Tax authorities explained which amount from the sale of goods should be considered income for sole proprietors, at what exchange rate to convert currency, and when funds on Payoneer may be taxed as foreign income.
Ukrainian sole proprietors (FOPs) who sell goods through Etsy may face a rather confusing situation: the buyer pays one amount, the marketplace deducts commissions, advertising expenses, and certain taxes, and the seller ultimately sees a completely different figure on Payoneer. Which exact amount should be considered entrepreneurial income in such a case, and when does the tax obligation arise?
The State Tax Service (STS) provided answers to these and several other questions in an individual tax consultation. The tax authorities’ position is especially important for sole proprietors who sell their own goods abroad through Etsy and receive proceeds via Payoneer.
Registration on Etsy as an individual does not prohibit operating as a sole proprietor
The inquiry to the STS concerned an entrepreneur who sells self-produced goods through Etsy. In Ukraine, they are registered as a sole proprietor, but on the American marketplace their account is registered as a regular individual. The reason is the specifics of American legislation, which does not have a full equivalent of the Ukrainian status of an individual entrepreneur.
The entrepreneur wanted to clarify whether this situation creates problems for their activities in Ukraine. The STS saw no obstacles. Tax authorities reminded that individuals permanently residing in Ukraine can conduct foreign economic activities if they are registered as entrepreneurs according to Ukrainian law. Thus, for the Ukrainian tax authorities, what matters is not how Etsy designates the user in their account, but their actual status in Ukraine and the nature of their activity.
In other words, the mere fact of registration on Etsy as an individual does not deprive a Ukrainian of the right to sell goods as a sole proprietor.
Payoneer is not a bank account in Ukraine
Many more nuances arise with receiving money. In practice, the scheme for the seller may look like this: the buyer pays for the product on Etsy, the marketplace processes the payment, deducts the fees stipulated by the rules, after which the remainder is credited to Payoneer. From there, the entrepreneur transfers the funds to their bank account in Ukraine.
The STS emphasized separately: Payoneer is not a banking institution, and an account in this system is not considered a bank account. This is important due to currency operation rules. As a general rule, settlements for foreign economic operations are conducted through bank accounts, and funds from a non-resident for export operations must be credited to the resident’s account in a Ukrainian bank.
At the same time, the tax authorities took into account the actual mechanics of such platforms. If the money first arrived at Payoneer and then was transferred to the sole proprietor’s entrepreneurial account in a Ukrainian bank, it can remain income from entrepreneurial activity and be taxed under the single tax rules. However, it is not advisable to delay such a transfer.
The STS noted that funds must be transferred to a Ukrainian bank within the relevant reporting period, but no later than the annual tax period.
Which amount from Etsy sales should be considered income
Tax authorities stated: for a sole proprietor paying the single tax, income is the amount specified in the listing or invoice, converted into hryvnias at the NBU exchange rate on the date the funds are received in Payoneer. An exception is taxes directly charged and collected from the buyer by Etsy itself. That is, it is necessary to separate the product price and the tax that the marketplace separately adds to the buyer. If the seller set the product price, that price is the base amount for determining income.
However, foreign sales tax that Etsy itself charged the buyer and received according to the legislation of another country is not included in the income of the Ukrainian sole proprietor.
Special attention should be paid to commissions. If the marketplace after the sale withheld, for example, listing fees, transaction commissions, or advertising expenses, these amounts are not equated to taxes charged by Etsy from the buyer. Therefore, they do not reduce the sole proprietor’s income in the sense of this consultation. In other words, if the product cost $100, and after deducting commissions $85 remained on Payoneer, the entrepreneur cannot automatically say that their income is only $85. For tax accounting, the amount of the sale indicated in the listing or invoice should be used, excluding taxes directly charged to the buyer by Etsy.
This means that the marketplace commission effectively reduces the amount the entrepreneur receives in hand but does not reduce their income for single tax purposes.
When to convert currency into hryvnias
If the sale is made in dollars or another foreign currency, for tax accounting the amount must be converted into hryvnias. The STS ties this calculation to the date the funds are received in Payoneer. That is, not the moment when the buyer clicked the payment button on Etsy, nor the day the money actually reached the Ukrainian bank. If the funds were first credited to Payoneer, the official hryvnia exchange rate to the respective foreign currency set by the NBU on that date should be used.
This can be significant, especially when several days pass between receiving money in Payoneer and transferring it to Ukraine.
The STS also drew attention to the situation when the entrepreneur received money from sales but did not transfer it to their entrepreneurial account in Ukraine. If funds remain on Payoneer at the end of the relevant reporting period, the tax authority views this differently. The consultation states that if the money was not credited to a bank account in Ukraine for entrepreneurial activity, or was credited to an account opened for personal needs, it is taxed as foreign income of an individual under the rules established for ordinary individuals.
Therefore, it is fundamentally important for the entrepreneur to separate two accounts: personal and the one used for entrepreneurial activity.
It is also worth noting that the fact that a sole proprietor on the single tax can keep income records in any form does not mean that documents can be not kept at all. The STS reminded about the requirements of Article 44 of the Tax Code: tax reporting indicators must be confirmed by primary documents. This is especially relevant for an Etsy seller.
The entrepreneur must be able to confirm at what price the product was sold, when the transaction took place, what amount was received, what funds the marketplace withheld, and when the money arrived at Payoneer and was transferred to the Ukrainian account. Therefore, it is better to keep information from Etsy, invoices, payment data, and documents regarding the movement of funds rather than rely solely on the transaction history in the marketplace.
The entrepreneur also asked whether they need to use a cash register or software cash register and issue fiscal receipts to foreign buyers. In this part, the STS proceeded from the territorial principle of Ukrainian legislation. Tax authorities stated that the law on cash registers applies to economic relations conducted on the territory of Ukraine. If the sale of goods through a foreign marketplace and payment for it occur outside the scope of Ukrainian legislation, such operations must be conducted according to the legislation of the country where the sale, delivery of goods, and payment take place.
Therefore, working through Etsy does not mean that a sole proprietor must automatically generate a Ukrainian fiscal receipt for each foreign buyer. At the same time, this does not cancel possible requirements of the legislation of the country to which the goods are sold.
This consultation is individual and, according to paragraph 52.2 of the Tax Code, may be used exclusively by the taxpayer to whom it was provided.
However, the STS consultation shows an important trend: for a Ukrainian entrepreneur selling abroad through Etsy, the tax authority looks not only at the amount that actually arrived in the Ukrainian account. The product price, the moment funds are received in the payment system, marketplace deductions, and whether the money was properly transferred to the entrepreneurial account in Ukraine all matter. These details can determine the amount the sole proprietor ultimately must report as income and under which rules it will be taxed.
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