Self-employed individual — who is it, how is it different from an individual entrepreneur, and how does this status work

In the modern economy, there is an increasing number of individuals who organize their own labor activities without being in labor relations with an employer. These individuals are called 'self-employed persons'. Therefore, this is a simple answer to who a self-employed person is. 

In Ukraine, the status of a self-employed person (an individual entrepreneur is a self-employed person) has its peculiarities regulated by the Tax Code and other normative legal acts. As of 2026, the concept of self-employment encompasses various categories of individuals: individual entrepreneurs, persons engaged in independent professional activities, as well as certain categories defined by law. 

A correct understanding of this status is critically important for those who plan to start their own business, as well as for employers who involve such individuals in performing work. 

The concept of a self-employed person in the tax and legal field

One should start with what a self-employed person (individual entrepreneur or self-employed individual) is, and then what types of self-employment exist. In Ukrainian legislation, the term 'self-employed person' is used to define a category of taxpayers who carry out activities independently, without forming a legal entity and without entering into an employment contract with an employer. According to the Tax Code of Ukraine, self-employed persons are individual entrepreneurs, as well as individuals engaged in independent professional activities. The latter include notaries, lawyers, insolvency practitioners, auditors, appraisers, engineers, architects, doctors, scientists, artists, as well as other individuals who perform activities that require special knowledge and skills. 

An important feature of a self-employed person is that they independently organize their work, determine their schedule, methods, and ways to achieve results, and also bear responsibility for the outcomes of their activities. A self-employed person does not follow the internal work regulations of the client, does not receive a salary in the classical sense, but receives remuneration for the work done or the services rendered. 

The legal status of a self-employed person (who are self-employed persons) requires mandatory registration with the controlling authorities, keeping records of income and expenses, paying taxes and a unified social contribution. Violating the registration or tax payment requirements leads to administrative and financial liability.

Who belongs to self-employed persons in Ukraine

Ukrainian legislation classifies self-employed persons into two main categories. The first category is individual entrepreneurs. These are individuals registered as business entities who conduct entrepreneurial activities for profit. Individual entrepreneurs can choose different taxation systems: general or simplified (single tax of the first, second, third, or fourth group). The second category comprises individuals engaged in independent professional activities. They include: 

• notaries practicing privately; 

• lawyers registered in accordance with the established procedure; 

• insolvency practitioners (property managers, recovery managers, liquidators);

• auditors conducting audit examinations; 

• appraisers who conduct property valuations;

• engineers and architects providing professional services; 

• doctors who practice medicine individually; 

• scientists conducting research activities; 

• artists who create works of art and receive remuneration for this. 

A separate category is individuals engaged in religious activities (clergy). In addition, self-employed persons may include individuals who earn income from transactions involving real estate or securities but are not registered as individual entrepreneurs. All aforementioned individuals are required to register with controlling authorities, keep records of income and expenses, pay taxes, and a unified social contribution.

Individual entrepreneurs as a form of self-employment and their status

An individual entrepreneur is the most common form of self-employment in Ukraine. The status of an individual entrepreneur provides for the state registration of the individual as a business entity, which grants them the right to conduct entrepreneurial activities without forming a legal entity. An individual entrepreneur has the right to enter into contracts, open bank accounts, use a seal, and hire employees (subject to the registration of employment contracts). An individual entrepreneur is liable for their obligations with all their assets. 

The registration of an individual entrepreneur is voluntary; however, engaging in entrepreneurial activity without registration is a violation of the law. An individual entrepreneur has the right to choose the taxation system: general (payment of personal income tax and military levy) or simplified (single tax). The simplified taxation system involves dividing into four groups depending on income level, number of hired employees, and types of activities. 

Individual entrepreneurs of the first group pay a fixed amount of tax (up to 10% of the minimum wage), the second group – up to 20%, the third group – 5% of income (or 3% plus VAT), the fourth group – agricultural entrepreneurs. An individual entrepreneur is obligated to maintain a record of income and expenses, timely submit reports to controlling authorities, and pay the unified social contribution (the minimum amount as of 2026 is 22% of the minimum wage). The difference between an individual entrepreneur and other self-employed persons is the ability to conduct any types of activities not prohibited by law, while individuals engaged in independent professional activities are limited by their profession.

Differences between self-employed persons and hired employees

Self-employed persons and hired employees have fundamental differences concerning legal status, taxation, social guarantees, and liability. A hired employee is in an employment relationship with the employer based on an employment contract. They are required to adhere to the rules of internal labor regulations, follow the supervisor's orders, and maintain the work schedule. For this, they receive a salary from which the employer withholds personal income tax (18%) and a military levy (1.5%), and also pays a unified social contribution (22% of the calculated amount). A hired employee has the right to paid vacation, sick pay, maternity benefits, and protection against wrongful dismissal. A self-employed person, on the other hand, independently organizes their work, determines their schedule, methods, and means to achieve results. They are not entitled to paid vacation, sick pay, or full maternity benefits (although paying the unified social contribution grants the right to minimal social guarantees). 

A self-employed person independently pays taxes and the unified social contribution, and also bears responsibility for their obligations. An employer who involves a self-employed individual in performing work does not have the right to control the work process, issue binding instructions, or require adherence to a work schedule. Instead of a salary, a self-employed person receives remuneration under a civil contract (contract for work, service agreement). There are also differences in taxation: if for a hired employee taxes are withheld by the employer (tax agent), then a self-employed person independently calculates and pays their taxes. Violating the rules of defining an individual's status (for example, substituting labor relations with a civil law agreement) leads to imposing penalties on the employer.

Tax features of self-employed persons' activity

The taxation of self-employed persons' activities has several features that distinguish it from the taxation of hired employees. Self-employed persons are required to register with controlling authorities at their residence (or at the place of activity) and obtain the appropriate status. 

After registration, a self-employed person must independently calculate and pay taxes to the budget. Individual entrepreneurs who have chosen the general taxation system pay personal income tax (PIT) at a rate of 18% on the net taxable income (income minus documented expenses) and also a military levy at a rate of 1.5%. Moreover, individual entrepreneurs under the general system are required to pay the unified social contribution (USC) at a rate of 22% of the minimum wage (or from actual income if it exceeds the minimum wage). Individual entrepreneurs who chose the simplified taxation system (single tax) pay a fixed amount of tax (for the first and second groups) or a percentage of income (for the third group). 

As of 2026, the rates of the single tax are: for the first group – up to 10% of the minimum wage per month (maximum 800 UAH), for the second group – up to 20% of the minimum wage (maximum 1600 UAH), for the third group – 5% of income (or 3% plus VAT if registered as a VAT payer). Individual entrepreneurs under the simplified system are exempt from paying personal income tax and military levy but are required to pay the minimum unified social contribution (22% of the minimum wage). 

Persons engaged in independent professional activities (notaries, lawyers, auditors, etc.) pay personal income tax at a rate of 18% and a military levy at a rate of 1.5% from their net taxable income (income minus expenses related to the business). They are also required to pay the unified social contribution at a rate of 22% of the income (but not less than the minimum). An important feature of the taxation of self-employed persons is that they have the right to a tax discount (including sums paid for education, treatment, insurance, etc. as expenses), but the realization of this right requires submitting an annual tax declaration. Violating the deadlines for tax payments or not submitting reports leads to imposing penalties that can amount to significant sums.

Common mistakes in defining the status of a self-employed person

Despite clear legislative regulation, mistakes often arise in practice in defining the status of a self-employed person. These mistakes can lead to serious consequences, including the imposition of penalties and tax reassessments. The most common mistake is substituting labor relations with a civil law agreement. Many employers conclude contracts for work or service agreements with individuals instead of establishing labor relations. If, during an inspection, it is established that there are actually signs of labor relations (subordination to labor regulations, fixed monthly payment, personal execution of work, provision of a workplace by the employer), the contract may be requalified as an employment contract, leading to tax reassessments, unified social contribution liabilities, and penalties. 

The second common mistake is the failure to register a person as self-employed when actually conducting entrepreneurial activities. An individual who systematically provides services or sells goods for profit is required to register as an individual entrepreneur or as a person engaged in independent professional activities. Ignoring this obligation leads to penalties for violating the registration procedure. The third mistake is inaccurately defining the group for the single tax. Individual entrepreneurs sometimes choose a group that does not correspond to their type of activity, income, or number of hired employees. 

This can result in losing the right to apply the simplified taxation system. The fourth mistake is the failure to keep records of income and expenses. Self-employed persons are required to maintain a record of income and expenses (for individual entrepreneurs under the general system or for individuals engaged in independent professional activities). The lack of proper accounting makes it impossible to confirm expenses, leading to taxing the entire income without deducting expenses. The fifth mistake is paying taxes at a rate lower than the minimum established. For example, an individual entrepreneur under the first group of single tax pays a tax lower than 10% of the minimum wage. This is a violation that leads to penalties. The sixth mistake is the failure to submit tax reports. 

Self-employed persons are required to submit tax declarations (for individual entrepreneurs under the general system and for persons engaged in independent professional activities) or reports on the single tax (for individual entrepreneurs under the simplified system). Failing to submit reports leads to imposing penalties. The seventh mistake is using hired labor without formalizing employment contracts. An individual entrepreneur utilizing hired labor is required to register employment contracts with the controlling authorities, pay taxes, and the unified social contribution for employees. Failure to meet these obligations constitutes a violation which entails significant penalties.