Payment of a Single Tax during Martial Law

On March 15, 2022, the Verkhovna Rada of Ukraine adopted the Law of Ukraine “On Amendments to the Tax Code of Ukraine and Other Legislative Acts of Ukraine Concerning Martial Law” No. 2120-IX, aimed at providing support to citizens and businesses in Ukraine during martial law.

The Law provides for the following benefits and incentives for single taxpayers who operate under the simplified taxation system:

Payment of the Single Tax by Individual Entrepreneurs of the 1st and 2nd Groups

For this category of persons, the payment of the single tax is voluntary from April 1, 2022 until the termination or abolition of martial law in Ukraine.

The declaration of the single tax payer by such persons shall not be filled in for the period in which the single tax has not been paid.

At the same time, the Law of Ukraine No. 2118-IX of March 3, 2022 exempted taxpayers from liability for failure to file tax returns with mandatory performance of such an obligation within three months after the termination or abolition of martial law in Ukraine.

Payment of the Single Tax by Payers of the 3rd Group

In accordance with par. 293.3 of Art. 293 of the Tax Code of Ukraine, the interest rates for payers of the 3rd group are as follows:

3% of income – in case of VAT payment;

5% of income – in case of VAT in the composition of the single tax.

At the same time, for the period of martial law, the Law allows individual entrepreneurs and legal entities of any organizational and legal form, regardless of the tax system in which they operate, to become payers of the single tax of the 3rd group with the following features of taxation:

Tax rate:

Individual entrepreneurs and legal entities of any organizational and legal form – payers of the single tax of the 3rd group with a special tax regime – pay a single tax at an interest rate of 2% of income. 

Amount of income:

Payers of the single tax of the 3rd group with a special tax regime may be persons whose income during the calendar year does not exceed 10 billion hryvnias.

Restrictions on the number of employees:

There are no restrictions on the number of persons in employment with such taxpayers.

Payment of VAT:

Payers of the 3rd group are exempt from VAT when carrying out transactions for the supply of goods, works and services, the place of supply of which is located in the customs territory of Ukraine.

Procedure for choosing or switching to the simplified taxation system:

New features of taxation for taxpayers of the 3rd group are not applied automatically. Their election requires the taxpayer’s will in the form of an application for the simplified taxation system, including Group 3 taxpayers who currently pay a single tax at a rate of 3% (including VAT) or 5% (excluding VAT).

The application form for the simplified system was approved by the Order of the Ministry of Finance dated July 16, 2019 No. 308. The application should indicate the election or change of the tax rate by 2% without VAT. The application is submitted to the controlling body at the place of the tax address in electronic form through the section “Reporting” of the private part of the electronic office of the taxpayer.

Please note that the application shall be submitted by the last day of the month preceding the period of transition to the simplified taxation system. That is, in order to take advantage of the above features of taxation from April 1, 2022, the application shall be submitted by March 31, 2022 inclusive.

Newly created business entities that have applied for the simplified taxation system within 10 days from the date of state registration are considered to be single tax payers of the 3rd group from the date of their state registration.

Categories of persons who cannot choose the 3rd group of the single tax at the rate of 2%:

1. a) business entities (legal entities and individual entrepreneurs) that carry out:

• activities related to the organization, conduct of gambling, lotteries (except for the distribution of lotteries), bets (bookmaker bets, betting house bets);
• foreign currency exchange;
• production, export, import, sale of excisable goods (except for retail sale of fuels and lubricants in containers up to 20 liters and activities of individuals related to the retail sale of beer, cider, perry (excluding alcohol) and table wines);
• mining, sale of minerals;

1. b) insurance (reinsurance) brokers, banks, credit unions, pawnshops, leasing companies, trust companies, insurance companies, funded pension institutions, investment funds and companies, other financial institutions specified by law; securities registrars;
2. c) representative offices, branches, offices and other separate subdivisions of a legal entity that is not a single tax payer;
3. d) individuals and legal entities – non-residents.

Tax (reporting) period:

For single tax payers of the 3rd group under a special tax regime, the tax (reporting) period is a quarter. Such persons shall submit a tax return of a single tax payer for the tax (reporting) quarter (indicating the amount of monthly income) within the time limits established for the quarterly tax (reporting) period.

The single tax will be paid monthly – by the 15th day of the following month (advance payment for the previous month). In this case, the calculation of the amount of tax for the reporting quarter and the payment of the declared amounts shall be carried out taking into account the advance payments of the single tax paid during the reporting quarter.

In the event that the taxpayer does not have the opportunity to timely fulfill their tax obligation, in particular regarding compliance with the deadlines for reporting, payment of taxes and fees, the provisions of par. 69.1 of subsection XX “Transitional Provisions” of the Tax Code of Ukraine, introduced by the Law of Ukraine of March 03, 2022 No. 2118-IX, on the absence of any penalties provided that the taxpayer fulfills the relevant obligations within three months after the termination or abolition of martial law in Ukraine.

Period during which the features of taxation are established for taxpayers of the 3rd group:

From April 1, 2022 until the termination or abolition of martial law in Ukraine.

Actions of payers after the termination or abolition of martial law:

Single taxpayers of the 3rd group will automatically lose the right to use the features of taxation established during the martial law under a special tax regime in Ukraine and will be considered those who apply the tax system which such taxpayers used before choosing the above features of taxation.

In addition, taxpayers have the right to refuse to use the benefits and advantages established for the 3rd group of the single tax, from the first day of the month following the month in which the decision was made.

The above changes to the tax legislation came into force on March 17, 2022 after the official promulgation of the Law of Ukraine No. 2120-IX of March 15, 2021.

Lawyers and tax consultants of the “Prime” Law Firm will help you to analyze the advantages and disadvantages of applying the new features of taxation and, if necessary, fill out and submit an application for the simplified taxation system.