How to set up as an independent contractor in Ukraine

If you want to change lanes and forge a career path on your own terms, becoming an independent contractor could be just the ticket.

Ukraine boasts a thriving startup scene — particularly in the tech and software sectors — meaning you won’t be short of potential clients. Plus, despite the country's ongoing military situation, Ukraine is an attractive destination thanks to its relatively low tax rate and EU candidate status.

Before you can start your self-employment journey, though, you’ll need to know how to:

• Register as a business in Ukraine

• Avoid misclassification as an employee

• Create compliant contracts that protect you

• Invoice and collect payments from around the world

This article will cover all of the above and help you navigate your tax responsibilities as a self-employed worker. We’ll also discuss other risks and liabilities you should be aware of.

What is an independent contractor according to Ukrainian law?

First, it’s important to clarify how Ukraine defines independent contractors.

Independent contractors provide paid services (or products) to another party. However, they are classified differently from employees and are usually not entitled to benefits like paid leave, sick days, and minimum wage. On the flip side, contractors have more freedom and flexibility in how they work.

See also: Why businesses hire contractors vs. international employees

As in most countries, Ukraine does not explicitly define the difference between employees and independent contractors in law. Instead, the distinction is made based on the nature of the working relationship and the degree of control exercised by the client/employer.

Based on these guidelines and the definitions of employment in the Labor Code of Ukraine, you’re generally considered to be an independent contractor if you:

• Determine your own work schedule and working hours

• Perform work for other companies

• Set your own rates and scope of work

• Provide your own tools or equipment

• Are not integrated into one specific company and its operations (i.e., you don’t have an internal email address)

• Are able to delegate or subcontract work

• Work without direction or supervision

When working with clients, it’s important to be correctly classified to avoid penalties and ensure you’re paying the right taxes.

How to become an independent contractor in Ukraine: Business structures

Before you can begin working as an independent contractor in Ukraine, you must choose a formal structure for your business. This will determine where liability lies and how you will pay tax.

Sole proprietorship

The most popular choice for contractors is to operate as a sole proprietor.

In Ukraine, a sole proprietor is known as an individual entrepreneur or a “fizichna osoba-pidpriyemets” (FOP).

As a FOP, you have full control of your enterprise, but there’s no legal separation between you (the owner) and the business. In other words, you are personally responsible for the debts and liabilities of the firm.

However, the simplicity and ease of a sole proprietorship keep this structure possible despite the risks.

Limited company

If you want more legal protection, you’re working with other partners, or you anticipate generating a large amount of revenue, a sole proprietorship may not be the right fit. Another option is to incorporate a company.

A limited liability company (LLC) gets its name because the structure offers a legal separation between the business and the people involved. If the company faces legal issues, the owner isn’t held liable and doesn’t risk losing their personal assets.

LLCs are more complex to set up than sole proprietorships, but they reduce the amount of risk you’re exposed to.

If you’re unsure which structure is best for your business, speak with a registered solicitor or accountant.

How to register as a contractor in Ukraine

The business registration process can vary somewhat depending on whether you want to become a sole proprietor or register an LLC. We’ve detailed both cases below.

Sole proprietor

To become an FOP in Ukraine, you must be aged 18 or over (or 16 and over if you have permission) and have a Ukrainian tax ID number.

To get a tax number as a foreign national, you need to provide a Ukrainian translation of your passport and proof of your legal stay in Ukraine.

Then, you need to register with the state registrar (NAIS). This can be done online or at notaries, executive committees of municipal city councils, or public legal entities.

While the application process is straightforward, you must fill everything out in Ukrainian. So, unless you’re fluent in the language, you may need assistance from a legal professional based in the country. By granting this third party power of attorney, they can legally sign documents on your behalf.

An FOP application also requires you to provide your address and name.

When applying, you can also request to pay revenue tax rather than standard personal income tax — we’ll discuss this in more detail in the taxation section of this article.

If your business activity is regulated (e.g., you practice a protected profession such as medicine or you handle food), you may also need to acquire additional business permits or licenses from your local issuing authority.

LLC

Registering an LLC in Ukraine is another simple process that should only take three to seven calendar days. However, as with FOP registration, you may want to enlist the help of a lawyer if you don’t speak Ukrainian fluently or don’t have an address to register your company.

As with the other process, you need a Ukrainian tax ID in this scenario.

You can register at a state registrar’s office or notary office, with the second being the quickest choice but requiring a fee. Or you can open an LLC online through the Ministry of Justice of Ukraine.

The first step is to choose a name for your LLC, which can’t match anything else in the Unified State Register.

You can then fill out the registration form, which requires the following information:

• Your passport and identification number

• NACE (the code appropriate for your business)

• The business’s legal address

• Information on the company formation (i.e., whether there’s a director or any other owners)

• Articles of association

You may also want to open a business bank account and obtain a digital signature.

Note that the company director in an LLC in Ukraine must be a Ukrainian resident. However, non-citizens can circumvent this by appointing someone else as director initially, obtaining a work permit, and appointing themselves as director later.

Popular fields of work for independent contractors in Ukraine

To become a freelancer in Ukraine, you need to provide in-demand services to establish a sustainable client base. Below, we list some of the most promising fields in the country.

IT

Ukraine has a thriving tech sector, with the industry making up 4.9% of total GDP in 2022. Its economic activity means there are plenty of opportunities and potential clients.

Some of the most in-demand service providers are programmers, developers, and software engineers.

Since contracting online allows those in Ukraine to access other European countries and the rest of the world, IT contractors can also work with foreign tech companies while operating from Ukraine.

Creative

If you don’t know how to program, that doesn’t mean you can’t take advantage of the buzzing creative field.

Many creative professions lend themselves well to contracting. Many businesses don’t require full-time employees to handle tasks like writing, graphic design, or video production — but they still need this work to be done sometimes. Contractors are the perfect solution.

Creative work has the potential to get you a good monthly salary if you build up a good track record.

Marketing

Marketing is another area that makes sense for the contractor economy. It can include anything from social media management to ad campaigns and business consulting.

All businesses need to market themselves to solidify their online presence and secure new customers, which requires help from skilled professionals. But they may prefer to outsource this work to a contractor or agency rather than go through the hiring process. Or they may have an inconsistent need for work and prefer to opt for a short-term contract each time they go through a marketing push.

How do I get paid as an independent contractor in Ukraine?

As an independent contractor, you don’t receive a guaranteed monthly salary each month.

Instead, it’s down to you to handle your invoices and payment collection. Unfortunately, this means billing each client individually and collecting payment through their preferred payment method — which can be inefficient and time-consuming.

Some of the most common ways to collect payments include:

• Bank transfers

• Direct deposits

• Paper checks

• Money orders

• Virtual wallets

• Digital transfer services like PayPal and Wise

These methods all have their pros and cons. For instance, bank and digital transfers can be pretty quick but often come with hefty service fees. And if you have clients in other countries besides Ukraine, the payment collection process can be even more complicated.

Alternatively, you can use a trusted solution like Remote. Our platform is a simple, secure, and reliable way to get paid quickly in Ukrainian hryvnia — and with no hidden fees. Learn more about how our platform can help.

Independent contractor taxes in Ukraine

As an independent contractor, you’re responsible for working out your tax burden and complying with authorities. The tax system of a foreign country can be confusing, but we clarify what you need to know here.

Before we get into tax rates, there’s an important point to make: when you’re a FOP, you can choose between the Standard Tax Regime or the Simplified Tax Regime.

Under the Standard regime, you pay separately for personal taxes, military taxes, and VAT (if applicable). As for the Simplified regime, you pay a unified tax that covers everything.

The second system is generally preferable for contractors thanks to the simpler accounting process it allows. However, the best choice for you may depend on your income, so it’s best to talk with an accountant.

To join the Simplified Tax Regime, you need to register with the Ukrainian tax authority — and you’re only eligible if you earn under 5 million Ukrainian hryvnia (UAH) yearly.

Tax rates in Ukraine

In Ukraine, personal tax is a flat rate of 18% on your taxable income, regardless of how much you earn. You must also pay a 1.5% military tax (a temporary requirement).

Corporate tax is a flat rate tax of 5% on your revenue. 

In addition, you must make monthly unified social contributions (USCs) at the rate of 22%.

If your annual income exceeds ₴1 million (around 27,000 USD), you will need to charge and pay VAT.

The standard VAT rate in Ukraine is 20%, although some goods and services are charged at the lower rates of 14%, 7%, and 0%.

How to file taxes

To file taxes, you need to register with the Ukrainian tax authority and obtain an Individual Taxpayer Identification Number (ITIN). If you followed the process outlined above for registering your business or as self-employed, you will have this number already.

You should file your tax return by April 30 each year, and make advance payments on a quarterly basis. As in most countries, almost all business expenses are tax deductible.

If you’re moving to Ukraine from another country or you’re Ukrainian but spend time in other countries, too, then it’s important to be aware of double taxation considerations. You need to check whether you’re a tax resident and whether your country has a double taxation treaty with Ukraine.

Keep in mind that this depends on how many days you spend in each country per tax year rather than your permanent residence. In Ukraine, you must spend at least 183 days in a tax year in the country to be a tax resident, but the rules vary for other countries.

Liability considerations for independent contractors in Ukraine

Sole proprietors are personally liable for finance and tax debts, which means private assets can be forcibly used to settle business debts. Many independent contractors purchase liability insurance to help mitigate this risk.

It’s also important to protect yourself when drafting and signing agreements with clients. Just as employees should carefully review their employment contracts before signing, contractors should pay attention to the contracts they sign. In addition to outlining the terms of employment, like hourly rates or notice periods, contracts outline the contractor’s legal responsibilities.

Our legal experts can provide you with fully compliant contract templates for both Ukrainian and international clients.

Accounting requirements for independent contractors in Ukraine

As a sole proprietor, you don’t need to publish annual financial statements.

However, you should still keep organized, accurate records of all your income and expenditures (including client invoices, purchase orders, bank statements, and receipts). This will help you correctly file your taxes, give you a stronger picture of your financial situation, and make life easier if the tax authorities audit you.

You can manage these records using an accounting tool or hire a professional bookkeeper or accountant.

The dangers of contractor misclassification in Ukraine

As we’ve mentioned, independent contractors are classified differently from employees in Ukraine. Many protections and benefits employees enjoy, like public holidays and social benefits, don’t apply to contractors.

As a result, companies may deliberately misclassify you to circumvent employment law, or do so accidentally. Whether intentional or not, misclassification can result in penalties and fines for both you and your client.

As an independent contractor, you can work with your clients to ensure this doesn’t happen. Discuss your role and job responsibilities with them, and review the working arrangement regularly to make sure it falls within the proper legal framework.

If your working relationship with a client changes over time, you can ask to change the terms of employment and become an employee instead.

Use our Contractor Compliance Checklist to avoid misclassification

Work through this checklist to help determine if a new hire should have a contractor or employee relationship.

Download

How do I ask the company I’m working with to convert me to an employee in Ukraine?

Open a dialogue with your client and carefully discuss the risks and benefits of moving to an employer-employee relationship. In particular, be clear about how it can benefit both parties — not just you.

You can even suggest using a third-party solution, such as Remote, to ease the transition. Our global employment services help both parties stay compliant by handling key HR functions (like payroll management and benefits administration) in accordance with Ukrainian law.

4 ways Remote makes life easier for contractors and their clients

There’s a lot to take on board when setting up as an independent contractor. Remote can help you with many of these challenges, allowing you to focus on growing your business and delivering to your clients. Here’s how:

1. International payments in countries around the world

Navigating your clients’ different invoicing, approvals, and payment systems can be complicated and time-consuming. Yet manual methods of invoicing and collecting payments can increase the risk of fees, errors, and delays.

Remote gives you access to a highly secure, streamlined dashboard that makes invoice management and international payments cost-effective and efficient. You can use our platform to get paid in Ukrainian hryvnia (or other currencies) without hidden fees.

2. Localized in-app contracts and advice

When you draft agreements and contracts for your clients, you must comply with local labor laws — especially when working with international clients. Remote offers localized contracts tailored to Ukrainian laws to keep you within the law.

Our legal experts can also provide guidance on complex issues, such as local classification and intellectual property protections.

3. Invoicing automation

With Remote, you no longer need to rely on archaic processes like spreadsheets and other manual tools to invoice for payments.

We provide a single software to create invoices, submit them, and receive payments in your local currency. This helps you to avoid the inaccuracies and delays caused by archaic manual processes.

4. Tax management

Tax management is notoriously complex work. Remote helps you quickly and efficiently deal with tax management by compiling data about your income based on your invoices and payments received.

Setting up as an independent contractor in Ukraine

Ukraine’s thriving tech sector and simple business registration process make it an excellent destination for independent contractors. Professionals can register as an FOP or create an LLC to set their business up in days, and they also benefit from a flexible tax system.

However, to avoid legal issues and penalties, it’s important to pay attention to the country’s technicalities and rules.

A stable, trusted platform like Remote helps Ukrainian professionals and other contractors based in the country to manage their obligations quickly and efficiently. We can help you:

• Avoid intermediary fees and delays with international client payments

• Draft compliant contracts for Ukrainian and foreign clients

• Enhance your invoice management and avoid manual processes

• Comply with local labor laws regarding work practices

Our platform makes it quick, simple, and seamless to get started as an independent contractor. Learn more about how our expertise can save you time and resources today.