State Tax Administration of Ukraine

Taxation of Small Businesses in Ukraine and Underlying Tax

Risks (Current taxation regimes for small enterprises as source of wide-spread practice for tax evasion; Legislative regulation of taxation

related issues as element of program for promotion of development of MSE)

Conference on “Taxation of Micro and small Businesses”

May 4 – 6 of 2011, Tbilisi, Georgia

Criteria for assigning of taxpayers to large, medium and small taxpayers’ groups

а) small Legal persons

Gross income < 70 million Grivna (6 million €)Number of employees < 50 persons

Natural persons and subjects involved in economic activities

b) large Legal persons

Gross income > 100 million Grivna (8,6 million €)

Number of employees > 250 persons

с) medium All taxpayers, not included in groups a) and b)

Small business taxation systems

General

Unified tax for legal and natural persons – subjects involved in economic activities

Flat tax for subjects involved in economic activities – natural persons Sim

plifi

ed

Unified tax

Legal persons

Gross income < 1million Grivna (86,5 thousand €)Number of employees ≤ 50

Natural persons – entrepreneurs Proceeds from sales < 500 thousand Grivna (43,3 thousand €) Number of hired staff ≤ 10

The system of unified tax regime shall not extend to following entities:subjects involved in economic activities, which are subject to special patenting; Trusts , insurance companies, banks, other financial -crediting institutions and non-banking financial institutions; Natural persons – entrepreneurs, who are involved in trade with tobacco and alcoholic beverages and combustive-lubricating materials Gambling business and related activities, conducting of lotteries; Currency exchanges Producers of excise goods, export-import of such goods, wholesale and retail trade with combustive-lubricating materials Extraction and production of precious metals and stones, wholesale and retail sales of such make.

Unified tax

Legal persons 6% of proceeds from sales + VAT 10% of proceeds from sales in case of inclusion of VAT in unified tax + unified social contribution (from 36,7% to 49,7%)

Natural persons From 20 to 200 Grivna per month (1,7-17,3€) + unified social contribution (no less than 34,7% of minimum wages - minimal amount of unified payment for April shall amount to 960 Grivna х 34,7% = 333,12 Grivna.

Tax rates

Exemptions:Profit tax ;VAT;Tax on income of natural persons ;Land tax ;12 other taxes and duties .

Exempted from requirement of maintaining of cash registersAnd benefit from simplified accounting

Flat tax

Natural persons – entrepreneurs, who sell goods and offer related services on markets Gross income thousand Grivna (10,3 thousand €)Number of wage laborers≤ 5

Restrictions:

Are not authorized to trade with alcoholic beverages

Tax rates:

From 20 to 100 Grivna

Exempted from: Maintaining of accounting; From requirement of maintaining of cash registers

Share of proceeds from subjects of economic activities taxed on the basis of simplified tax regime as of 2010

Total Simplified taxation

Share in %

Number of subjects (legal and natural

persons) (thousand) 3570 1400 39

Proceeds into budget (million Grivna)

210 1,9 0,9

- Splitting of a business;

-Non-disclosure of proceeds due to failure of accounting or exemption from use of cash registers;

- Provision of fictitious services

- Cashing and etc.

Schemes of tax evasion and minimization of tax payments

Scheme of provision of fictitious services or cashing

Ordinary company >> 1

moneyBuffer company >> 2

Entrepreneur, taxed by simplified regime >> 3

Fictitious services (works)

Budget 200 Grivna

Minimization of payments

Withdrawal of 500 Grivna

money

Fictitious services (works)

Scheme of tax evasion through splitting of business

Minimization of tax on income of natural persons and contributions into social funds

Budget 200 Grivnas (2400

Grivnas per year)

Company “a”

Hiring of employees by entrepreneurs, who benefit from simplified tax regime («b»)

(«b»)

Budget loses in tax proceeds around 1

billion Grivna from income tax of

natural persons and 2 billion Grivnas in social contributions

Money

Services (works)

Legislative regulation of taxation issues as element of program on promotion of development of small businesses

•Starting from 01.04.11 the Tax Code prohibits payers of income tax to charge to expenses amounts spent on procurement of goods (works, services) from natural persons, who are taxed by unified tax. (not considered as a deductible expense)

• “Tax holidays” for small taxpayers, who pay income tax.

• Simplified system of registration (single window principle, principle of self-declaration)

• Reduction of licenses and permits for implementation of different types of economic activities

• Further reformation of simplified taxation system

State Tax authorities of Ukraine

Thank you for your attention

Конференция на тему «Налогообложение микро- и малого бизнеса»

4 – 6 мая 2011 года, Тбилиси, Грузия