How to pay and manage Ukrainian contractors: A practical guide
Complete guide to paying contractors in Ukraine: Wise vs PayPal fees, tax requirements, currency considerations (USD vs UAH), and contractor management tools.
If you're paying independent contractors in Ukraine, you need to handle payment, understand currency preferences, and manage the contractor relationship effectively. The payment part is straightforward once you know the right method. The compliance part—understanding FOP status, currency considerations, and proper contractor classification—is where most foreign businesses struggle.
This guide walks through what you actually need to do. Then we'll show you where Kontrable helps organize the work.
The main things you need to do
1. Use Wise for payments. It's the cheapest and most reliable way to pay Ukrainian contractors. Wise costs $3-8 per transfer with real mid-market exchange rates. PayPal costs $5-12 and has worse exchange rates. Traditional bank transfers cost $15-40 and take 3-7 days. Use Wise.
2. Ask about currency preference. Most Ukrainian contractors prefer USD or EUR for stability and international purchasing power. The Ukrainian hryvnia (UAH) can fluctuate. Always ask the contractor which currency they prefer before setting up payments.
3. Use a written contract. Document the contractor relationship with a clear service agreement covering scope, deliverables, payment terms, currency, IP ownership, confidentiality, and explicit statement that they're an independent contractor.
4. Understand FOP status. Many Ukrainian contractors operate as FOPs (ФОП - individual entrepreneurs), which gives them simplified taxation (often 5% tax rate for IT services). You don't need to verify this, but it's useful context for understanding how they structure their business.
5. Keep payment records. Maintain documentation of all payments made. As a foreign company, you typically don't withhold Ukrainian taxes, but you need records for your own country's tax compliance.
That's the foundation. Everything else builds on these five things.
Payment methods: What actually works
For paying Ukrainian contractors:
Use Wise. It's the cheapest, fastest, and most transparent way to pay contractors in Ukraine.
Why Wise is best: It charges $3-8 per transfer with real mid-market exchange rates—no markup. PayPal charges $5-12 and has worse exchange rates. Traditional bank transfers cost $15-40 and take 3-7 days. For regular payments, Wise saves you money and time.
How to set up: Create a Wise business account (free). Get the contractor's bank details or Wise account. Send USD or EUR to their account. Wise converts at mid-market rate if needed. The contractor receives money in 1-2 business days.
What about PayPal?
PayPal is widely accepted in Ukraine and offers instant transfers, but it charges $5-12 per transaction with worse exchange rates than Wise. For small one-time payments or if the contractor specifically prefers it, PayPal works. For regular payments, use Wise.
What about Payoneer?
Payoneer is popular with Ukrainian freelancers and charges $5-10 per transfer with 1-3 day delivery. It's useful if the contractor already has an account and prefers it. But Wise is still cheaper and faster.
What about cryptocurrency?
Some Ukrainian contractors prefer crypto (especially stablecoins like USDC) for speed and tech flexibility. It offers minutes-to-hours settlement and appeals to tech-savvy contractors. However, Wise and PayPal are more mainstream and easier for most contractors. Only use crypto if the contractor specifically requests it.
What about traditional bank transfers?
Avoid them. They cost $15-40 per transaction and take 3-7 days. Use Wise or PayPal instead.
Currency: USD, EUR, or UAH?
Most Ukrainian contractors prefer USD or EUR for stability and international purchasing power. The Ukrainian hryvnia (UAH) can fluctuate, and contractors want certainty on what they're earning.
Tech workers especially prefer USD or EUR because they're paid by international clients and need stability. If the contractor works with multiple international clients, they almost certainly prefer hard currency.
Always ask your contractor which currency they prefer before setting up payments. Some may prefer UAH if they have local expenses or operations, but this is uncommon. If they're flexible, USD is often simpler for international transfers.
Understanding FOP status (ФОП)
Many Ukrainian contractors operate as FOPs (individual entrepreneurs, ФОП in Ukrainian). This is Ukraine's equivalent of sole proprietorship or self-employment status.
FOP status gives contractors simplified taxation—IT contractors often get a 5% tax rate on their income, which is favorable. This is why many contractors register as FOPs. You don't need to do anything about this—it's the contractor's business structure. But it's useful to understand when discussing rates and arrangements. A contractor operating as FOP has already handled their tax registration and compliance.
The contractor is responsible for their own FOP status and tax compliance. Your responsibility is just to ensure you have a written agreement and keep payment records.
Tax and compliance requirements
When hiring contractors in Ukraine, tax obligations are straightforward: the contractor is responsible for their own taxes. You don't withhold taxes or file anything with Ukrainian tax authorities.
Your responsibilities: Have a clear written service contract. Keep documentation of all payments. Don't withhold Ukrainian taxes. Ensure true contractor relationship (they control how work is done, use their own tools, work for multiple clients).
Contractor's responsibilities: Handle their own tax compliance. Register as FOP or another business structure if needed. File tax returns as required by Ukrainian law.
Important note: As a foreign company paying a Ukrainian contractor, you typically don't have tax withholding obligations in Ukraine. The contractor handles their own tax compliance. Consult with a tax professional in your country about reporting requirements in your jurisdiction.
Contractor vs employee classification
One mistake businesses make is treating contractors like employees. Ukraine has labor laws that distinguish between the two, and misclassification can create legal risk.
A proper independent contractor relationship means they control how work is done, use their own tools and equipment, work for multiple clients, and are engaged on a project basis with defined deliverables. They shouldn't have set working hours, provided equipment, exclusive work requirements, or ongoing employment-like arrangements.
Document the relationship carefully with a written contract that explicitly states independent contractor status.
Why hire Ukrainian contractors?
Ukraine has become a major tech outsourcing hub with excellent advantages. The country has highly skilled engineering and technical talent—strong developers, designers, and IT professionals. Rates are 40-60% lower than Western Europe or US while maintaining quality. Time zone overlap with European business hours (EET/EEST is UTC+2/+3) is excellent for collaboration. Many tech workers speak English fluently. The workforce is dedicated and reliable. Ukraine has a thriving IT industry with modern development practices and strong technical culture.
Common mistakes and how to avoid them
Mistake 1: Not asking currency preference. You assume UAH is fine, but the contractor wants USD or EUR for stability. They're frustrated because you're not protecting their earnings from currency fluctuation.
Solution: Always ask which currency they prefer before setting up payments. Most tech contractors prefer USD or EUR.
Mistake 2: Using expensive bank transfers. Traditional international wire transfers cost $15-40 per transaction with poor exchange rates. Over a year, paying a single contractor, this costs thousands extra.
Solution: Use Wise ($3-8) or PayPal ($5-12). You save 60-80% on transfer fees.
Mistake 3: No written contract. Verbal agreements lead to disputes about scope, deliverables, and payment terms. Without documentation, there's no clarity when disagreements arise.
Solution: Always have a written service agreement before starting work. Cover scope, deliverables, payment terms, currency, IP ownership, confidentiality, and termination terms.
Mistake 4: Misclassifying employees as contractors. You treat a contractor like an employee—setting hours, providing equipment, requiring exclusive work. This creates legal risk under Ukrainian labor law.
Solution: Ensure true contractor relationship. They control how work is done, use their own tools, work for multiple clients. Document this in the contract.
Frequently asked questions
Q: Should I pay Ukrainian contractors in USD, EUR, or UAH? A: Most Ukrainian tech contractors prefer USD or EUR for stability. Always ask your contractor which currency they prefer before setting up payments.
Q: What is FOP status? A: FOP (ФОП) is individual entrepreneur status in Ukraine. Many contractors operate as FOPs to benefit from simplified taxation (often 5% for IT services). This is their business choice—you don't need to do anything about it.
Q: Do I need an EOR platform for Ukrainian contractors? A: No. EOR is for hiring employees internationally. Ukrainian contractors handle their own tax compliance. You just need a good payment method (Wise) and the ability to organize contracts and payment records.
Q: What's the best payment method for Ukraine? A: Wise offers the lowest fees ($3-8) and best exchange rates. PayPal is also popular but has higher fees ($5-12). Some tech contractors also accept cryptocurrency.
Q: Do I need to understand Ukrainian tax law? A: No. The contractor is responsible for their own tax compliance with Ukrainian authorities. You're just paying for services. Consult with a tax professional in your country about reporting requirements in your jurisdiction.
Q: Can I work with Ukrainian contractors despite the ongoing situation? A: Yes. Many Ukrainian contractors continue working despite challenges. They're motivated, reliable, and appreciate the opportunity. Respect their time zone and any circumstances that might affect availability, but they're dedicated professionals.
Getting started
If you're paying Ukrainian contractors, here's the process:
- Set up Wise business account
- Ask contractor for currency preference (USD, EUR, or UAH)
- Get contractor's bank details or Wise account
- Create written service agreement
- Set up regular payment schedule
- Keep records for your tax purposes
- Maintain contractor contact and documentation
Kontrable helps with steps 1, 3, 4, 5, 6, and 7 by organizing contractor information, tracking payments, managing contracts, and storing invoices. You stay in control of your payment method and use Wise directly.
If you're managing a few contractors, a spreadsheet works. If you're managing dozens or coordinating across a team, Kontrable saves time and keeps contractor data organized.
Ready to get organized?
[Start a free trial of Kontrable] – Get invoice workflows, payment tracking, and contract storage. Try it free.
