Finance Ministry proposes tighter VAT rules for small business
The Cabinet of Ministers (Photo: wikipedia/KyivMax)
Ukraine’s Finance Ministry has published a wide-ranging tax
bill that would require many small businesses to register for value-added
tax and introduce new tax rules for imports, digital platforms, and a
continued military levy, the ministry said in a message on its website on March
19.
Key provisions of the bill include:
- Require mandatory VAT registration for taxpayers currently using
the simplified (single tax) system whose annual revenue exceeds UAH4 million
($91,000), effective Jan. 1, 2027.
- Taxing inbound international parcels imported from other
countries with a total value up to EUR150 ($173). Parcels valued under EUR45
($52) and intended for personal use would remain exempt from VAT.
- Extend the 5% military levy into peacetime: the tax would be
defunct once the Ukrainian parliament agrees that the reform of the Armed Forces
is complete (as opposed to once martial law is lifted).
- Introduce automatic international exchange of information on
income earned via digital platforms and new taxation for income from platforms
such as Uklon and OLX.
- Make electronic commerce platform operators responsible for calculating and remitting taxes on behalf of sellers using their services.
The ministry says the package would raise roughly UAH60 billion a year ($1.4 billion). The 42-page explanatory note accompanying the bill says the measures are part of Ukraine’s commitments under a new International Monetary Fund loan program.
Timing and administrative measures:
- The VAT-registration requirement would take effect Jan. 1,
2027.
- As a concession, taxpayers who currently pay the single tax
could use a calendar quarter as their reporting period. The bill would set a
symbolic penalty of UAH1 for each of the first five breaches of new
registration and payment rules during 2027. Those breaches include late
registration of tax invoices and payment violations.
- The bill would allow vendors to issue consolidated tax invoices when supplying goods or services or receiving prepayments for purchasers who are not VAT-registered.
The ministry proposes that sole proprietors on the single-tax system in groups I, II, and IV pay a military levy equal to 10% of minimum wage, about UAH850 ($19) in 2026. For single-tax group III payers (individual entrepreneurs and legal entities) the levy would be 1% of income.
The ministry said income earned through digital platforms is currently subject to an 18% tax rate; the bill would cut that rate to 5% and allow a full exemption if a seller’s total annual revenue from platforms does not exceed EUR2,000 ($2,300). There would be no requirement to open a dedicated bank account for reporting; sellers could use existing accounts. The platform operator would act as the tax agent responsible for reporting and withholding taxes.
To implement taxing international parcels, the bill would amend the Tax Code to allow VAT to be paid by the sender and to designate a nonresident electronic-interface company as responsible for accounting remote sales and remitting VAT. The special rules would apply to remote sales of non-excise goods with a total value up to EUR150 sent from another country to private buyers in Ukraine.
Under the $8.1 billion EFF program approved in late February, Ukraine must adopt this package of tax measures by the end of March 2026.
Business associations criticized the government’s
justification, saying the ministry’s calculations underestimate administrative
costs for businesses and fail to account for the additional tax burden on
consumers. They suggested that mandatory VAT registration would force many
small entrepreneurs to hire accountants, face new administrative and reporting
duties, risk future fines, and suffer cash-flow gaps that would likely raise
consumer prices.
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