What taxes should a medical center in Ukraine pay in 2023?

Medical business, like any other business in Ukraine, must have its system of accounting and tax accounting and timely pay taxes. Not everyone knows how to choose the most efficient taxation system for medical practice, especially at the beginning of the business.

After many different actions and decisions, created and signed documents, you need to decide on the tax system, and this should be done when registering your business. Of course, then you may change your tax system every quarter (subject to certain requirements), but it is better to do it in advance, and our team will help you with this.

Taxes can be divided into several types, namely:

• direct;
• indirect;
• related to the payment of wages and salaries;
• other.

There are two tax systems in Ukraine:

• Simplified;
• General.

Each system has a number of advantages and disadvantages, the choice depends not only on the type of activity but also on the volumes with which the medical center will work. If you have decided to set up a small business as an LLC or an individual entrepreneur, then you will, obviously, choose the simplified system with the payment of a fixed percentage of tax on income. But there is always a "but".

Let's break down the taxation system on the examples of LLC and a sole proprietorship, just entering the market because these are the two most common forms of private medical business.

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Medical centers LLC vs. sole proprietors paying single tax

LLC and sole proprietors can choose the simplified system of taxation with the following rates:

• 5% of income – for VAT non-payers;
• 3% of income – for VAT payers;
• 2% of income – special tax regime for martial law, regardless of whether you are a VAT payer or not, but that's if you have the status of a single tax payer.

By the way, today no taxpayer is exempt from paying a single tax, despite martial law.

A medical center under the simplified system of 5%:

• maximum income - UAH 7,585,500, the higher income will require the center to transfer to the general system;
• a healthcare facility is not a payer of VAT;
• exemption from VAT registration when income reaches UAH 1,000,000.00 but up to the maximum income of 1,167 minimum wages;
• reporting 4 times a year;
• fixed payroll taxes;
• exemption from land tax if you use it in your business activities, but you lose this right if you start renting it out.

The specifics of working at a rate of 3%, if you register as a VAT payer, but if you consider that the medical center provides services to the public, this rate is not very favorable to the business.

Disadvantages of single taxation:

• legal entities may be single taxpayers only within Group III;
• restrictions in payments, which may be made only in cash or non-cash form;
• prohibition on electronic money, bills, barter, mutual settlements, and assignment of the right of demand;
• the greater the income, the higher the tax, and none of your expenses are affected by this amount. Even if you have losses, the tax would not be reduced.

So, if you are just starting a business, and have a small medical center for a few offices or a few specialties, then the best choice is a simplified system: for LLC this is Group III at 5% tax (for the duration of martial law – 2%). If you are self-employed, then our advice is to start with Group II, with fixed unified social tax and single tax.

Medical centers LLC and sole proprietorships 2% tax

Today, for the duration of martial law, the state introduced a special regime in the form of payment of a single tax at the rate of 2% of income. The greatest disadvantage of this regime is that it is temporary and reporting is not quarterly, but monthly, and the number of days for reporting is reduced.

What benefits will the medical center receive by switching to this system of special tax treatment:

• 2% of income, but monthly;
• lack of limits on the amount per year (Group II – 834 minimum wages, Group III – 1,167 minimum wages);
• no VAT payer registration for the time of being on special tax treatment without the threshold amounts;
• no limits for hired employees.

Having analyzed all the advantages and disadvantages of 2% for the period of martial law, our advice is to choose this simplified system. Our team will help you understand the reporting aspects.

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Healthcare facility: sole proprietorship under of Group II single tax

The legislator provides sole proprietors, including those providing medical services, with the opportunity to work under the simplified system under Group II of taxation.

Pros:

• fixed single tax, which does not depend on the volume of income of sole proprietors;
• fixed unified social tax, also irrespective of the volume of income.

Note: the maximum volume per year for sole proprietors under Group II is 834 minimum wages, and UAH 5,421,000 in cash, that is, the volume is quite substantial if you compare it to UAH 1,500,000, which was in 2020.

Cons:

• limitation on types of activities, but this does not apply to the medical practice;
• limitation in the number of employees not more than 10 people;
• no possibility to register as a VAT payer;
• lack of opportunity to work with legal entities;
• the payment as with Group III – in cash or non-cash settlement;
• prohibition on electronic payments, bills of exchange, barter, mutual settlements, and assignment of the right of demand;
• advance payment of taxes, single tax payment – monthly until the 20th day of the month, unified social tax payment – until the 20th day of the month, according to the reporting quarter.

In today's realities, sole proprietorships under Group II are exempt from paying:

• Single tax;
• Unified social tax for yourself;
• Single tax and unified social tax in case of mobilization of sole proprietors.

However, there is a "but"!

The practice of not paying taxes by sole proprietors under Group II is quite controversial, so our advice to you is if you are working and have the opportunity, it is better to pay. If until July 31, 2022, you will still be excused, the variation of our Tax Code will not be in your favor, unless you can prove that you have not worked all this time, and did not have the opportunity to work.

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Medical center LLC or sole proprietorship under the general system of taxation

When choosing the general taxation system, the biggest disadvantage is the huge amount of reporting, which the center itself without the involvement of appropriate professionals is unlikely to manage, or will devote all its time to studying what, where, and when to submit, or count the periods when and where to submit these reports.

But the general system has its advantages, for example, you pay corporate income tax once a year, minus all your confirmed expenses. Consequently, while single taxpayers do not have such an option as reducing taxation due to expenses, taxpayers under the general system do have such an option.

If you are a sole proprietor and have chosen the general system of taxation, there is one small nuance. A sole proprietorship will have to pay:

• Personal income tax of 18% (based on income minus expenses = profit);
• Unified social tax – 22%;
• Military tax – 1.5%.

Also, if the income (funds turnover) of a sole proprietorship under the general system surpasses the UAH 1 million mark, it must register as a VAT payer.

As a result, in most cases, it is more profitable for sole proprietors to choose the single tax system than the general system of taxation.

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Payroll taxes for the health center

It is quite difficult to reduce the tax burden on the payment of salaries, because the licensing conditions impose the basic requirement that all medical and nursing staff must be officially employed. In other words, neither civil contracts nor outsourced or contracted medical workers can work for you - this poses a risk of losing the license.

It is possible to reduce the tax burden slightly at the expense of administrative staff, which you can outsource.

The only option to reduce taxes on medical and nursing staff is to set shift schedules and hourly wages, but it's only possible with outsourcing. If you have a doctor on staff, you can pay him by the hour, but the unified social security must be paid from the minimum wage.

Working with our clients on starting medical centers in Ukraine, we not only take care of all legal aspects related to obtaining licenses, permits, and developing the necessary documents, but also help with the preliminary financial planning of the center.

Check out our service fees here.

Everything about obtaining a medical license here.