“Today it doesn’t matter where on the globe you are located. What matters is what you can do, and how well you do it.” With these words Kjetil Olsen, Vice President for Europe at Elance [one of the world’s largest platforms for online employment. – Author], opened his speech before Ukrainian journalists. He arrived in Kyiv to present the platform he works for, and introduce its representative for Ukraine to the media. Actually, the Ukrainian market is one of the top priorities for Elance. As of October 2012, 11,411 freelancers from Ukraine were registered on elance.com. Their numbers are ever growing: in September 2012, 767 new experts registered on the company’s website. Their services are in high demand worldwide. In September, 342 Ukrainian freelancers earned 1.072 million dollars. Overall, since the beginning of elance.com, Ukrainians have earned 34.3 million dollars, ranking as the world’s fourth online earners. They are outdone only by India (150.9 million dollars), the USA (150.2 million dollars), and Pakistan (35.6 million dollars).
Most orders come from the IT sphere and design, bringing an income of 32 million dollars and 2 million dollars respectively. Besides, jobs on the online platform are available to Ukrainian copywriters and translators (who earned 133,300 dollars), financiers and managers (62,100 dollars), system administrators (51,900 dollars), experts in the fields of development and industrial production (45,500 dollars) and marketing and sales (34,600 dollars).
Experts emphasize two key factors underlying Ukrainian freelancers’ successful careers in the global jobs market: their high qualifications (expert knowledge and fluency in foreign languages) and competitive rates. An average Ukrainian freelancer charges around 16 dollars per hour, while his American counterpart will settle for 28 dollars, Russian for 20, and Chinese for 21 dollars per hour. However, 16 dollars is an average rate. First-rate Ukrainian IT experts with a good record with the online placement service cost at least twice as much. A good programmer from Ukraine can easily find an employer who would be prepared to pay him 35 dollars per hour, say the experts from Elance. However, answering The Day’s question about the legal aspect of electronic job placement for Ukrainians, Olsen suggested that we ask the employees. He said that his firm acts as a mediator, bringing together the buyer (company) and seller (freelance employee), charging a commission of 8.75 percent of the contract, which makes its tax base. The firm pays taxes in the US, according to the local regulations.
The Day asked our freelancers how they pay taxes, if any, on what they earn through the online employment platform. However, we could not get a clear answer to our question. IT expert Artem Khodzhoyan (31), who has been in freelance for a decade, referred us to his accountant, to whom he leaves all the financial and fiscal subtleties. Apparently, Khodzhoyan earns quite a comfortable income today and can afford a personal accountant, although he mentioned to The Day that he was not registered as a private entrepreneur. At the dawn of his freelance career he could not afford such luxury. Still, back then he was just trying it out, so there was no question of taxes. Officially he was unemployed. Of course, we can only guess if his status has changed, but we can just as well conjecture that it has not.
Preparing this material for the print, we talked to several Ukrainian remote employees. None (!) of them pays taxes on their freelance earnings. A journalist, who writes content for foreign media, confessed that at a certain point in time she even tried to find out how she could do it. “It involved so much trouble and red tape that I simply gave up,” she said honestly.
From legal perspective a freelancer is considered to be unemployed, said a lawyer to The Day. In terms of Ukrainian legislation, he or she is self-employed and thus should pay taxes. “While your earnings are modest, revenue services could neglect you, but sooner or later you can be made answerable for administrative or even criminal offense,” remarked Aliona Parfionova, founder of Kyiv City Consulting.
According to the lawyers, Ukrainian freelancers working with serious customers, as well as with foreign partners, tend to get registered as a natural person-entrepreneur. In fact, it is the only legalized way to work as a freelancer in Ukraine today. In this case, taxation scheme depends on the entrepreneur’s tax system of choice: the conventional system with advance payment of income tax on a natural person or the simplified system, involving a single tax. The main trick here is to mention international economic activities in the process of registration.
However, in fact thousands of Ukrainian freelancers have no possibility to legally receive and declare their earnings. It was mentioned in the open letter of IT community to the president and prime minister of Ukraine, the Verkhovna Rada, Cabinet of Ministers, and National bank. An expert from Kyiv City Consulting explained to The Day that Ukrainian legislation prohibits the use of a natural person’s banking account for international economic activity. Thus, freelance firms cannot transfer money to the accounts of private entrepreneurs due to the required contract and statement of acceptance. No foreign freelance firm signs such contracts, according to lawyers.
“Basically, the problem is that Ukraine’s Tax Code does not have a paragraph on peculiarities of taxation of freelance incomes,” explained Parfionova to The Day. So freelancers should use the general regulations for taxation of income stipulated in chapter 4 of the Tax Code of Ukraine. “I find it not quite fair,” remarks Parfionova. “Once there is a stratum of individuals who are well aware of all peculiarities of a freelance career, their rights and duties should be legally defined. I and my colleagues also believe that there does exist a difference between freelance employment and entrepreneurship as defined by the Tax Code of Ukraine. These peculiarities should be taken into account.”
Experts are convinced that you need not reinvent the bicycle to solve this problem. Moreover that in many countries remote employment is not a problem at all. In the US, according to the Department of Labor, about eight percent of able-bodied population is made up by freelancers.
While Ukrainian legislation overlooks remote employment services, in the US, Europe, and Britain freelancers have long been paying taxes. “In Sweden, freelancers pay taxes regardless of the way they are employed, official or not. But if you are officially employed, the company you are working for will partly cover your taxes. If you work as a freelancer, you pay taxes from your own pocket, from your fees,” told The Day Amanda Karlsson, copywriter for the Swedish firm Yours Communication Agency.
Even our northern neighbors have already sorted out legal regulation of remote employment. Recently (on October 16, 2012) the Duma deputies adopted the first reading of amendments to the Labor Code. The amendments cover remote employment via the Internet. Labor legislation will be supplemented with provisions on traditional “remote professions,” whose representatives often work from home rather than in the office, and communicate with their managers via the Internet: auditors, accountants, lawyers, translators, designers, programmers, editors, and journalists. The ministry suggested using digital signatures when drawing a labor contract electronically. In this case, after the signing, the employer would send the employee an endorsed copy of the agreement by regular mail, as a registered letter. Importantly, a remote employee will be entitled to the same rights as any other employee working for the same employer, according to the Labor Code – but they will be able to manage their time as they will, unless otherwise is specified by the contract.
CURIOUS FACTS
A total of 11,411 Ukrainians are registered at today’s biggest online employment service;
An average rate for a Ukrainian freelancer is 16 dollars per hour;
Ukraine ranks fourth in the global rating of freelance earnings.
Over five years Ukrainian freelancers have earned 34 million dollars, including:
IT experts – 32 million dollars;
Designers – 2 million dollars;
Translators – 133,400 dollars;
Financiers and managers – 62,100 dollars;
System administrators – 51,900 dollars;
Experts in the field of development and industrial production – 45,500 dollars;
Marketing experts and sales managers – 34,600 dollars.
Online employment platforms often use startup companies for launching businesses;
90 percent of companies using online employment platforms represent small and medium businesses;
60 percent of companies using online employment platforms come from North America; 15 percent from the EU; 10 percent from Asia, and 15 percent from other countries;
Experts predict that by 2020 out-of-staff employees (freelancers) will make up 60 percent of the global labor market.
