With the outbreak of the war, IT employees working for foreign customers as sole proprietors found themselves in a disadvantageous position. Payments for services that come in dollars or euros to an entrepreneur’s account cannot be cashed out without significant losses. The question arises how not to lose on the exchange rate difference in such circumstances.

 

Fortunately, there are several ways to solve the problem at once. We will talk about them in our review. At the same time, we are always ready to provide individual recommendations that best suit your situation. The team of the Lawrange law firm knows a lot about business support, banking law and the legal aspects of foreign economic activity.

 

 

Open a sole proprietors account abroad

 

Important! Opening an account in a foreign bank is an obvious and profitable solution for Ukrainian individuals – IT entrepreneurs. This solution fits:

  • if an IT specialist was evacuated abroad, but retained the status of a Ukrainian sole proprietorship;
  • if the entrepreneur stayed in Ukraine and continues to work with foreign customers, receiving payment for his services (salary) in dollars or euros.

 

 

Does Ukrainian legislation allow entrepreneurs to open accounts in foreign banks? Yes. The following are excerpts from Law No. 2473-VIII “On Currency and Foreign Exchange Operations” dated June 21, 2018:

  • Article 2: “the freedom to conduct foreign exchange transactions provides for the right of residents to enter into agreements with non-residents and fulfill the obligations associated with these agreements in foreign currency, including opening accounts in financial institutions of other countries”;
  • Clause 3, Article 4: “Residents have the right to open accounts with foreign financial institutions and carry out currency transactions through such accounts.”

 

Important! You do not need to obtain a license or any other permissions to open a foreign account. With the introduction of Law No. 2473-VIII, the procedure for obtaining such permits was finally abolished. Moreover, the entrepreneur is also not required to inform the tax service about opening a bank account abroad. Based on this, FLP is free to open an account anywhere and anytime. And this in no way harms being on the simplified taxation system in Ukraine.

 

 

Why is opening an account abroad suitable for IT specialists?

 

If an entrepreneur is engaged in the export or import of goods, then the payments must be received on an account in a Ukrainian bank. For this purpose, the legislation defines time limits. Moreover, for the period of martial law, by Decree of the National Bank No. 18 of February 24, 2022, these terms were reduced to 90 days (in the pre-war period it was 365 days). This rule does not apply, for example, if the transaction value is less than UAH 400,000.

 

However, Resolution of the Board of the National Bank No. 67 “On Establishing Exceptions and (or) Peculiarities for the Introduction of Deadlines for Settlements” dated May 14, 2019 establishes a list of services and goods that are not covered by the deadlines for settlements. In particular, this procedure does not apply to the export of computer programming services. Here is an excerpt – paragraph 5 of paragraph 1 of the Resolution: “the deadlines do not apply to services, works (except for transport and insurance), intellectual property rights and (or) other non-property exported rights.”

 

Intermediate conclusion: as a general rule, IT specialists should not worry about currency regulation, since it is about the export of services and/or moral rights. However, in some individual cases, the tax office may consider that services are included in the definition of “goods”.

 

This means that payment for these services must be received on a bank account in Ukraine. Otherwise, sanctions will follow – up to bringing the sole proprietor to liability under Article 162-1 of the Code of Administrative Offenses for violations in foreign exchange transactions with a fine of UAH 17,000 to 51,000. Therefore, if there is the slightest theoretical risk of such negative consequences, it is advisable to consult a lawyer. For example, a lawyer will analyze the contract for the provision of services, and, if necessary, reformulate its provisions.

 

 

Maintaining tax residency in Ukraine

 

It makes sense to open a foreign account for a sole proprietors IT specialist if he continues to remain a tax resident of Ukraine. Otherwise, you will have to pay taxes already at the rates of the country where the bank account is opened.

 

Consider the situation. The Ukrainian IT-specialist was evacuated abroad due to the war, leaving the status of sole proprietor behind him. He lives in a certain country, opened a bank account there, and provides services to foreign contractors. In such circumstances, profits may be taxed not at the Ukrainian tax rate (for example, 2% during the war), but at the rates in force in the host country. And this is more or less clear. Although there are exceptions. For example, the Baltic countries will not consider sole proprietors from Ukraine who are under their temporary protection as tax residents.

 

At the same time, the situation will be ambiguous when the entrepreneur stays in Ukraine. Many countries tax income at the place of receipt. However, when determining the state in which the Ukrainian sole proprietor must keep records and pay taxes, the center of vital interests of the taxpayer will play the main role. Obviously, if an IT specialist lives and works in Ukraine, the center of vital interests is here.

 

Important! When opening and further using a sole proprietor account abroad, one should remember a number of nuances, with the issue of paying taxes in the first place.

 

Basic Principles for Reducing Losses from Currency Exchange

The main problem for the IT sector today is mandatory conversion at a fixed or interbank exchange rate, which is often far from market realities. To understand how to avoid losing money on exchange rate differences, it is necessary to reconsider the very mechanics of financial interaction.

  • Diversification of platforms. Do not keep all funds in one place. Combine a traditional Ukrainian bank with neobanks (Revolut, Wise).
  • Transaction timing. The foreign exchange market is volatile. If regulations allow, accumulate revenue in a transit account and transfer it during periods of local strengthening of the hryvnia.
  • Minimization of chains. An extra intermediary means an additional commission and a loss of percentage at each stage of the exchange.

 

The main recommendation is to automate accounting in order to see the real margin after all conversions. Often, switching to a different service model is cheaper than monthly losses caused by exchange rate differences displayed on currency exchange boards.

 

Features of opening a foreign bank account for sole proprietor

 

When opening an account as an entrepreneur abroad, you should pay attention to the choice of jurisdiction, the requirements of a particular bank and some other nuances, for example:

  1. opening an account in a classic bank in many countries requires personal presence;
  2. the bank can open a personal account instead of an entrepreneurial one, which may entail claims from the tax service in Ukraine – the income will be regarded as non-entrepreneurial;
  3. each jurisdiction has its own approaches to determining tax residency and the center of vital interests – this has already been mentioned above;
  4. some banks set limits on the maximum amount per transaction, and etc.

 

Notice! When opening an account, you must first calculate how much it will cost to maintain it. Often, the cost of maintaining an account consists of the following costs:

  1. monthly payment in a fixed amount;
  2. commissions for incoming and outgoing payments, currency exchange, cash withdrawals through an ATM, and etc.;
  3. Internet banking and SMS notification;
  4. acquiring services for accepting payments from customers.

 

At the same time, an IT specialist can open an account for transferring salaries from a foreign employer not only in a classic bank. Alternatively, you can open a currency business account in one of the international payment systems such as Payoneer, Wise, and so on.

 

 

Do not withdraw currency until the situation stabilizes

 

Many entrepreneurs, by inertia, try to cash out funds immediately after they are credited. However, it should be taken into account that direct withdrawal of foreign currency from a sole proprietor’s account in US dollars or euros within Ukraine is restricted by NBU regulations. In practice, you receive hryvnia at a not-so-favorable exchange rate.

 

If you do not have an urgent need for working capital right now, it is more reasonable to leave the capital in a “frozen” form in a foreign currency account. Modern financial regulation allows funds to be kept in the original currency for an unlimited period of time. This creates a kind of “safety cushion” in case of sharp economic fluctuations.

 

Order a consultation

Withdraw dollars through a short-term deposit

This instrument remains a working mechanism for those for whom cash is critically important. Everything is simple: you use the available funds in your account to open a targeted deposit. How this can be implemented:

  • You officially purchase foreign currency for placement in a deposit with a term of at least 3 months.
  • Upon its completion, the bank is obliged to provide you with cash through the teller.

 

Despite the temporary freezing of liquidity, this is the only legal way to obtain “real” dollars without overpaying speculators. The key is to clarify in advance the availability of banknotes at the branch and the withdrawal limits, which may change depending on the policy of a particular financial institution.

 

 

Other Methods

 

Method 1. Opening a foreign company

A sole proprietor may receive payments from its clients (or, in fact, employers) through its own foreign company. For example, specialists of Lawrange law firm for this purpose can offer to register a company in England in order to receive payments for it. This option is well suited for both sole proprietors – owners of small companies, and entrepreneurs who receive more than 80 thousand euros of profit per year.

 

 

Method 2: Deferred Pay

Among the options used to save the currency received from the employer (customer) is the so-called deferred salary. We are talking about the fact that an IT employee, registered as a Ukrainian sole proprietorship, and working with a foreign employer under a contract, asks to leave part of his fees (salary) on the accounts of the foreign company that hired him. The practice of deferred wages has been used since the first days of the war, but not very widely. At first, IT people were simply afraid that the banking system would collapse. And later began to use to prevent foreign exchange losses.

 

 

Method 3: Travel Expenses Card

Another relatively popular option is opening a foreign currency card in a Ukrainian bank for “travel expenses”. Some banks started offering such cards from June 2022. Cardholders can pay for goods or services through Apple and Google Pay, as well as withdraw cash directly from the sole proprietor account at a better rate than when selling to a bank. However, this scheme only works for those who are abroad, and with certain restrictions. In particular, a withdrawal limit of 100 euros can be set at a time.

 

 

Legal Assistance from Lawrange

 

A Ukrainian IT specialist who has the status of a sole proprietor and works for a foreign company should not waste part of his honestly earned money on double currency conversion and exchange rate differences. There are a number of legitimate ways to save income.

 

Attorneys and lawyers of Lawrange law firm recommend opening an account abroad as a priority option. However, depending on the situation, alternative routes can also be considered. At the same time, it is very important to take into account the nuances of tax residency and other points. We are ready to accompany the opening of a business account in a foreign bank on a turnkey basis. Our experience and the presence of a wide network of foreign partners allows us to solve such problems quickly and with all the benefits for the client.

 

 

FAQ

Which strategies help IT employees reduce losses from exchange rate differences?

The main one is the use of a hybrid model. Part of the income for services is transferred to a Ukrainian account to cover current tax and household expenses in hryvnia. The remaining portion is accumulated on foreign platforms or through foreign currency deposit instruments. It is also important to properly draft a contract with the client, specifying that all correspondent bank fees are borne by the sender. This helps preserve foreign income in full until it enters your jurisdiction.

 

How much money will it cost to open a sole proprietorship account abroad with the help of Lawrange lawyers?

Send us a request with clearly defined wishes regarding a foreign account. We will send you a commercial offer with prices as soon as possible.

 

How do banks and payment services affect exchange rates for IT specialists?

Financial institutions set internal buying and selling exchange rates that include their margin. Payment systems such as Payoneer often offer more flexible terms for IT professionals but may charge hidden fees for withdrawals to local cards. We recommend regularly monitoring fee schedules, as exchange rate conditions for sole proprietors are frequently updated following resolutions of the National Bank.

 

 

Book a consultation

Popular services