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Liquidating A Sole Proprietorship In 2020: How To Undergo A Liquidation Procedure?

Being a company with many years of experience in carrying out the procedure for liquidating companies and other business entities, we are often contacted by sole proprietors for liquidation services.

Today we will elaborate on the most common aspects and issues that arise in the process of liquidating a sole proprietorship.

Is it enough just to file the registrar with an application for liquidating a sole proprietorship?

No. Unfortunately, this procedure is more complicated than it may seem at first glance. The actions of the tax authorities may often confuse you during the sole proprietorship liquidation.

According to the law of Ukraine, the tax authority should begin the procedure of termination and withdrawal of the taxpayer from the register upon the receipt of a notice from the state registrar.

In practice, after receiving a notice, the tax authority may really make a “de-registered” record in the Unified State Register, if a sole proprietor has no debts. However, it does not mean that you are de-registered in the internal register of the tax authority, which means that a sole proprietor may remain in it for many years.

We have seen cases, when it turned out that the tax authorities has some claims to the sole proprietor within three years after the termination of the activity.

What to do in such situation?

You need to thoroughly undergo the procedure of a sole proprietorship liquidation in the tax office, which includes the following stages:

  • inspection;
  • de-registration;
  • obtainment of the relevant certificate confirming de-registration of a sole proprietor from the tax authorities’ register.

Despite the fact that the state registrar notifies the tax authority of the sole proprietorsip liquidation, it was necessary to submit a certain application form, 8-OPP, to the local tax office until recently. At present, it is possible to file the application following no particular form.

After submitting an application for inspection and de-registration, it is advisable to go through a preliminary verification. Depending on the tax authority, preliminary verification can be done at the Taxpayer Service Centres on the day of application.

At this stage, a qualified lawyer will advise you on how to properly draw up an application and successfully pass the inspection, as well as monitor the results of the inspection.

Related article: Our Lawyers Registered A Sole Proprietorship For A Client From Kyiv Region

Should reports, including blank reports, be submitted during the sole proprietorship liquidation?

III group single taxpayers should file an appropriate declaration for the last quarter. This should be done within forty days after the end of the quarter.

The reporting period for I and II group single taxpayers is a calendar year. A report for this period must be submitted within 60 calendar days after the end of the reporting period. But if the sole proprietor’s activity was terminated at the beginning of the year, it is not necessary to wait for its end. You may submit a report for the period you actually carried out your activity and put a “liquidation” mark on the single tax declaration.

Sole proprietors under the general taxation system shall submit liquidation declarations on income within 30 days from the date of making the entry in the Unified State Register on the termination of their activities.

Note! Regardless of the taxation system, you must also submit the latest report on the payment of the single social contribution. Such report with a “liquidation” mark shall be submitted within 30 days from the date of liquidation.

In the future, no matter how long the liquidation procedure takes, no more reports shall be submitted.

Of course, if the above reports are not submitted, you may get a penalty and still will be obliged to submit the reports.

Related article: Our Lawyers Registered A Sole Proprietorship For An Internally Displaced Person in Kyiv

How long may the tax inspection take?

Many people must have heard about the “ the last three year rule”, which states that in case of the sole proprietorship liquidation, the tax authority checks the reports for the last three years of its activity.

However, the Tax Code does not contain any time limits for the inspection in case of the taxpayer liquidation. So where did “the last three years” come from?

The fact is that the Tax Code requires taxpayers to keep the accounting records of income and expenses for 1,095 days. That’s exactly three years. This period begins from the date of submission of the tax report, which was prepared on the basis of the abovementioned documents, and in case of failure to submit a tax report - from the submission deadline.

And in this case, even if the documents were “lost” three years ago, the inspector is entitled to dig deeper.

The inspector found an underpayment of tax for the period over three years ago. How to liquidate a sole proprietorship with debts in that case?

Let’s imagine a situation: the inspector decided to check the the entire period of the sole proprietor’s activity and found an underpayment of tax, which occurred more than three years ago. What to do?

According to Clause 102.1. of Article 102 of the Tax Code of Ukraine, tax authorities ірфдд determine the monetary obligations of taxpayers no later than at the end of 1,095 days following the last day of the reporting period and / or deadline for payment of monetary obligations accrued by the regulatory authority. If the legislation provides for the reportі to be submitted later - on the day following the actual submission of the report.

If during this period, the tax authorities have not determined the amount of monetary liabilities, then, according to the same provision of the Tax Code, the entity shall be free from payment of the said liabilities, including penalties and fines.

Note: For the so-called controlled transactions defined in Article 39 of the Tax Code, the period for keeping  primary documents and the period subject to imposing penalties is 2,555 days.

Thus, due to a certain inconsistency in legislation, the “three year rule” really applies in practice. Tax officials often, knowing these tricks, do not even begin to check activities that were carried out more than three years ago.

If you want to liquidate a sole proprietorship or get legal advice on your specific case, don’t hesitate to call us. We can efficiently address legal issues of any complexity.

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