How to choose a tax system

Published 06.08.2020. Some rules have changed since; ask us for the current position.

Questions about registering a business and paying taxes hold many people back from starting their own company. Ukrainians pay a lot of taxes, and one small mistake can lead to a fine. It all looks complicated and confusing. For anyone starting out, choosing a tax system in Ukraine is hard. The law keeps changing and nobody can keep track of everything. The good news is that professional accountants can handle it for you. Only with a very small turnover does it make sense to keep the income ledger and file reports yourself, and some entrepreneurs do exactly that.

We will try to shed some light on how individuals and companies choose a tax system. For the final decision, though, we recommend talking to a specialist. They will take into account every aspect of your future business and suggest the best option for you, based on expected income and other factors. The right tax system saves money and increases net profit, and the savings can go into growing the business, buying stock, equipment and so on.

How to choose a tax system: the key points to consider

Entrepreneurs in Ukraine can choose between the general tax system and the simplified system. The advantage of the simplified system is that you do not pay value added tax. The exception is the third group of single tax (єдиний податок) payers: those who choose the 3% single tax rate pay VAT, while those on the 5% rate do not. Being on the single tax lowers a business's costs.

When the single tax is not an option

The following activities are allowed only under the general system, so you cannot pay the single tax if you are in any of these lines of business:

• production, export and import of excise goods;
• extraction and sale of precious metals and stones;
• extraction and sale of minerals;
• financial intermediation;
• management activities;
• postal services and telecommunications;
• sale of works of art and antiques, auctions;
• touring activities;
• technical testing;
• audit;
• leasing out land;
• brokerage;
• gambling, lotteries and betting;
• currency exchange.

Only residents of Ukraine can be single tax payers.

To answer the question "Which tax system should I choose?", look at several characteristics of your business at once:

• the type of activity;
• how you would like to pay taxes;
• how often you would like to file reports;
• whether you can use a cash register (РРО);
• revenue and other factors.

By optimising taxation, the Key Solutions business accounting team reduces costs for entrepreneurs. For small businesses, the single tax almost always turns out to be the best choice. Our team knows exactly:

• how a new business owner should choose a tax system;
• which taxes apply to each group of entrepreneurs;
• how to obtain tax reliefs and pay less tax.

Later on, we can also make sure all payments to the budget are made on time. To keep your business fully compliant, call or write to us with any question on accounting and tax.

Frequently asked questions

• How should an individual entrepreneur (ФОП) choose a tax system?

Ukraine has two systems: the general system (personal income tax, the single social contribution (ЄСВ), VAT and military levy) and the simplified system, which has four groups of taxpayers (Group I: selling goods to individuals; Group II: selling products and services to individuals and single tax payers; Group III: working with any counterparties; Group IV: farming). A specialist can walk you through the details.

• Which tax system suits a wholesale business?

In Ukraine, both individual entrepreneurs and companies can trade wholesale. With annual sales above UAH 5 million, the general system is the one to choose. Below that figure, either the simplified or the general system can work.