Sole proprietor suspends operations in Ukraine

The New Year in Ukraine will not start well for many entrepreneurs, as a strict quarantine will be introduced from January 8 to 24. In this regard, many sole proprietors will be forced to suspend their activities. Despite the fact that an entrepreneur may not have any income, he or she is obliged to pay taxes. In this article, we will tell you what taxes you need to pay in any case and where you can save money.

What taxes are required to be paid by a sole proprietor on a single tax?

Depending on the single tax group, a sole proprietor pays a different amount of the single tax. For entrepreneurs in Groups 1 and 2, the single tax rate is fixed and not tied to the entrepreneur's income, which means that if a sole proprietor did not receive income in the current month, he or she still has to pay the single tax.

For Group 1 - up to 10% of the subsistence minimum for able-bodied persons as of January 1 of the reporting year. For Group 2 - up to 20% of the minimum wage established as of January 1 of the reporting year.

For Group 3, the amount of the single tax is tied to the income of entrepreneurs. If a sole proprietor in Group 3 is a VAT payer, he pays 3% of his income, if he is not a VAT payer, he pays 5% of his income.

In addition to the single tax, individual entrepreneurs must pay a unified social contribution (USC) of 22% of the minimum wage. If the amount of the minimum wage changes during the year, the amount of the unified social contribution also changes; there is no link to the amount of the minimum wage at the beginning of the year.

Starting January 1, 2021, Group 1 sole proprietors will have to pay a single tax of UAH 227 and a unified social contribution of UAH 1,320 (a total of UAH 1,547 per month). Good news! Group 1 sole proprietorship have a tax holiday from December 2020 to May 2021 and are exempt from paying the single tax and unified social contribution.

A Group 2 sole proprietor will have to pay a single tax of UAH 1200 and a unified social contribution of UAH 1320 (a total of UAH 2520 per month). There are no tax holidays for Group 2 sole proprietors.

Group 3 sole proprietors will have to pay a single social contribution of UAH 1,320 and will be able to save on a single tax if they have no income this month.

What taxes must a sole proprietor pay under the general taxation system?

A sole proprietor on the general taxation system, as well as a sole proprietor on the single tax, must pay a unified social contribution of 22% of the minimum wage. Important point! Sole proprietors of the general system pay all taxes on profits and if they have no income in December 2020, then they do not have to pay the unified social contribution for December. And from January 1, 2021, the minimum unified social contribution (22% of the minimum wage) will be removed, which means that from January, if you have no income, you will not have to pay a single social contribution either.

The amount of net income of a sole proprietor on the general taxation system is tied to personal income tax (18%) and social security (1.5%). If there was no income in the current reporting period, then there is no need to pay taxes.

How can a sole proprietor reduce the tax burden?

If a sole proprietor does not receive income, taxes must still be paid. This applies to sole proprietorship of group 2 and partially of group 3. If you want to save on taxes because your business is closed, you can switch to the general taxation system. No income means no taxes.

You have little time left to switch from the single tax to the general system. In order to be on the general taxation system from January 2021, you need to submit an application to the tax office by 12/21/2020, i.e. 10 calendar days before the beginning of the new quarter. If you do not have time to submit an application by 12/21/2020 and submit it later, then you will be able to switch to the general system from the second quarter of 2021.

If you switch to the general taxation system from the 1st quarter of 2021 and want to return to the single tax during the year, you will be able to do so without any problems. If you switch to the general system from the second quarter of 2021 and then want to return to the single tax, you may be denied such a transition. The tax authorities believe that in such a situation you have already exercised your right to the simplified taxation system (in the 1st quarter).
For Group 2 sole proprietors, there is another way to save a little on taxes - to go on vacation. If an entrepreneur does not have employees, then you can take a vacation, albeit only for a month, and save on the single tax. The right to vacation can be used once a year and only from the first day of the month to the last day of the month. But you have to pay the unified social contribution in any case.
The last and most radical option for those who want to save on taxes is to withdraw from state registration as an individual entrepreneur. This option is suitable for sole proprietors of the 2nd and 3rd groups of the single tax. If you know for sure that at the beginning of the year you will not be working and, accordingly, receiving income, you can file an application for termination of activity by the end of the year. Within a day, information about such a sole proprietorship will be added to the state register. And after all work bans are lifted, you can register as a sole proprietor again.