Choosing the best form of taxation for business in Ukraine

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It’s not enough to come up with a business, it still needs to be implemented. And to choose the most profitable option for implementation. At the initial stage, you need to make many administrative decisions associated with choosing the target audience, suppliers, employees, office and many other issues. However, one of the primary issues is to choose the best taxation system for the company or entrepreneur. Today we will talk about how to make head of the taxation systems of Ukraine and how to choose the best taxation scheme for your business.

We don't just offer information – we provide practical assistance supported by experience. Our company has a network of practicing accounting and legal professionals in both Ukraine and abroad, dedicated to ensuring tax optimization. Our solutions aren't just theoretical; they're practical, efficient, and secure. We prioritize the future of your business, tailoring individualized approaches for each client. And whether your operations span Ukraine and beyond, we assure you of high-quality service, regardless of your location.

Read also: Accounting News For Individual Entrepreneurs In 2020

How to make head of the taxation systems in Ukraine?

There are 2 taxation systems in Ukraine:

  • Simplified taxation system or single tax:
  • General taxation system.

First of all, you need to determine your main customers, who are they?

If you are focused on the sale of goods/services to individuals, end consumers, you should definitely choose a simplified taxation system

If the main income is planned to be generated from enterprises - there may be nuances. 

What is the simplified taxation system? It is the payment of a single tax: either fixed for 1 and 2 groups of taxpayers, or a fixed rate for all funds received on a current account.

Read alsoCorporate Income Tax

Let’s talk about the features of each tax group.

Group 1. This taxation system can be used by sole proprietors only. The income limit is UAH 1,000,000 per year. The tax rate for 2020 is 210.20 UAH/month + single social security tax of 1,039.06 UAH/month. The work of hired employees, even relatives, cannot be used under this system.

Group 2. This taxation system can also be used by sole proprietors only. The income limit is UAH 5,000,000 per year. The tax rate for 2020 is 944.60 UAH/month + single social security tax of 1,039.06 UAH/month.

Group 3. This taxation system in Ukraine can be used both by sole proprietors and legal entities. The income limit is UAH 7,000,000 per year. The tax rate is 3% + VAT or 5% without VAT. 

Group 4. This group is only for taxation of agricultural manufacturers - both legal entities and sole proprietors. The tax rates of this group are the same as those for the taxpayers of the third group with several limitations and clarifications. There are quite a few restrictions for this group, so if you are interested in this particular group, call us for advice or sign up for our news - we will certainly talk about it later.

General taxation system provides, as a rule, for the payment of VAT at 20% and the income tax at 18% (we will elaborate on this further). For tax purposes, income is calculated based on the difference between income and expenses determined in accordance with the Accounting Regulations (Standards) in accordance with the Tax Code. 

How to choose the optimal taxation system for your business?

Let’s discuss 1-3 groups of the Single Tax in more detail. Who are they suitable for?

Group 1. It’s your option, if you plan to work with the population (individuals), providing services (hairdressing, household services, etc.), or selling the goods in the markets, and your annual cash turnover will not exceed UAH 1,000,000. 

Group 2 will be suitable for those who are already planning a more serious business, with a larger annual turnover.

You will be able to sell goods or provide services to all, even to enterprises and organizations, but the main customers are individuals, sole proprietors and enterprises using a single tax. There is no VAT in this simplified taxation group. And you’re allowed to hire up to 10 people.

Group 3 can be used both by sole proprietors and enterprises. In this group one can choose the scheme of taxation with or without VAT. This group is more often chosen by entrepreneurs, providing various services. 

As for this group, the tax is paid for income and expenses are not taken into account. The tax rate is as follows: 

  • 5% provided that you are not a VAT payer; 
  • 3% +20% VAT minus input VAT. 

Please note! It is important for buying companies that pay VAT that you also pay this tax. Therefore, if your main buyer is a VAT payer, you also should be a VAT payer.

Peculiarities of the general and simplified taxation system in Ukraine

The key peculiarity of using the simplified taxation system is the mandatory maintenance of an income/expense ledger. In addition, taxpayers of the simplified taxation scheme often use cash payment method, which in most cases requires the use of cash registers.

The general taxation system in Ukraine is the most common among sellers of goods and enterprises, whose turnover exceeds UAH 7 million per year. 

In order to calculate taxes, you need full introduction of income and adjustment for expenses incurred in order to receive such income. Income is the sale of goods/services, and expenses are the purchase or production cost and the sum of other expenses incurred in business activities. And after you have determined the income, deduct the expense = 18% income tax will have to be paid from this amount. Do not forget about VAT and many other accounting features. 

The general taxation system can be also used by sole proprietors with an income of up to UAH 1 million, not VAT payers. But if they exceed this amount, they must become VAT payers.

We gave a very brief overview of the tax schemes used in Ukraine, because we can talk about the disadvantages and advantages of this or that system for a long time.  

When choosing a tax scheme, it is very important to take into account all the aspects of your business, so put your business in the hands of professionals, and we will choose the best taxation option for you.

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Publication date: 23/04/2020

We are ready to help you!

Contact us by mail [email protected] or by filling out the form: