Published 6 August 2020. Some rules have changed since; ask us for the current position.
So, for a number of reasons, you have decided against trading as a sole proprietor. For some types of business, a limited liability company (ТОВ, товариство з обмеженою відповідальністю) is the better fit. An LLC also lets you receive income as dividends. Planning a large business and looking to bring in investors? Then an LLC is your choice, and a well-justified one for sizeable projects with investment appeal. Read on to learn more about running an LLC on the simplified tax system.
Everyone pays taxes; the choice of tax system for your LLC is yours
So what about taxes? The tax system for an LLC has its own features. Before you set up the business, ask our specialists about them. This article gives a short overview of how LLCs are taxed, and we hope it helps you find your way around Ukraine's complicated tax rules. Working it out on your own is hard: you should rely only on sources you trust and whose accuracy is beyond doubt. Without a specialist, there is a risk of ending up deep in the red once all taxes are paid. It is a common story for high taxes to force a company to close in its very first year.
On the simplified system, value added tax is payable only in certain cases, and these companies pay no corporate profit tax at all. That is convenient, especially compared with the general tax system for LLCs. The books are much easier to keep, and some owners skip hiring an accountant and do it themselves, at their own risk. We also have clients who come to us only for advice on specific questions and handle the rest themselves.
A lower tax burden means higher income, which is why most LLCs want to know more about moving to the simplified system.
But can an LLC operate on the simplified system as easily as a sole proprietor? How do you make life easier and choose a tax system for your LLC that keeps costs down?
How well do LLCs and the simplified system fit together in Ukraine?
The 2020 amendments to the Tax Code did not significantly change the list of taxes. The rules for using cash registers (РРО) were revised, and the list of those who cannot be single tax (єдиний податок) payers was expanded. That is exactly what matters here.
If your business involves gambling, you cannot pay the single tax. The same applies to companies engaged in currency exchange, the production, export or import of excise goods, brokerage and insurance services, securities registration and several other activities. Non-residents pay taxes under the general rules.
When is the general tax system more beneficial for a company than the single tax?
The general tax system suits LLCs with a low net profit.
Another point worth noting: corporate profit tax payers withhold 5% tax from dividends paid to their founders (members) under subparagraph 167.5.2 of the Tax Code, while single tax payers withhold it at 18%.
If you would like the full list of those required to pay tax under the general system, talk to our specialists. They will answer all your questions and propose the best tax planning structure for your LLC. We provide a full range of accounting services.
Weigh up all the pros and cons before making decisions that will shape your business. How you pay taxes is one of the most important questions, given the specifics of Ukrainian law.
With us, it is all simpler than it looks, and our services are affordable for most businesses in Ukraine.
We are always available:
- by phone;
- by email;
- via online chat.
Frequently asked questions
- What tax systems are available to an LLC?
There are three. 1) The general system means paying corporate profit tax (18%), the single social contribution (ЄСВ), tax on dividends (5%) and VAT (20%). 2) Under the simplified system, you pay 3% of income plus VAT, or 5% of income without VAT. For agricultural producers, the tax is calculated from the standard monetary valuation of their land. 3) A preferential regime exists for certain activities and is governed by the Tax Code.
- Which tax system should an LLC choose: general or simplified?
As a rule, the general system is chosen by businesses with a large turnover. For small businesses with modest income, the simplified system is usually the better option. To work out precisely which option makes sense, we recommend talking to the specialists at Key Solutions, an audit firm.
- How can you find out which tax system an LLC is on?
To look up a counterparty, all you need is the company's name or its EDRPOU code (код ЄДРПОУ). Company data is available in the public electronic registers on the tax authority's website (the State Fiscal Service, ДФС, in 2020; today the State Tax Service, ДПС). If the company is in neither the single tax register nor the VAT register, it is on the general tax system.
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