Sole Proprietorship Temporarily Inactive: Which Taxes to Pay Without Income and How to Legally Reduce the Tax Burden

Ukrainian legislation does not provide for a separate legal status of «Sole Proprietorship with suspended operations». An entrepreneur may temporarily stop selling goods or providing services, but until the termination of business activities is registered in the Unified State Register, the entrepreneur retains Sole Proprietorship status, and their tax obligations depend on the chosen taxation system. For Group 1 and Group 2 Sole Proprietorships, the absence of income does not, in itself, eliminate the fixed single tax, military levy, or Unified Social Contribution (USC). For Group 3 Sole Proprietorships, no single tax or military levy is due if there is no income, although the USC generally remains payable. Under the general taxation system, personal income tax, the military levy, and mandatory USC payments are linked to taxable income or profit.

If the interruption is short, a Group 1 or Group 2 Sole Proprietorship without employees may qualify for an exemption from the single tax and military levy for one full calendar month of vacation. If the business will remain inactive for several months, it is worth comparing the cost of maintaining the simplified taxation system with switching to the general taxation system. If the interruption is expected to last indefinitely, officially terminating the Sole Proprietorship may be more economical, but this does not cancel existing tax debts or eliminate final reporting obligations.

Can a Sole Proprietorship officially be put «on hold»?

Ukraine's Law on State Registration provides for the state registration of a Sole Proprietorship, changes to its registered details, and the termination of business activities. There is no separate registration procedure that allows an entrepreneur to «freeze» Sole Proprietorship status for several months.

Therefore, an entrepreneur effectively has three options:

1. retain Sole Proprietorship status under the existing taxation system and temporarily suspend business operations;

2. change the taxation system within the deadlines established by the Tax Code;

3. officially register the termination of business activities.

For tax purposes, the key factors are not whether a store, office, or website is operating, but the entrepreneur's registration status, taxation system, income received, and any legal grounds for exemption from specific payments.

What taxes does a Sole Proprietorship pay when there is no income?

In 2026, Ukraine's minimum monthly wage is UAH 8,647, while the subsistence minimum for able-bodied individuals is UAH 3,328. These figures are used to calculate the maximum fixed single tax rates, the military levy, and the minimum USC.

The rates of UAH 332.80 and UAH 1,729.40 are the maximum rates for Groups 1 and 2. The actual single tax rate is set by the relevant local council, so it may be lower in some communities. The military levy for Groups 1 and 2 is fixed at 10% of the minimum wage, or UAH 864.70 per month. The minimum USC is 22% of the minimum wage, or UAH 1,902.34 per month.

Group 1 Sole Proprietorship with no income

For Group 1, the single tax is not calculated based on actual revenue. Therefore, a month without any sales does not cancel the obligation to pay the rate established by the local council.

If the maximum rate applies and no exemptions are available, the monthly tax burden is:

• single tax — UAH 332.80;

• military levy — UAH 864.70;

• minimum USC — UAH 1,902.34;

• total — UAH 3,099.84.

The State Tax Service explicitly provides this calculation for Group 1 entrepreneurs.

Group 2 Sole Proprietorship with no income

The situation is similar for Group 2: the fixed single tax and military levy do not depend on whether the entrepreneur has generated revenue.

At the maximum single tax rate and without exemptions, the monthly amount is:

• single tax — UAH 1,729.40;

• military levy — UAH 864.70;

• minimum USC — UAH 1,902.34;

• total — UAH 4,496.44.

Therefore, if a Group 2 entrepreneur closes their store for an entire month, this does not mean their tax burden becomes zero.

Group 3 Sole Proprietorship with no income

For Group 3, the single tax depends on income:

• 5% of income — for entrepreneurs who are not VAT payers;

• 3% of income — for VAT payers;

• military levy — 1% of income.

If there is no income during the reporting period, both the single tax and military levy are zero. However, the USC payable by Sole Proprietorships under the simplified taxation system is not linked to revenue: unless a specific exemption applies, the minimum contribution is UAH 1,902.34 for each month.

Therefore, a short interruption is generally simpler from a tax perspective for a Group 3 entrepreneur than for Groups 1 or 2. If no money is received, the USC is usually the only remaining basic payment.

Payment from an existing customer during a business interruption may still count as income

For a single tax payer, the date on which income is received is, in particular, the date when funds are received in cash or by bank transfer. Therefore, if an entrepreneur stops making new sales but receives payment during the «pause» for goods previously sold or services already provided, the money cannot simply be treated as income from an «earlier period». Under Article 292 of the Tax Code of Ukraine, it must be accounted for in the period in which it is actually received.

For a Group 3 Sole Proprietorship, this means, among other things, that the corresponding income will be subject to the single tax and a 1% military levy.

How is a Sole Proprietorship taxed under the general taxation system when the business is inactive?

Under the general taxation system, a Sole Proprietorship is taxed on net taxable income — the difference between business income and documented expenses that the Tax Code permits to be deducted.

The main tax rates are:

• personal income tax — 18% of the taxable amount;

• military levy — 5% of net taxable income.

Under the general taxation system, the USC is calculated on income or profit from business activities that is subject to personal income tax. The minimum contribution is mandatory for any month in which such income is earned. If there is no income or profit in a particular month, the entrepreneur may voluntarily determine a USC contribution base, but the law does not require them to do so.

Consequently, if a Sole Proprietorship under the general taxation system genuinely conducts no business activities, receives no business income, and has no other separate taxable items, personal income tax, the military levy, and mandatory USC contributions for that month may not arise.

This does not automatically mean that all possible payments disappear. VAT, property taxes, taxes and USC on employee payments, certain licence fees, rent, bank charges, and other obligations depend on the entrepreneur's specific activities and contractual arrangements.

Tax vacation for Group 1 and Group 2 Sole Proprietorships

Group 1 and Group 2 Sole Proprietorships that do not employ hired workers may be exempt from paying the single tax for one calendar month of vacation once per calendar year. A similar exemption applies to the military levy.

Important conditions:

• only Group 1 or Group 2 Sole Proprietorships are eligible;

• the entrepreneur must have no hired employees;

• the vacation must cover one full calendar month;

• information about the vacation period must be submitted to the State Tax Service in an application written in free form;

• the law does not establish a separate statutory deadline for submitting this application.

The State Tax Service also takes the position that no actual business activities should be conducted during the tax vacation. If an entrepreneur receives income or carries out supply transactions, the tax authority may refuse to recognise the exemption for that month.

A tax vacation does not exempt an entrepreneur from paying the USC for themselves. A separate legal basis under Law No. 2464 is required to avoid USC payments.

Prolonged illness of a Group 1 or Group 2 Sole Proprietorship

Group 1 and Group 2 Sole Proprietorships without employees are also exempt from the single tax and military levy during an illness lasting 30 or more calendar days, provided that the illness is confirmed by an extract from the Electronic Register of Sick Leave Certificates.

A free-form application and the relevant extract from the register must be submitted to the State Tax Service.

Again, this exemption applies to the single tax and military levy, while USC obligations are governed separately by Law No. 2464.

When can a Sole Proprietorship avoid paying USC for themselves?

Even under the simplified taxation system, there are circumstances in which a Sole Proprietorship does not have to pay the minimum USC for themselves.

A Sole Proprietorship owner is also employed under an employment contract

If an employer has already paid USC for the entrepreneur in an amount equal to or greater than the minimum insurance contribution for the relevant month, the entrepreneur is exempt from paying USC for themselves for that month. It is no longer necessary for this employment to be the entrepreneur's primary place of work.

If the employer has paid less than the minimum insurance contribution, the applicable rules differ depending on the entrepreneur's taxation system and actual business income.

Pensioners and persons with disabilities

Law No. 2464 exempts certain Sole Proprietorships from paying USC for themselves, including those receiving an old-age or long-service pension, persons with disabilities, and certain individuals who have reached the statutory retirement age and receive a pension or social assistance.

Mobilised entrepreneurs and Sole Proprietorship owners serving under military contracts

Special rules apply to self-employed individuals called up during mobilisation or accepted into military service under a contract. The Tax Code provides an exemption during military service from the calculation, payment, and reporting of personal income tax, the single tax, and the military levy.

Law No. 2464 also provides a special USC exemption. The applicable conditions depend, among other things, on whether the entrepreneur is an employer. The primary basis for applying the exemption is information in the state register of persons liable for military service. If the relevant information is missing from the register, the law permits the submission of an application and supporting military documents.

Sole Proprietorships in areas affected by hostilities or temporarily occupied territories

Special rules apply to Group 1 and Group 2 Sole Proprietorships whose registered tax addresses are located in areas of hostilities or temporarily occupied territories as defined by the Tax Code. These rules allow certain fixed payments to be waived for specified periods.

In particular, special provisions apply to the single tax and military levy. Eligibility depends on the entrepreneur's registered tax address, the type of territory, and the officially established dates on which the relevant territorial status began and ended.

The territory must be checked against the current List approved by Order No. 376 of the Ministry for Development of Communities and Territories of Ukraine. Because this List is updated, relying on outdated lists of regions or communities may lead to mistakes.

Is it beneficial to switch from the single tax to the general taxation system?

For a Group 1 or Group 2 Sole Proprietorship planning to suspend operations for several months, switching to the general taxation system may indeed reduce fixed tax costs. If there is no net taxable income, neither personal income tax nor the military levy arises, and USC contributions are not mandatory for months without business income or profit.

However, an entrepreneur cannot switch to the general taxation system on any arbitrary date. To voluntarily withdraw from the simplified taxation system, an application must be submitted no later than 10 calendar days before the start of a new calendar quarter or year. The transition takes effect on the first day of the month following the quarter in which the application was submitted.

For example, a Group 2 entrepreneur cannot decide on September 10 that they will be under the general taxation system from September 11 simply because their store has closed. A voluntary change of taxation system must follow the quarterly procedures established by the Tax Code.

How to return to the simplified taxation system

To switch from the general taxation system to the simplified system, an application must be submitted no later than 15 calendar days before the start of the next calendar quarter. The law allows such a transition once per calendar year.

At the same time, the fact that an entrepreneur started the year under the single tax system and subsequently switched voluntarily to the general taxation system does not automatically prohibit a return to the simplified system during the same year. In 2026, the State Tax Service expressly clarified that such a return is possible provided the requirements of Article 291 and the provisions of Subparagraph 298.1.4 of the Tax Code are met.

Therefore, before switching systems, it is worth calculating not only the savings during the period of inactivity but also the expected date when business operations will resume.

What should be done with an ECR or PECR when there are no sales?

If a Sole Proprietorship temporarily carries out no payment transactions, no fiscal receipts are generated for that period.

The Law on ECRs requires a fiscal reporting receipt to be generated when payment transactions are carried out. If no such transactions take place during the day, there is no obligation to generate a Z-report merely because an ECR or PECR is registered. The State Tax Service has separately confirmed this approach.

After sales resume, the entrepreneur must once again use an ECR/PECR whenever required by Law No. 265. Failure to process a payment transaction through an ECR/PECR or to issue the required payment document is subject to financial penalties: 100% of the value of the goods or services for the first violation and 150% for each subsequent violation, as provided for in Paragraph 1 of Article 17 of Law No. 265.

If the situation involves the permanent closure of a retail location or discontinuation of PECR use rather than a temporary interruption, its registration status must be addressed separately.

Do tax returns need to be filed if there is no income?

The absence of sales does not mean that an entrepreneur can simply stop filing tax returns.

The State Tax Service states that Sole Proprietorships paying the single tax in Groups 1–3 must file a single tax return even for a reporting year in which they received no income, except in cases specifically provided for by law.

For Groups 1 and 2, the standard reporting period is one year. For Group 3, the tax return is filed quarterly — within 40 calendar days following the last day of the quarter. Annual information on USC contributions payable for oneself is submitted in the relevant annex to the tax return within the deadlines applicable to the respective group.

A Sole Proprietorship under the general taxation system files a declaration of property and income in accordance with Articles 177 and 49 of the Tax Code of Ukraine.

If an entrepreneur has employees or makes payments to other individuals as a tax agent, separate consolidated reporting obligations arise. In 2026, Sole Proprietorships and self-employed individuals submit these reports quarterly, with figures broken down by month within each quarter.

What should be done with employees when business operations are suspended?

The absence of sales does not automatically terminate employment relationships. If employees remain officially employed, the entrepreneur continues to act as an employer and must fulfil the corresponding employment and tax obligations.

Therefore, before a prolonged suspension, the legal status of employees must be addressed separately. Employment relationships may continue or be terminated only on the grounds and according to the procedures established by employment legislation.

Having even one hired employee is also significant for Group 1 and Group 2 Sole Proprietorships: only entrepreneurs who do not use hired labour are eligible for a tax vacation with exemption from the single tax and military levy.

Accounting and documents during a business interruption

Even if a store, office, or production facility is inactive, primary accounting documents, inventory records, bank statements, contracts, invoices, acceptance certificates, sales data, and previously filed tax reports should not be deleted.

Article 44 of the Tax Code requires accounting records to be maintained on the basis of relevant documents and those documents to be retained for the periods prescribed by law. A temporary interruption in operations, or even the official termination of a Sole Proprietorship, does not remove the need to substantiate previous business transactions.

This is particularly important if payments for earlier sales are received after the interruption, customers return goods, settlements with suppliers take place, or a tax audit is initiated.

Penalties for simply stopping tax payments

Closing a store in practice is not a legal basis for unilaterally stopping mandatory payments.

For Group 1 and Group 2 Sole Proprietorships, failure to pay or underpayment of the single tax advance payment by the statutory deadline results in a penalty of 50% of the selected single tax rate.

Failure to pay or late payment of the USC is subject to a penalty of 20% of the amount not paid on time. Interest also accrues on arrears at a rate of 0.1% of the outstanding amount for each day of delay.

For other taxes, liability depends on the specific violation, the length of the delay, and the circumstances involved. It would therefore be incorrect to apply a single universal penalty rate to all tax debts.

When is it advisable to close a Sole Proprietorship?

If an entrepreneur is certain that they will not resume operations for a long time and retaining Sole Proprietorship status only generates ongoing expenses, they may officially register the termination of business activities.

However, closing a Sole Proprietorship does not cancel obligations that arose before termination. The Tax Code expressly states that the state registration of the termination of business activities does not cancel these obligations, change the deadlines for fulfilling them, or release the entrepreneur from liability for violations.

For a single tax payer, single tax liabilities continue to accrue until the last day of the calendar month in which their single tax registration is cancelled due to the termination of the Sole Proprietorship. Final tax returns must then be filed and outstanding liabilities settled.

An entrepreneur may register a Sole Proprietorship again in the future. However, if they plan to close and reopen it within the same calendar year, they should check the rules for reselecting the simplified taxation system before termination. Subparagraph 298.1.4 of the Tax Code limits the transition to the simplified system to once per calendar year, while newly registered Sole Proprietorships are subject to separate application deadlines depending on the selected group.

Which option should you choose when temporarily suspending business operations?

Managing business inactivity, PECR operations, and data preservation in Torgsoft

Before a prolonged interruption in operations, it is advisable to back up the accounting database in Torgsoft. The software provides database archiving and the creation of an environment image, which may include the database, program directory, and product photographs. This helps preserve sales history, inventory balances, settlements, and documents if a retail workstation will remain unused for some time or equipment is taken out of service.

For entrepreneurs who use a software ECR, Torgsoft supports the management of business units, PECRs, and cashiers. The software allows users to prepare and submit a PECR registration application using Form No. 1-PECR, configure products and receipts, link a PECR to a business entity, monitor fiscal transactions, and work with electronic receipts. Torgsoft Help also describes how to prepare a notification using Form No. 20-OPP for a business unit.

If a PECR will no longer be used, Torgsoft provides the «Deregistration of a Software ECR» action. It is available when there is no open shift on the PECR and generates an application requesting cancellation of its registration. During a temporary interruption without payment transactions, there is no need to fiscalise sales that did not occur. However, if a retail location or PECR is being closed permanently, it is advisable to bring its registration status into line with the actual status of the business.

Official sources

1. Tax Code of Ukraine dated 02.12.2010, No. 2755-VI — Articles 44, 49, 65, 122, 167, 177, 291–300; Subsection 8 and Subsection 10 of Section XX. Establishes the rates and payment procedures for the single tax, taxation under the general system, tax vacations, the military levy, transitions between taxation systems, and the consequences of terminating a Sole Proprietorship.
   Tax Code of Ukraine No. 2755-VI

2. Law of Ukraine dated 08.07.2010, No. 2464-VI «On the Collection and Accounting of the Unified Contribution for Compulsory State Social Insurance» — Articles 4, 7, 9, 25, and Paragraphs 9-2 and 9-18 of Section VIII. Regulates USC payments by Sole Proprietorships, exemptions for certain categories, and liability for outstanding contributions.
   Law No. 2464-VI on USC

3. Law of Ukraine «On the State Budget of Ukraine for 2026» dated 03.12.2025, No. 4695-IX — Articles 7, 8, and 32. Establishes the subsistence minimum of UAH 3,328 for able-bodied individuals, the minimum wage of UAH 8,647, and the maximum USC assessment base.

4. Law of Ukraine dated 06.07.1995, No. 265/95-VR «On the Use of Registrars of Settlement Transactions in Trade, Catering and Services» — Articles 3 and 17. Establishes the rules for using ECRs/PECRs, issuing receipts, and applying financial penalties.
   Law No. 265/95-VR on ECRs/PECRs

5. Law of Ukraine dated 15.05.2003, No. 755-IV «On State Registration of Legal Entities, Individual Entrepreneurs and Public Associations» — Article 18 and other provisions concerning the state registration of Sole Proprietorships and termination of business activities.
   Law No. 755-IV on State Registration

6. Order of the Ministry for Development of Communities and Territories of Ukraine dated 28.02.2025, No. 376 — List of territories where hostilities are or have been conducted or which are temporarily occupied.

7. Law of Ukraine dated 18.06.2025, No. 4505-IX — Special rules for fulfilling tax obligations and paying USC by self-employed individuals called up during mobilisation or serving under a military contract.

8. State Tax Service of Ukraine: Payment Rates for Sole Proprietorships in 2026 — Official guidance on single tax and military levy rates.