Business owners and managers turn to our company to help them choose the optimal tax system for their company. To answer this question, we analyze information about their activities for the last year to take into account the volume of income and evaluate future forecasts for the development of their business, taking into account strategic goals.
At the moment, there are 2 taxation systems for legal entities in Ukraine (hereafter SE):
- a simplified system that provides for the calculation of a single tax;
- a general system that provides for the taxation of the company’s profit.
In this article, we will consider one of the taxation systems applied to small and medium-sized enterprises in Ukraine.
What is a simplified taxation system?
A simplified system of taxation is a mechanism that provides for the payment of a fixed amount of tax or a percentage of income, which is calculated:
- as the amount of payments received from the sale of goods (works, services) to the account or to the cash register;
- amount of goods received free of charge;
- the amount of the positive exchange rate difference obtained as a result of the recalculation of monetary items of debt or cash on accounts, incl. deposits, OVDP.
Also, the simplified taxation system involves keeping simplified accounting, but we will reveal this in our next articles.
In Ukraine, there are four groups of single tax payers, each of which has its own characteristics and conditions of application. The first and second groups are intended exclusively for individual entrepreneurs and provide for the payment of a fixed tax rate. The third and fourth groups, in addition to natural persons-entrepreneurs, can also be chosen by the SE.
Next, we will consider in more detail the features and conditions of application of the groups of the simplified system of UO:
- Group III can be applied to enterprises of any form of ownership, the scope of which does not exceed 1,167 minimum wages established on January 1 of the reporting year. In 2024, this limit is UAH 8,285,700. There are certain business restrictions for this group, but it is possible to provide services (sale of goods) to individuals, payers of the simplified and general taxation system, and provide services to non-residents. The tax rate is applied to the amount received income and is 5% or 3% upon registration as a VAT payer, respectively;
- The IV group is intended for agricultural (hereinafter referred to as agricultural) commodity producers, in which the percentage of agricultural production for the previous reporting year is greater than or equal to 75%. For this group, the basis of taxation is the normative monetary value of one hectare of agricultural land, taking into account the indexation coefficient.
Transition to a simplified system for legal entities
Let’s consider the main criteria that must be taken into account when considering the possibility of switching to the simplified taxation system of the third group.
In order for your company to switch from the general taxation system to the simplified one, the following criteria must be met:
- Volume limit income during the year preceding the transition to the payment of a single tax, should not exceed the size of the limit volume income, which is 1167 minimum wages.
- Type of activity – the business should not be related to the circulation of excise goods, financial intermediation, foreign currency exchange, conducting and organizing gambling games, etc.
- No tax debt.
If your company is newly created, then one criterion for switching to the simplified system must be met, namely the type of activity. A newly created company can switch to a simplified taxation system immediately after state registration by submitting an application to the DPS within 10 working days from the date of registration. If your company is already on the general taxation system and has decided to switch to the simplified one, it can be done from the next quarter, by submitting an application to the DPS no later than 15 calendar days before the beginning of the corresponding quarter.
As an illustration of the above, I will share the case of our client. Our company received a request from the head of a company that provides legal and consulting services. He searched Outsourcing accounting and wanted to assess the expediency of his company being on the general taxation system, as well as a VAT payer.
We conducted an analysis of his business and created a model in which we compared (given the same input data and business objectives) the total amount of accrued taxes that the company would have to pay under the general and simplified taxation system. This model proved that if the company switches to a simplified taxation system, without registration as a VAT payer, the savings in the amount of taxes paid would be up to 38%, compared to the general system. Therefore, on the basis of the model and consultation received from UHY Prostir, the manager made a decision to switch to a simplified taxation system.
In this article, we considered the criteria for the possibility of the transition of the SE to the simplified taxation system, which should be used by the manager or business owner when he decided to assess whether it is appropriate to stay on the general taxation system. In the following articles, we will consider the mechanism of transition from the general to the simplified taxation system, as well as provide our advice.
If you are faced with a similar question, please contact us consultation on taxation issues. Our goal is to help you choose a tax system that best meets your business goals and provides maximum economic efficiency.
Iryna Blonska
