Have you decided to start your own business but don’t plan to grow fast? Are you tired of being hired? Ready to pay your taxes yourself, but don’t plan to register as a legal entity? Then your choice should be to register as an individual entrepreneur.
An individual entrepreneur is a legal form for a small business, including providing services or selling products to end consumers – individuals.
The advantages of this form are:
- the relative ease of registration and accounting;
- no need to hire a director;
- no wages/dividends are required (the entrepreneur’s funds are automatically those of the individual);
- possibility to choose any group of the simplified tax system (under certain conditions).
Like any form of business, an individual entrepreneur has a disadvantage: an individual is liable for the obligations related to doing business with all their property.
Any capable person may be registered as an individual entrepreneur. The registration procedure is free of charge (no administrative fee) and takes 24 hours (if you submit the documents to a notary) or several days (if you are registered through the center of administrative services).
Please note that the registration is carried out at any registrar despite the place of residence.
Moreover, you can use the online registration service of an individual entrepreneur. To do this, sign in using an electronic digital signature and fill in the required fields, following the prompts on the site. The system is still in pilot mode, but it is quite convenient.
Prior to registration, you need to decide on the types of activities and choose the optimal tax system.
Election types of activity
The types of activity of the individual entrepreneur are selected in accordance with the Classifier of types of economic activities. The legislation does not contain any restrictions on the number of economic activities. Furthermore, you can choose activities from completely different industries.
Electing types of activity does not oblige you to carry out all of your chosen activities, but if you plan to expand your business in the future, it is better to select all the planned types of activity in the first place. Making changes to the registry is a paid service.
Choosing a tax system
The individual entrepreneur in Ukraine may choose:
- general system of taxation with payment of personal income tax (18% of net income) and military levy (1.5%);
- a simplified single tax system.
The first group of single tax payers is suitable for retail or household services unless you hire other persons, and if the annual income is no more than UAH 300 000. In this case, you pay monthly a single tax of 10% of the living wage (in 2019 – UAH 192.10) and a single social contribution “for yourself” of 22% of the minimum wage (in 2019 – 918, 06 UAH).
The second group is for the production and sale of goods, as well as for providing services to the individuals or other single tax payers. The number of employees should not exceed 10 people, and the annual income – UAH 1.5 million. In this case, the individual entrepreneur pays a single tax on a monthly basis – 20% of the minimum wage (in 2019 – 834.60 UAH) and a single social contribution – 22% of the minimum wage (in 2019 – 918.06 UAH).
Please note that it will not be possible to provide services to legal entities or individual entrepreneurs that are on the general tax system.
The third group has an annual income limit of UAH 5 million. Group 3 individual entrepreneur pays a single tax of 5% of all income (regardless of the cost) or 3% and VAT, as well as a single social contribution – 22% of the minimum wage (in 2019 – UAH 918.06).
The fourth group can be chosen by agricultural producers. It implies paying a single tax on the area of land in use, regardless of income.
The legislation establishes a list of activities that are generally prohibited for a simplified system. Therefore, before registering, you should check if the types you have chosen are prohibited for a single tax payer.
The individual entrepreneur on the general system may be registered as VAT payers: if the income is less than UAH 1 million – voluntary; if more than UAH 1 million – obligatory.
Preparation and submission of documents
The following documents should be prepared for registration:
- form 10 (the approved registration form);
- application for the choice of a simplified tax system or for registration by a VAT payer – optional (these documents can be filed directly to the tax service after registration).
The documents are submitted to the center of administrative services or to a notary who is a state registrar. In the first case, the procedure will be free, but it will take about 3-4 days. In the second – you will have to pay for notary services, but the next day you will have a registration document (extract from the register).
If the individual submits the documents themself, their must have a passport and taxpayer code. If a representative submits the documents, their must have a notarized power of attorney.
The law provides for the possibility of registering as an individual entrepreneur from the age of 16, if submitting the notarized consent of the parents.
Within 24 hours the registrar conducts state registration. After that, the tax and other authorities automatically register the entrepreneur.
In order to register as a single tax payer, you need to take additional steps:
- apply for the simplified system (if not submitted to the registrar);
- submit a request for an Excerpt from the Register of Single Tax Payers;
- register Income and Expense Accounting Book.
From the moment of registration as an individual entrepreneur, you can open a bank account and start a business.