Taxation for freelancers: how to avoid breaking the law?

Taxes are a sensitive topic for anyone selling services or goods. Freelancers often evade taxes, believing their earnings aren't large enough to be shared with the state. However, any amount over 17 hryvnias must be taxed. Yes, that's the law.

Let's look at the situation from a different perspective. Frequently depositing money to your card tax-free creates the impression that you're earning more. But at the same time, you're missing out on some opportunities.

• obtaining a loan or installment plan for a larger amount;
• opening an account in a European Bank;
• chance to work with foreign companies;
• work experience and pension savings;
• the ability to easily obtain a visa or residence permit in certain countries.

You probably weren't planning on taking out loans to grow your business or moving to another country. And the size of your pension is a laughing matter and isn't an argument for working legally. But, in addition to losing these opportunities, you could face the consequences of working illegally.

Responsibility for illegal activities

• For operating without state registration as a sole proprietor or carrying out independent professional activities without tax registration, the fine is 340 UAH (clause 117.1, article 117 of the Tax Code of Ukraine).
• A fine of 17,000 to 34,000 hryvnias, with or without confiscation of manufactured products, production tools, raw materials, and money obtained as a result of committing this offense (Article 164 of the Code of Administrative Offenses).
• And if within a year after the first fine you are caught working illegally again, the fine will befrom 34 thousand to 85 thousand UAH. You will be fined the same amount if your activity brought you income in the amount of 240,125 UAH.
• The bank will also block accounts without warning and request supporting documents confirming the legality of the transaction (Law of Ukraine No. 361).

Have you decided to legalize your business? Good decision. Our country needs living examples of responsible and honest businessmen.

Let's break down the legalization of freelance activities into its components.

Step 1. Selecting a sole proprietor (PE)

There are several sub-items in this step.

First, choose a payer group. Most likely, Sole Proprietor 2 or Sole Proprietor 3 will suit you.

If you plan to work in the Ukrainian market and your income is up to 1.5 million per year, then pay attention to FLP 2. Here there is a fixed tax and an annual report.

Sole Proprietorship 3 opens the door to collaboration with foreign companies and legal entities. Income up to 20 million per year. Up to 20 employees. You'll pay 5% tax and the unified social contribution.

Secondly, you choose KVEDs - codes that characterize your activity.

Step 2. Registration of sole proprietorship

To register as a sole proprietor, please visit one of the Administrative Services Centers in your city. Gather the required documents and join the online queue.

You can also submit an application electronically, send the required documents and pick up the extract at the Administrative Services Center.

Stage 3. Accounting book and bank selection

This is a situation where the tax office doesn't come to you, but you come to them. Purchase an income book and submit it to the tax office for registration.

Think about which bank you want to open a non-cash account with. Head to the bank with all your documents, passport, and tax identification number.

Stage 4. Reporting

Many people dread this step. But if you understand what needs to be done and adhere to deadlines, the procedure will become a pleasant habit.

What needs to be done once a quarter:

• Submit a tax return
• Pay a single tax and a single social contribution

Submit a report on income and single contribution amounts once a year.

Online services (such as Taxer) simplify the reporting system with clear templates and reminders.

If you want to remove the registration and reporting from yourself, contact a notary or accounting firm.

Our country needs competent businessmen who, by personal example, develop the economy and lay the foundation for a powerful modern country.

We wish you a quick and pleasant legalization of your income.