10% single tax, VAT and splitting of individual entrepreneurs: what could change for retail

10% single tax, VAT and «business splitting» among Sole Proprietorships: what is actually being prepared and what it means for retail

The increase of the single tax for Group III Sole Proprietorships to 10% has not entered into force. Group III Sole Proprietorships are currently subject to rates of 5% of income without VAT or 3% of income with VAT, as well as a military levy of 1% of income. At the same time, the rate increase is no longer merely an informal discussion: the Budget Declaration for 2027–2029 and the July memorandum with the IMF set out the direction of a future reform — differentiated single tax rates of up to 10% for Group III taxpayers providing services. For an ordinary Sole Proprietorship operating a store and selling goods, this provision has not yet been explicitly formulated. (sumy.tax.gov.ua)

Two other processes are more important for retail. The first is the planned extension of mandatory VAT registration to some simplified-tax taxpayers from January 1, 2028, if the relevant amendments are adopted. The second is the fight against artificial splitting of retail chains. Legislative changes regarding business splitting are still being prepared, but audit practices already exist: on August 10, the State Tax Service reported more than 500 brands showing such indicators and 23 large retail chains that, according to the tax authority, involved more than one thousand Sole Proprietorships. (Ministry of Finance of Ukraine)

Which widely discussed claims are facts and which are exaggerations

The official Budget Declaration does indeed provide for a rate of «up to 10 percent», while the IMF memorandum clarifies that this concerns Group III taxpayers engaged in providing services. Therefore, the statement that «all the listed professions will be charged exactly 10%» goes beyond what is currently established in official documents. (Legislation of Ukraine)

What taxes Sole Proprietorships currently pay

For Group III Sole Proprietorships, the following applies:

• 5% of income — if VAT is included in the single tax;

• 3% of income — if the Sole Proprietorship is separately registered as a VAT payer;

• military levy — 1% of income;

• the income limit for 2026 — UAH 10,091,049;

• the minimum Unified Social Contribution under the general rule — UAH 1,902.34 per month, unless the entrepreneur has a statutory basis for exemption from payment. (sumy.tax.gov.ua)

For Group II, which is also used by a significant number of small stores, the income limit in 2026 is UAH 7,211,598. The maximum monthly single tax rate is UAH 1,729.40, while the military levy is UAH 864.70. The specific single tax rate within the permitted maximum is set by the local council. (sumy.tax.gov.ua)

There is currently no effective 10% single tax rate for Group III.

Where the 10% figure came from and whether it applies to stores

Cabinet of Ministers Resolution No. 793, which approved the Budget Declaration for 2027–2029, sets out a direction for future tax policy: the introduction of differentiated single tax rates of up to 10% for Group III taxpayers providing services. The July memorandum with the IMF provides for the submission of the relevant legislative amendments in 2027. (Legislation of Ukraine)

Three details are important here.

First, «up to 10%» does not automatically mean a single 10% rate for everyone. Amendments to the Tax Code are required to establish specific rates, a list of activities, transitional rules and the date of their application.

Second, the key official documents do not contain the closed list cited in publications «consulting, accounting, auditing, marketing, engineering, legal services». The official wording is broader — «provision of services». (Ministry of Finance of Ukraine)

Third, retail sales of goods are not explicitly listed as an activity for which a rate of up to 10% is planned. Therefore, a Sole Proprietorship engaged specifically in selling clothing, footwear, cosmetics, electronics, household goods or other products cannot currently be classified as a future 10% taxpayer.

A different situation may arise for a mixed business that both sells goods and provides paid services such as repairs, installation, setup, design or consulting. How income and rates would be divided in such cases can only be determined from the text of the future law.

VAT for Sole Proprietorships: a reform that is much more important for retail

The July memorandum provides for abolishing the special VAT exemption for simplified taxation regimes and introducing mandatory VAT registration for simplified-tax taxpayers whose turnover exceeds the general registration threshold. The plan is to adopt the reform in early 2027 and bring it into effect on January 1, 2028. At the same time, the future threshold is planned to be increased, but the memorandum does not specify a final amount in UAH. (Ministry of Finance of Ukraine)

For a retail Sole Proprietorship, this is potentially a systemic change. It will be necessary to assess not only the single tax rate, but also:

• purchases from VAT payers and non-VAT payers;

• the ability to claim input VAT credit;

• the retail price for the customer;

• the share of B2C and B2B sales;

• documents for purchased goods;

• VAT invoices and VAT reporting;

• transition rules for inventory balances.

The last point is particularly important for stores with large inventories. However, the rules for handling inventory as of the transition date cannot be predicted in advance: they must be established by the law itself and its transitional provisions.

«Business splitting»: for retail, this is no longer just a future reform

The most notable mistake in the discussion is that the fight against business splitting is sometimes described exclusively as a future rule. The State Tax Service is already conducting analytical and supervisory work regarding retail chains. On August 10, the authority reported more than 500 brands and trademarks showing signs of splitting, 23 large chains and more than one thousand Sole Proprietorships involved. Among the sectors being analysed, the State Tax Service explicitly mentions retail trade in clothing, footwear, electronics, watches, cosmetics and household chemicals. (State Tax Service of Ukraine)

At the same time, the State Tax Service explicitly notes that cooperation between a company and Sole Proprietorships is not in itself a violation. The risk arises when formally independent Sole Proprietorships actually operate as a single business — under one brand, in the same stores, with shared employees, warehouses and centralised management. (State Tax Service of Ukraine)

In other official explanations, the State Tax Service lists the following indicators:

• several Sole Proprietorships operating in the same retail premises;

• one trademark or brand;

• the same IP addresses used for client banking and PECR;

• mass registration of Sole Proprietorships at the same address;

• shared employees;

• shared infrastructure and warehouse facilities without clear separation of goods;

• shared counterparties;

• use of one payment terminal;

• replacement of one Sole Proprietorship with another when approaching the income limit. (dp.tax.gov.ua)

These are risk indicators, not a separate provision of the Tax Code under which the presence of one indicator automatically proves a violation. For example, the use of one brand by two entrepreneurs does not in itself mean that a single business exists. What matters is the totality of the actual relationships.

What genuine independence of several Sole Proprietorships in retail should look like

If several entrepreneurs operate under one brand or alongside one another, it is worth checking not just the arrangements «on paper», but the actual organisation of their work.

Each independent Sole Proprietorship should have a clear answer to the following questions:

• who owns the goods and who purchased them according to the documents;

• who bears the risk of unsold goods, defects, returns and changes in purchase prices;

• who leases the store, part of the premises, warehouse and equipment;

• who employs the sales staff and actually manages their work;

• who owns the funds in the cash register and bank account;

• who is identified as the seller on the fiscal receipt;

• who sets prices, discounts and sales terms;

• who makes purchasing decisions;

• how the movement of goods between different entrepreneurs is documented;

• who accepts customer returns;

• who is identified as the seller on the website, marketplace, contract, payment and fiscal receipt.

If the goods legally «belong» to one Sole Proprietorship, the salesperson is employed by another, payments are periodically accepted by a third, while all decisions are made by a single chain administration, the mere number of registered entrepreneurs no longer creates genuine independence.

Can business splitting lead to loss of the right to use the simplified taxation system

The current Tax Code does not contain a separate status of «participant in business splitting» that would automatically and permanently deprive a Sole Proprietorship of the right to pay the single tax.

The general rules of Article 299 of the Tax Code apply. If, during an audit, the State Tax Service establishes a violation of the requirements governing the simplified taxation system, registration of a Group I–III taxpayer may be cancelled by decision of the supervisory authority on the basis of an audit report. Under para. 299.11, this takes effect from the first day of the month following the quarter in which the violation occurred. In such a situation, the simplified taxation system may be selected again after four consecutive quarters have elapsed from the date of the decision. (vin.tax.gov.ua)

However, this part of the rules is planned to be tightened. The July memorandum provides for draft laws to be submitted by the end of December 2026 that would:

1. restrict artificial splitting of companies to keep income below preferential thresholds;

2. restrict the possibility of returning to the simplified taxation system after switching to the general taxation system;

3. restrict the use of the simplified taxation system for providing services to current or former employers. (Ministry of Finance of Ukraine)

Therefore, claims that a «complete ban on the simplified taxation system for participants in business splitting» has already been introduced are premature. There is an intention to tighten the rules, but the specific conditions still have to go through the legislative process.

ECR and PECR remain a separate obligation for Sole Proprietorship retailers

Tax discussions concerning VAT, 10% and business splitting do not отмене the current rules for cash register transactions. As a general rule, a business entity carrying out settlement transactions processes them through a registered ECR or PECR and creates a settlement document for the full purchase amount. (Legislation of Ukraine)

For an ordinary store, payment in cash or by bank card is a typical situation in which an ECR/PECR is required. At the same time, a conventional transfer of funds from the buyer's account to the seller's current account using IBAN details without acquiring does not have the characteristics of a settlement transaction within the meaning of Law No. 265. (zp.tax.gov.ua)

Another important point is that having a separate PECR for each Sole Proprietorship does not in itself prove that these entrepreneurs operate independent businesses. When analysing business splitting, the State Tax Service assesses not only receipts, but also personnel, goods, warehouses, retail premises, management, banking transactions and other factual circumstances. (State Tax Service of Ukraine)

Inventory records and primary documents are becoming even more important

A Group III Sole Proprietorship that is not a VAT payer keeps income records in an arbitrary form by recording income received on a monthly basis. A Group III Sole Proprietorship that is a VAT payer keeps records of income and expenses using the standard form. Records may be kept on paper or electronically. (State Tax Service of Ukraine)

For a store, this should not be interpreted as permission not to have documents for the goods. Such documents become especially critical when switching to the general taxation system: para. 177.10 of the Tax Code requires records of income and expenses to be kept and supporting documents confirming the origin of goods to be available. Under the general taxation system, the taxable amount is the difference between revenue and documented business expenses. Allowable expenses include, in particular, the cost of goods purchased for subsequent resale. (Legislation of Ukraine)

Therefore, for a retailer, documents covering receipt of goods, returns to suppliers, transfers between its own retail locations and transactions between different Sole Proprietorships must reflect a genuine economic transaction. An internal transfer of goods within one entrepreneur and the sale or transfer of goods to another entrepreneur are legally different situations.

ATAD: what the Ministry of Finance draft actually contains

On February 24, the Ministry of Finance submitted a draft law on the implementation of ATAD for public discussion. ATAD — is an EU directive establishing rules to counter tax avoidance and arrangements designed to artificially reduce taxes.

It is a draft, not a current provision of the Tax Code. The July memorandum further divided the timetable: interest limitation rules are planned to be submitted by the end of August, while exit tax, GAAR and hybrid mismatches — by the end of September. (Ministry of Finance of Ukraine)

Article 4 of ATAD: 30% EBITDA

This is where the figure of 30% appears in the official explanation from the Ministry of Finance. It is proposed that excessive borrowing costs be deductible for tax purposes only within 30% of the specified EBITDA measure. This primarily concerns corporate income taxation and debt financing. (Ministry of Finance of Ukraine)

Therefore, the claim that «30% — is a punitive tax rate for any tax abuse or an employee operating as a Sole Proprietorship» does not correspond to how the Ministry of Finance officially explains this part of the draft.

Article 5 of ATAD: tax when transferring a business or assets abroad

Exit tax — is a tax that may arise when a company transfers assets, part of its business or its tax residence from Ukraine to another country. Its purpose is to tax the increase in value of assets that arose in Ukraine before the transfer.

For example, if a company purchased equipment for UAH 1 million and its market value at the time of transfer is UAH 1.5 million, the difference of UAH 500 thousand may be subject to tax under the rules established by law.

This rule is not intended to apply to ordinary Sole Proprietorships. The Ministry of Finance explicitly states that exit tax will not apply to individuals, including individual entrepreneurs.

Therefore, a Sole Proprietorship that operates a store in Ukraine, sells goods and does not transfer assets within an international corporate structure will not fall under this mechanism.

Article 6 of ATAD: when the tax authority may look beyond contracts to how the business actually operates

GAAR — is a general anti-abuse rule. Its essence is that the tax authority will be able to assess not only how a transaction is documented, but also what actually happens in the business.

For example, if one retail chain is formally divided among several Sole Proprietorships but in practice they operate as one business — with a shared store, staff, warehouse, management, brand and effectively a single cash register model, — the tax authority may challenge such a structure if it determines that its main purpose was to reduce taxes.

Therefore, the mere fact that several Sole Proprietorships operate under one brand does not in itself constitute a violation. The risk arises when the documents show several separate businesses while in practice only one business operates.

The final criteria, procedure for applying this rule and tax consequences will depend on the text of the law if it is adopted.

Articles 9, 9a, 9b of ATAD: rules for international companies

These rules concern situations where a business operates in several countries at the same time and attempts to use differences between their tax laws to reduce taxes.

For example, one country may allow a company to recognise a particular payment as an expense and reduce its tax, while another country does not tax the corresponding income. ATAD provides mechanisms intended to prevent such a double tax benefit.

This is primarily relevant to multinational groups of companies, holding companies and businesses with companies in different countries.

For an ordinary Ukrainian Sole Proprietorship operating a store only in Ukraine and having no foreign companies in its business structure, these rules generally have no direct significance.

Official source: Ministry of Finance of Ukraine — materials on ATAD implementation: https://mof.gov.ua/uk/news/-5602

Tax residency: the claim about «automatic double taxation» is exaggerated

The current rule for determining the tax residency of an individual is contained in subpara. 14.1.213 of the Tax Code of Ukraine. It takes into account the place of residence, permanent place of residence, centre of vital interests, presence in Ukraine for at least 183 days and, if the previous criteria do not provide an answer, citizenship. At the same time, the place of residence of the person's family or registration of the person as an entrepreneur is a sufficient but not exclusive indicator of the centre of vital interests. Separately, the Tax Code provides that registration of a person as self-employed may be a sufficient basis for recognising that person as a resident of Ukraine. (Public Information and Reference Resource)

Therefore, for a Ukrainian Sole Proprietorship owner who has lived and worked abroad for a long time, relying solely on the «183-day» rule is risky.

However, the claim that «everyone will now pay taxes twice» is also incorrect. If two countries simultaneously regard a person as their tax resident, the relevant international double taxation treaty, its residency criteria and its mechanism for eliminating double taxation must be checked. The Ministry of Finance maintains an official list of such treaties. (Ministry of Finance of Ukraine)

Why the comparison of «11% versus 23%» is particularly incorrect for retail

If a maximum single tax rate of 10% is introduced in the future for certain services and the current 1% military levy for Group III remains in effect, the arithmetic total would be 11% of income excluding the Unified Social Contribution.

However, this figure cannot be compared with «18% personal income tax + 5% military levy = 23% of turnover». A Sole Proprietorship under the general taxation system pays personal income tax and the military levy on net taxable income, not on total retail revenue. The military levy for such a Sole Proprietorship amounts to 5% of net taxable income. (dp.tax.gov.ua)

For a consultant with minimal documented expenses, the difference between turnover and net income may be small. For a store, the situation is fundamentally different: a significant share of revenue represents the purchase cost of the goods sold, while subpara. 177.4.1 of the Tax Code allows the cost of goods associated with their sale to be taken into account, provided that proper documentary evidence is available. (Legislation of Ukraine)

Therefore, determining which system is cheaper for a particular retailer is possible only after calculating its actual margin, documented expenses, VAT and Unified Social Contribution.

A real example: an electronics retail chain and Sole Proprietorships

In July, the Economic Security Bureau reported a case involving a retail chain selling electronic equipment, telecommunications equipment and accessories. According to the investigation, the activities of a single company had been divided among controlled Sole Proprietorships, including employees and acquaintances. Sales proceeds were credited to the accounts of these Sole Proprietorships, although the actual sales were carried out by a single retail chain. The Economic Security Bureau reported more than UAH 361.6 million in concealed income and more than UAH 60 million in unpaid taxes; the funds were reimbursed to the state budget, and materials concerning an official were submitted to the court with a motion for exemption from criminal liability due to full compensation for the damage. This is a law-enforcement agency's report on the results of an investigation and is not a basis for automatically applying the same conclusions to every chain that works with Sole Proprietorships. (Electronic Budget Accounting System)

This example clearly illustrates the main risk criterion: what matters is not the number of Sole Proprietorships as such, but whether they are independent entrepreneurs or merely legal shells of one actual business.

Torgsoft for PECR, inventory accounting and transaction control in a retail chain

In Torgsoft, you can record the receipt and sale of goods, returns, internal transfers, inventory balances, movement of goods, registers of incoming and warehouse documents, records by retail location and reports for different periods. For a retail chain, this makes it possible to see where goods are located, how they were moved and which documents were used to record the transactions.

For settlements, the software supports PECR: in sales and return modes, a software ECR can be used, shifts can be opened, X and Z reports can be generated, cash deposits and withdrawals can be recorded, and fiscal or mixed receipt printing modes can be configured for the sale of fiscal goods.

For internal control, Torgsoft provides the «User Action Log» and the «Document Change Log». The log can record changes to goods receipts, sales, returns, internal transfers, write-offs and financial documents. This is useful for restoring the history of business transactions and monitoring staff actions.

At the same time, accounting software cannot by itself legally confirm the absence of business splitting. If several Sole Proprietorships are managed within one system, the actual independence of each must be supported by genuine rights to goods, contracts, personnel, cash registers, bank accounts, management and economic risk.

What a Sole Proprietorship retailer should do now

There is no need to move a store to another taxation system solely because of publications about «10%». The current rates have not changed, and the future 10% proposal is formulated with respect to services. Instead, it makes sense to prepare for the areas that directly affect retail.

For a store or retail chain, this means checking the actual sellers of goods, documents confirming their origin, lease and storage agreements, employment of personnel, bank accounts, ECR/PECR, agreements between Sole Proprietorships and the movement of goods. If several Sole Proprietorships operate under one brand, the main question is whether each of them has its own business activity, assets or goods, personnel, income, risks and management decisions, rather than merely its own tax number.

Future VAT should be modelled separately. For retail businesses with substantial goods turnover, this reform may have a greater financial and accounting impact than the discussion surrounding the single tax rate for services. However, restructuring prices and accounting based on a law that has not yet been adopted would be premature: the key issues will be the final VAT threshold, input VAT credit rules during the transition and the procedure for handling inventory balances.

Official sources

1. Tax Code of Ukraine No. 2755-VI — subpara. 14.1.213, Articles 44, 177, 291, 293, 296, 298, 299, Subsection 10 of Section XX.
   https://zakon.rada.gov.ua/laws/show/2755-17
   (Legislation of Ukraine)

2. Law of Ukraine «On the Use of Registrars of Settlement Transactions in Trade, Catering and Services» No. 265/95-VR — Articles 2, 3, 9, 10.
   https://zakon.rada.gov.ua/laws/show/265/95-%D0%B2%D1%80
   (Legislation of Ukraine)

3. Resolution of the Cabinet of Ministers of Ukraine dated 17.06.2026 No. 793 «On Approval of the Budget Declaration for 2027–2029» — the direction concerning differentiated single tax rates of up to 10% for Group III taxpayers providing services.
   https://zakon.rada.gov.ua/laws/show/793-2026-%D0%BF
   (Legislation of Ukraine)

4. Memorandum of Economic and Financial Policies of Ukraine and the IMF, July 2026 — paragraphs 21–25: VAT for the simplified taxation system, rates of up to 10%, countering business splitting and stages of ATAD implementation.
   https://mof.gov.ua/storage/files/Lol_MEFP_Ukraine_2026-07-02.pdf
   (Ministry of Finance of Ukraine)

5. Ministry of Finance of Ukraine: draft on the implementation of ATAD, published on 24.02.2026 — Articles 4, 5, 6, 9, 9a, 9b of ATAD.
   https://mof.gov.ua/uk/news/-5602
   (Ministry of Finance of Ukraine)

6. State Tax Service of Ukraine: «UAH 1.7 billion in potential budget losses: State Tax Service uncovers artificial business splitting schemes», 10.08.2026.
   https://tax.gov.ua/media-tsentr/novini/1038652.html
   (State Tax Service of Ukraine)

7. Economic Security Bureau of Ukraine: «Artificial business splitting through Sole Proprietorships: more than UAH 60 million already returned to the budget», 10.07.2026.
   https://esbu.gov.ua/news/shtuchne-droblennia-biznesu-cherez-fopiv-ponad-60-mln-hrn-uzhe-povernuly-do-biudzhetu
   (Electronic Budget Accounting System)

8. Ministry of Finance of Ukraine: international treaties of Ukraine on the avoidance of double taxation.
   https://mof.gov.ua/uk/international_agreements_of_ukraine_on_avoidance_double_taxation-543
   (Ministry of Finance of Ukraine)