Ukraine has reached an agreement with donors to set the annual turnover threshold for individual entrepreneurs below which they can operate without registering as value-added tax (VAT) payers at the maximum level permitted in the European Union, EUR 85,000, Deputy Finance Minister Svitlana Vorobei said, according to an Interfax-Ukraine correspondent.
"To be honest with you, we have already agreed with the donors that this will be the maximum level. But the fact that these rules need to be introduced is a requirement of the times. As for how exactly to introduce them, I also have an answer: first, we need to make it as painless as possible specifically for small businesses," she said at the "Think Small First" forum held in Kyiv by the National Business Coalition with the support of the Center for International Private Enterprise (CIPE) this week.
Vorobei said that the introduction of VAT for individual entrepreneurs is a requirement of the EU Council Directive 112 of 2006, which regulates VAT administration in EU countries.
"It does not say that VAT must be introduced for individual entrepreneurs. It says that all business entities whose turnover exceeds EUR 85,000 are required to register as VAT payers regardless of their tax regime," the deputy minister said.
According to her, the threshold is lower in many countries: there are cases where it is EUR 45,000, EUR 25,000, and even cases where payment is required from "the first hryvnia."
Vorobei reiterated that in Ukraine the threshold will be equivalent to EUR 85,000 at the euro exchange rate in effect at that time and may possibly be specified directly in euros.
Regarding the prerequisites for introducing VAT for individual entrepreneurs, the deputy minister drew attention to the fact that the first bill on the issue has already been registered and is being considered by the Verkhovna Rada, a bill on simplifying VAT administration for individuals.
"It concerns individual entrepreneurs both under the general tax system and the simplified tax system who are already VAT payers, and there are such entrepreneurs; there are quite a lot of them, more than 1,000. Second, we need to address the risks for businesses, namely confirmation of the tax credit, so that it is not as painful as it is today. There are certain problems there, and we are working on them," Vorobei said.
As reported, under the updated Extended Fund Facility (EFF) with the IMF following its first review, amendments to the Tax Code were to be submitted to the Verkhovna Rada by the end of August to raise the threshold for unscheduled audits based on requests for VAT refunds and VAT liabilities from UAH 100,000 to UAH 1 million.
Also, by the end of December this year, rules on tax evasion are to be presented to prevent abuse of the simplified tax regime, and by the end of April next year, the VAT exemption for entrepreneurs operating under the simplified tax system is to be abolished and the VAT payer registration threshold is to be raised from January 1, 2028.
The initial version of the program, approved at the end of July, provided for the adoption of a law containing these provisions by the end of March this year, with the threshold set at UAH 1 million, which drew sharp criticism from entrepreneurs operating under the simplified tax system. On March 20, the Finance Ministry published on its website the so-called "big tax bill," which contained a provision requiring entrepreneurs operating under the simplified tax system with annual income of UAH4 million or more to register as VAT payers. The Ukrainian side was subsequently able to convince the Fund that the bill could not pass through the Verkhovna Rada under the current circumstances and that these obligations needed to be postponed.
Currently, for individual entrepreneurs under the general tax system, the mandatory VAT registration threshold is UAH 1 million, while for individual entrepreneurs under the simplified tax system it is 1,167 minimum wages, which currently amounts to UAH 10.091 million, and in 2027 it could rise to UAH 11.14 million, as the government is proposing to increase the minimum wage by 10.4%.
At the current exchange rate of the National Bank of Ukraine, EUR 85,000 is equivalent to UAH 4.366 million.
