Is Single Tax For an IT Specialist a Sort of a Boogeyman?

Taisiia Mliuzan
03 October 2016

There is no secret that the majority of programmers work for their employers through a sole entrepreneurship. However, in practice, most employers (contractors) are usually not Ukrainian citizens and, thus, the business activity between two sides is regulated by FEP (foreign economic policy). This is what scares employees away from using this form of cooperation, because of intricacy and unclearness of Ukrainian legislation. Despite all the complications, this way is the most commonly used one from the economic point of view for both sides, which makes Ukrainian IT market very attractive for foreign companies. We would like to explain why in the following example.
Busting the first myth: “Taxes in our country are extremely high”
Let’s take a look at a position of a Senior Java Developer in Ukraine and the Netherlands. Salaries are in between 2500 — 3500 EUR in Ukraine and 2800 — 5000 EUR in the Netherlands. But not many people are interested in the gross salary levels. What the level of net salary (income after taxation) is – that is another matter altogether. For the purposes of calculation, we will take a salary rate of 3000 EUR.
Ukraine: 3000 EUR * (100% — 4% (single tax, 3rd group, 2015)) = 2880 EUR. Additionally, you will need to pay a minimum social security tax of 422.65 UAH (34.7% of minimum salary rate (it is 1218 UAH until 9/30/15), which is approximately 20 EUR). After this, net salary will be around 2860 EUR per month.
The Netherlands: 3000 EUR * (100% — 30% (income tax, which is between 20% and 35% depending on the situation) = 2100 EUR. Net salary amounts to around 2100 EUR per month here.
We can see that the difference is quite big (760 EUR per month; 35%). Not to mention social security expenses, visas, health insurance that is all obligatory abroad. So why such a big difference?
The thing is, if working through a solo entrepreneurship, a programmer pays his taxes as a legal person and not as a natural person. The special form that is a single tax has a 4% rate ( the 3rd group of taxpayers with income limitations of 20 million UAH annually, which is approximately 800000 EUR) of received income. This differs greatly from the natural persons’ income taxes (even in Ukraine income tax is from 15% to 17%, depending on the income level). Income rates after taxation in other countries are far not as appealing as in Ukraine (Poland – 28-30%, Russia – 12%, Ireland – 40-60%).
The main advantage of a single tax is a lack of influence of regulatory authorities on the taxpayer’s expenses. This means that in the process of sole entrepreneur’s verification, tax officials can only check the income part and in a case of violations, specify the operation as fictitious. Additionally, they are not interested in return paid by the private entrepreneur taxes from the Government Budget. At the same time, a private entrepreneur can always withdraw funds from the current account as a personal income (limitations affect only withdrawing from a foreign currency account in the equivalent of not more than 15000 UAH, and from currency account (in our national currency UAH) – 300000 UAH, per one business day).

Today, as never before, there is every condition available to enable everyone to see the real legal income and to beat our main “public enemy” – corruption, which emerges because of dubious schemes that allow tax evasion. Let’s build our new country together!