In Ukraine, IT Freelancing Under Threat 359
An anonymous reader writes "According to the new tax law (Google translation; Russian original) that is being developed now and should take effect on January 1, 2011, it will not be possible for a private Ukrainian entrepreneur to provide any services to foreign companies without becoming a full-fledged company with a dedicated bookkeeper. Currently it is possible to perform such services and pay the equivalent of $25 in tax. Instead of raising the tax (which is overall welcomed by the community), the legislators plan to outlaw ISP, e-commerce, and Internet-based services — along with any services provided to foreign entities — for individual entrepreneurs. So starting in 2011, freelancers in Ukraine will have several choices: stop doing freelance work, start working illegally, become a full-fledged company subject to multiple cumbersome rules for taxation, or leave the country."
Let me get this straight... (Score:5, Informative)
...individual entrepreneurs need to seek the a tax adviser and foreign or e-commerce based services are outlawed.
So what's the deal ? The situation is then similar to Germany, with the exception that the adviser is not mandatory but practically indispensable (even for freelancers) since the German tax system is the most complicated in the world.
And I can assure you that there are lots of freelancers in Germany.
Big deal? (Score:4, Informative)
Is this really such a big deal?
From my understanding there are many countries in the world that requires a registered commercial organization (and all the required administration that follows) to perform certain kind of jobs.
Perhaps sad for the Ukrainian people that working internationally becomes more cumbersome but I can also understand that the state want to keep track of what business is conducted from the country.
Whats the reverse of protectionism,destructionism? (Score:2, Informative)
No stinking taxes (Score:4, Informative)
The problem is that the majority of Ukrainian freelancers already work illegally.
Corporate entities have a far higher tax payment rate than individuals, especially in the internet sphere where freelancers don't have physical office space or physical deliverables that can be tracked by authorities. Furthermore, individual entrepreneurs providing internet-based services in Ukraine make it hard for the tax-paying corporate entities to compete.
This has become important because Ukraine is set to receive from $19-20 billion from the IMF in the next two and a half years if they can show that they are making progress in reducing their budget deficits, so there's a lot of incentive to try to push tax payments up.
Comment removed (Score:4, Informative)
So? (Score:5, Informative)
I work in the UK as a freelancer in IT and I need to have my own company, pay taxes and have an accountant.
I used to work in Holland as a freelancer in IT in there I needed to ... you guessed it ... have a company and an accountant.
Even if you don't want to have your own company, there are in fact schemes like "Umbrela Companies" which are in fact accountant managed companies who will temporary "employ" the freelancers and pass them all the income from their contracts minus tax and their part of corporation costs. These are however less tax efficient (you are taxed as an employee and income usually pays more taxes than dividends or capital gains) than just having your own company.
I'm sure Ukraine has some smart accountants who would love to setup some scheme like this.
Somehow I suspect that the real concern here is that freelancers will have to start paying real taxes like everybody else (my hearth weeps) instead of getting their roads, schools and law-enforcement for free.
Re:Leave the country. (Score:5, Informative)
if you are already doing freelance work, it means you already have connections, resume, and the experience to show for it. leave the country. that will teach them, VERY badly.
Right... so, let them eat cake, basically.
It's difficult to move even to a different city in Ukraine (you need a residence permit). As far as going to work in a different country, the entire international system is basically designed to prevent that. And it's not as if the world is your oyster... Your choices for visa-free travel as a Ukrainian are the former Soviet Union (except the parts that are now EU members) and that's it. You can pick up temporary visa's in-country in Egypt, Syria, Jordan, Thailand and Vietnam.
And nobody gives work visas for freelancers, so you'd be working illegally anyway.
Re:Let me get this straight... (Score:5, Informative)
IRS (Score:5, Informative)
I may be comparing apples to oranges, but...
The IRS costs apx $12 billion [gao.gov], has 1142 "Forms and Instructions" [irs.gov] (most seem to be forms). The law is reported to be 3,387 pages itself accompanied by 13,458 pages of regulation spread across twenty volumes.(http://www.trygve.com/taxcode.html)
And that's just the federal tax code. We also must worry about individual state and local tax codes, many of which are nearly as bizarre and convoluted as the federal ones. Definitions frequently differ between the IRS and state agencies.
Re:Let me get this straight... (Score:0, Informative)
I'm guessing that with combined taxes exceeding 50% of your income, we're on the far side of that curve. Oh, lowering taxes has worked every time to *increase* revenue. Check Kennedy, Reagan, and yes, Clinton (after 1994 election). You could make the case that the lowering of capitol gains tax under Clinton helped start the .com boom. Raising taxes always depresses the economy. If the economy is strong it can handle the increase; however, increasing taxes in a weak economy is never a good idea. If you don't believe that, wait until 2011 when one of the largest tax increase in US history kicks in (& No, I'm not talking about health "care"--that's in addition!)
Re:It worked to stop Al Capone (Score:5, Informative)
Similar in Brazil (Score:4, Informative)
And it has been so for a long time so, unfortunately, there isn't much of a freelance IT industry around here.
The problem people from countries such as the US and the UK don't seem to understand is that setting up an actual company in Brazil (and I imagine Ukraine to be similar) is that it's a HUGE hassle. By that I mean it's a 2-3 month process, involving more than 10 different government institutions you need to visit in person. You need to get a proper "commercial address", which can't be your home (unless you re-register it as a commercial building, which is another hassle and pays much higher property taxes).
When I worked as a freelancer, I did the math and I would pay about 25% of my earnings in fees and accounting. Then, I would pay income tax (progressive scale which tops at 27.5%) on the remaining 75%. Also, as a freelancer, I would need to pay 20% to social security instead of the regular 11%.
In short, I would end up with roughly ~50% of what I earned. Then I would proceed to buy goods which were already taxed to hell and my purchasing power would be effectively cut in half again (the cheapest Honda Civic here costs US$37K).
I just restricted to working only to foreign companies. The pay was better *and* I wouldn't need to register myself as a company to do that, as the tax code has general provisions for "money from foreign countries". The consequence is that it was very difficult to prove my income whenever needed (home financing, etc), as everything here requires a "regular" proof of earnings.
From my personal experience, I can say that, yes, this is bad news for Ukrainians.
Re:It worked to stop Al Capone (Score:3, Informative)
Accurate accounting of income is easy for a small/one-man show. Expensesare another matter altogether, which is what the US is moving to. If you have $200k in gross income and have non-trivial expenses, your average expense size might be $20, but inncomewould usually be one or two orders of magnitude higher.
We have a full-time book keeper and quarterly CPA reviews... But our expenses are tracked primarily by credit card statements. Individual transaction tracking would require us to spend 15% of our salaries on non-revenue producing people, which is unsustainable.
Re:It worked to stop Al Capone (Score:3, Informative)
Sorry man, I have to agree with circletimessquare; you're a parasite. Claiming you're some sort of free-spirit that doesn't really care about money anyway is disingenuous. I suspect yo know that you could earn money (or even spend it!) without the systems and infrastructure that taxing entities provide. You're just trying to justify shirking your obvious responsibilities with some half-arsed attempt at radical libertarianism. Grow up and pay your damn taxes.
Re:No stinking taxes (Score:3, Informative)
As someone who has used Ukrainian freelancers in the past, none of the workers I used chose to do things legally. I asked them why, and they said all the taxes and bureaucracy were so odious. Going legit was just not financially viable for them, even though I was paying them the local equivalent of executive level wages. The tax and legal system in Ukraine is so broken, that it's common knowledge that the best way to screw yourself is to try to go legit. All it does is open the door to half a dozen "inspectors" that show up looking for bribes, with the threat of shutting you down if you don't pay them off. Since paying bribes is also a crime, and there's no choice if you go legit, most Ukrainians rightly choose to do things under the table instead.
It's sad to say that Ukrainians have no idea how to properly run their own country. It's no surprise most Ukrainians have a "screw the system" attitude. Their government system is only partially reformed from the old days, where the government was intentionally designed by foreigners as a imperial bureaucratic dictatorship to keep everyone down. The only difference now is the person/party with the most votes (might) become their new dictator. The people who run things still rape the system. But compared to the Soviet era, it's a step up, so I don't blame them for not knowing what a normal country should be like.
Re:"Professor killing Ukraine (Score:2, Informative)
That might be insightful if by 'pro-Western faction' you actually meant anything. It was not 'pro-Western' policies or governing that cost Yushchenko a second term, it was pathetically weak leadership. And Yanukovich won with a bare majority in a run-off.
Let's not lose sight of the fact that, in US parlance, Yanukovich is a two-time felony loser, twice convicted of aggravated assault and robbery.
His government has moved swiftly and surely to censor journalist, blunt criticism with intimidation of Universities [rferl.org] and just yesterday, assaulting a journalist [youtube.com].
This is not about introducing a forward looking tax law, it's about putting in a law that will be used to bankrupt and criminialise the opposition.
Just like they do in Russia [wikipedia.org]
Re:It worked to stop Al Capone (Score:3, Informative)
I kind of doubt that; what you're advocating will create a gigantic power vacuum where the government used to be, and you're proposing that it will just stay that way without anyone stepping in and filling it. Sorry, but nature abhors a vacuum. What you're proposing will end up as a sort of neo-feudalism, as the most powerful companies or co-operatives take power for themselves.
Funny, because you're espousing ideals that are basically anarchistic. You should be interested in Somalia, because it's basically the direction you're saying we should go - a feudalistic society controlled by a bunch of warlords whose power is economic and military, not hereditary. How will the states fulfill your one purpose, if they have no power? How can the mouse censure the lion when the latter befouls the river?
No company would get public funding? How would the hundreds of thousands of small businesses that exist today have gotten off the ground, if not for government-subsidized small business loans? Will company-forming be something only rich people do in your world? Or would all small companies be beholden to large companies? After all, if there's no public funding for any company, the only way a small company can get started is through venture capital, and we all know how that turns out.
And then you want things to work at cross-purposes. Consumption is discouraged, but production is encouraged? Who will buy the stuff that gets produced? Production is not real wealth; "wealth" comes from settling imbalances between what people want and what people have. That's the basic theory of all market systems; Russian communism tried to do this by saying "This shoe company will make ten thousand shoes; these ten thousand people will buy them". Modern capitalism tries to do this by saying "Here's money, use it to buy whatever shoes you want". You're doing this by saying "Hey everybody, make a bunch of shoes; but we're going to tax the purchase of shoes and nothing else, so nobody will buy them".
States would not have the money to run wars of opportunity, it's true; however, corporations who are beholden to none but their CEOs (see? Neo-feudalism) will have standing armies. Businesses would not own governments because businesses only want to own things of value; the governments you are hypothesizing would be worthless.
How do mice punish lions? That is the fundamental flaw in your reasoning; you are advocating neo-feudalism controlled only by a powerless government. If you try to ride a bull with a harness made of cotton candy, you're going to get your ass trampled.
Re:So? (Score:3, Informative)
Not sure why Aceticon is +5 Informative, the parent is correct that you do not need to have your own company or have an accountant in the UK. You can simply declare yourself as self-employed (Sole Trader) to HMRC. Your earnings are then directly taxed as income.
As the_womble says, it is cheap to set up a limited company, you can have it done for around $50, and even then you still do not need an accountant. It is quite simple and straightforward to do everything yourself.
Aceticon may suspect what he wants, but I suspect he has never been to the Ukraine. Read some of the posts above about problems with corruption and shake-downs.
Phillip.