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» Work » How to Register and Pay Taxes as a Private Entrepreneur in Ukraine

Registering as a Private Entrepreneur in Ukraine

Last update: August 7, 2010 (info on termination added)

UPDATE JUNE 19, 2010: It looks like the Private Entrepreneur loophole for foreigners in Ukraine (even permanent residents) — and for many types of small businesses — will close soon under changes in the new Tax Code. Therefore, consider the rest of this article to be obsolete by some time later this year. The new tax code will force many small businesses to register regular businesses rather than operating as clusters of private entrepreneurs with simplified tax payment and accounting procedures. Instead of registering as private entrepreneurs, foreign workers in Ukraine will need to obtain work permits. However, bear in mind that laws and actual practice in Ukraine are often somewhat divergent. 
Registering as an entrepreneur is a good way of legalizing your personal business activities in Ukraine and enjoying a low tax rate (see below). You may want to have this done by one of countless law firms (Kyiv U.S. Embassy site), especially if you do not know Russian or Ukrainian, or by a more inexpensive legal consultant. Or, you could do it yourself, perhaps with the help of a local assistant or interpreter if you don't speak the language that well. Below is a an overview of the registration process.

Registering at the OVIR (VVIR)

To register as an entrepreneur foreigners must first register their passport with the local Department of Citizenship, Immigration and Registration (commonly called OVIR), and obtain a note in their passport that they have been registered at a certain address. Follow the link above to for an article on the subject. You will need a visa to register your passport. Without a registered address you cannot register as a private entrepreneur. However, you do not need to keep renewing your registration after that if you leave Ukraine every three months or more frequently (six months for U.S. citizens).

Taxpayer's number

Next, one must receive a taxpayer's identification code. This is the easy part. In Kyiv, you go to the central city tax office at Sholudenka 33/19 any workday between 9:30 and 18:00 with your passport and fill out a small form. In a week or two you return to pick up your taxpayer's code free of charge (it's free to become a taxpayer!).

Registration Bureau

Next you go to your local registration bureau where commercial entities are registered. You'll need to bring a copy of your taxpayer's number certificate, pick up a "Form #10," go make a payment (currently 34 hr.) at the nearest bank, bring back the receipt, fill out the form, and choose the types of commercial activity that best match your planned business activities. You may indicate up to six types of commercial activities

Statistics Bureau and Pension Fund

It doesn't matter which of these two government bodies you visit first.
This step has been eliminated and is now done for you.

Tax office

Now it's time to visit your local tax office and register there. You will need to decide which of two or three tax systems you will follow. Most entrepreneurs choose to pay the "single tax," which is a tax system with simplified bookkeeping that has you pay a fixed tax monthly or quarterly regardless of your earnings.

Hiring employees

Private entrepreneurs can hire up to ten employees, each of which increases the monthly fixed tax. This form of operation is an alternative to forming a private enterprise and is favored by many small entrepreneurs around Ukraine. In addition, some companies avoid hiring their employees, but will instead have them register as private entrepreneurs and work with them on a contractual basis. This allows them to avoid labor regulations and simplify their booking, and in many cases significantly reduce their tax burden. 

Taxes and Accounting for Private Entrepreneurs

Most likely you will choose the "single tax" option (one of three taxation options). This is the best choice for consultants, language teachers, and other specialists. You will have a fixed monthly tax consisting of two parts—a tax fee established by local tax authorities in the range of 20-200 UAH (usually 200 Hryvnia, as of 2008), and a contribution to the Pension Fund (essentially social security), currently 84 UAH. This means your fixed monthly tax burden will be no more than $54 USD, regardless of your monthly earnings (as long as your yearly earnings are under $100,000 USD)!

Tax payment schedule

The tax established by your local tax authorities (these days usually 200 UAH/mo.) is paid by the 20th of each month for the following month. You can also choose to pay for up to three months in advance. In other words, your deadline for paying your taxes for May is April 20. If you hire employees (up to ten are allowed), you will need to pay social insurance taxes every quarter as well.
If you will be leaving the country or otherwise discountinuing your business activities, you may report this fact to the your local tax office and not be required to pay taxes for the months you do not work.

Accounting and fines

Private entreneurs who pay the "single tax" are supposed to keep track of their business-related expenses and earnings in a special accounting book that is given to them when they register with the tax administration. Bookkeeping requirements are not as strict as for those who use the standard tax option, which requires them to properly document all earnings and deductible expenses. As a "single tax-payer" you may be checked or audited — however, as I have been told at the tax administration, your bookkeeping is a formality, and there are no fines for keeping inadequate records. After all, your tax burden does not depend on your earnings or business-related expenses.

Termination of private entrepreneur status

Trying to terminate your private entreneurship officially is one of the most difficult bureaucratic procedures that exists in a country that is already notorious for its terrible bureaucracy. If you embark on this process, you will likely regret ever having established a private entrepreneurship in the first place. If you still must do it, find a lawyer who will do most of the dirty work for a hefty fee and save yourself the gray hairs and 100+ manhours of walking, waiting, pleading, and gnashing of teeth.
Better yet, simply walk away from the entrepeneurship when you leave the country, with or without leaving a notice in the local tax office. Sources say that inactive entrepreneurships are liquidated after a few years during routine checks*. The author himself has done this with no negative fallout to date. Others, however, recommend closing everything officially to avoid eventually having to pay back taxes.
* TryUkraine.com is not a law firm and is not responsible for any legal consequences resulting from following legal suggestions given here.