HOW TO INCORPORATE INDIVIDUAL ENTREPRENEURSHIP LEGAL ENTITY IN 5 SIMPLE STEPS AND AVOID FINES

The current flow of information, numerous training about starting a business, and becoming financially independent, everyone at least once has thought about the legal side of entrepreneurship. However, far not everyone could turn the dream into reality. Someone has an inner fair and didn’t want to lose ‘an egg today’, someone became broke and doesn’t want to risk anymore, and some people just didn’t have seed capital. 

 

It may sound weird, but to start the business and create financial prosperity in this country you don’t have to possess a so-called financial cushion. It is enough to know the legal side of the question, which allows incorporating such a legal entity as individual entrepreneurship. In this article we are going to share how to register quickly and painlessly, avoiding fines and unnecessary bureaucracy.  

 

What is individual entrepreneurship and how it works

 

Before we proceed to the individual entrepreneurship incorporation process, let’s see what this legal form is really about.  

 

An individual entrepreneur is one of the simplest forms of business entities in our country, which is not implying constituent documents or seed capital.

 

According to the Civil Code of Ukraine, every citizen who reached the age of 18 with an officially registered place of residence can apply for individual entrepreneurship. This option is also available for a person, who reached the age of 16, however in this case parents’ or custody consent is required. 

Individual entrepreneurship incorporation should be conducted according to the place of residence. For internally displaced people from the Crimean Republic and Anti-Terrorist Operation Zone, the registration is possible without a link to a registered place of residence, however in this case a person should obtain a certificate about the temporary place of residence from Migration Service. 

An entrepreneur in our country can engage in economic activity on the general or simplified taxation system. People who grow their own business under the simplified taxation system represent a significant part of small businesses in Ukraine. This trend is due to the fact that this mechanism of work provides an opportunity to pay only the flat tax and mandatory contributions to the state social insurance.

You should know that the entrepreneur is responsible for the accumulated debts with all his property. Debts include all liabilities to customers as well as tax debts!

Individual entrepreneurship: where to start

 

The Revolution of Dignity is over, and this means that our government started to simplify incorporation procedures for Individual entrepreneurs. You don’t have to stand in line in the taxation office or at the ministry of Justice as the state offers a wide range of online services.  

If you are a busy person, and individual entrepreneurship incorporation procedure is not for you, it can be actually carried out with the help of special law firms. The cost of such service is set by each agent independently. It all depends on the region, the speed of registration, and the problems that may arise when incorporating an entity of economic activity related to changes to the registered place of residence, as well as the name and surname of the customer.

 

Before you incorporate individual entrepreneurship, you should pay attention to a few moments: 

 

First of all, to fill in the registration form (with the help of an agent or independently) future individual entrepreneurs should choose a special Classification of Types of Economic Activity, which he is going to be involved in. You can get acquainted with the whole list of codes on the official website

 

Secondly, to incorporate individual entrepreneurship you will be also required to get a digital signature. It is possible to receive it via online.minjust.gov.ua or at the authorized E-signature certification center. Each organization independently sets up the list of the necessary documentation to complete this procedure, for this reason, it is better to check this information in advance. Generally, if all the required documents are in place, the procedure of E-signature obtaining for future entrepreneurs takes around 20 minutes.  

 

Individual entrepreneurship incorporation: a simple guideline for independent registration 

 

To become an entrepreneur, you can apply to government agencies, or, as we have already mentioned, to do it through online resources of the Ministry of Justice and the portal of public services. Let’s check it out step by step. 

 

State Registrar

 

To incorporate individual entrepreneurship, contact your responsible local authorities based on the place of your residence. In this case, you will not need many documents: you will only need to fill out an application for registration of IE, indicating your full name, passport details, national identification number, address, and place of residence, as well as the Classification of Types of Economic Activity. It is recommended to enter several corresponding codes of Classification as if you ever want to do business in another way, but its code is not specified in the application, you will have to re-register your entity.

 

Individual entrepreneurship incorporation online: how it works 

 

To become an entrepreneur, avoiding queues and paperwork, you can use the electronic service of the “House of Justice” in a few steps.

 

To begin with, register on the website and specify the type of service you want to use. In our case, it is “State registration of individual entrepreneurship”. 

Then fill out the standard registration application. It is obligatory to sign the form with the help of E-signature to finish the procedure. We have mentioned it above.

 

Please note that you can also register Individual entrepreneurship on the portal of public services. Unfortunately, most regions of Ukraine still have limited access to this system. However, if you live in Donetsk, Ternopil, or Dnipropetrovsk regions it will be easy to do. The procedures on this resource are similar to the one presented in the “Online House” of the Ministry of Justice.

How is the individual entrepreneurship registration procedure conducted?

Once the application is filed with the State Registrar or completed online, it should be processed within 24 hours. The first incorporation procedure is free of charge.

If the application is filled out according to the rules, and there is no reason for refusal, all information about registration is entered into the database of the State register of legal entities and individual entrepreneurs.

How to check whether your incorporation was completed

If you can’t wait to make sure that your business has been officially registered and a paper copy of an extract from the State register of legal entities and individual entrepreneurs has not yet been sent to you, you can use the online service, where the status of individual entrepreneurship is published.

To check it out, click on the link and select the “Free request” option. This feature allows you to make sure that you are registered as an entrepreneur.

The registration is completed: what’s next

Once you have received an extract from the State register of legal entities and individual entrepreneurs about the incorporation of legal entities for economic activity, you must register with the State Fiscal Service. You also need to decide which taxation system you want to work with and then apply for a simplified system with an indication of the group.

From January 1, 2017, three groups of individual entrepreneurship can operate on the simplified taxation system. They differ in the size of income, the number of employees, and some limitations on the choice of economic activity classification. The full list of Classification of Types of Economic Activity allowed for each group can be found on the State Fiscal Service portal.

It should be mentioned that you can do this at the same time while submitting documents for registration, both to the State registrar and through the Internet. Also, in the State Fiscal Service, it is required to register the Book of income and expenses and get an extract from the Register of flat taxpayers.

After all the above procedures are completed, you can safely start your own business.

How to terminate entrepreneurial activity – short instruction

While organization or performing business activities, you have realized that individual entrepreneurship is a form of economic activity, which is not suitable for you. Or let’s say you just want to drop it and become a hired employee again. Entrepreneurial activity termination is the easiest way to say goodbye to the simplified system of business performance. Actually, it is as easy as to incorporate it. 

In order to terminate the entrepreneurship, you need to submit the following documentation to the council based on the place of your residency: 

  • application for State registrar of the business activity termination by IE;
  • passport;
  • power of attorney – if documents are submitted by a representative of the entrepreneur.

If the registrar sees that all taxes are paid and you have no debts (we have mentioned them above), he will issue a notice of the IE business activities termination.

A few FAQ for IE incorporation 

Which bank account to open: in local or in foreign currency

Opening a bank account is a relatively fast and simple procedure. The main rule here is to choose a bank system of which you know well. This will help you to avoid pitfalls while cooperating with this organization.  The Ministry of Finance of Ukraine decided to compare TOP 10 banks, serving individual entrepreneurs, and detected that only PrivatBank fully qualifies for all the requirements.  You can find the information about all the banks on the official website of the Ministry of Finance of Ukraine.

From our side, we would like to notice that opening a bank account for IE is not rocket science, no matter if it is in local or in foreign currency. It is enough to have the certificate of registration, to be a client of the chosen bank and get an E-signature. 

Do individual entrepreneurs need to have a seal? 

On July 19, 2017, a law that implied that a seal was no longer an indicator of the credibility of a document came into force. It means that IE should no longer worry about the fact that if they do not have a seal impression on documents, their transactions will be considered invalid. It should be noted that the law imposes a fine from 50 to 100 tax-exempt minimum incomes for entrepreneurs who should but don’t have a sealed print on official documents of their business entities.

Which groups of the simplified taxation system are relevant for freelance programmers?

A freelance entrepreneur on the simplified tax payment system may belong to the second or third group. The main selection criteria will be:

  • category of future customers
  • expected income from the business

The full list of Classification of Types of Economic Activity allowed for each group can be found on the State Fiscal Service portal

There you will see that the second group does not allow engagement in economic activities outside of our state, i.e. you can provide services only within the territory of Ukraine and to those who make mandatory contributions to the state social insurance (legal entities and other IE).

Individual entrepreneurs belonging to the third group are allowed to conduct any permitted type of business in accordance with the simplified taxation system. At the same time, they have an annual income limit of 5 million UAH. The flat tax rates for the third group are 3 percent of income (if VAT is paid separately) or 5 percent (if VAT is included in the unified tax system).

Based on the above-mentioned, it can be concluded that for a programmer who provides his services abroad, the third group of the simplified taxation system with 5% fixed rate will be the best.

Let’s sum up

After reading about the incorporation procedure of such a legal form of conducting business as individual entrepreneurship, it becomes clear that there is nothing complicated here. It is enough to spend some time in this case, collect all necessary documents, and complete only five steps.

  • Get an E-signature in an authorized E-signature certification center.
  • Choose the code for the type of economic activity you’ll be conducting.
  • Apply to the State registrar or register on the portal of the Ministry of Justice of Ukraine independently.
  • Submit all documents to the registrar or send the completed application online.
  • Register the Book of income and expenses.

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