Higher limits and higher taxes. Should Ukraine switch to Polish model of individual entrepreneurship?
The Ukrainian government is considering switching to the Polish model of taxation of individual entrepreneurs. How does it differ from the Ukrainian one?
In early 2024, Deputy Minister of Finance Svitlana Vorobei announced that the Ministry of Finance is considering Ukraine's transition to the Polish model of the simplified taxation system for individual entrepreneurs.
As the official explained, the Polish model is more differentiated, with more rates - from 2% to 20%, the amount of which depends on the type of business activity.
However, Vorobei did not talk about specific rates for Ukraine, because, according to her, there will be extensive discussions with the business.
Earlier, Danylo Hetmantsev, head of the Rada's tax committee, spoke about plans to introduce the Polish taxation model for Ukrainian individual entrepreneurs. He emphasized that the single tax in Ukraine has turned from a tool to support small businesses into a system of tax evasion for large and medium-sized businesses.
Business Censor decided to compare the Ukrainian and Polish simplified taxation systems (STS) and see what Ukrainian taxpayers can expect.
In general, there are two taxation systems in Ukraine - the general and the simplified taxation system.
Individual entrepreneurs usually choose the simplified taxation system, which provides for the payment of a single tax.
For individual entrepreneurs of the first group, it should not exceed 10% of the subsistence minimum for able-bodied persons (UAH 302.8), and for the second group - 20% of the minimum wage (UAH 1,420). However, the final single tax rate is not fixed. It is set by local authorities.
At the same time, the maximum annual turnover of income for the first two groups of individual entrepreneurs should not exceed UAH 1,185,700 and UAH 5,921,400, accordingly.
For individual entrepreneurs of the third group, the rate is 3% if they pay value-added tax and 5% for non-payers of VAT. It is important to note that the maximum annual income of individual entrepreneurs in this group is UAH 8,285,700.
According to government officials, the current simplified taxation system has a loophole for large businesses that divide their activities into several individual entrepreneurs with lower revenue turnovers to avoid paying large taxes.
In this way, the budget loses billions of hryvnias, which are needed in a full-scale war with Russia.
The Polish model of the simplified taxation system is based not on the income of the individual entrepreneur, but on his or her type of activity.
This is how the multidivisional system of rates - from 2% to 20% - takes into account the marginality of activities, riskiness, etc. In addition, the neighboring country has a higher income limit of EUR 2 million, which provides more opportunities for business development.
What are the tax rates in Poland?
2% – sale of goods of plant and animal origin of own production;
3% – catering without alcohol, sale of fish and fish products by fishermen;
5.5% – construction works, cargo transportation over 2 tons, sale of tickets and stamps;
8.5% – public catering with the sale of alcoholic beverages, education, cultural services, book commission shops; as well as rental income up to PLN 100 thousand; vehicle leasing;
10% – real estate purchase and sale services;
12% – services related to IT;
12,5% – rental income over PLN 100 thousand;
14% – healthcare services, architectural and engineering services;
15% – brokerage, taxi, sports services;
17% – services in the field of freelance professions - translators, lawyers, notaries, as well as hotels, photo production, wholesale trade, sale of cars/motorcycles and spare parts.
20% – private nurses, obstetricians and doctors, translators, tutors, and others.
In view of the above, it is clear that some rates are significantly higher than those currently in place in Ukraine. Taxes for representatives of the IT community require special attention.
In our country, IT entrepreneurs pay no more than 5% of the single tax, and if the Polish model is introduced, they will have to pay more than twice as much.
Of course, higher taxes equal higher budget revenues, but experts warn that this could also lead to the shadowing of entire service industries or even relocation abroad. This will lead to greater budget losses.
In addition, a more complex taxation system will require more inspections by tax authorities, which may also serve to increase corruption.
In the fall, the number of individual entrepreneurs in Ukraine exceeded 2 million. Despite the war, new businesses continue to open, sometimes at a record pace. In particular, in September, Ukrainians opened 35,587 individual entrepreneurs, the highest number in the last three years.
At the same time, more than 304 new individual entrepreneurs were registered in 2023, which is 7% more than in the "pre-war" year of 2021.
The reason for this dynamics may be the transition of large businesses to work through individual entrepreneurs, as well as a hidden form of employment of men, because, unlike an employment contract, individual entrepreneurs do not need to visit territorial recruitment centers when opening an individual entrepreneur.
According to Deputy Minister of Finance Svitlana Vorobei, a change in the tax model is still not a near-term prospect. According to her, the reform of the State Tax Service must first take place, and only then can we talk about changing taxes.
