The State Tax Service (STS) clarified that individual entrepreneurs (FOP) who create their own musical recordings and distribute them via DistroKid LLC to platforms such as Spotify, Apple Music or YouTube Music may receive the corresponding payments into a business account and tax them with the single tax.
Payments through DistroKid are not considered royalties
In its explanation the STS said that such payments do not qualify as royalties because the artist transfers the rights to the recordings to DistroKid LLC for further distribution, and the remuneration is not regarded as passive income in the form of royalties under the Tax Code of Ukraine. “This means that an individual entrepreneur of the third group (FOP‑3) has the full right to receive these funds into their business bank account in Ukraine and to tax them as standard entrepreneurial income at the single tax rates,” the STS said in its clarification.
Therefore an individual entrepreneur of the third group (FOP‑3) may credit such receipts to their business account and include them in income for payment of the single tax according to the rules of the simplified tax system.
How the amount of income and the currency are determined
The income of an FOP payer of the single tax of the third group is considered to be the amount stated in the primary document (invoice, payment instruction, etc.), excluding taxes applied to that amount and withheld in the United States. The amount must be converted into hryvnia at the official exchange rate of the National Bank of Ukraine (NBU) for the relevant foreign currency, set on the date the funds are credited to the account opened on the DistroKid LLC platform.
The date of receipt of income is the date the funds are credited to the DistroKid account. When referring to the tax declaration (the declaration is the official report of income filed by the taxpayer), the STS reminded that all figures in it must be supported by primary documents.
Required documents and typical situations
As evidence of income in the declaration, the STS lists primary documents: statements from the DistroKid account, invoices, payment instructions. An individual entrepreneur of the third group (FOP‑3) may keep records in free form without VAT (value added tax), but the entries in the declaration must be based on these documents.
Two typical situations described in the clarification are: 1) an FOP‑musician receives money through DistroKid and taxes it as ordinary entrepreneurial income under the simplified system; 2) if taxes were withheld from the payments in the U.S., the reporting amount should be taken excluding those withholdings, i.e. the amount shown in the primary document without U.S. taxes.
