Individual entrepreneurs are drafted into the army

Men who are 18 years old and no older than 27 years old are called up for military service in Ukraine. It doesn't matter whether a man is an employee or an employer, everyone is equal before the military enlistment office. If an employee receives a call-up, everything is clear: he retains his position and average salary, but what should a sole proprietor do? In this article, we will tell you whether an entrepreneur needs to close down if he or she is called up, what to do with employees, and whether to pay taxes.

Does a sole proprietorship have to close if it is drafted into the army?

The Law of Ukraine "On Military Duty and Military Service" states in Article 39(3) that an entrepreneur is not obliged to cease his or her activities (i.e., close a sole proprietorship) if he or she is called up to the army, and a special period applies. In this situation, the decision is up to the sole proprietor: whether to close or not.

The same law states that if an entrepreneur does not carry out entrepreneurial activities during military service, he is exempt from paying taxes, but this is not so clear (we will consider this situation separately).

Is there a special period now?

Yes, a special period is currently in effect in Ukraine. Following the publication of Order No. 303 of 17.03.2014 "On Partial Mobilization", a special period began on March 17, 2014, and will end when the President signs a decision to demobilize all conscripted military personnel and transfer all institutions to peacetime operation.

At the moment (April–May 2021), the President has not ended the special period by his decision.

What should an entrepreneur do if he or she decides to close a sole proprietorship due to military service?

If an entrepreneur decides to close a sole proprietorship due to military service, the procedure is the same as in any other situation. You need to submit an application to the state registrar in Form 1 or send such an application online on the Diia website. Read more about the process of closing a sole proprietorship here.

If an entrepreneur has employees and decides to close a sole proprietorship due to a call-up for military service during a special period, he or she has the right to dismiss all his or her employees at the initiative of the employer under Article 40(10) of the Labor Code.

In order to make the final payment to employees and issue employment records, a sole proprietor conscript has one month after his demobilization. Of course, this situation is beneficial for the entrepreneur, but not for employees. To avoid conflicts, a sole proprietor can appoint an authorized person (a notarized power of attorney is required) who will make all payments and issue employment records to employees.

What should an entrepreneur do if he or she decides not to close a sole proprietorship due to military service and continues to work?

If a sole proprietor decides not to dismiss employees after being called up for military service but to continue its activities, it needs to appoint an authorized person and issue a notarized power of attorney.

After the appointment of a trustee, you can dismiss employees under Article 40(10) of the Labor Code or leave everything as it is, i.e. pay salaries, vacation pay, sick leave, etc.

If a sole proprietor decides to dismiss employees, he is exempt from paying the single social contribution for himself for the duration of the call-up for a special period based on Article 6(2) of the Law of Ukraine "On Collection and Accounting of the Single Contribution for Obligatory State Social Insurance". Similarly, an entrepreneur does not have to accrue and submit reports during this period.

In order to be exempt from paying the unified social tax, a sole proprietor must apply to his or her tax office for exemption from paying the unified social tax and provide a copy of his or her military ID card. This must be done within 10 days after demobilization.

Please note! If a sole proprietor has employees and does not dismiss them after demobilization, then there are no exemptions from paying the unified social contribution. A sole proprietor with employees is obliged to pay the unified social contribution for himself and for his employees.

An entrepreneur must pay personal income tax and social security for employees either within the established timeframe or may use a deferral of 180 calendar days from the date of demobilization.

A sole proprietor on the general taxation system is exempt from paying personal income tax and filing relevant reports for the duration of his service, regardless of whether he has employees or not. In order to obtain the exemption, you need to apply to the tax office within 10 days with an application and a copy of your military ID card.

A sole proprietor under the simplified taxation system is exempt from paying the single tax during mobilization or call-up for military service, during the special period. To obtain the exemption, you need to apply to the tax office within 10 days with an application and a copy of your military ID card.

If a sole proprietor is called up before the 20th of the month, he or she may not pay the single tax for the current month.