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In Ukraine, IT Freelancing Under Threat
An anonymous reader writes "According to the new tax law (Google translation; Russian original) that is being developed now and should take effect on January 1, 2011, it will not be possible for a private Ukrainian entrepreneur to provide any services to foreign companies without becoming a full-fledged company with a dedicated bookkeeper. Currently it is possible to perform such services and pay the equivalent of $25 in tax. Instead of raising the tax (which is overall welcomed by the community), the legislators plan to outlaw ISP, e-commerce, and Internet-based services — along with any services provided to foreign entities — for individual entrepreneurs. So starting in 2011, freelancers in Ukraine will have several choices: stop doing freelance work, start working illegally, become a full-fledged company subject to multiple cumbersome rules for taxation, or leave the country."
...individual entrepreneurs need to seek the a tax adviser and foreign or e-commerce based services are outlawed.
So what's the deal ? The situation is then similar to Germany, with the exception that the adviser is not mandatory but practically indispensable (even for freelancers) since the German tax system is the most complicated in the world.
And I can assure you that there are lots of freelancers in Germany.
Guess I was a poet.
Not that I'd know it.
This move by the government seems to reek of monumental levels of fail and dumbness.
Oh well. The Ukraine's loss is someone else's gain.
Chas - The one, the only.
THANK GOD!!!
Well, no surprise here. Governments want to get a piece of the Internet. This will drive up outsourcing prices, which drives up the market value of us programmers here in the U.S., at least a little bit.
Is this really such a big deal?
From my understanding there are many countries in the world that requires a registered commercial organization (and all the required administration that follows) to perform certain kind of jobs.
Perhaps sad for the Ukrainian people that working internationally becomes more cumbersome but I can also understand that the state want to keep track of what business is conducted from the country.
"Whenever there's danger, a man alone."
Harry Tuttle
Dissident Heating Engineer
The Admin and the Engineer
As a ukrainian I can easily guess which option my fellow citizens will choose. And I'm not proud of it...
May Peace Prevail On Earth
I may be off base on this issue as I know very little about the subject, but is there not a similar law in the US? I seem to recall it being a factor in the relatively recent "lunatic flies a plane into IRS building" incident. If so, perhaps some wealthy and influential Ukrainian contracting firms have their fingerprints (and $$) on the change in law. I bet they are giddy at the prospect of offering a subsistence wage to previously self-employed (and better paid) coders.
They will work illegally. No big deal. That's what any intelligent citizen of any country does when their lawmaking weasels start cranking stupid laws like that.
The man is killing the country so he can kiss Putin's ass. Kills me. :(
They are trying to limit their exports as every other country is tempted to limit their imports.
The US government tried 'policing' Al Capone to little effect. Tax evasion was what brought him down.
Lately Amsterdam has seriously 'cleaned up' its red light district in much the same manner. For a synopsis you can get a pretty good idea by reading the web page of Yab Yum, the 'leading' brothel, back in the day. http://en.wikipedia.org/wiki/Yab_Yum_(brothel), or just google it.
Bottom line is: The city wants to audit your books. Which stands to reason money laundering is unacceptable and will not be tolerated.
Anyone doing any kind of legitimate business knows this, and knows the costs and effort required to maintain audit able records. These people expect nothing less of other businesses. It seems a reasonable expectation of anyone doing any kind of legal business, and keeps a level playing field, among the tax base.
You can't be ahead of the curve, if you're stuck in a loop.
The problem is that the majority of Ukrainian freelancers already work illegally.
Corporate entities have a far higher tax payment rate than individuals, especially in the internet sphere where freelancers don't have physical office space or physical deliverables that can be tracked by authorities. Furthermore, individual entrepreneurs providing internet-based services in Ukraine make it hard for the tax-paying corporate entities to compete.
This has become important because Ukraine is set to receive from $19-20 billion from the IMF in the next two and a half years if they can show that they are making progress in reducing their budget deficits, so there's a lot of incentive to try to push tax payments up.
In Soviet Russia, outlaws work for YOU!
I work in the UK as a freelancer in IT and I need to have my own company, pay taxes and have an accountant.
I used to work in Holland as a freelancer in IT in there I needed to ... you guessed it ... have a company and an accountant.
Even if you don't want to have your own company, there are in fact schemes like "Umbrela Companies" which are in fact accountant managed companies who will temporary "employ" the freelancers and pass them all the income from their contracts minus tax and their part of corporation costs. These are however less tax efficient (you are taxed as an employee and income usually pays more taxes than dividends or capital gains) than just having your own company.
I'm sure Ukraine has some smart accountants who would love to setup some scheme like this.
Somehow I suspect that the real concern here is that freelancers will have to start paying real taxes like everybody else (my hearth weeps) instead of getting their roads, schools and law-enforcement for free.
if you are already doing freelance work, it means you already have connections, resume, and the experience to show for it. leave the country. that will teach them, VERY badly.
Right... so, let them eat cake, basically.
It's difficult to move even to a different city in Ukraine (you need a residence permit). As far as going to work in a different country, the entire international system is basically designed to prevent that. And it's not as if the world is your oyster... Your choices for visa-free travel as a Ukrainian are the former Soviet Union (except the parts that are now EU members) and that's it. You can pick up temporary visa's in-country in Egypt, Syria, Jordan, Thailand and Vietnam.
And nobody gives work visas for freelancers, so you'd be working illegally anyway.
Shhhh. The former Soviet states are now shining examples of capitalism. Pointing out that internal passports are still required (and that pro-Western governments are so hated that governments which implements these sorts of laws are voted in democratically) ruins the dream.
As a programmer, I speak for all of myself and no-one else. but let me say this: fuck unions. fuck them. Seriously. If a company starts treating me like shit, I find a new job and they lose my skills. what's difficult about that? Even if I can't line up a new job instantly, I'll survive. I'll do freelance work(heh, I'm not ukranian) or become a taxi driver or something if I run out of savings while jobhunting.
I don't need or want a union to look after me(for a fee that might as well be another tax). I'll do it myself, thank you very much.
As I said, speaking only for myself here...
I may be comparing apples to oranges, but...
The IRS costs apx $12 billion, has 1142 "Forms and Instructions" (most seem to be forms). The law is reported to be 3,387 pages itself accompanied by 13,458 pages of regulation spread across twenty volumes.(http://www.trygve.com/taxcode.html)
And that's just the federal tax code. We also must worry about individual state and local tax codes, many of which are nearly as bizarre and convoluted as the federal ones. Definitions frequently differ between the IRS and state agencies.
I won't join Slashcott. OTOH, If Beta goes live, I just won't be back until it's fixed. Sorry Dice.
Most "freelancers" in the Ukraine are actually really employees. A strange coincidence of a building full of hundreds of "freelancers" all working on projects for the same client...
The reason, a 25€ / year "flat tax" on top of the salaries paid for the hiring company. That's a HUGE difference to the income tax / social security in, for example, European countries. In my own country, workers take home about 50% of their total official wage, and the company has to pay another 50% on top of that from their side (which does not appear on your wage slip). That means in pure cost, what the worker takes home is about 1/3rd of the wage cost for the company.
Now, cost of living in Kyiv is actually very high - so the net wages of the people there are actually not that far off the net wages of EU countries. If the cost benefit because of taxes falls away companies will reconsider the cost/benefit of distributed development and this may *seriously* harm the whole outsourcing IT industry in the Ukraine, and I believe that's actually a very significant industry there.
And it has been so for a long time so, unfortunately, there isn't much of a freelance IT industry around here.
The problem people from countries such as the US and the UK don't seem to understand is that setting up an actual company in Brazil (and I imagine Ukraine to be similar) is that it's a HUGE hassle. By that I mean it's a 2-3 month process, involving more than 10 different government institutions you need to visit in person. You need to get a proper "commercial address", which can't be your home (unless you re-register it as a commercial building, which is another hassle and pays much higher property taxes).
When I worked as a freelancer, I did the math and I would pay about 25% of my earnings in fees and accounting. Then, I would pay income tax (progressive scale which tops at 27.5%) on the remaining 75%. Also, as a freelancer, I would need to pay 20% to social security instead of the regular 11%.
In short, I would end up with roughly ~50% of what I earned. Then I would proceed to buy goods which were already taxed to hell and my purchasing power would be effectively cut in half again (the cheapest Honda Civic here costs US$37K).
I just restricted to working only to foreign companies. The pay was better *and* I wouldn't need to register myself as a company to do that, as the tax code has general provisions for "money from foreign countries". The consequence is that it was very difficult to prove my income whenever needed (home financing, etc), as everything here requires a "regular" proof of earnings.
From my personal experience, I can say that, yes, this is bad news for Ukrainians.
And I am half German too. (No idea what the relevance is to anything, but apparently there is some)
It's a pre-emptive strike against being called a bigot for daring to criticize the policies of a government or country to which you are not native. People get that a lot, hence the poster's reflexive flinch and disclaimner. I've experienced that in the UK for daring to point out the obvious, because, despite being a dual citizen, my accent is North American. My wife (who is English) gets the same shit when she criticizes an obvious flaw in America. These are classic cases of territorial identity and nationalism trumping critical thought, and the GP obviously wanted to avoid that. Which he by and large did, but not without the cost of this tangent. :-)
The Future of Human Evolution: Autonomy
From the perspective of a parasite someone who doesn't let his blood be sucked "isn't doing his part"; and from the perspective of a corporation the only community is one where everyone has been taken in by their confidence game. Your ethical idea of a "community" doesn't exist in a world run by thieves.
1: No absolutely not. My experience working for some rather large companies is that they are not really more effective then the government in general. One big problem the government have is that they can't hide their fault from the public the same way that a corporation can. And that the public care much more.
So when a large shipping company has to drop(And then redo all development) of their internal shipping system costing them >100 million dollors, all the publicity they get is an interesting article about prototype based development(Including a few things not to do).
When the government fuck up an computer project in the same size, they get multiple newspaper frontpages and often long and very public investigations about the cause. (Something good companies also do, but they keep it internal).
2: That is true. My rule of thumb is that very large organisations(Including the gov) have a rather large overhead but are still relative effective because their size allow them to access to the right(Or at least not total wrong) people to lead a project. Small companies can be really effective because of their much lower overhead, but they often relay on very few people doing the right thing to work. So sometimes they do really stupid things(Se: Thedailywtf.com) because they don't have access to any internal people who know anything about the subject.
So basically you want to say that low taxes lead to economy growth and less tax evasion?
Well, Ukraine is the best counterexample. Flat 17% income tax, but pretty much nobody pays it and the economy is in ruins.
And all that despite Ukraine having great premises for agriculture, lots of natural resources and also despite it has inherited an enormous chunk of the Soviet industry.
You see, most corporations and many people will try to evade taxes no matter how low they are.
"It's such a fine line between stupid and clever" -- David St. Hubbins, Spinal Tap
I do not think you have as wide a consensus as you might think.
Your first item - "government will ALWAYS cost more" is demonstratively wrong. There are numerous counter-examples (health care is a big one). It is true that governmental systems have a variety of forces that tend to promote certain types of inefficiencies, but competing companies also have forces that promote inefficiencies - some of these forces are the same for the two types, and some are different. The costs associated with advertising for example could (and in some cases do) lead to competing companies costing more than a government monopoly operation. There are design and regulatory systems that can work towards countering these tendencies in both cases, and I would think that everyone would be able to agree that it is worthwhile to implement such systems - but I would of course be wrong. There are a large number of people who cannot seem to accept that all government programs are not inherently evil, and probably a similar number of people who could never accept that all companies are not inherently evil.
A bit of a shame really.
Let's look at the countries going bankrupt now... Greece? Socialist. Portugal? Socialist. Spain? Socialist. UK? Not quite bankrupt yet, but socialist. United States of America? Socialist, and racing towards bankruptcy as fast as congress can carry it. Are any of those countries following Ronald Reagan's model? No! They are, as usual, following the Marxist liberal elitist model, and we have a century of empirical evidence, from the Soviet Union to North Korea to Cuba to Venezuela to Greece to East Germany (the list goes on and on) that flat out proves your Marxist ideas don't work.
So that said, what about the competing capitalist model (which Ronald Reagan generally believed in)? We have centuries worth of empirical evidence that that model DOES work. The most obvious proof was the 18th and 19th century United States of America, which with a very tiny, unobtrusive government went from undeveloped continent to world superpower faster than any nation in the history of the world (and it also saw much improvement during the 1980s when we switched from Carter socialism to Reagan capitalism). But besides that, there are a number of other countries the tilt towards the free market end of the spectrum that have also done well, such as Australia, Hong Kong, and now even China, which has jettisoned much of its communism and socialism in favor of capitalism, because capitalism grows their economy at a rate of more than 8% (similar to what the US used to be capable of doing).
So yeah, the evidence is in. The more capitalist you are, the more wealthy and economically advanced your country is. The more Marxist you are, the quicker it will be that your country goes into bankruptcy (at which point you get riots and/or the government collapses).
Capitalism lifts all boats. Capitalism provides jobs for everyone. And if you look at America, which up until Obama was by and large the best example of capitalism, you will find that even our poor are in the top 10% worldwide, and maybe even in the top 5%. Even most low income families here have their own washing machine and dryer, unlike many nations in Europe. Even low income people here tend to have more space than the tiny flats common in Europe. Even the poor here tend to have one (or often two) cars. They may not be very nice cars, but in most countries in the world you are lucky to have a bicycle. Most of our poor also find some way to get a TV (usually a pretty nice one) and cable TV service, as well as enough food to live on. And a lot of lower income people have cell phones and even luxuries like alcohol and cigarettes, which cost quite a bit. So let's be honest... being poor in a capitalist society may mean you don't have a boat, a luxury car or a second house by the lake, but it still lifts their boat WAY higher than the rest of the world. Go look at Africa, Venezuela or even Europe and then come try to tell me that the poor in capitalist America aren't way better off than the poor, and even the middle class, in a lot of these socialist countries.
Beware of bugs in the above code; I have only proved it correct, not tried it.
Now if India and China get on board with the idea I'll be able to get some work.
"How rich do you need to be in order to pay for your own national defence?"
Here in the US we don't pay for national defense any more - we mostly just attack at will.