Private entrepreneur (PE) in Ukraine for IT business

Let’s look at why exactly the private entrepreneur (PE) in Ukraine for IT business is and what it represents. Private entrepreneur is relatively easy to register, and if necessary, it is not difficult to close. Previously, I wrote an article about how the sole trader opens. If you are interested in finding out what you can register except for the private entrepreneur – it’s LLC. I have already written about the procedure for creating an LLC.

Why Private entrepreneur (PE) in Ukraine for IT business is profitably?

A private entrepreneur can be a tax payer on simplified taxation system. As of today, 3 groups are used actively for IT, less than 2 groups.

While you are in Group 3, IT programmer pay only 5% of income. Additionally you should pay single social contribution tax at 22% of the minimum wage. As of 2019, the minimum wage in Ukraine is 4,173 UAH. Respectively, the monthly social tax rate (the single social contribution) is UAH 918.09.

The single social contribution is a payment paid to the pension fund. With this payment is calculated on the pensionable age is calculated on the pensionable age. Knowing the information above, you need to compare a private entrepreneur for IT and regular employment under an employment contract.

It’s easy to employ you, but it is difficult for companies to dismiss employees because they are protected by labor legislation. This is already negative for the company. In addition, the taxes that you need to pay from your salary are also bigger. You will be required to pay 18% of the income tax and 1.5% of the military fee. The company will pay you an additional 22%.null

If we take a real example of profit 10,000 UAH, then the numbers will be as follows. The private entrepreneur from 10 000 UAH will receive 9,031.94. At that, the company will pay exactly 10 000 UAH. If specialist will work as a regular worker under an employment contract – the company will have to spend 12 200 USD; and the employee will eventually receive 8 150 UAH.

It is difficult to argue that the difference is large, even on the amount of 10 000 UAH. If the IT is a private entrepreneur – then the taxes are lower.

If you are looking for more details, you can enjoy my other articles:

1. How to establish private entrepreneur in Ukraine;
2. How to incorporate LLC in Ukraine;
3. How to close/terminate business in Ukraine.

Classification of Business Activities for the programmer

The most popular Classification of types of economic activity for Private entrepreneur (PE) in Ukraine as IT business is Classification of types of economic activity code 62.01 Computer Programming – it is often chosen as the main Classification of types of economic activity.

However, it should be borne in mind that you can also choose additional Classification of types of economic activities . Often, in the IT field, the following Classification of types of economic activities are additionally selected: 

1. 62.02 Advice on informatization;
2. 62.09 Other activities in the field of information technology and computer systems;
3. 63.11 Processing of data, placing information on web sites and related activities;
4. 63.99 Provision of other information services;
5. 58.21 Publishing of computer games;
6. 58.29 Other software publishing. 

Risks for IT private entrepreneur

For a private IT , the scheme with private entrepreneurs is generally profitable, since after paying taxes, he gets more money on his hands. However, there are certain hidden nuances in IT business.

For example, in practice I have the following situation. The programmer started to work in one company where he was opened and led as a private entrepreneur. Then he moved to another company, he continued to lead his sole trader. However, when he left this company and asked to close the private entrepreneur – he was denied, with the motivation that they did not open this sole trader. Of course, I provided support for the complete closing of a private entrepreneur, but the situation generally turned out to be unpleasant.

In addition, there are risks that in the entire mass of private entrepreneurs, the company will simply either forget to submit a report, or will file it incorrectly.

In addition to the risks of sole traders for IT, that is, the risks borne by the programmer himself, there are also risks borne by the company that such private entrepreneur operates.

If you want to know more about inspections in Ukraine, especially, from the State service of Ukraine on Labor you can visit other article.

Government control

Under current law, it is prohibited to do a private entrepreneurs-employees, although there are such initiatives, and for IT want to introduce the 5th group of the simplified taxation system. That is why companies come up with different schemes in order to hide labor relations. The control in this area is carried out by the State Labor Organization.In my article, I described what fines this service could impose on a company. The amounts are not there quite small.There is also a risk that the scheme with a private entrepreneurs will be prohibited. 

There are plenty of initiatives to do this.  First, it was about the tax on the withdrawn capital, which could stop this scheme, then the Ministry of Social Policy wanted to ban a private entrepreneur for IT by adding the parameters according to which the sole trader would be considered an employee – for which a fine would be imposed.The last initiative wants to leave the scheme, but to force IT to pay instead of 5% – 10%. By the way, I took a video on this topic.

Private entrepreneur for IT as a company

Programmers do not always use sole traders to hire only. Often, the private entrepreneur for IT stands for the first official stage in setting up a company.

If you are a freelancer with a stable income, or you start to build your outsourcing company – a private entrepereneur for IT is a good way to officially register.

If your clients are foreigners – you can invite them and receive payments to your bank account.By paying just 5% tax and a small bank withdrawal fee, you will be able to receive legal cash.

Also, the private entrepereneur is conveniently connected to payment systems like Payoneer, Fondy or LiqPay.  

Taxation and reporting system for programmer as a private entrepreneur 

Most IT sole traders choose the 3rd group of the simplified taxation system. As you know from the material above, you need to pay 5% of the income and 22% of the minimum wage (Single social contribution).

To this all it must be remembered that the limit of allowable income for Group 3 is 5 million USD per year. If you exceed the limit – you will need to pay a tax of 15% over the limit, in addition, you will be deprived of the status of a single tax payer.

Once, private entrepreneurs made single tax payers in Group 2. In this case, the sole trader may receive money only from single tax payers, or from the population. The maximum amount of income for such private entrepreneur is 1.5 million UAH. But, taxes need to be paid less – Single social contribution (that is, 22% of the minimum wage) and 834,60 UAH – a single tax, no matter what amount you earned.

Summary in graphics – Private entrepreneur (PE) in Ukraine for IT business