Which means that musicians tend to work low wages, receive their earnings in cash and as a result not pay taxes. Consequently, the level of their legal protection in the country is currently alarmingly low.
One can work his/her way around it whilst being 20 years old, without a care about paying for sick leave, having a proof of income when buying expensive goods or real estate (for any serious purchase worth more than 400,000 hryvnas today, the buyer must confirm their source of income). But when a musician hits a milestone of being 30, taken that music remains to be their main source of income, this is when the situation of not being legally registered starts to get rather grim. Concert venues usually have to sign a contract for the artists to perform. But how would they pay money to a musician if they are not registered as an entrepreneur at the very least? Hypothetically speaking, such a transaction can still go ahead, but the taxation of such payments will exceed 40% of the amount of the fee in total as well as needs to be done only under a civil law agreement. Same situation occurs whilst receiving royalties in the form of income from digital distributions. Although the tax rate will be lower, 18%, as there is no obligation to pay social security contributions, but it still will be higher than possible for the business entity activities.
So, what are the possible work formats for independent musicians in Ukraine?
There are two different options:
- Sole Entrepreneurship, when musician operates under a simplified taxation system;
- Legal entity (LLC), which can operate either via the general taxation system or, given that the band has a high level of earnings and significant current expenses, via the simplified taxation system.
Being on the simplified taxation system for Sole Entrepreneurship via the third group allows the musician to pay 5% of the single income tax and the single social contribution, which equals 22% of the minimal country wage, 5000 UAH.
The creation of an LLC that operates on a simplified taxation system of the same third group allows you to pay a single income tax of 5% and pay dividends to the owner of the company at a rate of 9%.
It is quite simple in the end. Those are just a few benefits of legalization of the private musical activity.
Having a legal status of sole entrepreneur makes it much easier for musicians to receive income from labels they are signed at as well as from SCARP, arrange concerts abroad and much more.
So even if you are just starting your music career, you should think about legal issues ahead of time.