The III-rd group of simplified tax regime, Ukraine: 5%-27,5% tax exposure on self-employed, sole trader, company with annual income up to UAH5mln (Pound 147K) in Ukraine since 01.01.2017. So anyone (including nonresident) may establish Limited Liability Company on “simplified” tax regime to enjoy unconventional tax optimizing with minimum personal liability risks.
“White“ – local professional slang for full – scale declared income (including paper cash), as opposite to “grey” income that is concealed from tax man and therefore subject of tax – evasion;
successful – business generating annual income up to Pounds 146,198.83;
single – self-employed or sole trader, or a company with annual income up to UAH 5mln. (Pounds 146,198.83) a year – so called III-rd group of a “simplified” tax payers (this tax regime is hereinafter “simplified tax”).
nearby – operation of registered business in Ukraine, the country is located in the middle of Eurasia, mere couple of hours of flight from Europe.
Please, take into account, that these benefitial tax conditions do not apply to all groups of self-employed. For-instance, so-called “independent professionals” as notaries, auditors, architects and lawyers are exempt from the III-rd group of simplified tax system.
NIC flat rate 22% with monthly payment UAH 704 (Pound 21.86)
since the 1st of January 2017 in Ukraine
Since the 1st of January 2017 in Ukraine the following amendment to Ukrainian National insurance Law became applicable: income tax rate 5% no VAT, flat rate 22% of National insurance contribution (NIC). In combination with NIC threshold, it results in 5% – 27,5% tax exposure for payers of “simplified” tax with income up to UAH 5mln. (Pounds 146,198.83) a year:
NIC threshold – the base for payment (UAH): 0 – 42,100.00 (Pound equivalent 1,230.9).
Amount to be paid: no less than 22% on minimum salary UAH 3,200.00 (Pound 93.56), but no more than 22% on UAH 42,100.00 (Pound 1,230.9), which is between UAH 704 (Pound 21.86) and UAH 9,262.00 (Pound 270.82)*.
under “simplified” tax regime
What is striking – under “simplified” tax regime tax payers are allowed to determine their own tax base. Surely, very few (if anyone) pays more than UAH 704 (Pound 21.86) of NIC per month, no matter what income is. To really impress tax officials one should go beyond that, by self-assesing and paying NIC based on factual income.
Other important tax features of III group of “simplified” tax regime:
-Income of a “simplified” tax payers is a base for taxation and NIC (National insurance contribution). In majority of countries though, the profit is a base for taxation and NIC.
-There are tax incentives for corporations to conduct business with III-rd group of a “simplified” tax payers. As their bills are allowed to be put on expenses before tax of corporations – customers.
-Only Ukrainian citizens are allowed to be on III-rd group of a “simplified” tax system.
-Foreigners are allowed to establish legal entities in Ukraine including Limited liability companies.-In Ukraine Legal entities (with some exceptions) are allowed to be on “simplified” tax regime, and Limited liability companies as well.
Limited Liability company on III group of “simplified” tax regime:
profit tax 5% no VAT or profit tax 3% ,and VAT
So under Ukrainian Law it is possible to establish Limited Liability company on “simplified” tax regime profit tax 5% no VAT, or profit tax 3% and VAT applicable. Surely, it’s counterpart shall pay its taxes and NIC (if applicable). Here is an incentive to hire instead of employing, thus passing all would be payroll taxes and NIC to so-called “contractors”. In fact rather controversial filing de-facto employment as a business-to-business (B2B) contracts happens in Ukraine.
Yet, the devil is in the details.
Tax base self – determination under “simplified” tax regime
is a tax roulette: B2B contract remuneration or employment?
Effective Ukrainian tax legislation may treat a company (a customer) and self-employed (a contractor) as employer and employee respectively, based on certain criteria (for instance, there are more than 2 (two) in the row payable business transactions between them). In this case B2B contract remuneration shall be treated as payroll for tax and national insurance purposes and payroll taxation shall be applicable together with penalties. In this case NIC 22% shall apply on factual sum of payroll.
Current Tax Exposure in Ukraine:
Corporate Profit Tax: 18%
VAT (Value Added Tax (may vary): 20%
Personal Income Tax: 18%
National Insurance contribution (locally called “Unified Social Contribution”: 22%
Military Tax: 1.5%
other taxes may apply as well.
Show me your money
So far Ukrainian Tax Agency gathers reports on tax and NICs, therefore the income tax base for NIC is available for authorities, even though it is legal to pay mere minimal NIC for “simplified” tax regime payers.
Recent legislative trends support “tax roulette” considerations. As more criteria on distinguishing B2B payments from employment transaction is provided in governmental draft Law on “Tax on withdrawn capital” which is planned to be adopted and became effective since 2018.
I would expect since 2018 some of “simplified” tax regime payers might be liable to NIC based on their factual income: should NIC Law shall be amended again, or some of “simplified” tax regime payers might be re-qualified as employers on another tax regime. Anyway, by 2018 there ‘ll be enough data available in tax payer state data bases for self-assesing and paying income tax and NIC by individual “simplified” tax regime payers.
Someone likes it LLC
on III group of “simplified” tax regime
So while it is hot – anyone (including foreigner) can establish Limited Liability company on “simplified” tax regime to enjoy unconventional tax optimizing with minimum personal liability risks.
* All numbers are effective on the date of this publication as follows:
– Exchange rate of UAH to Pound;
– Bread-basket value and minimum salary.
Ukrainian Budget Law’2017 provides non-substantial quarterly increase of bread-basket value and minimum salary during the 2017 year; for more detailed information please check the Ukrainian Law, or you may write the question to me.