To work or not to work – peculiarities of Ukrainian labour and immigration legislation

Julia Kadibash, Manager, Tax and Legal Services
Olga Tauzhnianska, Consultant, Tax and Legal Services
/Ukrainian Journal of Business Law, January 2009/

How easily can foreign nationals enter and settle in Ukraine to advance their career...or visit Ukraine to market a product and look for new clients... ...or start and promote a business in the local market? Generally, cross border rules, local registration and labour legislation requirements in Ukraine are not straightforward to comply with. Nevertheless, with the right knowledge and assistance they are manageable and it is possible to live with them and be in full compliance.

In light of the current economic situation and rapid changes in the labour market in Ukraine, this article will touch on some issues related to Ukrainian labour and immigration requirements for foreign nationals “working” in Ukraine.

What you should know about Ukrainian labour laws

Employment regulations in Ukraine are contained mainly in the Labour Code of Ukraine (the Labour Code) and apply both to Ukrainian and foreign nationals. The Labour Code is based on the Soviet labour code model and, historically, is more supportive of employees rather than employers. There has been talk of amending this Code, but in the current political environment this is unlikely. Below is a brief synopsis of issues that are of interest for foreigners planning to work in Ukraine.

Generally, a Ukrainian company is free to define the number of its staff (Ukrainian and/or foreign individuals) and the qualifications required from them. Importantly, the number of foreign employees working for a foreign company’s representative office in Ukraine must be predetermined in its official registration application (this number would then be indicated in the registration certificate).

Employment relations are regulated through an employment agreement (temporary or permanent). Under the law, an employment agreement may be concluded either in written or verbal form. Based on other legislation regulating obtaining a work permit, it seems that a written agreement is compulsory for a foreign national. The parties are free to stipulate various contractual obligations. However, an employment agreement may not impose on the employee any additional obligations not envisaged by the Labour Code. In the same manner, the employee may not contractually waive rights granted by law.

An employment contract is a special type of employment agreement that a company may conclude with certain employees (the list is provided by the Labour Code). However, in some cases the law expressly requires the execution of an employment contract (e.g. with the Director). An employment contract is executed only for a definite period of time and must be in written form. The parties may stipulate additional job duties and conditions that exceed the employees’ duties under the legislation, as well as other agreed circumstances. Notwithstanding the above, an employment contract cannot overrule the provisions of the Labour Code.

In order to identify whether a newly hired individual satisfies a company’s requirements, a probation period of up to three months may be established. This norm also applies to foreign employees. During the probationary period, the employer may terminate employment with one-day's notice.

According to the current legislation, an employee's salary should be based on his/her professional skills, education and results. It is strictly prohibited for salaries to differentiate based on race, nationality or gender.

Normally, there is a 40-hour / 5-days working week in Ukraine, although different working times may be established in some cases (e.g., a 6-day working week, etc.). All hours worked that exceed the 40-hour limit are considered overtime work and should be compensated with double pay.

If the company would like or is forced by the current economic situation to terminate an employment agreement, it should notify the involved employee at least two months in advance. Moreover, the Labour Code provides a strict list of grounds for when employment relations may be terminated at the Employer's initiative. Among these are:

• Restructuring or liquidation of the company;
• Systematic violations of an employee's obligations stipulated in an employment agreement or in the internal regulations of the company;
• Absence at the workplace of more than three hours during a working day without a valid reason; and
• Presence at the workplace in the state of alcoholic or narcotic intoxication, etc.

There are two additional grounds for dismissing a company’s top management:

• One-time severe violation of work duties.; and
• Mistrustful actions with corporate finances or property.

If a foreign national is going to be employed by a Ukrainian Company (including cases when a foreign General Director/Director is appointed to manage a Ukrainian Company), the employer must obtain a work permit for him/her.

First step – work permit

The labour legislation has not been amended for a long period. While it was thought that Ukraine's membership in the WTO would bring significant changes, there are still different interpretations of the rules and no clear guidelines.

According to the labour legislation, the procedure for legal employment has to be the same in respect of all foreign individuals planning to work in the territory of Ukraine. However, in practice and further to clarifications issued by the Employment Authority, there are several procedures currently in place for different types of organizations.

For Ukrainian legal entities, this procedure is called “obtaining a Ukrainian work permit”; for representative offices of foreign companies – “accreditation with the Ministry of Economy of Ukraine (MEU)” (for which a special “service card” valid for up to three years is issued to each foreign national assigned to work in the representative office).

For foreign nationals arriving in Ukraine to work at the representative offices of banks, the official procedure is murky. According to the recently amended legislation, representative offices of banks should be registered with the National Bank of Ukraine (NBU) instead of the MEU. Yet, there is no legislation concerning the procedure of accrediting a foreign national with the NBU. So, what should such individuals do - get a work permit or obtain some other type of accreditation card? Unfortunately, at the moment no state authority is prepared to give a clear answer.

According to the Rules for obtaining work permits Resolution № 2028 of the Cabinet of Ministers of Ukraine “On obtaining work permits in Ukraine for foreign nationals and persons without citizenship” dated 1 November 1999., foreign nationals employed in Ukraine or arriving for fulfilment of foreign economic agreements are required to have a Ukrainian work permit. It is the obligation of the Ukrainian company to obtain the work permit before the foreign individual starts working in Ukraine. Moreover, the current position of the employment authorities is that a foreign national taking a position within a Ukrainian Company should be legally employed with this company and must receive his/her salary in Ukraine.

Obtaining a Ukrainian work permit requires a lot from the Ukrainian company, including contact with the employment authorities, local tax authorities and collecting and submitting 10-12 documents. As a result of these efforts, a work permit valid for up to one year will be obtained.

The procedure of accreditation with the MEU and obtaining the “service card” is much simpler and does not require as many documents.

So, one might ask is it beneficial to work in a representative office and have a “service card” for a three year period, rather than a real work permit requiring annual prolongation?

We will not find the answer until the labour legislation is amended in accordance with WTO norms. According to the plans claimed by the Ukrainian authorities, when these changes take place, foreign nationals will be able to obtain work permits valid for up to five years. Generally, even according to the current legislation, work permits for some categories of foreign nationals assigned to work in Ukraine (e.g., corporate cessionaries) may be issued for the duration of their employment in Ukraine, i.e., more than one year. But, in practice PricewaterhouseCoopers is not aware of any cases when the employment authorities have issued a long-term work permit.

Obtaining a work permit is the first step for foreign nationals to start successfully working in Ukraine. The major hurdles are obtaining the proper visa for entering Ukraine and all other required permits to legally remain in the country while employed.

Are you compliant with visa regulations?

The requirements regarding entering Ukraine depend on two main factors:

• Foreign nationals country of citizenship; and
• Reason for entering and staying in Ukraine.

A few years ago the Ukrainian legislation regarding foreigners entering Ukraine was amended, allowing citizens of the US, EU countries, Japan, Switzerland and some other countries to enter Ukraine for short-term stays without visas. However, the aim of these changes was to simplify the procedure for tourists and promote Ukraine as an interesting country to visit. For working purposes, every foreign employee should enter Ukraine with the proper visa.

There are two types of such visas that can be obtained:

• Work visa (IM-1) – is issued to individuals who will be temporarily employed in Ukraine with a local entity. This visa may be issued only based on the original of the Ukrainian work permit provided to the Ukrainian Embassy/Consulate abroad. It is a single-entry visa and is usually issued for one year or the period of the work permit’s validity.
• Business visa (Б) – is issued to individuals entering Ukraine as founders of joint entities or representing foreign companies for controlling the performance of contracts or consultants from foreign companies, as well as for personnel of a foreign company’s representative office in Ukraine. This visa is issued based on an invitation from a Ukrainian inviting party, though in some cases without the invitation (e.g., for citizens of the US and EU countries). It may be single, double or multiple entry and its duration cannot exceed one year.

There are other types of visas that should be issued to family members (e.g., T, P-1, P-2, etc.). According to the legislation, work and business visas may only be issued for working purposes, but for Ukrainian consulates, this is not a “problem” at all. There have been cases where business visas were issued for persons accompanying expatriates (e.g. family members, including young children). Please note that the list of documents you will be asked to provide to the Ukrainian consulate for getting a Ukrainian visa may differ from country to country.

Registration rules – do you expect further complications?

The most "interesting" part of a long- term visit to Ukraine is registration with the immigration authorities (Ukrainian abbreviation - VGIRFO). According to the legislation, the procedure is simple, but in practice it is more like a game: Do what we want and we will provide the document you need.

Every foreign national planning to stay in Ukraine for more than 90 days during any consecutive 180-day period needs to be registered with the immigration authorities. According to the rules of entering Ukraine Resolution of the Cabinet of Ministers of Ukraine №1074 "On rules for foreign nationals entering, exiting and transiting through the territory of Ukraine" dated 29 December 1995., a foreign national's stay, which is more than the short-term stay allowed by the legislation, requires registration with the VGIRFO or obtaining a temporary residence permit (TRP).

A TRP is issued by the VGIRFO to locally employed foreign individuals. The primary grounds for a TRP are the work permit, work visa (IM-1) and documents confirming an individual's place of residence in Ukraine. However, the list of the registration application requirements contains 17 other mandatory documents and medical certificates. A TRP is issued by the VGIRFO for the period of a work permit's validity.

Registration applies to persons entering Ukraine using other types of visas (including business visas). Registration may be obtained for up to one year, but not longer than the visa's duration, and requires documents confirming the place of residence in Ukraine.

To avoid violating the legislation, the following terms apply for VGIRFO registration/TRPs:

• Citizens of countries with visa-free regimes need to be registered by the end of a period of 90 days (cumulatively) in Ukraine during the last 180 days.
• Citizens of countries with visa regimes may stay in Ukraine before starting the process with the VGIRFO for a period of not more than 90 days from the date of entering Ukraine.
• Citizens of WTO-member countries are obliged to start the registration process before the end of a 180–day period during the year. Thus, nationals from WTO–member countries have the longest period to avoid visiting the VGIRFO.

In practice, the period of the stay without registration may be shorter, as many people need to present registration documents confirming their legal grounds for living and working in Ukraine to their banks or to receive shipped items from the customs authorities.

Navigating this process with the VGIRFO is rather complicated and long, as individuals need to submit several documents with very short validity periods along with the original of their passports to the VGIRFO. One's passport may be kept for up to ten working days in the VGIRFO during the registration process and for the TRP procedure it may be kept for up to three months, but in practice the actual period is shorter. Registration is not as complicated as the TRP process, but in both cases patience is essential when preparing all required documents.

Recent updates to the rules

Periodically the legislation concerning registration and TRPs is amended, and the authorities issue updates. The most recent updates to the legislation took place in 2007, but actually came into force only in December 2008. A new electronic entry/exit control database tracking all violations of immigration and visa rules is now operational, and in use when crossing the border. Thus, foreign nationals must plan their stays in Ukraine wisely as violations will be strictly pursued and punished. The penalty is up to UAH 3,400 for each individual and in addition may include a restriction from entering Ukraine for up to 5 years. An individual may be turned away at the border without prior notice.