Private Entrepreneur Management

Private Entrepreneur Management

The use of sole proprietors (Private Entrepreneurs or FOP) is a very cost-effective way for foreign companies to engage individuals for the provision of services in Ukraine.

Common areas of use for private entrepreneurs in Ukraine are the IT sector, import-export trade representatives, and business consultants.

Advantages of Private Entrepreneurs are:

  1. Easy to setup
  2. Possibility of simplified taxation of 5% income tax and 22% of the minimum wage for social contributions (as of 2021 the minimum wage is 6000 UAH with 22% = 1320 UAH)
  3. Individual service contract terms without labour law requirements
  4. No need for a legal entity in Ukraine for employment reasons
  5. No administrative overhead cost in Ukraine for HR management, accounting and payrolling

Many customers of FOP services assume that the setup, adminIstration and documentation of the Private Entrepreneur status should be the problem of their new team member.

This assumption, however, is very dangerous for legal, tax and business confidentiality reasons.

Why should the FOP customer control the setup, audit and management of their Private Entrepreneur?

  1. Tax deductability abroad in the country of tax residency of the client – many tax jurisdictions require prove of legal and tax status of the private entrepreneur in order to accept tax deducatabilty of business expenses. Some tax jurisdictions may consider even the FOP as employee of the FOP client with consequent tax and social fund payment obligations.
  2. Control over business activities of the FOP – The FOP is allowed to provide services to other clients as independent business. The FOP client needs to control the accounting and bank account transactions of the FOP to prevent the FOP working in parallel for other companies.
  3. Time savings for client and FOP – The setup and management of a FOP is time consuming in dealing with regularly changing requirements by Ukrainian tax authorities, central and local banks.
  4. FOP Compliance – We found very often old FOP setups in none compliant status with open tax obligations, administrative penalties and missing documentations. Our services make sure that the FOP status is compliant to UKrainian tax and administrative requirements. We clarify and clean-up FOP none-compliance issues before contract signature with our clients.

OUR SERVICES

The team of UkrPayroll provides a complete set of services to protect the interests of our clients and to secure full compliance for the use of Ukrainian contractors as Private Entrepreneur (FOP).

Private Entrepreneur (FOP) registration

You do not need a lawyer to setup a new Private Entrepreneur (FOP). We provide a comprehensive set of services to start a new FOP for your contractor.

  • Selection of economic activity
  • Selection of correct tax status
    Filling of documents for registration
  • Notarized power of attorney to act on behalf of the FOP
    Receipt of extract from the Unified State Register
  • Receipt of extract of single tax payer status
  • FOP seal (stamp)
  • Opening of dedicated business bank account

LEARN MORE

Existing Private Entrepreneur (FOP) engagement

  • Audit and consultation of existing FOP before contract signature with out client
  • Transfer of all FOP documents and records to our accounting
  • Communication with regulatory authorities and banks to secure good standing of FOP
LEARN MORE

Management of Private Entrepreneur (FOP)

  • Drafting of service contract in English and Ukrainian between client and FOP
  • Consultation on current business activities, regulatory changes and requirements
  • Communication with the bank on currency control and compliance questions
  • Invoice, act of services rendered and detailed calculation preparation in English and Ukrainian for client, bank and FOP accounting
  • Control of primary documentation
  • Administration of income book
  • Tax calculation and payments
  • Preparation and submission of reports to regulatory authorities
LEARN MORE

Closure of Private Entrepreneur (FOP)

  • Consultation on the correct termination strategy and steps
  • Preparation of termination notice to the CDAS or via notary office (form No. 12)
  • Preparation of liquidation report for tax authorities, pension fund and statistic
  • Payment of due taxes before final closure
  • Closure of dedicated Private Entrepreneur (FOP) bank account
  • Preparation and submission of documents to the tax service for pass a tax inspection
  • Archiving of Private Entrepreneur (FOP) documents until tax service confirms closure (up to 3 years)
LEARN MORE

Our Advantages

  • European ownership and management with focus on compliance and transparency
  • English speaking staff
  • Full cycle service scope with recruitment, mobilisation, equipment and closure of private entrepreneur contractors

FREQUENTLY ASKED QUESTIONS

Many customers do not care how their Ukrainian contractors are paying their taxes if at all. Online contractor portals like upwork.com or freelancer.com allow here a simple escrow payment service with apparently no need to sign any additional contracts. Such approach might be reasonable in case of just one time small projects but it becomes dangerous when contractors are used extensively and over longer period of time. Issues like employment rights in the client country as well as Ukraine, tax evasion in Ukraine and abroad, tax deducatablity for the client, currency control violations and the potential of a permanent establishment under double taxation treaties could pose serious business risks for both client and contractor. Also, honest tax paying contractors will complain about their 18% tax rate in comparison to the 5% simplified tax rate of the Private Entrepreneur (FOP).

Any foreign citizen with a postal address in Ukraine can register an Ukrainian Private Entrepreneur (FOP). There is not need for a work or residence permit. However, the benefit of the simplified tax rate of 5% + fixed social funds are only available for services provided in Ukraine. The FOP can sell services to clients abroad but the FOP has to be physically in Ukraine to provide the services. It is not possible for the FOP to provide services outside of Ukraine and to benfit from the 5% tax rate. FOP can provide services from outside of Ukraine but then the FOP loses its simplified tax status and the FOP becomes subject to a 18% tax rate instead. That means that in the majority of cases a foreigner with FOP status has to have a residence permit for Ukraine and needs to reside in Ukraine at least when providing FOP services.

The correct classification of types of activity are essential for the correct setup and use of Private Entrepreneurs (FOP) in Ukraine. Any activity outside of the type of activity endangers the FOP simplified tax status. Typical classifications for IT businesses are: 62.01 Computer Programming; 62.02 Advice of Informatization; 62.09 Other Activities in the Field of Information Technology and Computer Systems; 63.11 Processing of Data, Placing Information on Websites and Related Activities; 63.99 Provision of Other Information Services 58.21 Publishing of Computer Games 58.29 Other Software Publishing