Receiving of payment by an individual who develops software

Problematic issues are resolved simple enough when it comes to financial and economic relations of the Ukrainian business entity and a foreign legal entity. However, there are common situations when a citizen of Ukraine who is not registered as an individual entrepreneur performs the work, and the customer is a non-resident individual. Accordingly, it is necessary to analyze such cases separately, giving due consideration to all existing factors.

Let’s examine the situation when the software is developed by an individual - a citizen of Ukraine, who does not have the status of individual entrepreneur. The question that has to be answered: is such activity legitimate? Let’s refer to the Commercial code of Ukraine. Article 42 defines entrepreneurship as an independent, initiative, systematic economic activity carried at its own risk by business entities, including individuals - entrepreneurs, in order to achieve certain results and profit. Therefore, in the context of entrepreneurial activity it is necessary to obtain the status of an individual entrepreneur.  Accordingly, if a citizen of Ukraine does not conduct systematic activities on software production, registration as an entrepreneur is not required. In this way, individual – resident of Ukraine has the right to perform work for foreign partners without being registered as a business entity, if the sale is not systematic. Unfortunately, the current regulatory legal acts do not contain the interpretation of the term “systematicity”. The prior Decree of CMU “On craft tax” allowed the sale of manufactured products without registering a business entity no more than four times a year. In fact, the only document that nowadays regulates quantitatively the term “systematicity” is the resolution of the Plenum of Supreme Court of Ukraine “On practical application of legislation on responsibility for certain crimes in the sphere of economic activity by courts” No. 3 of April 25, 2003. It states that a systematic activity is that, which has taken place at least three times during one calendar year. Therefore, the sale of the manufactured product without registration of a business entity is possible no more than three times a year.

The contract between an individual (contractor) and a non-resident (customer) should be made in writing based on the requirements of the Civil Code of Ukraine. The fact of the contract conclusion is recorded through its signing by a resident individual and a representative of a foreign customer. A seal of a non-resident party is required if the contract is executed within the territory of Ukraine. In any other case, the signatures of the representatives of the parties who entered into the contract will be enough.

Accordingly, the banking institution should without delay release money received for work under such contract. However, the bank employees upon receipt of payment require to specify that money transfer is not related to business activities. In this case, this is true, so we recommend to fulfill this requirement.

It is possible that the customer is not a foreign company, but an individual - a citizen of a foreign country. In this situation, the presence of the signatures of the contracting parties is essential, and the seals are not required due to their absence.  The bank should accept this contract without objection, and cash outflow should be done under the above condition regarding the business activities.

It is also necessary to keep in mind that the individual who received remuneration from a non-resident in respect of execution of the contract must declare the income received and pay personal income tax at a rate of 15% from the income value.