Are sole proprietors obliged to conduct a reassessment?

Legal entities are required to make an annual inventory of their assets and liabilities before submitting their financial statements. Does this requirement apply to entrepreneurs?

Are sole proprietors required to take an inventory?

Individual entrepreneurs are not required to conduct an annual inventory of their assets and liabilities. The requirement to conduct an inventory is set forth in the Law of Ukraine "On Accounting and Financial Reporting" and in Regulation No. 879 dated 02.09.2014. These Law and Regulations do not apply to individual entrepreneurs, but only to legal entities.

However, entrepreneurs may conduct an inventory on their own initiative. This does not require compliance with the requirements of Regulation No. 879. Sole proprietors may conduct an inventory selectively, at their own discretion.

Can the tax authorities force a sole proprietorship to take an inventory?

Yes, the tax authorities have such powers. Clause 20.1.9 of the Tax Code states that tax authorities may require an inventory during an audit. Thus, the controlling authorities may force an entrepreneur to conduct an inventory of fixed assets, inventory, cash on hand, and funds.

The provisions of the Tax Code apply to both individual entrepreneurs and legal entities. This means that the tax authorities can force an entrepreneur to take an inventory, but not of all his assets, but only of those listed in clause 20.1.9 of the Tax Code.

Individual entrepreneurs may be forced to take an inventory:

• cash and cash on hand - can force all sole proprietors, regardless of the taxation system, since the principle of accounting for sole proprietorship is based on the reflection of income data;
• inventories and their balances - may be required of sole proprietors on the single tax system who sell technically complex household goods, medicines and medical products, and jewelry. They can also force single tax sole proprietors to pay VAT and sole proprietors under the general taxation system. This is due to the fact that all of these categories of sole proprietorship are cash registers and must keep inventory records;
• fixed assets, cash and cash equivalents, and inventories - individual entrepreneurs who are VAT payers and those who are subject to the general taxation system. This is due to the fact that entrepreneurs must have documents confirming the origin of the goods and they can charge depreciation on fixed assets. VAT payers must have documents confirming the legitimacy of the funds purchased with VAT in their business activities.