Taxation of an online store in Ukraine

One of the ways to optimize business processes is to move your business online, for example, to start an online store. Today, this topic is more relevant than ever, many entrepreneurs are actively moving their brick-and-mortar business online. So let’s elaborate on the taxation systems for online stores.

You may also like: Tips For Protecting Your Business During The Downtime

The key issues to be addressed before starting an online store

The key factor that determines the online sales tax is a business structure of a legal entity that owns an online store.

In fact, there are no specific requirements for online sales. As for any other sales, you need to correctly calculate taxes, and duly submit all the necessary reports. 

The key thing you should remember is that from January 1, 2021, the law introduces a mandatory requirement for selling goods through the shopping cart with the use of the cash registers. At the same time, it is obligatory to provide a settlement receipt in paper or electronic form. 

The law also introduces a refund mechanism without issuing a fiscal check. That is, if your customer, having paid for the purchase, has not received a fiscal check or has received, but not a fiscal check (just a receipt or check without specifying “fiscal”) - he/she has the right to file a complaint.

You may also like: Tax Audit Of The Sole Proprietor’s Accounts

Today, there are already several solutions for business which wants to avoid the above mentioned situation with cash register, for example:

• Accept orders over the phone, without being bound to orders through the shopping cart;
• if there are no frequent sales, use the website as an informative tool, to familiarize your customers with the product. 

These are just a couple of examples of possible schemes of process organization. Our accountant can advise and tell you about all the potential risks in more details.

Which taxation system is better to choose for an online store?

Internet shop in Ukraine can operate both under the general or simplified taxation system. Which one is more profitable?

The simplified taxation system sets limits to the level of income, so it should be used by entrepreneurs and enterprises with small turnover.

Please note! In March 2020, the Verkhovna Rada of Ukraine adopted a law that introduces changes to the Tax Code of Ukraine, including in terms of increasing income limits for entrepreneurs using the simplified taxation system - the Single Tax. At the time of writing this publication, the Law is awaiting Presidential Signature. 

According to the law, the maximum annual income of business entities using the simplified taxation system shall be increased as follows:

• Group 1 - from UAH 300,000 to UAH 1,000,000.
• Group 2 - from UAH 1,500,000 to UAH 5,000,000
• Group 3 - from UAH 5,000,000 to UAH 7,000,000

It’s very important to keep an eye on the regulations that change regularly. As they will help you make the important strategic decision on how to build your business.

The general taxation system can be used by any business entity. The key peculiarities of this taxation system are that the VAT shall be paid depending on the turnover or type of goods, as well as a full maintenance of accounting records is required.

All sales, including online sales, shall be included in the company’s total income. This means you don’t need to keep separate accounts for online activity. When choosing the taxation system for an online store, you should be guided by the taxation system of the entire company.

Read also: Corporate Income Tax

How to properly organize online store accounting? 

It is important to correctly organize internal accounting at the enterprise and to correctly allocate costs. With properly organized accounting, you can easily understand the profitability of the online store and the main costs of its maintenance.

We will tell you about a case from our practice, which clearly demonstrates the importance of competent online store accounting.

We were contacted by the Client - a shop of goods, which has already been operating for several years as a point of sale and used the simplified taxation system. Having decided to open an additional online store, the Client has allocated a large amount of money for this project. But after six months of business activity, it faced a “negative income”. Although, in fact, it was due to improperly calculated primary costs.

We helped the Client optimize the accounting of the online store, and in a year, its online business began to bring more profit than the physical point of sale. This became apparent due to the correct distribution of income and expenses, competent accounting at the enterprise. Of course, the time frame depends on the type of business and business strategy.

Due to the increase in sales, the company had to move to the general taxation system and pay VAT. However, through joint efforts we managed to find a tax scheme that allowed us to minimize tax costs legally. 

It is important to understand that taxation schemes are applied depending on your business and its development. They can be changed many times during the existence of a company, depending, for example, on the expansion of business or relevant changes in Ukrainian legislation.

If you want to move your business online and want to make head of all the peculiarities of online store accounting and taxation, don’t hesitate to call us!