Taxes for IT freelancers from Ukraine

1. Is it possible to work with a Ukrainian Individual entrepreneur in Europe?
2. Favorable tax rate for IT specialists in Poland
3. Peculiarities of taxation of the IT specialist's income in the Czech Republic
4. What gives the status of non-habitual resident in Portugal

Is it possible to work with a Ukrainian Individual entrepreneur in Europe?

Legally, there is no ban on having a working Ukrainian Individual entrepreneur in European countries.

But here the question rather arises: Is it profitable to be an IT specialist and have a Ukrainian Individual entrepreneur while living in Europe? A registered Ukrainian Individual entrepreneur is a direct criterion for Ukrainian tax residency.

Very recently, the procedure of concluding bilateral agreements with various EU countries was initiated with the aim of leaving Ukrainians who relocated with tax residency of Ukraine, and for taxes to be paid to Ukraine accordingly. But none of them are valid yet.

Currently, only in Ireland, Lithuania, and Poland, there is some information from 2022 that Individual entrepreneur will be exempted from local taxation. Therefore, there is no general practice of exemption from payment of local taxes by Ukrainian Individual entrepreneur in Europe.

General rule: a person pays taxes when he falls under the criteria of tax residency in one of the European countries.

Many Ukrainian IT specialists, moving to European countries, want to find a jurisdiction with the same taxation (5%) that exists in Ukraine. Unfortunately, there are no such favorable rates in Europe. But here you can rather look for those countries in which the level of taxation is closer to the Ukrainian one.

• Poland is the first jurisdiction to pay attention to

For example, an IT specialist moves to Poland and decides to obtain the status of an individual entrepreneur there. There are several tax systems in Poland, but I will focus on the most attractive one.

You can get a rate of 12% - this is a flat rate on all income - if the person is engaged in software development and similar activities. The law contains a list of KVEDs, according to which the registered activity will be subject to a rate of 12%.

Also, if it is consulting on software development or anything related to consulting, the rate may be 8.5%.

In addition to personal income tax, an IT specialist will also have to pay social security contributions, which depend on the amount of income. It is €60, €127 or €214 per month. Therefore, we can say that Poland is quite close to our taxation system.

• The Czech Republic is a good option for an IT specialist

If the income of an IT specialist registered as an individual entrepreneur is up to €75,000, then 15% personal income tax applies, but only up to 40% of the individual's income. Thus, the effective tax rate can be 6-7%.

Also, do not forget about social contributions, which amount to about 200 euros per month.

• Portugal

A progressive personal income tax is generally not attractive. But in Portugal, there is a non-habitual resident status, according to which an IT specialist receives a fixed tax rate of 20%, instead of a progressive one - from 14 to 48%. And also for the first two years there are very favorable tax conditions, which allow even for the first year to have an effective tax rate of 7.5%.

During the first year, social contributions may not be paid. There are also discount coefficients for the tax base.

Therefore, if you are considering Portugal for relocation for the first two years, it will be a really good option.

Therefore, if you need advice on the selection of a jurisdiction for the relocation of your IT activities, or if you have doubts about whether to leave a Ukrainian Individual entrepreneur while in Europe, the team of specialists of the law firm "Prikhodko and Partners" will be happy to help you with your question.