Taxation of foreign currency income for individual entrepreneurs (FOP) in Ukraine on Wise and Payoneer: 6% or 23%?
If you are a sole proprietor (FOP) working with foreign clients - a designer, marketer, developer, or copywriter - sooner or later you face the question: how should you receive payments from abroad?
FOPs who receive payments from foreign clients via Wise or Payoneer often believe that it is enough to pay 5% single tax. However, in practice, a single mistake in the accounting model can lead the tax authorities to reclassify the income as personal (individual) income. In that case, instead of 6% in taxes, the entrepreneur risks paying 23% plus penalties.
This article will cover all the nuances of taxation for foreign currency receipts via Wise and Payoneer: what the official tax authorities say, the potential risks, and how to operate legally without incurring fines. Special attention will be given to the responsibility for not repatriating foreign revenue to Ukraine and receiving payments through Wise and Payoneer.
Wise and Payoneer: What These Payment Services Are and Why They Are Under Tax Scrutiny
Before diving into taxation, let's understand what Wise and Payoneer are and why these payment systems are so popular among Ukrainian sole proprietors (FOPs) working with foreign clients.
What is Wise?
Wise is a British fintech company that provides international money transfer services. Its main advantage is low fees and real interbank currency exchange rates without additional markups.
What is Payoneer?
Payoneer is an American payment system specializing in B2B payments and working with international marketplaces (Amazon, Upwork, Fiverr, etc.).
Important: These are not regular bank accounts but payment systems providing electronic money services. According to the Tax Code of Ukraine, third-group single tax payers are not allowed to engage in activities related to issuing or circulating electronic money, or performing operations with payment cards or other payment devices, which are conducted according to international payment system rules.
How FOP Payments via Wise and Payoneer Are Taxed
Currently, Ukrainian tax legislation does not have a unified position on whether sole proprietors (FOPs) registered in Ukraine can receive funds through these payment systems and use them for personal purposes without mandatory repatriation of the currency to Ukraine. Taxes are paid under the standard taxation system for third-group FOPs.
Main aspects:
- Income is the amount converted into hryvnia at the NBU rate on the date the funds arrive in Wise or Payoneer (clauses 292.5 and 292.6 of the Tax Code).
- The condition is that the funds are transferred to an account opened at a Ukrainian bank for business activity within the reporting period. If the money stays in the system at the end of the period or goes to a personal account, it is taxed as an individual's income.
The main risk here is not "electronic money" but the route the money takes. The tax authority states directly that funds received from a non-resident on Payoneer or Wise and then transferred to a Ukrainian business account are included in the single tax payer's income. Funds left in the system at the end of the period or credited to a personal account are taxed under the rules for individuals - 18% income tax plus 5% military levy (tax authority clarification). Some individual rulings also mention a ban on single tax payers dealing in electronic money, so it is safer not to keep money there or spend it from there.
Key Steps and Recommendations for Entrepreneurs When Receiving Payments
1. Choosing a Payment System
The most popular payment systems for receiving international payments include:
- PayPal: Convenient for small businesses and freelancers, allows quick receipt of funds from abroad. Note: In Ukraine, PayPal has limitations - withdrawing funds to bank accounts is not available.
- Payoneer: Suitable for entrepreneurs working on international marketplaces and receiving payments in multiple currencies.
- Wise (formerly TransferWise): Offers low fees and favorable currency conversion rates. One of the most popular systems among Ukrainian FOPs.
- Stripe: Used by many online stores and services for payment processing.
When choosing a payment system, consider the following factors:
- Transaction fees
- Speed of fund receipt
- Ability to withdraw funds to a bank account in Ukraine
- Support for different currencies
- Security and transaction protection
- Ability to open a business account (critically important!)
2. Account Registration and Setup
Opening an Account
After choosing a payment system, you need to open a business account, not a personal one. To do this, follow these steps:
- Go to the official website of the payment system.
- Select account type: Business / Company
- Fill out the registration form with your FOP details (name, EDRPOU/ITN, contact information)
- Upload documents confirming FOP status (extract from the Unified State Register)
- Confirm registration via email.
Account Setup
After registration, configure your account to receive payments:
- Specify a bank account for withdrawing funds (mandatory: FOP foreign currency account in a Ukrainian bank).
- Select the currency in which payments will be received.
- Set up notifications for transactions and payment confirmations.
- Ensure two-factor authentication is enabled for security.
3. Issuing Invoices
An invoice is a document confirming the provision of services or sale of goods and contains the payment details. Key elements of an invoice:
- Issue date
- Invoice number
- Seller and buyer details (company name, contact information)
- Description of goods or services (detailed, according to your registered KVED codes)
- Quantity and price
- Total amount due
- Payment details (your Wise/Payoneer account information)
An invoice can be sent to the client via email or through specialized invoicing platforms (e.g., FreshBooks, QuickBooks). Ensure the client has received and confirmed the invoice.
Tip: Keep copies of all invoices - they are required for tax reporting and potential audits.
4. Receiving Payments
After sending the invoice, monitor the incoming payment. Most payment systems automatically notify when funds are received. Payment confirmation may include:
- Email notifications
- Notifications in the payment system dashboard
- SMS notifications (if enabled)
After receiving the payment in Wise/Payoneer, transfer the funds as soon as possible to your FOP foreign currency account in a Ukrainian bank. Log into your account in the payment system and submit a withdrawal request. The process can take from a few hours to several days depending on the payment system and bank.
Do not spend funds directly from Wise or Payoneer (by card or ATM withdrawal). Anything that does not reach the business account in Ukraine will be taxed as an individual's income.
5. Accounting and Reporting
Each received payment should be recorded in accounting. This helps to:
- Monitor the financial status of your business
- Prepare for tax audits
- Analyze income and expenses
- Track proximity to the simplified tax system income limit
Received income must be declared and the corresponding taxes paid. To comply:
- Determine the taxable income amount
- Fill out tax declarations according to legislation
- Pay taxes within the established deadlines
If it’s complicated, delegate your
accounting to professionals
Our experienced accountants will analyze your business, consider all nuances, and ensure complete order in your reports and taxes.
Rules for Receiving Funds
If you receive funds via Wise or Payoneer, it is important to follow certain rules to minimize tax risks:
- Payoneer - a business account in the sole proprietor's name, with details matching the bank account holder. Wise does not open a business account or balance for a Ukrainian address; money can only arrive as the client's transfer to your IBAN - see our articles on Wise and on Payoneer.
- The chain: the client pays to Payoneer or Wise → the funds are transferred to the sole proprietor's foreign currency account at a Ukrainian bank → income is recognised on the date the funds arrive in the system at the NBU rate.
- Keep contracts, invoices and proof of transfers to the business account, and follow tax authority clarifications.
It is important to choose the most advantageous option that allows you to avoid tax penalties and protect your business. In case of doubt, consult an experienced accountant or tax advisor.
Documentation and Income Verification Requirements
To avoid fines and administrative sanctions, it is important to have the following documents:
- Contracts with clients (in English or Ukrainian) clearly describing services, costs, and deadlines.
- Invoices for each payment with issue date, number, description of services, and amount.
- Excel table to record incoming funds: date received on Wise/Payoneer, date transferred to FOP foreign currency account, NBU exchange rate on the date received, and converted amount in UAH.
- Confirmation of transfers from Wise/Payoneer to your FOP foreign currency account (statements, transaction screenshots).
These documents will be needed for both quarterly reporting and possible tax audits.
Individual Tax Consultations (ITC): Do They Protect FOPs?
ITCs provided by various tax authorities do not offer a unified solution regarding taxation of foreign currency receipts. Moreover, they often contradict each other, creating additional confusion for entrepreneurs. Key points:
- Export proceeds must reach an account at a Ukrainian bank within the settlement deadline - currently 180 calendar days (clause 14-2 of NBU Resolution No. 18). The deadline covers services too; the late penalty is 0.3% per day. Operations below UAH 400,000 are not subject to the deadlines.
- For the income to be taxed as business income, the funds must be transferred to the business account within the reporting period and no later than the end of the tax year.
The problem is that different regional tax authorities may give different answers to the same question. Therefore, it is recommended to always rely on official clarifications from the central office of the State Tax Service and keep all documents confirming compliance. This means the final risk lies with the entrepreneur. That is why working with such payment services without a proper accounting model is not optimization, but a tax risk.
Possible Penalties and Tax Consequences
If the tax authorities can prove that this is personal income, the following penalties may apply:
- 18% income tax and 5% military levy on the full amount recognised as an individual's income.
- A penalty for understating the tax liability - 25% of the additional tax assessed (clause 123.1 of the Tax Code), 50% for a repeat violation within 1,095 days.
- Late payment interest for every day of delay.
- An administrative fine on the official from UAH 51 to 136, higher for a repeat offence.
Example:
UAH 85,000
underpayment
UAH 21,250
25% penalty
That is why it is very important to comply with all the rules and keep all documents confirming that the funds were received specifically as an individual entrepreneur (FOP).
Recommendations for Individual Entrepreneurs (FOP)
1. Always have contracts and invoices
Entrepreneurs must have all necessary documents confirming the receipt of income. This helps avoid issues during tax audits and proves that the funds were received specifically from business activities, not as personal income.
2. Open business accounts
With Payoneer, open an account in the sole proprietor's name rather than a personal one - the details must match the bank account holder. Wise has no business account for a Ukrainian address, so the client pays to your IBAN.
3. Convert currency on the date of receipt
Income is the amount converted into hryvnia at the exchange rate on the date the funds are received. It is important to record the NBU exchange rate for that day - it determines your tax base.
4. Compliance with tax regulations
Received income must be declared and taxes paid according to the taxation system of a third group individual entrepreneur - 5% single tax + 1% military levy on turnover. It is also worth paying attention to individual tax consultations (ITCs), which may contain specific requirements and recommendations for your region.
5. Keep income records
Create an Excel spreadsheet to record incoming payments to payment systems: the date of receipt of funds to Wise/Payoneer, the date of transfer to the FOP foreign currency account, the NBU exchange rate on the date of receipt, and the converted amount in hryvnias, as well as the date the funds are credited to the foreign currency account and the applicable NBU rate. This will help you track income volume and tax amounts payable, and will also serve as evidence for the tax authorities during audits.
Conclusion
To avoid issues with the tax authorities when working through Wise and Payoneer:
- Check the compliance of your registered KVED codes - the types of services in contracts and invoices must match your officially registered business activity codes.
- Specify exact types of services in contracts and invoices - not just "consulting" or "services", but a detailed description such as: "landing page design development", "setting up Google Ads campaigns", "blog article copywriting", etc.
- Comply with all tax requirements: use business accounts, transfer funds to the FOP foreign currency account, keep all documents, and submit declarations on time.
- Follow official clarifications from the tax authorities - legislation changes constantly, and new requirements may appear.
It is important to choose the most beneficial option that will help avoid tax penalties and protect your business. Wise and Payoneer can be convenient tools, but only with the correct accounting model. At buh.ua, we do not just consult - we take responsibility for tax logic, accounting, and protecting entrepreneurs during audits.
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