The efficiency of business is always related to the clarity and transparency of the tax system. Ukraine is an attractive country for doing business not only because of the large amount of cheaper (compared to Europe) labor force, but also because of the relatively low taxes.
Ukraine has both a general and a simplified tax system.
The general tax system provides for a corporate income tax of 18%. This taxation system is used in most countries of the world. It works best for companies where the documented costs are significant, because then the taxable profit is relatively small.
The disadvantage of this system is slightly more complicated reporting, and the company is required to document expenses.
The simplified tax system includes exceptions to the general rule of taxation at the 18% rate. Business entities applying a simplified system of taxation, accounting and reporting are divided into four groups of taxpayers:
1 group
The First Group includes individual entrepreneurs whose annual income does not exceed 167 times the minimum wage (UAH 1,118,900 in 2023) and whose activity consists in retailing or providing services only to consumers (for example, car repair shops, house cleaning services, crafts, etc.). The uniform tax (JP) for them is up to 10% subsistence minimum (268.40 UAH in 2023). These entrepreneurs pay a uniform social security contribution - 22% of the minimum wage (in 2023 - 1474 UAH). This form of taxation is not available to entities employing persons under employment contracts. Legal entities cannot select this tax group.
2nd group
For the Second Group, which may include only one-person entrepreneurs, the annual income of the entrepreneur may not exceed 834 times the minimum wage (in 2023 - UAH 5,587,800). Activities related to the provision of services to consumers and to entrepreneurs who are payers of the single tax (e.g. catering activities, advertising activities, legal services, etc.) qualify here. The single tax (JP) for them is set as 20% of the minimum wage (UAH 1,340 in 2022). The social security contribution is the same as for representatives of the First Group.
Entities from Group Two may employ up to 10 people on the basis of an employment contract.
A legal entity cannot select this tax group.
3rd group
The third group may include legal entities and individual entrepreneurs whose annual income does not exceed 1,167 times the minimum wage (in 2023 - UAH 7,818,900). The only tax for them is 3% of net income or 5% of gross income (i.e. if they issue VAT invoices). The social security contribution is also 22% of the minimum wage.
A legal person can only belong to the Third Tax Group. This tax system is beneficial for small businesses. Third Group entities have the right to employ an unlimited number of people under an employment contract.
4 groups a
The fourth group is intended only for agricultural producers: legal and natural persons who carry out their activities within the agricultural holding registered in accordance with the Law of Ukraine "On Agricultural Activities". The tax rate depends on the area and type of land and ranges from 0.19 to 6.33% of the tax base.
If you want to run a business, it is worth determining what legal form to choose, how to register it and what tax model will best suit your business.
This entry contains general information about the legal issue discussed. It does not constitute legal advice or a solution to a specific case or legal problem. Due to the unique nature of each factual situation and the variability of the legal status, we recommend seeking legal advice from our law firm.