Mandatory VAT registration for sole proprietors: new thresholds and action strategy

The issue of mandatory VAT registration for sole proprietors on the single tax has already moved beyond “sometime later” and into concrete bills, figures and timelines; in parallel, an increase in the registration threshold and its link to the minimum wage are being discussed. In essence, by complying with IMF requirements, the state wants large turnovers in the small‑business segment to be taxed with VAT under the general rules, and the key questions now are who must register and when, and what sole proprietors should already be doing.

What is the current threshold for mandatory VAT registration
At present, mandatory VAT registration arises when the volume of taxable transactions over the last 12 months in total exceeds UAH 1 million, both for the general tax regime and for single‑tax sole proprietors, with turnover on the simplified regime also counted. If a sole proprietor entitled to carry out VAT‑able operations exceeds this million, they must file form No. 1‑VAT within the prescribed time and register, and ignoring the 12‑month “rolling” period is what most often leads to back‑assessed VAT and penalties.

What is planned to change: the “magic” UAH 1 million and a new threshold
Debate now focuses on changing the threshold for mandatory VAT registration and introducing special rules for single‑tax sole proprietors. Initially, a fixed limit of UAH 1 million in annual income was proposed for almost all sole proprietors except the very smallest. In parallel, a link to 400 minimum monthly wages was suggested (around UAH 3.46 million in turnover in 2026), and public statements also mention raising the threshold to UAH 2–4 million to soften the impact on microbusiness. Analytical pieces increasingly cite UAH 4 million as a baseline threshold from 2027, but for now these are only draft concepts that may change during the parliamentary process.

Single‑tax sole proprietors: who the new regime will affect
Today mandatory VAT registration for single‑tax sole proprietors is triggered by the general UAH 1 million threshold, but the reform specifically targets simplified‑regime businesses with higher turnovers. Under the scenarios being discussed, mandatory VAT would extend to sole proprietors in all groups, except possibly the smallest and certain special categories (for example, e‑residents). Several vectors of change matter for simplified‑regime taxpayers: higher turnover caps for the single‑tax groups; a unified VAT‑registration threshold that may exceed the current UAH 1 million; and a possible merger of the second and third groups with differentiated tax rates. In practice, this means that sole proprietors will be allowed to “grow” to significantly higher turnovers while staying on the simplified system, but once they reach the specified limit they will effectively be required to enter the VAT system, with all the additional bookkeeping, reporting and liability that entails.

Why the state insists on VAT for sole proprietors
The government and the IMF offer pragmatic reasons. VAT is one of the state’s main revenue sources, and the current situation, where substantial turnovers can circulate within the single‑tax segment without VAT, looks too lenient to fiscal authorities. It also creates structures where companies and large taxpayers work with simplified‑regime sole proprietors without VAT, thereby reducing their tax burden. Introducing mandatory VAT registration for “large” sole proprietors is intended to increase revenue without raising rates, level competition between sole proprietors and companies, and limit opportunities to split businesses into dozens of “mini‑sole‑proprietor” entities. Recognising that business views this as an extra burden, policymakers are seeking a compromise in the form of a multi‑million‑hryvnia threshold that exempts true micro‑entrepreneurs and focuses the reform on larger players.

Practical implications for sole proprietors: what to watch now
Even though broad mandatory VAT rules for single‑tax payers are linked to 2027, preparation should start now. Sole proprietors on the simplified system should regularly monitor turnover using a rolling 12‑month window rather than just calendar years; model how prices, margins and relationships with counterparties would change under VAT; and segregate transactions that might be VAT‑able to ease the transition. A separate issue is switching from the single tax to the general regime: experts stress that if a sole proprietor who has exceeded UAH 1 million switches to the general regime, this does not relieve them of the duty to register for VAT; months on the simplified regime still count, and ignoring this rule can lead to backdated assessments and penalties.

Strategy: run from VAT or work transparently
Businesses often respond to tighter regulation by trying to “fit under the limit”, for example by capping turnover, splitting into several sole proprietors or moving part of operations into the shadows. However, given ongoing digitalisation (fiscal cash registers, the e‑cabinet, bank monitoring) and the growing preference of corporate clients for VAT‑registered suppliers, a strategy of “escaping VAT” is unlikely to succeed. For sole proprietors with multi‑million turnovers, it is more rational to design a transparent business model that incorporates the VAT chain, optimise costs and, where appropriate, consider converting into a company.

What to do now: a brief checklist
While bills are still under discussion and final figures and dates may change, single‑tax sole proprietors should focus on what they can control:

1. Analyse turnover for the last 12 months against the current UAH 1 million threshold and make sure the obligation to register for VAT has not already arisen.
2. Model financial results under possible UAH 2–4 million thresholds and assess whether you will fall into the mandatory VAT zone after the reform.
3. Review your client and supplier base to see whether VAT‑payer status could be a competitive advantage in your market.
4. Set up basic accounting (even in a simple CRM or spreadsheet) that will allow you to adapt quickly to VAT reporting if needed.

In summary, mandatory VAT registration for single‑tax sole proprietors is not so much “the end of the simplified regime” as another stage in its maturation. Those who prepare in advance can not only minimise risks but also use the new rules as an opportunity to rethink their business model and move towards greater transparency and cooperation with larger clients. If you face questions about mandatory VAT registration, choosing your tax regime or adapting your sole‑proprietor business to the new rules, it is worth seeking tailored advice that takes into account the specifics of your activity.

Author – Yuliia Popadyn, attorney in tax and housing law at the law firm “Legal Company ‘WINNER’.