This blog is basically a big fat list of FAQs on absolutely everything you ever wanted to know (and a bunch of important and vaguely interesting things you may not have even considered) about nearshore IT outsourcing in Ukraine.
We had a recent situation here at K&C that has provoked this post detailing every FAQ we could think of on IT outsourcing in Ukraine. We were speaking to a high growth German fintech company in the online trading space that were looking for a team of React developers to work on new features of their app. They had been referred on by another partner we provide IT outsourcing services to so were pretty much sold on working with us.
Or they were until they started to have concerns about a team based in the K&C office in Kyiv. What was interesting, and thankfully meant it was easy to quickly overcome those concerns, was that the concerns mentioned were based on misconceptions. Those were:
Of course, none of these concerns about Ukraine as a nearshore IT outsourcing destination was accurate and we were able to quickly correct the misconception.
When does IT Outsourcing work?
(And when doesn’t it?)
Even in the middle of the coronavirus crisis, there are 15 flights a day between various German airports and Kyiv. There are even several flights a day to secondary Ukrainian cities like Lviv, Odesa and Dnipro, including direct options.
Direct flights between Berlin and Kyiv take a little over 2 hours and no more than around 3 hours between any German and Ukrainian airport.
German citizens do NOT need a visa to visit Ukraine, either as a tourist or on business. Ukrainian citizens also do NOT need a visa to visit Germany or the wider Schengen Area. An Association Agreement signed with the EU in 2017 allows Ukrainians visa-free travel for up to 90 days within any 180-day period. So nearshored teams from Ukraine can visit you onsite without any friction.
And, of course, Ukraine is a hotbed of IT talent. Like the rest of the former eastern bloc, Ukraine has a rich tradition in mathematics. In recent years that has proven to be a great educational foundation for a generation of software developers and other IT specialists.
In fact, outside of the big, developed economies of western Europe, Ukraine is second only to Poland for the number of professional software developers living in the country. And you can guarantee there are tens of thousands (quite probably comfortably six figures) of Ukrainian IT specialists who have emigrated through their jobs and are now wrapped up in the totals of developers living in the western European countries shown in the chart above.
We absolutely love our K&C tech talent centre in Kyiv. It’s packed full of wonderful individuals who also happen to be talented and professional software developers, QAs, DevOps architects et al.
We will always champion Ukraine as a nearshore IT outsourcing destination. And while there are different considerations that mean any individual nearshore destination may or may not be the right fit for a particular organisation, we would hate to think of Ukraine being turned down as a result of misconceptions rather than facts.
Hopefully, these FAQs on nearshore IT outsourcing in Ukraine will help you consider the country as an IT talent destination in the light it deserves to be seen in.
These FAQs are broken down into the following categories for your convenience:
Let’s dive in!
603,628 km2 (largest country by landmass entirely located in continental Europe)
Russia, Belarus, Poland, Slovakia, Hungary, Romania & Moldova
Kyiv (capital), 2.6 million; Kharkiv, 1.47 million; Odesa, 1 million; Dnipro, 1 million; Donetsk, 913,000; Zaporizhzhia, 739,000; Lviv, 725,000.
77.8% Ukrainians, 17.3% Russians, 4.9% others/unspecified
87.3% consider themselves Christian (65.4% Orthodox Christian), 11% ‘irreligion (atheist or indifferent), and 0.8% ‘other’.
Ukraine is a republic under a mixed semi-parliamentary semi-presidential system with separate legislative, executive, and judicial branches.
Language is an interesting, and occasionally controversial, topic in Ukraine. Official statistics from the 2001 Ukrainian census put the number of native Ukrainian speakers at 67.5% of the population. That’s followed by Russian, which 29.6% of the population indicated as their ‘native’ language and then small numbers of native speakers of other languages from Crimean Tatar to Bulgarian and Moldavian.
However, more recent polls and research paint an alternative picture that fits better to our own experience running a business in Ukraine. An interesting paper on the ethnolinguistic composition of Ukraine found:
(1) Ukrainian-speaking Ukrainians = 40–45% of the population.
(2) Russian-speaking Ukrainians = 30–34% of the population.
(3) Russian-speaking Russians = 20– 21% of the population.
(4) speaking other languages = 3% of the population.
In K&C’s Kyiv office, the main language of social communication (our official working language is English) is Russian, which a majority of our team consider their native language. Those who consider Ukrainian as their native language also speak Russian fluently.
In Lviv, a city of around 730,000 in the west of the country and another popular IT outsourcing destination, you could expect the inverse. Most consider Ukrainian their native language, though are often also proficient in Russian.
We can roughly say that Ukrainian dominates in the west of the country and Russian elsewhere.
Source: unless otherwise referenced, the source of the data provided in this section of our Ukraine FAQs is Wikipedia.
Having been forced into entirely remote work over most of the past year as a result of the coronavirus crisis, there hasn’t been much face-to-face contact between software development and other IT teams regardless of where everyone is physically based. Colleagues working from home in the same town have been in the same boat as those separated by national borders.
But under normal conditions, it’s often preferable that there is at least some face-to-face contact between nearshore specialists and teams, and their colleagues and project managers elsewhere. Ukraine is conveniently located just a short flight away from most major central European cities.
There will obviously be differences between how long it takes to fly between different cities in central and west Europe and different cities in Ukraine but 2-3 hours is a good guideline for direct flights. Some examples of flight times to Ukraine are:
Munich – Kyiv: 2h 25mins – 2h 40mins
Frankfurt – Kyiv 2h 25mins – 2h 40mins
Berlin – Odesa 2h 20mins – 2h 50mins
Amsterdam – Kyiv 2h 45mins – 2h 50mins
London – Kyiv 3h 15mins – 3h 30mins
Flights costs can obviously vary with circumstances but booked 2-4 weeks in advance, a return flight between most major European cities and Kyiv can be expected to cost an affordable €150-€350.
No. Ukraine is not part of the European Union but has signed an Association Agreement with the EU. Ukrainian citizens were granted visa-free travel to the Schengen Area in 2017, for travel of up to 90 days within any 180-day period. That will change in late 2022, when ETIAS, a new travel authorisation program, comes into effect. At that point, all visa-exempt third-country nationals (including Ukraine passport holders) travelling to any of the 26 countries in the ETIAS program will require a European visa waiver.
British passport holders can visit Ukraine without a visa for visits of up to 90 days within a 180-day period. Ukraine has confirmed that this policy will continue to apply to British citizens until 30 January 2022. As part of the Schengen Area, Swiss passport holders also do not need a visa to visit Ukraine for 90-days within any 180-day period.
Ukrainian passport holders can visit the EU, EEA and Schengen Area (including Switzerland) for 90 days in any 180-day period without a visa. This means nearshore Ukrainian developers and IT specialists can conveniently make onsite visits when required by a project.
The UK is an exception. Ukrainian nationals visiting the UK do need a visa, including for business trips. Obtaining a visa is, however, a relatively simple, painless process. Consulate fees for a multi-entry visitors visa start at €110 for 6 months.
Along with Poland, Ukraine is Europe’s biggest exporter of software developers and other tech talents. In the context of a generally developing economy, the comparatively high salaries Ukrainian software developers command has acted as a powerful draw for both young talents embarking on a career and those re-skilling from related professional disciplines.
The country’s government has recognised the economic opportunity the country’s reputation as a rich seam of affordable tech talent represents and is investing in encouraging more people to train in tech disciples. In 2020, the IT Creative Fund was launched to finance:
The combination of state-level support for a thriving sector and the economic drivers encouraging Ukrainians into the tech and software development sector has resulted in qualified professionals joining the workforce at a rate of 25,000-30,000 a year.
Like the rest of the world, Ukraine still faces a demand to supply deficit for IT specialists. But it is less pronounced than in most other parts of the world – a big attraction to the thousands of international IT companies based in the country. And a strong pipeline of new talent entering the workforce each year means Ukraine should continue to be a more successful recruiting ground for IT specialists than most alternatives.
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In 2020, Ukraine’s IT exports were worth $5.4 billion. Most of that can be considered the country’s IT outsourcing sector. The value of IT exports is forecast to rise to $8.4 billion by 2025. That represents 55.56% growth over 5 years, at an average 11.12% compound annual rate.
Source: Evolve Consultants
As of 2020, there were an estimated 220,000 specialists working in Ukraine. A majority are employed by international companies. Currently, between 25,000 and 30,0000 newly qualified specialists enter the sector each year as either fresh graduates or re-skilled professionals.
Already home to one of the world’s largest pools of tech talent, Ukraine’s trajectory means the number of IT companies with offices in the country is forecast to double by 2025.
As of 2021, Ukraine is more of an exporter of technology services to international companies than a hub of innovation. Innovation is closely tied to venture capital investment and concentrated in developed economies like the USA, UK, Germany, the Netherlands, Norway, Sweden, Denmark, and Switzerland as well as Asian economies including China, Japan and Singapore.
But Ukraine does make it into 45th place in the 2020 Global Innovation Index. More impressively, Ukraine ranks second for innovation among the 29 economies in the index’s lower-middle-income group.
We will hopefully see more home-grown Ukrainian tech companies establish themselves in the coming years. The country’s tech talent pool suggests an increase in venture capital flows would see Ukraine flourish as an innovation hub. In the meanwhile, it’s an excellent nearshore IT outsourcing destination.
A thriving digital economy obviously needs a strong digital infrastructure. Ukraine might not have the same quality of utilities infrastructure as more developed economies but like much of eastern Europe it does boast pretty good internet speeds – often putting much more developed economies to shame.
Ukraine’s internet market is highly fractured and as of 2019, there were as many as 1500 providers – many of them local and regional. The level of competition, largely a result of the fact the market is barely regulated, also means internet costs are among the lowest in the world.
Internet speeds across the country vary greatly because some local providers, especially in smaller towns and villages, still use slower copper wire cables. In larger towns and cities competition is fierce and larger providers are investing heavily in fibre-optic internet infrastructure.
Mobile internet connections in Ukraine are poorer, with 4G only introduced to the country as recently as 2018. Average download speeds across the country from broadband connections are 64.33 Mbps and 25.85 Mbps on a mobile connection.
But average internet speeds in Ukraine should be largely ignored by companies hiring or working with IT specialists in the country. In Ukraine’s major cities, where almost all IT companies are based, providers offer download speeds of up to 1 GBps for even domestic connections. Specialised packages for businesses can mean even faster speeds.
Ukraine can sometimes conjure up negative connotations of oligarchs and corruption. While it would be naïve to suggest the country’s economy, institutions, politics, judiciary and other state organs and infrastructure are on the same level as in more developed economies, there are two sides to every coin.
If everything was well developed, Ukraine would not be the attractive nearshore IT outsourcing destination it is. Developing economies often have attractive corporate tax regimes designed to attract investment and international businesses. And personal income tax rates are also typically much lower than averages in large, developed economies.
Tax is a big reason why Ukraine is an attractive IT outsourcing destination, as an added incentive on top of the primary attraction of a deep pool of specialists. It’s one of the big reasons why gross salary costs are attractive compared to other markets.
We also have an office in Krakow, Poland, where gross IT specialist salaries are only slightly higher than those in Ukraine. But the take-home pay is actually slightly lower because tax is higher.
Let’s take a look at some FAQs around salary costs, tax and overheads in Ukraine.
Like everywhere else, the negative balance between supply and demand for software developers and other IT specialists is pushing salaries up in Ukraine. The trend towards remote work is also evening out the gap between IT salaries in developed and less developed economies.
As a company constantly hiring software developers, DevOps experts and other IT specialists, we have seen this inflation first-hand, with acceleration in recent months. But despite the growth in IT salaries in Ukraine, particularly in Kyiv, the country still offers attractive value compared to western European markets like Germany.
The days of nearshored specialists commanding salaries up to three times or more less than peers of a comparable level in western Europe are long gone. But IT salary costs at roughly half those that would be expected in western Europe are still achievable. With IT salaries generally high, that can make a huge difference to the budget of an enterprise-level project and even smaller development projects.
The figures below are based on our own recruitment experience at K&C, rather than official data. We would argue that makes them more reliable. Our recruitment team are continuously in the process of hiring software developers, DevOps, QA and for other roles based in our Kyiv office.
Salary savings are one advantage to working with nearshored Ukrainian IT specialists but shorter recruitment cycles can be just as important when deadlines are looming. You may find statistics saying the average hiring cycle for a software engineer is 35 days. That number comes from a 2015 Glassdoor study.
That may have been the case back in 2015. It was a big study involving almost 350,000 interviews across 6 countries so a serious piece of research. But anyone who regularly hires software developers in 2021, our experience is in western Europe but presumably, the situation isn’t better in the USA, will be well aware that is now wildly optimistic.
If an IT specialist is in a job, and let’s face it most are, there’s at least a month to wait while a notice period is served. When it comes to delivering IT projects to deadline, when a hire is agreed is less important than when the individual can actually be onboarded.
2-3 months is probably a more realistic recruitment cycle for IT specialists in developed economies as of 2021. Counted from starting the search to the start of onboarding.
In Ukraine, the typical hiring cycle is more like 1-2 months if recruiting a specialist currently employed elsewhere. IT outsourcing companies can often bring that down further if they have suitable specialists ‘on the beach’. That means they’ve finished one project and are waiting for the next. In that case, positions might be filled within a week or two.
Even if an IT outsourcer is hiring in, their experience (it’s a full-time occupation for whole teams of in-house recruiters) usually means they can do so more efficiently than other recruiters.
Ukrainian residents pay a flat rate of 18% tax. The rate is applied to all income from fixed employment, civil contracts and other sources of income such as investments and any money earned abroad.
Some tax allowances and deductions may also be applicable based on personal circumstances. There is also currently an additional ‘military forces tax’ applied.
Overall, a gross annual salary of €60,000 would be a net ‘take home’ income of €48,300.
By contrast, the same gross salary in Germany would result in a net ‘take home’ income of just €36,573 in the case of a single person living alone, without children, paying only statutory health insurance and not paying ‘church tax’ – based on an online calculator provided by accountants SteuerGo.
Even in Poland, a net salary of €60,000 translates into a net income of €43,709 after tax – almost €5000 less than in Ukraine.
One outcome of Ukraine’s minimalist tax regime is there’s a much smaller gap between gross and net salaries than in most European countries. That ultimately makes hiring in Ukraine cheaper than elsewhere.
Companies hiring full-time employees in Ukraine are subject to a 22% ‘unified social contribution’, calculated on gross salary. This means an annual gross salary of €60,000 would cost the employer an additional €13,200.
In Germany, the lowest possible tax burden that could be faced by the company (employee is single, has no children and pays statutory health and other mandatory insurances) would be around €14,500 at the same salary level.
The standard rate of corporate income tax in Ukraine is 18%. However, you will only have to worry about that if you are generating income in the country or invoicing directly from a Ukrainian legal entity. If you are outsourcing IT functions to Ukraine, you may well only have expenses in the country. Or at least not be generating a taxable profit.
Now we’ve covered all of the most common FAQs around IT outsourcing in Ukraine (if you think something’s missing please do get in touch to let us know and we’ll add it) let’s add a few fun facts about the country to impress colleagues or new friends over a coffee, beer or vodka – it is Ukraine after all! 😊
The largest area covered by sandy desert in continental Europe is Oleshky Sands in the south of Ukraine, around 30km from the Black Sea port of Kherson. The area is protected as a national park.
Ukraine isn’t known as a skiing holiday destination but there are as many as 51 ski resorts dotted around the country’s mountainous regions. The most developed are found in the Carpathian Mountains in the southwest of the country. But there are also small resorts in the Dnipropetrovsk region (Lavina), in Cherkasy – (Vodyaniki), in Donetsk – Alaska Center and Svyatogorsk, in the Poltava region (Korchak, Skipens and Sorochin Yar), as well as near Kiev (Protasov Yar and Vyshgora) and Kharkov.
Famous for its chestnut tree-line alleys, beautiful buildings recreated in an ‘Empire’ style after the Second World War, expensive shops and cafes, Kyiv’s Khreshchatyk Street is bizarrely one of the world’s ‘fattest’ main streets. It is only 1.2 kilometres in length but up to 100 metres wide.
Ukraine is home to a total of 7 UNESCO World Heritage Sites including Kyiv’s majestic Saint-Sophia Cathedral, the ancient city of Chersonesus, and the primeval beech forests of the Carpathians.
The World Health Organisation puts alcohol consumption in Ukraine at the sixth highest level in the world. A huge 13.9 litres is consumed per capita every year. But while most people associate Ukraine with vodka, it’s actually another clear spirit that is the national drink – horilka, which means “burning water” in a nod to the common habit of flavouring the tipple with a little chilli pepper.
It is. At a depth of 105.5 metres, Kyiv’s Arsenalna metro station is further underground than any other in the world.
If you want to sample traditional Ukrainian cuisine, and you should it’s very tasty, don’t make the mistake of ordering a Chicken Kyiv under the impression it’s the local equivalent of a Viennese Schnitzel.
In fact, Chicken Kyiv has nothing to do with Kyiv. Its origins are believed to actually be in France, with the recipe brought east in the 19th Century by Russian aristocrats who were fans of French cuisine.
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