Our other expert articles have reviewed in depth the various aspects of how US companies are treated for tax and other purposes.
In this Article we take a closer look at our experience working with our Ukrainian customers on verification and set-up of what is called “mass payment” in Ukraine – a banking feature that has been gaining traction and popularity among IT companies and companies that work with freelancers on a regular basis.
The mass payment service available at many major Ukrainian banks allows businesses to save significantly on American banks’ fees for making transfers from American accounts to freelancers in Ukraine (meaning a savings of around $15 - $40 per transfer). Below we’ll describe how we help Ukrainian businesses entering and doing business in the US to take advantage of this opportunity.
Today the typical IT or other creative industry business looks something like the following: there is a company (foreign or Ukrainian) that works with several – or hundreds – of individual freelancers that provide the company with various work or services. Each payment to one of these freelancers will cost the company in terms of banking fees for transfers, conversions, etc.
A simple calculation for payments made from a US LLC bank account to 50 Ukrainian sole traders (registered freelancers in Ukraine are referred to in local parlance as “individual entrepreneurs”, or using the Ukrainian acronym “FOP”) will cost the company around $750 to a cringe-inducing $2000 per month, which we think most would agree is a major cost that should be cut.
How exactly do mass payments allow Ukrainian companies receiving payments from customers outside of Ukraine save?
The mechanism is fairly straightforward, and basically boils down to this – you will pay for just ONE transfer from the US bank account.
Here’s how it works: you first open a special transfer account in Ukraine for your US company to accept mass payments. When the US company needs to pay, say for a project or services billed for the entire month, to multiple freelancers in Ukraine, it sends a lump sum amount from its foreign account (many of our clients recently have used Mercury Bank for this!) to its special-purpose account within Ukraine, along with a list of the amount owed to each freelancer. The Ukrainian bank servicing that account then divvies up the payment and sends the appropriate amount to each freelancer. Each of the freelancers pays a small fee for the transfer at “Ukrainian prices,” which are much smaller than US bank transfer to each !
Of course, the fit of this solution will depend on the size of your company, but in our experience has shown repeatedly that the cost of opening and managing a US company to accept payment from US customers is paid for many times over by the savings you will have from using mass payments to consolidate payments from US clients and pay them to Ukrainian freelancers.
We’re well versed in the procedure of setting everything up for verification of your transfer account for your US company in Ukraine. Without someone experienced in the inner workings of this system, the process can end up dragging out for months. Our team has worked with the top banks in Ukraine that offer this service (Privat, Kredobank, etc.) and can have you set up and saving while making it easier for your foreign clients to pay!
If you want to start saving and paying to freelancers a smarter way, talk with us today for a consultation!