Settlements of individual entrepreneurs through WISE and PAYONEER: tax authorities have changed their position once again

Many sole proprietors have accounts opened in foreign banks to which non-resident counterparties pay them for services rendered. Entrepreneurs are interested in how this fact affects the determination of income.

At the beginning of 2022, the tax authorities did not mind that income received on an account opened abroad was taxed at the selected single tax rate.

However, after the full-scale invasion began, when the National Bank imposed restrictions on transfers abroad and more and more individual entrepreneurs began opening accounts in foreign banks, the STS changed its position and clarified that in cases where money from a foreign account is not transferred to a Ukrainian business account, such amounts cannot be taxed under business rules.

Subsequently, the State Tax Service took a completely fiscal position. The tax authorities insisted that funds received from non-residents under foreign economic contracts to an account opened in the WISE and Payoneer systems are not included in the entrepreneur's income but are taxed as personal income. That is, 18% personal income tax and 1.5% withholding tax should be paid on such funds. At the same time, the tax authorities did not take into account the fact that these are funds received by an entrepreneur for services rendered within the framework of his or her business.

This was the advice of the State Tax Service. This advice has now been made inactive.

A new explanation has now appeared in the AAR. The tax authorities return to the previous version and state that in cases where funds received from foreign economic activity are credited to an account opened in the Payoneer and WISE systems and subsequently transferred to accounts opened in banking institutions in Ukraine for business activities, such funds are included in the income of an individual entrepreneur - single tax payer and are taxed in accordance with the procedure established by Chapter 1 "Simplified System of Taxation, Accounting and Reporting" of Section XIV of the Tax Code.

At the same time, if these funds remain at the end of the reporting tax period on accounts opened in the Payoneer and WISE systems, i.e. are not credited to accounts opened in Ukrainian banking institutions for business activities, or are credited to accounts in Ukraine opened for personal needs, such funds are taxed according to the rules established for individual taxpayers.

This is how the tax authorities change their position several times a year.