Taxation of Individuals

Decided to start your own business? Congratulations! It’s a bold step. But, as they say, launching a business is only half the battle. Then comes the most interesting part – taxes, reports, and limits. The main thing here is not to make a mistake, as an incorrectly chosen tax system can seriously hit your wallet and give you gray hairs.

At “BuhalteriО,” we know these problems firsthand, as we help entrepreneurs navigate them every day. That’s why we’ve prepared a simple guide for you to understand the ins and outs of personal income taxation.

What Taxation Systems Exist?

To put it simply, every FOP (sole proprietor) has two main paths:

1. The General System. The classic approach, where you pay tax on your net profit. That is, on what remains after deducting expenses.
2. The Simplified System. The “favorite” of small businesses. Here, you pay a small percentage of your total income or a fixed amount.

The choice between them is not just a formality but a decision that will determine your tax burden. Let’s dive into the details.

The General Taxation System for FOPs: Who Needs It and Why?

At first glance, a question arises: why do you need the general system if there’s a simple “simplified” one? It’s straightforward. Imagine you buy a product for 80 hryvnias and sell it for 100. Your real earning is 20 hryvnias. It is on this amount that you will pay taxes under the general system. This is beneficial when you have large, and most importantly, officially documented expenses. Or if your type of activity (for example, financial services) is simply prohibited on the “simplified system.”

Under the general system, you will have to pay several taxes on your net income:

• 18% PIT (Personal Income Tax) – the main income tax.
• 1.5% Military Levy – self-explanatory.
• 22% SSC (Single Social Contribution) – the unified social contribution you pay “for yourself.”

Yes, this system requires meticulous record-keeping, as every expense must be confirmed with a receipt or invoice. However, sometimes it is the only or the most profitable option.

The Simplified Taxation System for FOPs: Advantages and Groups

And here it is – the very “simplified system” that makes life so much easier for most Ukrainian entrepreneurs. The main thing is to choose your group correctly, as each has its own rules.

FOP Group 1 of the Simplified Taxation System

This option is for those who work for themselves and for the public. Do you sell handmade jewelry at the market? Repair shoes for your neighbors? This is your group.

Here are its “key details”:

• Annual income: no more than 167 minimum salaries.
• Employees: you cannot hire any.
• Activities: trading at markets and providing household services to the public.
• Taxes: a small fixed single tax and SSC.

You couldn’t ask for a better and simpler start for a self-employed person. It’s the perfect platform to try your hand at business.

FOP Group 2 of the Simplified Taxation System

Here, the opportunities are greater. You can open a small coffee shop, an online store, a workshop, and hire a few assistants.

Let’s look at its key conditions:

• Annual income: up to 834 minimum salaries.
• Employees: you can have up to 10 people on staff.
• Activities: providing services (not only to the public but also to other “single tax” payers), selling goods, and running a restaurant business.
• Taxes: a fixed single tax (slightly higher than in Group 1) and SSC.

This group is an excellent choice for a business that is already firmly on its feet and plans to expand gradually.

FOP Group 3 of the Simplified Taxation System

This is the most popular group among IT specialists, marketers, consultants, and anyone who works with large companies, including foreign ones. It is the most flexible.

The main points about the third group:

• Annual income: up to 1167 minimum salaries.
• Employees: as many as you want.
• Activities: almost any activity not prohibited under the single tax system.
• Taxes: there’s a choice here – either 5% of the total income, or 3% of the income + VAT payment. And, of course, SSC.

The taxation for FOP Group 3 allows for free collaboration with any clients – from ordinary individuals to giant corporations, making it a universal soldier in the business world.

Is your head spinning from all these groups, limits, and percentages? That’s normal. Ukrainian tax legislation has many nuances and pitfalls, and the price of a mistake is not just fines, but also lost time and peace of mind.

Don’t puzzle over it alone! That’s what we, the “BuhalteriО” team, are here for.