How will the tax burden on sole proprietors change in 2026

Tax burden on individual entrepreneurs (FOPs) will increase in 2026: the basic benchmarks (minimum wage, subsistence minimum) are changing, income limits and the actual amounts of mandatory payments are growing, the monthly military levy is preserved, and in parallel the government is moving towards introducing mandatory VAT for single tax payers (“simplified regime”) with annual turnover starting from UAH 1 million. For most entrepreneurs this will mean higher regular payments, tighter control over income and cashless transactions, and a higher likelihood of acquiring VAT payer status.​

Key benchmarks for 2026

The adopted State Budget 2026 raises the minimum monthly wage to UAH 8,647 and the subsistence minimum for able‑bodied persons to UAH 3,328. These figures are the starting point for calculating the maximum single tax rates for Group 1, the minimum unified social contribution (USC), and a number of other fiscal indicators directly affecting monthly payments for FOPs.​

The increase in the minimum wage automatically raises the USC base (22% of the minimum wage) and the range of labor fines, which also affects the “price” of officially hiring employees through an FOP. For a sole proprietor working alone, this means a higher minimum contribution “for oneself”, and for those with hired staff – additional pressure on the payroll fund.​

Single tax and new income limits

In 2026 the three main groups of the simplified tax system for FOPs are preserved, but income limits and the effective tax burden change due to the link to updated wage indicators. For Group 1 the maximum single tax rate is up to 10% of the subsistence minimum for able‑bodied persons, which gives up to UAH 332.8 per month in 2026, while for Group 2 it is tied to the minimum wage and may reach 20% of it, i.e. up to UAH 1,729.4 per month, as set by local councils for the year.​

The annual income caps for single tax groups 1–3 also increase: for Group 1 – to about UAH 1.44 million, for Group 2 – to over UAH 7.21 million, and for Group 3 – to roughly UAH 10.09 million. Formally this expands the possibility to stay on the simplified regime with higher turnover, but entrepreneurs face larger one‑off and monthly tax payments and stricter monitoring of compliance with limits.​

USC and military levy for FOPs

The unified social contribution for FOPs in 2026 is still calculated as 22% of the minimum wage, but the higher minimum wage pushes the minimum monthly USC amount upward. For an entrepreneur, this means an increased mandatory payment regardless of actual income, unless temporary relief regimes are applied.​

The military levy for simplified taxpayers is fixed as an additional component of the burden: for FOPs in Groups 1, 2 and 4 it is set at 10% of the minimum wage per month, which in 2026 equals UAH 864.70. For FOPs in Group 3, in addition to the 5% single tax rate (or 3% for VAT payers), the military levy is charged on income, which together with USC forms a substantial overall share of gross turnover.​

Move towards mandatory VAT

A separate block of changes follows IMF requirements regarding the simplified system, with the main focus on abolishing benefits that allowed high‑turnover FOPs to avoid VAT registration. Under the new cooperation program, FOPs in Groups 2–3 with annual income above an indicative UAH 1 million threshold will have to register as VAT payers, effectively closing the window for operating without this tax at significant turnover levels.​

Although key VAT requirements as a structural “benchmark” are planned for full implementation by late 2026–early 2027, during 2026 businesses will already need to prepare for the new tax model: review contracts, cost structures and pricing, and assess whether it is still beneficial to remain under the simplified regime after exceeding the critical turnover threshold. FOPs in IT, consulting and professional services are considered the most vulnerable, as their current effective tax rate may increase two‑ to three‑fold when switching to mandatory VAT.​

Stronger control and practical implications

Alongside higher tax amounts, the state continues to push fiscalization and digitalization of FOP activities, including expansion of mandatory cashless payments and the use of payment services. This enhances turnover transparency but also provides more data for tax and financial monitoring, increasing the risk of audits in cases of atypical transactions or artificial business splitting.​​

In 2026 entrepreneurs will face not only a simple arithmetic increase in single tax, USC and military levy, but also a qualitative shift in state policy: tighter control over limits and cashless receipts and preparation for mandatory VAT once certain turnover thresholds are reached. For FOPs it becomes critical to regularly review their tax model, keep accurate records and plan possible transitions to other regimes in advance to avoid sudden spikes in tax burden.​

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

If you have any questions or issues related to changes in the tax burden on FOPs in 2026, choosing the optimal tax regime or preparing for possible mandatory VAT, you can seek individual advice from tax and customs law specialists at the law firm “Legal Company WINNER”.