Electronic money for individual entrepreneurs

For the IT community, e-wallets such as Wise and Payoneer have already become one of the most popular payment instruments for paying for services and receiving remuneration for their activities. 

However, while in the EU countries, the use of payment systems has long been regulated and is official and legal, in Ukraine, classic bank accounts are still the safest and most legal option for financial interaction. 

In Ukraine, the use of Wise and Payoneer has always been associated with risks of loss of the right to use the simplified taxation system and additional taxes (18% personal income tax and 1.5% military duty).

However, Law No. 2888, which came into force on April 1, should change the scope of payments for services provided by individual entrepreneurs.

Individual entrepreneurs and electronic money before the new law

If we go back in time, the National Bank, in its explanations, noted that “electronic money” is not a “monetary form of payment.” The NBU’s letter stated that, following the laws of Ukraine, electronic money “is not currency values and cash.”

Paragraph 291.6 of Article 291 of the Tax Code states that single tax payers of the first to third groups must make payments for goods, works, and services exclusively in cash (cash and/or non-cash).

Thus, IT entrepreneurs who registered business accounts in payment systems operating under the electronic money system risked being “banned” from the simplified taxation system (subparagraph 4 of paragraph 298.2.3 of Article 298 of the Tax Code).

However, in 2022, after the Law “On Payment Services” came into force, electronic and digital money, which can only exist in non-cash form, was included in the definition of cash. This automatically equated electronic money with cash. Accordingly, payments through electronic wallet systems were equated to the cash form of payment.

However, no changes were made to the Tax Code of Ukraine, which continued to keep the situation in limbo, and individual entrepreneurs’ use of electronic money was risky. 

Electronic money: the reality of 2023

The year 2023 was decisive for the IT sector because, oh my God, the Law of Ukraine “On Amendments to the Tax Code of Ukraine and Other Legislative Acts of Ukraine on Payment Services” dated 12.01.2023 No. 2888-IX came into force on April 1, 2023.

Thus, at the legislative level, payment systems that use a system of electronic money are now allowed for sole proprietors in IT, who are single tax payers, for settlements with customers. Moreover, this Law has opened the possibility of paying taxes and fees using electronic money.

However, it should be remembered that e-money issuers are obliged to send a notice of opening or closing an e-wallet of a taxpayer — a legal entity (resident and non-resident), including one opened through its separate subdivisions, or a self-employed individual to the supervisory authority in which the taxpayer is registered on the day of opening/closing the account/e-wallet.

And individual entrepreneurs and individuals engaged in independent professional activities are required to report their status as issuers of electronic money to the banks where they open e-wallets.

Therefore, the use of electronic payment systems automatically leads to tax liabilities, and the format that used to be favored by individual Ukrainian entrepreneurs, “to receive funds to an e-account and not pay taxes on them,” is over: 

• The date of occurrence of tax liabilities for the supply of goods/services will be determined, among other things, as the date of crediting electronic money to the taxpayer as payment for the goods/services to be supplied to the electronic wallet. 
• The same applies to the date of attribution of tax amounts to the tax credit — the date of debiting the taxpayer’s electronic money as payment for the goods/services to be supplied to the supplier’s electronic wallet.

Do all e-money issuers have the right to provide services in Ukraine?

Unfortunately, no. To obtain the status of an electronic money issuer and the right to provide services for the issuance and execution of payment transactions with electronic money, including the opening and maintenance of electronic wallets, a person (except for the National Bank of Ukraine, banks, state authorities, local governments) must obtain a license to provide financial payment services following the procedure established by this Law and regulations of the National Bank of Ukraine.

Thus, if the payment institution through which you make payments is licensed, it is almost a win-win situation, and you can safely use it for your own needs.

Is it possible to use e-money for individual entrepreneurs legally?

Are there any risks for individual entrepreneurs using electronic money?

And again, unfortunately, yes. 

• First, the risks remain, as not all electronic financial institutions currently have licenses. 
• Second, paragraph 16 of the NBU resolution still contains a general rule: “Settlements for foreign economic transactions shall be made exclusively through bank accounts.” This means that business accounts in electronic money institutions are not free of risks for individual entrepreneurs in IT who provide services to foreign customers. 
• Third, Ukraine has joined the international agreement on the automatic exchange of financial account information (Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information (MCAA CRS). 
• Fourth, the provision of NBU Resolution No. 18 of February 24, 2022, which suspends the issuance, distribution, and transactions with electronic money for martial law, has not been canceled.

Account holders must notify the financial agent within ten business days of a change in their tax residency status for the CRS Common Reporting Standard and/or their status for the FATCA Agreement and/or a change in the relevant status of a controlling person.

This entails additional complications for individual entrepreneurs who use and open multiple payment accounts in different systems.

On the issue of the automatic exchange of information on financial accounts, we have described both the situation and the mechanism in more detail in our article.

Can I pay taxes with electronic money if I have a Revolut, Wise, or Payonner account?

Unfortunately, no. These payment institutions are not currently included in the official register and are not electronic money issuers. That is, there is no reason to say that a sole proprietor or LLC can safely use their electronic account with Revolut, Wise, and Payonner without risks.

If you have any questions about the taxation of PE and declaration of income received from payment systems – our team will provide expert assistance. Send a request through the form below or a message on Telegram/Viber, Whatsapp for consultations. Our working hours are 9:00-19:00 from Monday to Friday.