With the onset of the war, IT personnel working as single proprietors for overseas customers found themselves in a difficult situation. Payments for services sent to an entrepreneur’s account in dollars or euros cannot be paid out without incurring considerable losses. In such cases, the question of how to avoid losing money on the exchange rate difference emerges.

Why should IT professionals register an account in another country?

If an entrepreneur is involved in the export or import of commodities, payments must be received on a Ukrainian bank account. The statute establishes time constraints for this reason. Furthermore, by Decree of the National Bank No. 18 on February 24, 2022, these terms were lowered to 90 days for the time of martial law (in the pre-war period it was 365 days). This regulation does not apply if the transaction amount is less than UAH 400,000.

However, Resolution of the Board of Directors of the National Bank No. 67, dated May 14, 2019, specifies a list of services and items that are not covered by the settlement deadlines. This approach, in particular, does not apply to the export of computer programming services. Here is an extract from the Resolution’s paragraph 5: “the deadlines do not apply to services, works (excluding transportation and insurance), intellectual property rights, and/or other non-property exporting rights.”

As a general rule, IT professionals should not be concerned with currency regulation since it concerns the export of services and/or moral rights. However, the tax office may decide that services are included in the definition of “goods” in specific instances.

Therefore, payment for these services must arrive on a Ukrainian bank account. In the absence of sanctions, the single owner may be held liable under Article 162-1 of the Code of Administrative Offenses and fined between UAH 17,000 and 51,000 for infractions in foreign exchange transactions. Therefore, it is advised to speak with a lawyer if there is even a remote chance that such unfavorable effects might result. As an illustration, a lawyer will review the service agreement and, if necessary, reformulate its clauses.

Keeping your Ukrainian tax residency

If a sole proprietor IT professional continues to be a tax resident of Ukraine, it makes sense to create a foreign account for him. If not, you must already pay taxes at the rates in effect in the nation where the bank account was created.

Consider the circumstances. Due to the conflict, the Ukrainian IT expert had to be moved overseas, leaving his single proprietorship behind. He has a bank account there, established residency there, and works for foreign contractors. In such cases, profits may be subject to taxes that are higher than the Ukrainian tax rate (2%, for example, during the conflict). And it’s very obvious what this is. Even so, there are some exceptions. For instance, the Baltic nations do not regard Ukrainian sole owners who are temporarily protected by them as tax residents.

However, if the businessman continues in Ukraine, the situation would be unclear. Many nations tax income where it is received. However, the center of the taxpayer’s critical interests will take center stage when selecting the state in which the Ukrainian sole owner must maintain records and pay taxes. Obviously, the center of important interests is in Ukraine if an IT professional resides and works there.

Characteristics of creating a foreign bank account for a single proprietor

You should consider the choice of jurisdiction, the regulations of a certain bank, and some other details when opening an account as an entrepreneur overseas, for instance. Opening a personal account rather than an entrepreneurial one is permitted by the bank, but doing so may result in claims from Ukraine’s tax service because the income will be viewed as non-entrepreneurial. Each jurisdiction has its own methods for determining tax residency and the center of vital interests, as was previously mentioned. Some banks impose restrictions on things like the maximum amount per transaction.

You must first determine how much it will cost to maintain the account before starting one. The following expenses are frequently included in the cost of keeping an account:

Fixed monthly payment; fees for incoming and outgoing payments, currency conversion, ATM cash withdrawals, and other services; SMS alerts and Internet banking; hiring services for client payment acceptance.

At the same time, an IT expert can create an account outside of a traditional bank to transfer salaries from a foreign company. A other option is to create a currency business account with one of the global payment processors, such Payoneer, Wise etc.

It is expressly forbidden to withdraw money from the sole proprietor account. Regulation of the Board of the National Bank No. 5, dated 02.01.2019, imposed this ban. “Transfer of money in foreign currency from the current account of a single proprietor resident to the current account of this individual in foreign currency, created for his own use, is banned,” reads paragraph 113 of this normative act.

A businessperson must do two things before using their earnings for personal expenses – exchange them into hryvnia  and deposit them to their credit card. You may only freely dispose of money after that.

So-called “convertible deposits” were first made available by Ukrainian banks at the end of July of this year. The diagram that follows is this. The business owner transfers money from his single proprietor account to the bank, sells it, and then deposits it right away for a limited time, like three months, at the same rate. After these three months, you can make a preliminary request to cash out the currency at the bank’s cash desk. The initial deposit opening threshold was UAH 50,000; however, starting on October 1 it was raised to UAH 100,000 each month. By employing such a plan, it may be possible to prevent losses on the sale of currency to the bank and the subsequent purchase of cash at the going rate. However, there is a chance that issues would occur if foreign currency is withdrawn through the bank’s cash desk after three months. For instance, the requested funds might not be released for several weeks after being requested.

Other Techniques

1. Establishing a foreign business

A lone owner may use their own overseas firm to collect payments from their customers (or, in reality, employers). Both sole proprietors who run small businesses and business owners who make more than 80,000 euros in profit per year should consider this alternative.

2. Deferred Pay

The so-called delayed salary is one of the methods used to conserve the money received from the employer (customer). We are referring to the situation where an IT worker who is employed by a foreign employer under a contract and who is registered as a Ukrainian single proprietorship requests to leave a portion of his fees (compensation) on the accounts of the foreign employer. Deferred salaries have been a common practice since the beginning of the conflict, but not particularly frequently.

3. A travel expense card

Opening a foreign currency card in a Ukrainian bank for “travel costs” is another quite common choice. Such cards were first made available by several banks in June 2022. In addition to being able to withdraw money straight from the single proprietor account at a greater rate than when selling to a bank, cardholders may pay for products and services using Apple and Google Pay. However, there are certain limitations and this plan only applies to those who are traveling. In particular, a 100 euro withdrawal cap can be established.

Resources: photobank