Representatives of small businesses are interested in simplified taxation system because there are low tax rates. However, this system comprisesa number of limitations. The details are in the following.
An individual-entrepreneur is entitled to choose independently the simplified system of taxation on the condition that it meets requirements established in para.1 of sec. XIV of the Tax Code of Ukraine (hereinafter – TCU).
Entrepreneurs using the simplified taxation system, accounting and reporting, are divided into three groups of the unified tax payers.
The first group
An entrepreneur, who works independently without using the labour of hired people, can be registered as a payer of the unified tax (hereinafter – unified tax payer) of the first group. At the same time the limit of the amount of income should not exceed UAH 300 thousand within a calendar year.
The unified tax payer of the first group carries out exclusively retail sales of goods in trade places in the markets or economic activities providing personal services. The list of personal services is provided in paragraph 291.7 of TCU.
The basic tax rate is up to 10% of the minimum wage on January 1 of the reporting year (in 2016 – up to UAH 137.80).
The second group
The unified tax payer of the second group can be an entrepreneur who does not use the labour of hired people or has not more than 10 employees. At the same time the limit of the annual income should not exceed UAH 1.5 million.
One of the main criteria also is types of activities that are permitted to be exercised by the taxpayers of the second group. They can carry out economic activities for the provision of services (not only personal) on condition that these services are provided to the unified tax payers or to the public.
The requirement of para.291.5 of TCU should also be taken into account, because it defines types of activities that do not give the right to be on the simplified taxation system in case of their implementation by the payers of the unified tax of the first-third groups.
It should be borne in mind that rates of the unified tax for the second group are established be the rural, town and city councils in a fixed amount. They are directly dependent on the size of the minimum wage established as of 1 January of the reporting year. The size of the rate for the second group of the unified tax payers (per calendar month) does not exceed 20% of the minimum wage (in 2016 – up to UAH 275.60). Moreover, the maximum rate (20% of the minimum wage) is used only in case of implementation of several types of business activities by these payers or if they are engaged in business activities in the territories of more than one village, town or city council (paras. 293.6, 293.7 of TCU).
The third group
The number of persons, who may be in the employment relationship with the payers of the unified tax of the third group, is not limited. Such an entrepreneur can carry out any activities other than prohibited by paragraph 291.5 of TCU.
If the limit of an annual amount of received income of the third group entrepreneur has exceeded UAH 5 million, he/she should move to the general taxation system.
There are established rates as a percentage of income for the unified tax payers of the third group:
- 3% − under condition of the registration by the payer of value added tax (hereinafter − VAT);
- 5% − in the case of VAT inclusion in the unified tax.
Some advantages of the simplified system
It is easier and faster to calculate the unified tax, because the simplified system, as opposed to the general, provides for the taxation of the income of an entrepreneur. Expenses are not taken into account. Also paragraph 297.1 of TCU exempts the unified tax payers from the accrual of, payment and submission of tax reports on such taxes and duties:
- personal income tax (hereinafter – PIT) in the part of the income derived from the business activities of the unified tax payer of the first-third groups (individual), which is taxed by the unified tax. These revenues are not included in the total annual taxable income of an individual according to para.292.9 of TCU. Exemption from the calculation and withholding of the personal income tax does not apply to employees hired by the unified tax payer. It performs the functions of a tax agent regarding them;
- VAT from transactions for the supply of goods (works, services), delivery place of which is located in the customs territory of Ukraine, except for VAT paid by the unified tax payers of the third group, if they have chosen a rate of 3% of income;
- property tax (in terms of land tax), under condition of the use of land plots by the unified tax payers of the first-third groups to carry out economic activities.
In addition, it should be remembered that the unified tax payers of the first-third groups carry out calculations for the shipped goods (works, services), exclusively in monetary form − cash or cashless (para. 291.6 TCU). At the same time, the TCU does not provide for the restrictions on the implementation of barter transactions (offsets) for the individuals-entrepreneurs on a general taxation system.
