Outsourcing for International Technical Assistance Projects: You Never Know Until You Try
In recent years, Ukrainian international technical assistance (ITA) laws have changed, and these changes has facilitated the process of attracting donor assistance and implementing ITA projects. To date, more than 1,600 projects have been registered on the official ITA coordination portal in Ukraine, ProAID.
But, despite the legal regulation improvement, many issues requiring special knowledge arise during the life cycle of projects. Let us analyze them step by step.
1) Legal Services
To start a project, you need to go through a number of procedures:
• State registration of the project with the Secretariat of the Cabinet of Ministers;
• Registration of the donor institution’s representative office in Ukraine (if necessary);
• Accreditation of executors;
• Preparation of the contract between the donor and the executor etc.
The assistance of lawyers with appropriate specialization will ensure the successful and timely completion of all formalities. Besides, legal support will be needed in the process of project implementation: contractual work, legal support for the import of goods into the territory of Ukraine, appeals against the rulings of regulatory authorities etc.
2) Accounting Services
Before August 2018, the laws did not provide that non-resident legal entities (foreign executors) participating in ITA projects obtain a tax number. Therefore, the Directorate-General for Rendering Services to Diplomatic Missions (“GDIP”) provided accounting services to them and paid taxes and fees on their behalf under its own tax number. Amendments to the Procedure for Registration of Payers of Taxes and Fees gave foreign executors the opportunity to obtain a taxpayer registration number, and, subsequently, the right to choose an accounting services provider.
3) Human Resources and Payroll
A little earlier, in the end of July 2018, the GDIP lost its “monopoly” on maintenance and storage of employment records of citizens working for foreign executors under employment agreements. From the end of December 2018 onward, the storage and maintenance of employment records of such employees may be outsourced. Meanwhile, there is only one legal requirement to the outsourcing party: the status of a resident legal entity. In practice, project executors (i.e. customers) usually have much more requirements, which mirror the ones to other contractors under service contracts: brand, reputation, experience, references, customer portfolio and the ability to provide the full range of services.
Having obtained their tax number, foreign executors who have employees are registered as payers of the Unified Contribution. Thus, payroll, as well as the Unified Social Contribution and Personal Income Tax calculation/accrual services are also in demand.
Exercising the right to tax benefits, passing the project monitoring procedure by the Secretariat of the Cabinet of Ministers, by the beneficiary and by the donor requires expertise in preparing and filing special reports. By the way, the recipients of ITA must submit the results of the semi-annual monitoring of the project to beneficiaries (state bodies whose jurisdiction extends to the project implementation area) by July 10.
Employees of project executors must have both professional knowledge and unique communication skills, as they have to interact with different participants of the project:
- Beneficiaries: state bodies of Ukraine;
- Foreign states, governments, government agencies, international organizations providing ITA.
Working for an ITA executor is the case when soft skills are absolutely necessary. A foreign executor may have difficulty finding the proper specialist, and to avoid this, the best solution is engaging a recruiter.
This may seem a paradox, but despite the legal right to choose an outsourcing partner, not all ITA project executors do exercise this right. The following steps can be advised to the executors who are ready to try:
- Start with competitive selection;
- Use one service to begin with;
- Ensure that the contract provides for possibility of early termination on your initiative.