a company takes on staff through outsourcing or outstaffing, the contractor remains the employer. The contractor signs employment contracts, accrues wages, withholds and remits taxes and files the reports. The client buys a service and pays an invoice under the contract. That is where the main tax consequences — both the benefits and the risk areas — come from.

An important caveat: this article is a general overview of the Tax Code of Ukraine as of 17.10.2026, not tax advice. Agree the specific accounting treatment with your accountant or tax adviser.

Who pays what

The contractor, as employer, accrues and pays on employees' income:

• personal income tax (PIT) — 18% (Art. 167.1 of the Tax Code);
• military levy — 5% (subpara. 1.3, para. 16-1, subsection 10, section XX of the Tax Code);
• the single social contribution (SSC) — 22% on top of wages (Law "On Collection and Accounting of the Single Contribution for Mandatory State Social Insurance").

These payments are built into the price of the service: the client "sees" them in the price but is not the tax agent for the contractor's employees and does not report for them.

The Law "On Employment of the Population" (Art. 39) explicitly requires entities that hire workers to perform work for another employer to accrue and pay SSC for them and to pay wages no lower than the minimum wage and no lower than what the client's own employee earns for the same work. Ask the contractor to confirm these obligations are met.

VAT on the staff supply service

• Rate. If the contractor is a VAT payer, the service is taxed at the standard 20% rate (Art. 193.1(a) of the Tax Code).
• Mandatory registration. A person whose taxable supplies over the last 12 calendar months exceed UAH 1,000,000 in total (excluding VAT) must register as a VAT payer (Art. 181.1). For a contractor with a large workforce this usually means the invoice will include VAT.
• The client's input VAT. The right to input VAT arises if the transaction is real and used in business activity, and the VAT is supported by a tax invoice registered in the Unified Register of Tax Invoices (Art. 198.6). No registered invoice — no input VAT.
• If the contractor is not a VAT payer. Then the price has no VAT and there is no input VAT either. Compare offers in light of your own VAT status.

Separately, the Tax Code mentions the supply of staff, "including where the staff work at the buyer's place of business", in the place-of-supply rules (Art. 186.3(g)). This mostly matters for cross-border contracts — for example, when staff are supplied by a foreign company.

Accounting for outsourcing expenses

For corporate income tax payers, the tax base is derived from the pre-tax financial result under accounting rules, with the adjustments set by the Tax Code. Expenses on staff supply services used in business activity are recognised on the basis of primary documents. What to keep on file:

• a contract with a clear subject: what service, at which site, how volume and price are determined;
• monthly acceptance certificates with a breakdown (number of workers, hours or shifts, rates);
• timesheets or other documents confirming that the staff actually worked;
• invoices and registered tax invoices (for VAT).

The better the documents reflect the real substance of the transaction, the easier it is to defend both the expenses and the input VAT in an audit.

Risks to know about in advance

Substance of the transaction. In outstaffing tax disputes, auditors often check whether the service was actually provided: are the workers on the contractor's payroll, do volumes match the timesheets, was the client's own staff simply moved "on paper" to another company? More on structuring a staff transfer in our article on outstaffing without legal risks.

Restrictions in Article 39 of the Law "On Employment of the Population". The law prohibits sending workers to an employer that has cut headcount within the past year, does not meet the headcount standard for core occupations, or uses them for work in harmful, hazardous or arduous conditions, or for core occupations in the main production process. Review these conditions with a lawyer before signing.

Signs of an employment relationship. If the client effectively manages the workers as its own (orders, disciplinary action, direct payments), this can become an argument for requalification. Separate management functions clearly in the contract.

Checklist for the accountant before signing

1. Check the contractor's status: registration, VAT payer or not, no tax debt.
2. Agree the format of acceptance certificates and their annexes.
3. Put the contractor's duty to register tax invoices on time into the contract.
4. Include the right to request proof that wages and SSC have been paid.
5. Have a lawyer confirm compliance with Article 39 of the Law "On Employment of the Population".

For what else must be in the contract, see our article on the staff outsourcing contract; for a comparison of models, read outsourcing, outstaffing or staff leasing.

How ASHA Ukraine handles it

ASHA Ukraine provides staff outsourcing and outstaffing with a transparent structure: a contract, monthly acceptance certificates with a breakdown and the documents your accounting team needs. We recommend confirming the specific tax consequences for your company with your accountant.

Sources: Tax Code of Ukraine (Arts. 167, 181, 186, 193, 198; para. 16-1, subsection 10, section XX); Law of Ukraine "On Employment of the Population", Art. 39; Law of Ukraine "On Collection and Accounting of the Single Contribution for Mandatory State Social Insurance". Checked as of 17.10.2026.