Private Entrepreneur Registration in Ukraine
Individuals who wish to conduct business (trading, services, etc.) without incorporation of a separate legal entity, can conduct such activity by registering as a Private Entrepreneur. The form of business is simple to register and maintain and additionally, can offer good tax savings through the Simplified Tax Regime for such structure. The key drawback is that the lack of limited liability because in this case, the individual is personally responsible for any business liabilities. Therefore doing business through Private Entrepreneur structure makes sense only when the type of business does not carry any major risks.
Most Ukrainian freelancers are registered as Private Entrepreneurs. Additionally, in Ukraine Private Entrepreneur is also wide-spread alternative to employment as amount of taxes accrued on income of Private Entrepreneur (through Simplified Tax Regime) is much lower than amount of taxes accrued on salaries of employees.
This article provides information on advantages and disadvantages of using such business structure by individuals, overview of registration, taxation rules and ongoing compliance procedures for Private Entrepreneurs.
Overview of the business structure Private Entrepreneur
Individuals in Ukraine who are engaged in minimum risk type business activities may find Private Entrepreneur (hereinafter – PE) type of business registration a good option for their simple needs. This form of business structure is simple to register and maintain and additionally, can offer significant tax savings through the Simplified Tax Regime available for such structure subject to certain conditions. For these reasons, Private Entrepreneur registration is a popular option for Ukrainian freelancers and can be a good alternative to employment by Ukrainian companies as explained further in subsequent sections of this article.
Note that both citizens of Ukraine and foreign individuals can be registered as Private Entrepreneurs in Ukraine as well as use simplified tax regime (upon certain conditions as described below in section Tax Regime). For registration as a Private Entrepreneur, the foreign individual has to obtain tax number and provide information about the address on the territory of Ukraine (however, for PE registration by foreign nationals, residence permit and address registration are not required).
However, foreign nationals, which would like to work as PEs in Ukraine, should consider the following:
- registration as PE cannot be used as grounds for obtaining temporary residence in Ukraine;
- according to Tax Code of Ukraine, if foreign national registers as a PE, he becomes a tax resident of Ukraine;
- according to Banking law of Ukraine, if foreign national registers as a PE, he will be subject to the same Banking rules as citizens of Ukraine.
Key characteristics of Private Entrepreneur business structure
Below are key features, advantages, and disadvantages of Private Entrepreneur business structure.
- Only a natural person(not legal entity) can register as a Private Entrepreneur. The registration is done in the State Registry of Legal Entities, Private Entrepreneurs and Public Formations (hereinafter – Companies Registry).
- The owner personally bears full personal responsibility for all business risks.
- A Private Entrepreneur business entity can open bank accounts, conduct business activities and hire employees.
- In case of insolvency, a PE can be recognized as bankrupt (like a legal entity);
- If the annual income of Private Entrepreneur does not exceed 7 million UAH, he can enjoy so called “Simplified Tax Regime” (for more detains see below section Tax Regime).
- According to Ukrainian law, all property achieved during marriage constitutes joint property of a couple. Disposal of joint property can be done only upon mutual consent of both. As property of Private Entrepreneur is equal to property of a natural person, it will be necessary to make sure that the owner has obtained his wife’s/ her husband’s consent for disposal of such property.
A Private Entrepreneur business structure has the following advantages over a Ukrainian Limited Liability Company type of legal entity. A PE
- is simpler to register;
- is simpler to maintain;
- is less costly;
- offers attractive tax savings through Simplified Tax Regime.
- The owner personally takes on all the debts and obligations related to the business activity of PE.
- A PE business has no perpetual existence. It lives or dies with the owner.
- Your business will have a weak perception among customers, suppliers, bankers, and staff.
- It will not be easy to sell such kind of business.
Given all of the above, although Private Entrepreneur business form is an excellent choice for individuals carrying minimum-risk business activities (IT professionals, etc.), this structure is not a suitable choice for businesses and startups that plan to grow big or have higher business risks and potential liabilities.
Registration of Private Entrepreneur
Necessary documents and registration timeline
Private Entrepreneur business structure must be registered with the Companies Register. Registration of PE is free of charge and can be completed within 24 hours upon application. Starting from 2016 state registration of a PE in Ukraine can be executed by one of the following authorities:
- Executive committees of municipal city councils
- Notaries (public or private)
- Accredited by Ministry of Justice of Ukraine public legal entities
- Through website http://rp.irc.gov.ua/ (online)
For registration you have to file the following documents:
- passport and tax number of private individual
- completed application for registration of PE (the standard application form as approved by Order of the Ministry of Justice of Ukraine), including information on registered address of private individual and types of business activities.
- notarial consent letter from parents or other guardians (for individuals who are less than 16)
- application on registration of PE as Unified Tax-Payer (e.g. to pay taxes on the Simplified Tax Regime) – optional
- application on registration of PE as VAT -payer – optional
- if application for registration is filed by representative of the individual, additionally power of attorney and passport and tax number of the representative will be required
Once filed, the Company Registrar will issue a receipt listing filed documents along with an application filing number. This application number can be use to check the registration status of PE via online service of the Ministry of Justice of Ukraine.
Confirmation of Registration
Upon successful registration of the PE, you can obtain an Extract from the Companies Register confirming the registration of PE (through the Registration Portal as mentioned above). If required, you also obtain a paper copy of this document. The Companies Registrar upon registration of PE will notify Tax and Pension Fund authorities of Ukraine. In future, you and your business partners as well as all the other third parties can access information on the PE in the Companies Register at https://usr.minjust.gov.ua/ua/freesearch (search can be done by name or tax number of PE). The Companies Register contains full information on PE (i.e. the information that was indicated in the registration application) such as registered address of PE, contact details, business activities, etc. Some information to the Companies Register will also be included upon notification of state bodies, court decisions etc (e.g. information on state registration of PE by Tax authorities, court decision on termination of business activity of PE, insolvency proceedings etc).
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Tasks to complete after registration of Private Entrepreneur
Upon successful registration of the PE, below is a list of typical post-registration tasks that you should look into:
- Seal Seal is NOT mandatory in accordance with current Ukrainian law; accordingly PE can choose either to use seal or not at his/her own discretion. At present no special permissions are required to make a seal. To order a seal, the specialized seal-producing companies will require copy of extract on registration of PE (or access code).
- Registration with Tax Authorities Registration of PE with tax authorities is performed automatically upon registration of PE in the Companies Register and does not require filing any additional applications to tax authorities by PE. Once such registration with tax authorities is complete, you can see the respective record in the Companies Register and extract from Companies Register. In addition:
- if PE is planning to be a VAT-payer, it has to file VAT-payer application to tax authorities (unless such application was already filed within registration of PE in the Companies Register).
- if PE is willing to use Simplified Tax Regime, it has to file Unified Tax – payer application to tax authorities (unless such application was already filed within registration of PE in the Companies Register).
- Social Security Tax Registration PE does not need to file any notifications to tax authorities as social security tax payer (as this is done automatically upon registration with Companies Register). However, if PE is hiring an employee, PE must notify state tax authorities responsible for administration of social security tax, not later than 1 day prior to first working day of each employee.
- Open Bank Account In order to open Private Entrepreneur bank account you will need to submit a number of documents, including:
- Documents confirming powers of representative of PE (i.e the person who is filing the bank account application), his/her passport and tax number
- signature card (certified by bank’s official in presence of all the signatories)
- Copies of passports, tax numbers and documents confirming powers of persons, mentioned in the signature card
- Additionally you will need to fill in and sign application on account opening, questionnaire and other documents on request of the bank.
Taxation of Private Entrepreneur
A Private Entrepreneur structure can opt for one of the following two tax assessment schemes:
- Standard Tax Scheme. Under this scheme standard taxes and tax rates apply on business income. These taxes include income tax, military tax, VAT tax, etc.
- Simplified Tax Scheme. Under this scheme, PE pays a one Unified Tax (instead of different types of taxes) the rate of which depends on the amount of income, type of business activity, and number of employees. The Unified Tax rate is considerably lower than the Standard Tax rate and can result into excellent tax savings. However, to qualify for Simplified Tax Scheme, PE has to satisfy certain conditions.
To get more details, see our Private Entrepreneur Tax Guide.
Regular Filings and Reporting
Ukrainian Laws require each PE to comply with the following ongoing reporting/filings requirements:
- Filing notifications to the Companies Register on any change of information regarding PE contained in the Companies Register. There is no specific time limit for registration of amendments to such information. However, as according to Ukrainian law, information contained in the Companies Register is considered true and valid for third parties, you should ensure that all data contained in the Companies Register is up-to-date.
- Quarterly, yearly tax returns – depending on Tax Regime of PE (Standard or Simplified)
- In case PE hires employees:
- Filings with Ukrainian Tax Authority as income tax agent of the PE employees (quarterly); and
- Filings with Ukrainian Tax Authority as Social Security Tax-payer for each employee (monthly)
- Filings with Ukrainian Tax Authority as VAT-payer (if registered as VAT-payer) (monthly, quarterly)
Summing It Up
Private Entrepreneur is a good option for self-employed specialists and small businesses who want to enjoy favorable tax regime, simplified reporting procedure, and are engaged in non-risky business activities. This form of business registration is very popular in Ukraine among self-employed people and freelancers such as IT professionals.
Nowadays in Ukraine many companies who are hiring highly-paid professionals tend to conclude civil services agreements instead of employment agreements. This allows to significantly decrease tax burdens on worker’s income as tax rates on income of PE are much lower than those accrued on salary of employee.
Foreign citizens can also be registered as Private Entrepreneurs in Ukraine and use the Simplified Tax Regime under the same rules as Ukrainian citizens. However, such registration cannot be grounds for obtaining of temporary residency in Ukraine, so in most cases PE is suitable for citizens or permanent residents of Ukraine.
Here are some additional resources about setting up a legal structure in Ukraine that you might find useful :
- Private Entrepreneur Tax Guide
- Business Structures in Ukraine
- Limited Liability Company Registration in Ukraine
For further information, please contact us.