Ukraine's Finance Ministry develops mechanism for automatic VAT registration for sole proprietors, proposes 2027 as transition year
Ukraine's Ministry of Finance is working on simplifying the administration of value-added tax (VAT) for single-tax payers and proposes to automate processes as much as possible while designating 2027 as a transition year.
This was reported on the Ministry of Finance's website following a meeting between Deputy Finance Minister Svitlana Vorobei and Member of Parliament Ihor Marchuk, head of the parliamentary subcommittee on state–business relations.
"We have heard businesses' concerns regarding invoice blocking and risk classification. We are now drafting regulations in a way that maximally protects bona fide entrepreneurs and ensures confirmation of tax credits without unjustified pressure," Vorobei was quoted as saying.
She noted that as part of the transition to a service-oriented model, the Ministry of Finance and the State Tax Service plan to introduce a mechanism for automatic VAT registration for individual entrepreneurs whose transaction volumes exceed the established threshold. Such registration would take place automatically based on reporting data and payment transactions recorders data, without the need to submit paper applications to the tax authorities. In addition, entrepreneurs who reach the taxable turnover threshold within the last 12 months will be granted a special period to accumulate input tax credit.
Tax administration is planned to be carried out through the taxpayer's electronic cabinet, where tax declarations will be pre-filled automatically based on payment transactions recorders data and tax invoices. To simplify operations for individual entrepreneurs, the reporting period is expected to be extended from monthly to quarterly.
Vorobei also said that 2027 is proposed as a transition period. During that time, the state will focus on training entrepreneurs and testing new software solutions, and penalties for errors in VAT administration will not be applied.
However, business representatives at the meeting criticized the Ministry of Finance's proposals.
"VAT is not just '20% on top.' It's a tax liability minus the tax credit. And that's where the circus begins. If you buy goods from a non-payer, there's no credit. If you buy from an individual, there's no credit. Rent, marketing, services, you still have to prove that these are expenses the tax authorities recognize. So you will pay, but whether you get reimbursed is a matter of luck," said Lesia Zolotareva, co-founder of the Alliance of Regional Small Business Associations.
She also expressed skepticism about how long the moratorium on penalties would last and noted that references to EU Directive 112 require more thorough analysis, since European standards must be adapted without harming microbusinesses.
In addition, Zolotareva pointed to the need for a substantial technical upgrade of the taxpayer's electronic cabinet before implementing such large-scale changes.
Tetiana Slaschuk, deputy head of the NGO Microbusiness of Khmelnytsky Region, said that the changes proposed by the Ministry of Finance regarding taxation of individual entrepreneurs create additional burdens: the need to hire an accountant, increased administrative and reporting requirements, risks of future penalties, and cash flow gaps. All of this, she said, will ultimately affect consumer prices.
"Small businesses don't print money. They simply pass costs on to the price of goods or services. So all talk about there being no impact is outright manipulation. There will be an impact, and very quickly," Slaschuk said.
Artem Borodatiuk, founder of the IT company group Fractal, also joined the discussion. According to him, amid a labor shortage, businesses will struggle to hire accountants capable of handling the new requirements. As a result, some companies simply will not find specialists, others will not be able to afford them, and the rest will go underground.
"Then we'll see what we've already seen before: business fragmentation will increase, individual entrepreneurs will start registering businesses under relatives' names, and real turnover will no longer match declared figures. In the end, we'll return to cash transactions, something the country has been trying to move away from for years. In other words, a decision that is supposedly meant to fight the shadow economy will actually become a factor of regression and push us back decades," he explained.
The National SME Business Coalition stated that combating business fragmentation should not turn into a war against micro-entrepreneurship, and that the solutions proposed by the Ministry of Finance will ultimately lead to even greater fragmentation and further shadowing of small businesses.
"Ukraine needs a high-quality tax policy that distinguishes artificial schemes from legitimate business, targets the organizers of such schemes rather than individual entrepreneurs, and at the same time preserves the simplicity and attractiveness of the simplified taxation system for millions of Ukrainian entrepreneurs," the coalition said.
As reported, on December 18 the Ministry of Finance published for discussion a draft law on registering single-tax payers, individual entrepreneurs in Groups 1, as VAT payers once they reach taxable turnover of UAH 1 million.
The Ministry of Finance proposes that the law take effect on January 1, 2027, believing this timeframe will give businesses sufficient time to adapt and adjust their processes without unnecessary stress.