Freelance
in the Open: Payoneer,
Individual Entrepreneurs, and Taxes
Many freelancers worry about the legal status of their work and potential trouble with the law due to unpaid taxes. However, despite common myths, it is entirely possible to legally manage freelance work in Ukraine.
In this article, we'll address common concerns freelancers have about income taxation through payment systems (like Payoneer), legal registration requirements, and practical tips for legalizing your freelance work so you can work without fear of the tax office.
What is legal business activity?
Legal business activity involves declaring and paying taxes on all income. It doesn’t matter how you get paid—cash, bank account, or an online payment system like Payoneer — there are no exceptions. So, if someone says you don't need to declare income received through payment systems, that's not true.
As an individual, you must declare your income once a year and pay a tax of 19.5% on your earnings. If you register as an individual entrepreneur, you only pay 5% (depending on your tax group). Opening an individual entrepreneur account is now straightforward — you just need a computer and an hour of your time. This ensures you are protected and can rest easy.
The first question all newbie freelancers face is: how to work through an individual entrepreneur account while paying taxes on time and correctly. The second question: how to withdraw money to a Ukrainian card with minimal losses.
Are Payoneer Earnings Taxable in Ukraine?
What matters is that you receive income, not how you receive it,
whether through Payoneer or another payment tool.
Yes, any entrepreneur must pay taxes. What matters is that you receive income, not how you receive it, whether through Payoneer or another payment tool. The responsibility for this lies with the individual or company, not the payment platform or bank. For example, if you are registered as an individual entrepreneur in the third tax group, you must pay 5% of any income received and a quarterly single social contribution.
If you earn income from entrepreneurial activities or providing services to foreign clients through any payment systems or foreign currency cards of Ukrainian banks, this income is considered "foreign income" under the Ukrainian Tax Code and is subject to taxation.
How is Income Declared and Who Handles It?
When funds are deposited into a foreign currency account, the amount is converted to hryvnias at the National Bank of Ukraine (NBU) exchange rate and reported as income in the tax declaration. The date of income record is the date the money is credited to your bank account in Ukraine. If the money arrives in Payoneer in one tax report quarter and is transferred to the individual entrepreneur account in another, it is recommended to declare it in the quarter it transferred your bank account. Currently, banks and payment systems do not share client income information with the tax office, so the responsibility for declaring lies solely with the entrepreneurs.
Are Document Proofs Required for Money Transfers?
According to NBU regulation No. 42, banks may request documentary proof of the source of funds for any transactions. Banks have automatic systems that trigger on suspicious transactions, giving them the right to request additional documents, including from payment platforms. Usually, an invoice is enough when working with Payoneer, but sometimes banks with stricter compliance controls may request a contract.
How to Withdraw Money from Payoneer to a Ukrainian Card
When funds are credited to your Payoneer balance, they need to be transferred to the individual entrepreneur bank account linked to the platform.
There is a small withdrawal fee of 2% (soon to be 3%). The service payment fees do not reduce the contractor's taxable income and cannot be deducted from it. Therefore, in tax reporting, you must declare the total amount received for services without deducting any bank or payment system fees.
A small tip: if your monthly income exceeds $2,500, it is more profitable to use SWIFT transfers to withdraw funds once a month. Most freelance platforms support this method. The cost of such a transaction is fixed, around $30-50, although the downside is the transaction takes a few days.
After that, it’s simple. You can pay taxes and united social tax monthly or quarterly, and online platforms like Taxer can help calculate, complete, and even submit your tax reports for you.
The purpose of payment systems is to simplify international transactions,
not to optimize taxes.
Using online systems like Payoneer allows freelancers to receive payments from foreign clients. However, it is important to declare these incomes correctly according to the law and not evade taxes. The purpose of payment systems is to simplify international transactions, not to optimize taxes. The responsibility for the legality of your business lies entirely with the entrepreneur.
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