Did you know that the MoE (Ministry of Economy) has created a special department to help Ukrainian freelancers?
If you're a freelancer in Ukraine, you probably already know that your taxes will differ if you were an employee. But what if you're new to the country or trying to get started as a freelancer in Ukraine?
Let your worries be over. This article will help you understand what to do to declare your freelance income and pay the correct taxes.
First, it's essential to understand the tax system in Ukraine and how it applies to freelancers. Then we will walk you through declaring your income and paying your taxes. So, Let's get started!
Getting Registered as a Freelancer in Ukraine
If you're considering registering as a freelancer based in Ukraine, you may be wondering where to begin. Luckily, it's not as complex as it seems.
Ukrainian freelancers have to register as individual entrepreneurs with the State Fiscal Service of Ukraine (SFSU). After registration, they receive a certificate confirming their status as an entrepreneur, which they must present when filing their tax return.
They can also register as self-employed if they do not want to register as an individual entrepreneur. This will allow them more freedom to pay taxes and track expenses related to their business activity.
Freelancers who earn less than UAH 6,000 per month do not have to pay income tax or social insurance contributions but must file a tax return annually.
You can apply for the certificate online or at any SFS office.
The Current State of Taxation for Freelancers in Ukraine
There are three types of taxes that freelancers have to pay in Ukraine:
- Income tax: Calculated on your gross income.
- Social insurance: Deducted from your salary and paid directly to the National Health Service of Ukraine (NHSU).
- Employees' payments: Deducted from your salary and paid directly to your employee fund.
How do Freelancers File Their Taxes in Ukraine?
The process of filing taxes as a freelancer in Ukraine can be divided into four simple steps:
- First, make sure your business is registered with the government.
- Find or sign up with a tax service provider like SFS, as mentioned above.
- Start paying taxes!
- Stay up-to-date with changes and updates that affect freelancers in Ukraine.
Tips to Minimize Freelance Tax Liability in Ukraine
The government of Ukraine has recently increased the tax burden on freelancers. This tax was called the "Youth Employment Tax", introduced in 2016. The tax rate is 2% of the declared income.
The only way to reduce freelance tax liability in Ukraine is to declare less money. The easiest way is to ask for a lower rate contract. You can get your final price to the nearest second or even penny!
Also, you can use our tips below:
- Use the flat fee model instead of a percentage of revenue model.
- Set up a separate bank account for your business. You will receive payments from clients to ensure that everything gets done appropriately (e.g., VAT registration number, bank account number).
Fortunately, freelance taxes are pretty simple. There aren't huge taxes to pay on freelance income in Ukraine, and it's easy to understand what you need to do.
You will, of course, have to pay income tax and social security—so read up on those taxes and get your payments in on time so that you won't pay any fines for late payments or notices for failed payments. But the Ukrainian tax authority is pretty lenient with small business owners.
So as long as you educate yourself about your responsibilities before you start working and keep an eye out for the deadlines for taxes, everything should be fine.
What are the benefits of being a freelancer in Ukraine?
The freelance market in Ukraine is rising rapidly. There are many reasons people decide to go freelance, but one of the most important is that freelancers have more freedom and flexibility.
There are no limits on how much you make every day. Moreover, you can choose which projects to accept based on the money they offer and how much time they will take.
The most probable downside is that there are no guarantees when earning an income as a freelancer — there's always the possibility of fewer hiring opportunities. That's why it's essential to build up your network of clients so that there's always someone who needs your services!
How does the Ukrainian government support freelancers?
The Ukrainian government has introduced several incentives for small businesses, including tax breaks for start-ups or companies with fewer than 50 employees. For example, under current laws, small businesses are exempt from paying income tax on their first UAH 50,000 in revenue [around USD 1,500 at the current exchange rate].
In addition, they can apply for a reduced VAT rate on goods purchased for resale. The simplified taxation regime is available if a business meets certain conditions (e.g., having no more than ten employees). The government also supports entrepreneurship by providing grants for small businesses and start-up teams (up to UAH 200,000 per project).
How much tax do freelancers have to pay in Ukraine?
The easiest way to calculate taxes for freelancers is to use an online calculator (such as this one), which will give you an estimate based on your income and expenses.
Yet, keep in mind that these calculators do not always consider all possible deductions and exemptions, so it's best to consult a tax specialist before making any decisions about your taxes or know more about freelance taxes here.