Tax Changes for Sole Proprietors in Ukraine: What the New Bill Means for Business
Ukraine is preparing large-scale changes to the tax system that will directly affect small businesses, online trade, and consumers. The new draft law предусматриває a revision of rules for sole proprietors, taxation of income from digital platforms, changes in the approach to importing goods, and the extension of the military levy.
Time for Action analyzed the key provisions of the initiative and its possible consequences.
One of the central elements is the introduction of mandatory VAT for entrepreneurs operating under the simplified taxation system once they reach a certain level of income. This means that some sole proprietors will effectively move to a more complex taxation model. Formally, a reduction of the single tax rate is предусмотрено, but the simultaneous introduction of VAT changes the overall structure of business costs. Entrepreneurs will have to maintain more detailed accounting, submit extended reporting, and operate under rules that previously applied mainly to larger companies. A separate provision introduces a transition period with softened penalties. During the first year, fines for several violations related to VAT administration will be symbolic. This indicates that the state expects difficulties in implementing the new rules and is trying to reduce the risk of sudden pressure on businesses.
Changes also affect the digital economy. A separate taxation regime is proposed for income received through online platforms. The tax rate is reduced, but at the same time mandatory identification of sellers and regular reporting by the platforms themselves are introduced. This approach allows part of the activity to be brought out of the shadow economy and creates a controlled system for tracking income. At the same time, it means that informal online trade will gradually lose the ability to operate without tax obligations.
Significant changes are предусмотрено for the import of goods. It is planned to revise the duty-free threshold for parcels and introduce simplified taxation for shipments of medium value. In addition, the obligation to pay VAT will be assigned to platforms or intermediaries, changing the mechanism of cross-border online trade. This decision may complicate access to cheap imported goods for consumers, but at the same time will help level the playing field for Ukrainian businesses.
A separate point is the extension of the military levy. It is proposed to link it not to the duration of martial law, but to the completion of the Armed Forces reform. This approach effectively makes this payment a long-term tool for budget revenues. The purpose of all these changes is to increase state revenues and reduce the scale of the shadow economy. According to government estimates, the implementation of the new rules could bring significant additional budget revenues, which are planned to be directed, in particular, to financing the security and defense sector. At the same time, these initiatives are causing debate. Some experts believe that increasing the tax burden and complicating administration may become a challenge for small businesses. There is a risk that some entrepreneurs will reduce their activity or move into the shadow economy.
Another position is that the changes will eliminate distortions in the system. This refers to situations where large businesses operate through networks of sole proprietors to minimize tax liabilities, or where goods are sold without proper taxation. In this case, the new rules are intended to make such schemes economically unprofitable and create more equal conditions for all market participants.
“The law must be adopted under another benchmark by the end of March 2026. Two more prior actions include adopting a resolution on VAT rules in public procurement and registering a draft law with changes to the Labor Code”
The draft law is currently under discussion and still has to go through the full legislative procedure. This means that its provisions may change depending on the position of parliament and the results of the discussions. Previous experience shows that such initiatives do not always receive support without significant amendments. This creates uncertainty for businesses, which are forced to prepare for possible changes without clear guarantees of their final form. The proposed changes indicate the state’s intention to revise the taxation model for small businesses and the digital economy. At the same time, the effectiveness of this reform will depend on whether a balance can be maintained between increasing budget revenues and preserving the ability of entrepreneurs to operate under the new conditions. The outcome of this transformation will determine not only the level of tax revenues, but also how the structure of the economy and the role of small business within it will change.
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