Outsourcing models for IT-companies in Ukraine

IT business operation model, by which software developers are engaged as private entrepreneurs, is the most tax-effective and tax-beneficial in Ukraine. The companies, engaging software developers, take up the registration process and keep records of their operations with developers as private entrepreneurs.

The difference between taxation of private entrepreneur and employee is significant.

The private entrepreneur shall pay 5 % of unified income tax plus about social fund contribution the minimum rate of which equals to 34,7 % of minimal salary rate. Thus the social fund contribution approximately equals USD 70 as of today.

The employee shall pay standard tax rate on employment income - 15 % of the salary. In addition the employer shall accrue social contribution at the rate of 36,76 % and withhold up to 3,6 % of current salary.

It should be noted that there is a difference in social protection of a private entrepreneur and an employee in Ukraine the same as in other countries. The employee is more protected, by Labor Law first of all. The private entrepreneur activity is governed by Business laws, which make him equal to the entity and reduces his social guarantees. IT developers in Ukraine should choose between more money and more guarantees, which are not always efficiently applied in Ukraine. Thus the IT developers usually choose the option of being private entrepreneur.

Some IT companies (usually big ones) in Ukraine put taxes on private entrepreneurs, others compensate the taxes and organize their payment by themselves.

The funds obtained by Ukrainian IT сompany are distributed to contracted private entrepreneurs and thus the income from out-sourcing activity is deductible. Taxation of the business model is rather tax efficient.

  • Category: IT BUSINESS
  •  Viewed: 839
  • Date: 04 April 2014