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Messenger Principles of SPD taxation in Ukraine
The tax sphere in our country is undergoing constant reform, which can negatively affect the quality of doing business and significantly complicate any planning. Given the real situation, it is extremely important to enlist the support of qualified specialists who can keep up with all the numerous changes and provide comprehensive accounting support for running an SPD.
There are two taxation systems in Ukraine:
- General system.
- Simplified system.
In the first case the taxable base is calculated as follows: the amount of income minus the amount of expenses. In the second case taxes are paid on the entire amount of the SPD’s revenue.
General taxation system for SPDs
Let’s consider the specifics of paying the main taxes for SPDs under this system:
1. Personal Income Tax (PIT).
- Tax rate – 18% (art. 167.1 of the Tax Code of Ukraine) on the difference between income and documentarily confirmed expenses (art. 177.2 of the Tax Code of Ukraine).
- Reporting period – year, the report is filed within 40 calendar days after the end of the reporting period (subparagraph 49.18.5 of art. 49 of the Tax Code of Ukraine).
Advance payments are paid quarterly, by the 20th day of the month following the calendar quarter (by April 20, July 20 and October 20). The amount is calculated based on the data indicated in the Book of income and expenses. The advance payment for the fourth quarter is not paid (art. 177 of the Tax Code of Ukraine).
2. Military levy (MV).
- Rate – 1.5%, the tax base and taxpayers are determined according to the legislation for PIT, as specified in p. 16-1 of subsection 10 of section XX of the Tax Code of Ukraine.
- Paid annually, based on the results of the declaration.
3. VAT. Registration as a VAT payer can be voluntary. However, it should be noted that art. 181 of the Tax Code of Ukraine provides for mandatory VAT registration if, based on the results of the last 12 months, the total amount from the sale of goods, performance of works and provision of services collectively exceeded UAH 1 million (excluding VAT).
4. Unified Social Contribution (USC) – a sort of replacement for the previously existing contributions to the Pension Fund and social insurance, which is payable regardless of the presence of income. The obligation to pay the USC is specified in the Law of Ukraine dated 08.07.2010 No. 2464-VI “On collection and accounting of the single contribution to the compulsory state social insurance”.
- The USC is calculated for each month.
- If the entrepreneur had income subject to PIT, the USC is charged at a rate of 22%. At the same time, the amount of USC cannot be less than 22% of the minimum wage (in 2019 – UAH 918.03).
- The maximum amount of income on which the USC is charged is 15 minimum wages (in 2019 – UAH 62,595.00).
- If in some month there was no income, it is necessary to independently determine the base for USC calculation, but not less than the minimum wage; in 2019 the USC amount is UAH 918.03 (4173 x 22%) and not more than the maximum amount of income on which the USC is charged; in 2019 the USC amount is UAH 13,770.90 (4173 x 22% x 15), according to p. 2 ch. 1 art. 7 of Law No. 2464.
- Since 2018, quarterly USC payment deadlines have been established – by the 20th day of the month following the quarter. The entrepreneur calculates the amount of the tax liability, therefore it is necessary to follow all changes in this area and make payments quarterly.
- The USC amount paid for oneself can be attributed to the entrepreneur’s expenses in the month of payment, which will reduce the PIT tax base.
- The USC report is filed by February 10 of the year following the reporting year (p. 2 of Section III of the Order of the Ministry of Finance No. 435 dated 14.04.2015).
5. If an SPD employs hired workers, it is also necessary to pay monthly taxes on salaries and other similar payments:
- employee income tax – 18%;
- military levy – 1.5%;
- unified social contribution on the payroll – 22% (at the SPD’s expense)
Simplified taxation system for SPDs
In 2019, there remained 3 groups of single tax for SPDs, while seemingly minor changes are constantly being made to the legislation, which may not affect all entrepreneurs but should be monitored and taken into account in their work.
Main taxes for SPDs who are single tax payers:
1. Single tax (ST).
The amount of the single tax depends on the chosen group. For groups I and II the ST is fixed, a set percentage of state-guaranteed payments (minimum wage/subsistence minimum). The percentage is set by the decision of the local council, in most cases at the level of the maximum amount:
- for group I – 10% of the subsistence minimum for able-bodied persons (in 2019 – UAH 192.10)
- for group II – 20% of the minimum wage (in 2019 – UAH 834.60).
The tax must be paid as an advance payment for each month, by the 20th day of the current month, regardless of whether there is income in it (art. 295 of the Tax Code of Ukraine).
The report on the single tax for groups I and II is submitted based on the results of the year, within 60 calendar days after the end of the reporting period.
For group III the tax is set at 5% of income for non-VAT payers and 3% of income for VAT payers. That is, in the absence of income, the single tax for group III is not paid. If there is income, the tax is paid quarterly, within 50 calendar days from the date of the end of the quarter. The report for single tax group III is filed quarterly, within 40 calendar days after the end of the reporting quarter.
2. Unified Social Contribution (USC).
Single tax payers independently determine the amount on which to calculate the USC, but not more than the established maximum amount (in 2019 – 4173 UAH x 15 x 22%) and not less than the minimum insurance contribution (in 2019 – 4173 x 22%). This is specified in p. 3 art. 7 of section III of Law 2464.
3. VAT, for taxpayers registered in group III ST with VAT.
- Rules of VAT calculation and payment are exactly the same as for legal entities. The only exception is that single tax payers, if they wish, can choose a quarterly reporting period for VAT, in accordance with art. 202.2 of the Tax Code of Ukraine.
- The standard reporting period for VAT is a month, reporting is filed within 20 calendar days after the end of the reporting month.
When choosing such a taxation system, it is necessary to delve into the intricacies of working with VAT or consult specialists who will do everything for you.
Here you can download the application for switching to the simplified system.
For the first two groups, the specific rate is set by the local council annually. Rates can be checked on the website of the State Fiscal Service.
| Parameter | Table of single tax payer groups | ||
|---|---|---|---|
| I | II | III | |
| Use of hired workers | no | up to 10 persons | not limited |
| Types of activity | – Market trade; – Household services for the population. | – Market trade; – Household services for the population; – Restaurant activity; – Production or sale of goods. | Any, except for restrictions established by the Tax Code of Ukraine. |
| With whom they can cooperate | Only individuals | Individuals and legal entities that use the single tax. Exception – restaurant business when servicing special orders and sale of goods. | Individuals, as well as legal entities on any taxation system. |
| Maximum annual income | UAH 300,000. | UAH 1,500,000. | UAH 5,000,000. |
| Tax rate | from 1 to 10% of the subsistence minimum as of January 1 of the tax (reporting) year. Maximum rate 1921*10% = UAH 192.1. | from 2 to 20% of the minimum wage as of January 1 of the tax (reporting) year. Maximum rate 4173*20% = UAH 834.60. | 3% of income if VAT is paid; 5% of income for non-VAT payers. |
| Form of settlements with counterparties | Exclusively monetary (cash or non-cash payments). | ||
| Use of cash registers | Not required | Obligations: 1) upon exceeding the annual income amount of UAH 1 million and using cash settlement forms; 2) when selling technically complex household goods subject to warranty repair, as well as medicines and medical devices (p. 296.10 of the Tax Code of Ukraine). | |
| Payment of certain types of taxes | Exempt from payment of: – PIT on the results of their activity; – Land tax (part of property tax). Required to pay rent for special use of water. | ||
| Tax (reporting) period | Calendar year | Calendar quarter | |
| Deadlines for payment of the single tax | In advance (by the 20th day of the current month) | 10 days after the filing deadline (for legal entities and individuals – 40 days after the end of the quarter) | |
| Accounting procedure | Keeping records is mandatory. The book of income records, at the payer’s choice, is kept in electronic or paper form. | Keeping records is mandatory. The book of income records (for VAT payers – the Book of income and expenses) is kept in electronic or paper form at the payer’s choice. | |
Restrictions and prohibitions of the simplified taxation system
Who cannot switch to or operate under the single tax | Reference to the Tax Code of Ukraine | Notes |
|---|---|---|
| Restrictions for individual single taxpayers | ||
| Activities related to organization and conduct of gambling, lotteries (except distribution of lotteries), betting (bookmaker betting, totalizator betting) | subparagraph 291.5.1 of the Tax Code of Ukraine | Since 01.01.15 it also includes those engaged in conducting lotteries (except distribution of lotteries) and betting (bookmaker betting, totalizator betting) |
| Foreign currency exchange activity | – | |
Production, sale, export or import of excisable goods: — ethyl alcohol and other alcohol distillates, alcoholic beverages, beer; — tobacco products, tobacco and industrial tobacco substitutes; — fuel; — passenger cars, bodies for them, trailers and semi-trailers, motorcycles, vehicles designed to carry 10 or more persons, vehicles for transporting goods; — electric power | Individual single taxpayers are allowed to retail excisable fuel and lubricants in containers up to 20 liters. They are also allowed to sell beer and table wines at retail | |
| Extraction, production, sale of precious metals and precious stones, including organogenic formations. Exception – activities for the production, supply, sale (realization) of jewelry and household items made of precious metals, precious stones, organogenic precious stones and semi-precious stones. But individual entrepreneurs are allowed to carry out such activity only in group III of single tax payers (subparagraph 2 of p. 291.4 of the Tax Code). In addition, individual single taxpayers who are subjects of the jewelry market will not be eligible for VAT payer status. Following subparagraph 293.3.2 of the Tax Code, they can apply single tax rates exclusively at 5% | For example, the mentioned activities are included in the following KVED DK 009:2010 classes: 07.29 “Mining of ores of other non-ferrous metals”; 24.41 “Manufacture of precious metals”; 24.54 “Casting of other non-ferrous metals”; 26.52 “Manufacture of watches” (referring to the production of watch cases from precious metals); 32.11 “Minting of coins”; 32.12 “Manufacture of jewelry and related articles”; 46.72 “Wholesale of metals and ores”; 46.48 “Wholesale of watches and jewelry”; 47.77 “Retail sale of watches and jewelry in specialized stores” | |
| Conducting technical tests and research (group 74.3 KVED DK 009:2005) | subparagraph 291.5.2 of the Tax Code of Ukraine | Class 71.20 “Technical inspection and analysis” of KVED DK 009:2010. It includes: — performing physical, chemical and other tests on all types of materials subject to analysis, and products, including: — acoustic and vibration tests; — studies of mineral composition and impurity content, etc.; — studies in the field of food hygiene, including veterinary control and control over the production of food products; — studies of physical and operational characteristics of materials, such as strength, thickness, wear resistance, radioactivity, etc.; — tests of material properties and reliability; — tests of operational characteristics of mechanisms: engines, automobiles, electronic equipment; — radiographic testing of welded seams and joints; — failure analysis; — studies and measurements of environmental parameters: air and water pollution, etc.; — certification of products, in particular, consumer goods, engines, aircraft, pressure containers, nuclear power plants, etc.; — periodic testing of motor vehicles for road safety (in the author’s opinion, this refers specifically to vehicle inspection); — tests using models and mock-ups (for example, aircraft, watercraft, dams, etc.); — activities of police laboratories |
| Activities in the field of auditing | Such activity is carried out by entrepreneurs who have in the State Register the activity by class 69.20 “Activities in the field of accounting and auditing; tax consultancy” KVED DK 009:2010. However, this class is carried out not only by auditors, but also by accountants. In practice tax inspectors classify as auditors individual entrepreneurs who provide accounting services. The basis may be a reference to the same KVED. This once served as a reason for tax inspectors not to allow individual entrepreneurs who provide accounting services to the simplified system. We consider such an approach illegal and are convinced that entrepreneurs who provide accounting services can be single tax payers | |
| Extraction, sale of minerals. Exception here — sale of minerals of local significance | subparagraph 291.5.1 of the Tax Code of Ukraine | In particular, this refers to activities listed in section B “Mining and quarrying” of KVED DK 009:2010 |
| Activities in the field of financial intermediation | subparagraph 291.5.1 of the Tax Code of Ukraine | This refers to activities from the groups and classes of sections 64 “Financial service activities, except insurance and pension funding”, 65 “Insurance, reinsurance and private pension funding, except compulsory social insurance”, 66 “Auxiliary activities in the fields of financial services and insurance” (for example, activities under class 66.22 “Activities of insurance agents and brokers”) KVED DK 009:2010. The ban does not apply if you carry out insurance activities as an insurance agent, surveyor, loss adjuster or adjuster. |
| On the day of filing the application for registration as a single taxpayer the enterprise has a tax debt | subparagraph 291.5.8 of the Tax Code of Ukraine | This restriction does not apply if it concerns a hopeless tax debt arising as a result of force majeure circumstances |
| Activities in enterprise management | subparagraph 291.5.1 of the Tax Code of Ukraine | Such activities are mentioned in classes 66.30 “Fund management”, 70.10 “Head office activities (head offices)” KVED DK 009:2010 |
Activities of providing postal services (except courier activities) and communications (except activities not subject to licensing) | For example, these activities are included in such groups and classes KVED DK 009:2010: 53.20 “Other postal and courier activities”; 61.1 “Wired electronic communication activities”; 61.2 “Wireless electronic communication activities”; 61.3 “Satellite electronic communication activities”; 61.9 “Other electronic communication activities”. Activities providing communication services that are subject to licensing are listed in part 7 of art. 42 of the Law of Ukraine “On Telecommunications” dated 18.11.03 No. 1280-IV. In particular, the following telecommunications activities are subject to licensing: | |
1) provision of fixed telephone communication services with the right to maintenance and operation of telecommunication networks and provision for use of communication channels: — local; — long-distance; — international; 2) provision of fixed telephone communication services using wireless access to the telecommunication network with the right to maintenance and provision for use of communication channels: — local; — long-distance; — international; 3) provision of mobile (cellular) telephone communication services with the right to maintenance and operation of telecommunication networks and provision for use of communication channels; 4) provision of services for maintenance and operation of telecommunication networks, broadcasting networks and cable television networks | ||
| Activities for the sale of art items and antiques, activities for organizing sales (auctions) of works of art, collectibles or antiques | Probably this refers to class 47.79 “Retail sale of second-hand goods in stores” KVED DK 009:2010, which includes retail of antiques, second-hand books and similar items. We do not exclude that if such a class is present among the entrepreneur’s activities, questions may arise during their transition to the single tax | |
| Activities for organizing and conducting touring events | KVED DK 009:2010 does not explicitly list such activity. At the same time, we believe that it is covered by class 90.02 “Activities to support theatre and concert events”. And the reason is that only it includes activities of producers or entrepreneurs in the field of art with designated premises or without them | |
| Insurance (reinsurance) brokers | subparagraph 291.5.4 of the Tax Code of Ukraine | Note that subparagraph 291.5.4 of the Tax Code echoes subparagraph 291.5.1, which banned financial intermediation activities |
| Non-resident status | subparagraph 291.5.7 of the Tax Code of Ukraine | Non-residents are: a) foreign companies, organizations established under the laws of other states, their branches, representative offices and other separate subdivisions registered (accredited or legalized) in accordance with the legislation of Ukraine with a location on the territory of Ukraine; b) diplomatic missions, consular institutions and other official representations of other states and international organizations in Ukraine; c) individuals – non-residents of Ukraine (subparagraph 14.1.122 of the Tax Code) |
| Transition to the single tax more than once during the calendar year | – | Transition to the simplified taxation system (unsuccessful attempts to file an application for application of the simplified taxation system are not counted) an economic entity that is a payer of other taxes and fees can do so only once during the calendar year. From this rule it follows: firstly, within the same year it is not prohibited to return from the simplified taxation system to the general one, and secondly, to change the group of single tax payers or the rate (in case of refusal of VAT), i.e. change the tax regime within the simplified taxation system, within the same calendar year is also not prohibited |
| Prohibitions that apply only to those already operating under the single tax | ||
| Carrying out types of activities not specified in the Register of single tax payers | subparagraph 7 p. 298.2.3 of the Tax Code of Ukraine | From the first day of the month following the tax (reporting) period during which such activities were carried out, the individual entrepreneur switches to the general taxation system |
| Settlements for shipped goods (completed works, provided services) in non-monetary form | p. 291.6 of the Tax Code | In case of violation of this ban, the single taxpayer faces cancellation of single tax registration and transition to the general tax system starting from the quarter following the one in which such income was received. In addition, income received for sold goods (works, services) in non-monetary form is taxed for individuals with a single tax at a rate of 15%, and for legal entities – with tax at double the chosen rate |
Activities of providing for rent: — land plots with a total area exceeding 0.2 ha; — residential premises with a total area of more than 100 m2; — non-residential premises (structures, buildings) and/or their parts with a total area exceeding 300 m2 | subparagraph 291.5.3 of the Tax Code of Ukraine | This activity is prescribed in class 68.20 “Renting and operating of own or leased real estate” KVED DK 009:2010. Tax inspectors can detect lease agreements for premises or land plots concluded by the entrepreneur. They will check such agreements, even if the mentioned KVED class is absent in the extract from the state register. However, it should be remembered that lease agreements can be concluded both on behalf of an individual who has entrepreneur status and on behalf of an ordinary individual |