One of the most boring and upsetting topics we have to deal with daily is tax. However, from our side, I promise I will make it as interesting as possible.
As you know from working with Ukrainian IT specialists, they are usually presented to you as sole proprietors. In Ukraine, we have three categories of FOPs (sole proprietors). All three of them are valid, but they were designed for different spheres, and the main difference is how they pay taxes. Some have a right to hire people, some are required to pay VAT, and others are not allowed to have a card connected to the account; it depends on what group your FOP is in.
Most IT specialists are in Group 3, the most flexible group with the easiest rules accounting-wise. This is more of an all-inclusive group, where you can either pay VAT (20%) from any amount that is transferred to your account, or they can pay the so-called “flat tax,” where they are required to pay 5% from the income every month with the exclusion of all the expenses. So this is the basics of Ukrainian accounting. As I promised, I have tried to keep it as simple as possible, but we are not quite done yet.
As you know, at this point, we are in the fifth month of a full-scale war caused by the Russian invasion of Ukraine. Ukraine has been extremely supportive of small businesses and sole proprietors in recent years, and this war is no exception. In the first month of the invasion, Ukraine announced that sole proprietors were no longer required to pay 5% flat tax and could switch to 2% flat tax. It was a huge decision for them to make, as they will be losing a great amount of money needed today to maintain the infrastructure and help people survive during wartime. Despite the personal interest of the country, the Ukrainian government has decided that people still working are in need more than the country as a whole.
After the introduction of the tax percentage decrease, a lot of sole proprietors switched to a 2% flat tax. Still, when it comes to the IT industry, people realized that the best thing they can do to help our country is to continue working and paying 5% flat tax to support the government and country as a whole. Thus, most IT specialists stayed on the 5% flat tax to support the government, the same way the government has supported them.
I hope that all the maths, stats, and accounting details did not make this article boring; we needed some background information to understand what is going on with taxes in Ukraine today. However, the main lesson from this article is that the Ukrainian government and people are there for each other and want to help one another as much as possible.
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