Everything entrepreneurs need to know about their rights and responsibilities

Every Ukrainian can become an individual entrepreneur. This means that they can conduct business activities, provide services to clients, pay taxes and submit financial statements.

In Ukraine, you can register a sole proprietorship in a few minutes. How to do it correctly, what type of taxation to choose, and what taxes to pay? What are the rights and obligations of a sole proprietorship set forth in the Tax Code?

How to start registering as a sole proprietor?

The first step is to determine the taxation system. When choosing a simplified or general taxation system, you need to take into account the type of business, the number of employees, the approximate amount of annual income, and the category of clients — foreigners, legal entities, or individuals.

The general taxation system can be chosen for any type of activity. In this case, the entrepreneur is not limited in the amount of income and the number of employees. 

According to the current Tax Code, the tax for sole proprietorship on the general taxation system is calculated on net taxable income. This is the difference between total income and business expenses, such as salaries, bonuses, wages, etc. So if an entrepreneur has a lot of production costs, he or she can choose this taxation system.

The simplified taxation system is suitable for small and medium-sized businesses. The payment of the single tax reduces the tax burden and simplifies accounting. The amount of the single tax depends on the group.

1. The first group — these are entrepreneurs who sell goods at retail and provide household services, such as furniture production, repair of equipment, etc. There must be no employees, and the annual income must not exceed 167 minimum wages.

2. Another group — is a sole proprietorship with employees (no more than 10 people) that trades or provides services. The annual income must not exceed 834 minimum wages. If an entrepreneur sells jewelry, appliances, medical equipment, or provides services in the medical field, he or she must install a cash register or cash register. This rule applies to all other entrepreneurs of the second group if their income for the year exceeded UAH 1 million 320 thousand.

3. The third group is suitable for working with foreign clients. An unlimited number of employees is allowed. The third group is most often used by entrepreneurs in the field of marketing, IT services, etc.

4. The fourth group is chosen by all those engaged in the sale of agricultural goods. There are no restrictions on the number of employees and annual income.

Individual entrepreneur's rights and obligations

According to Article 16 of the TCU, an entrepreneur is obliged to:

• register with the tax authorities;

• keeping records of income and expenses, generating reports — these are the responsibilities of a sole proprietorship accountant;

• submit reports to the tax authorities;

• pay fees and taxes in the amount established by the current Tax Code;

• provide the necessary accounting documentation at the request of the tax authorities, including primary documents, financial statements, accounting registers, etc;

• inform the tax authorities of amounts that have not been paid to the budget due to tax benefits;

• notify the tax authorities of the reorganization or liquidation of the individual entrepreneur's status no later than three business days after such a decision is made;

• notify the tax authorities of any changes in the sole proprietor's residence or address of the actual location of production;

• to allow tax authorities to access financial and accounting documents, as well as production areas and premises during the audit.

Thus, the obligations of an individual entrepreneur directly depend on the rights of the tax authorities. However, it should be remembered that a tax inspector can only check documents related to the payment of taxes and fees.

According to Article 17 of the TCU, an entrepreneur has the right to:

• to receive free information about taxes and fees, tax payments, accounting procedures, powers of tax inspectors, and the duties of individual entrepreneurs directly from the tax office;

• independently choose the method of accounting for expenses and income, unless otherwise provided by the TCU;

• receive tax benefits in accordance with the procedure established by the Tax Code;

• apply for a tax holiday, receive an installment plan or a tax deferral;

• be personally present during the tax audit;

• appeal against the tax authorities' decisions and request clarifications from tax inspectors;

• demand a refund of taxes paid in excess of the required amount;

• for compensation for losses resulting from illegal actions of the tax authorities, etc.

What other rights should entrepreneurs be aware of?

1. An entrepreneur is not obliged to connect a bank terminal if:

• does not use cash registers, in accordance with clause 296 of the Tax Code. This applies to single tax payers or individual entrepreneurs operating in villages and whose annual income does not exceed one million hryvnias. In other cases, it is necessary to connect a POS terminal.

• the outlet is located in a settlement with a permanent population of less than 25 thousand people.

2. Free of charge from KEP:

• an entrepreneur can obtain a qualified electronic signature from the tax office free of charge. It is valid for two years. The QES can be used when working with any government services.

• on the website of the State Tax Service, you can find the addresses of tax offices where you can get a QES. To do this, you need to submit an application, provide the original TIN, and a flash drive on which the key itself will be recorded.

3. Prepare and submit financial statements on paper:

• the current TCU does not contain any provisions that would prohibit filing a tax return on paper. The document can be brought to the tax office in person or sent by registered mail in accordance with clause 49.3 of the TCU.

However, it is much more convenient to prepare and submit reports electronically today. For example, you can use special services that offer ready-made forms and accounting programs.

4. Pay taxes and fees from a personal bank card:

• a sole proprietor does not have to open a special current account for business activities if all payments to customers are made in cash. And you can pay the tax from a personal payment card of any bank.

5. Do not let tax inspectors in without IDs:

• during the tax audit, the tax inspector is obliged to provide a document confirming the legality of the audit. Thus, in accordance with clause 81.1 of the Tax Code, the tax officer must provide an official certificate and a copy of the order and referral signed by the head of the STS department.

6. Not to pay a single tax during business downtime due to illness or vacation:

• this opportunity was granted to sole proprietors on the single tax of groups 1 and 2 without employees.

• According to clause 295.5 of the Tax Code, if an entrepreneur has taken a sick leave for 30 calendar days or more, he or she may submit an application to the tax office requesting an exemption from paying the unified social tax.

• Individual entrepreneurs in these groups do not have to pay a single tax for a month of downtime if they did not carry out business activities in connection with the vacation.

7. Not to pay land tax if the sole proprietor uses it for business activities:

• If an entrepreneur on the single tax system uses a plot of land in his business activities, he may not submit a report on it to the tax authorities and not pay land tax, according to clause 297.1 of the Tax Code.

8. Independently choose which cash register to install:

• an entrepreneur can use a stationary payment transaction recorder device or its software analog. ECR is a special program that can be installed on any mobile device, such as a tablet.

9. Receive individual explanations from the tax authorities:

• an entrepreneur may request individualized explanations from the tax authorities, both in writing and orally.

• It is better to receive a written response, as you can refer to it during the next inspection so that the tax authorities do not accuse the sole proprietor of violations.

Tax obligations of individual entrepreneurs

Entrepreneurs under the general taxation system must pay income tax as well as corporate income tax:

• Personal income tax — 18% of net profit once per quarter,

• Military duty — 1.5% of net profit once per quarter,

• The unified social contribution is 22% of net profit, paid quarterly,

• taxes for each employee (if any),

• VAT if the entrepreneur is registered as a VAT payer.

Under the simplified taxation system, a single tax and unified social contribution must be paid. The amount of the single tax depends on the taxpayer's group:

• the first group — up to 10% of the subsistence minimum paid monthly,

• the second group — up to 20% of the minimum wage paid monthly;

• the third group — 5% of income for a sole proprietor who is not a VAT payer and 3% for a sole proprietor who is a VAT payer — is paid quarterly;

• the fourth group ranges from 0.95% to 6.33%, depending on the type of agricultural land, which is paid quarterly.

Thus, knowing your rights and responsibilities will help a sole proprietor to run a competent business. And by paying taxes on time, an entrepreneur will secure his or her own pension and receive social guarantees from the state.