What will change for sole proprietors and what should they expect?

The IMF is demanding that Ukraine revise its simplified taxation system and abolish the benefits that allow sole proprietors with fairly large turnovers to operate without VAT. Primarily, this concerns the introduction of mandatory VAT registration for entrepreneurs whose annual income exceeds UAH 1 million, that is, closing the “window” through which a single‑tax payer with significant turnover could fall out of the VAT system. This is enshrined in the new agreements with the IMF and is linked to Ukraine’s receipt of multibillion‑dollar financing.​

What will change for simplified‑tax payers
Right now, most sole proprietors on the simplified system operate under a familiar model: single tax, social contribution, and minimal interaction with VAT. Once the IMF’s requirements are implemented, any entrepreneur who crosses the annual income threshold of UAH 1 million will become a candidate for mandatory VAT registration, unless they fall into a narrow set of exemptions. In essence, the “light” simplified regime will remain only for true microbusinesses, while everyone who has grown a bit will be forced to play by rules closer to those for small and medium‑sized businesses.​

Along with VAT, sole proprietors will face tax invoices, input tax credits, reporting obligations, control over registration deadlines, and the risk of invoice blocking in their day‑to‑day operations. If until now an entrepreneur could keep records “on the back of an envelope”, with VAT they will either need to significantly improve their knowledge of tax accounting or build a more systematic cooperation with an accountant. Mistakes in this area easily turn into fines, additional tax assessments, and unnecessary stress.​

Tax burden: what will be added
The basic components for sole proprietors do not disappear: the social contribution based on the minimum wage and the single tax depending on the group remain. The new element is 20% VAT, which appears as soon as the entrepreneur’s annual income exceeds UAH 1 million. Formally, VAT is an indirect tax that businesses “pass on” to the final consumer, but in practice, in many models a share of this burden falls on the entrepreneur’s margin.​

This will hit sole proprietors hardest in sectors with high added value and a small amount of input VAT: IT, consulting, creative services, education, and B2C services. For such businesses, the effective tax load may increase several‑fold compared to the current 5% single tax plus social contribution. Where there are substantial, properly documented expenses (rent, goods, imports, contractors), VAT is partially offset through the tax credit, but the price is a much more complex accounting system.​

Who is at risk and possible responses
The highest‑risk zone includes small B2C businesses: salons, studios, courses, small coffee shops, and local services. For them, a 20% price increase often means losing some customers, while cutting the margin by the same amount can mean working “on the edge” or at a loss. This is why experts expect attempts to artificially restrain turnover, split activities among several sole proprietors, or mix official and unofficial payments.​

The tax authorities are already paying attention to schemes involving artificial “splitting” and the imitation of independent sole proprietors where there is in fact a single business or hidden employment relationships. If such structures are detected, the risks include loss of the simplified system, additional tax assessments, and fines. For some entrepreneurs, an alternative may be switching to the general taxation regime if their cost structure allows them to pay tax on real profit rather than turnover.​

What to expect and what to do now
The likelihood that VAT for sole proprietors above a certain income threshold will become reality is high, as this is written into both the IMF cooperation program and the National Revenue Strategy through 2030. The real questions concern timing and details: what the exact threshold will be, whether there will be transition periods, and how rules will differ by sector. But the direction is already clear, and it is safer for businesses to adapt in advance rather than in emergency mode.​

A practical step every sole proprietor should take is to recalculate their business model with VAT in mind: how the client price will change, what will happen to the margin, whether it makes sense to formalize more expenses and build a tax credit, and whether another tax regime would be more logical. It is also useful to review contracts, primary documents, and internal processes to assess how ready they are for closer scrutiny from the tax authorities.​

If you see that your annual income is approaching or consistently exceeding UAH 1 million, it makes sense not to postpone these calculations. Seeking professional advice at this stage will help avoid improvised “back‑of‑the‑envelope” solutions and choose a model that is not only legal but also economically sustainable for your business.​

Author: Ihor Yasko, Managing Partner at WINNER Law Firm, PhD in Law.