Tax systems in Ukraine divide into two main regimes: the simplified system and the general system. The choice between them depends on your legal form — individual entrepreneur (FOP) or legal entity — as well as your revenue, activity type, and operational structure.
The full framework is governed by the Tax Code of Ukraine, available on the official website of the Verkhovna Rada of Ukraine.
Two Legal Forms, Different Options
Before choosing a tax system, you choose a legal form:
- FOP — an individual entrepreneur; the simplest structure, no separate legal entity, personal liability
- Legal entity — most commonly a limited liability company; a separate legal person, limited liability, more administrative overhead
Both forms can operate under either the simplified or the general tax system, but the available groups within the simplified system differ depending on legal form.
The Simplified Tax System
The simplified system divides into groups, each with defined parameters for revenue limits, permitted activities, and tax rates. Groups 1 and 2 are available only to FOPs. Group 3 is available to both FOPs and legal entities. Group 4 applies to agricultural producers and is outside the scope of this post.
Revenue limits are set as multiples of the minimum monthly wage. In 2026, the minimum wage is 8,647 UAH per month. The subsistence minimum for working-age persons is 3,328 UAH — a separate figure used as the base for certain calculations in Group 1. Always verify both figures before registration, as the state updates them periodically.
Group 1 — FOP Only
Who it is for: Individual entrepreneurs engaged exclusively in retail trade at markets or providing household services to the general population.
Revenue limit: Up to 167 minimum monthly wages per year — 1,444,049 UAH in 2026.
Single tax rate: A flat monthly amount set by local authorities, up to 10% of the subsistence minimum. In 2026, the maximum single tax for Group 1 is 332.80 UAH per month (10% × 3,328 UAH). Note that the base here is the subsistence minimum, not the minimum wage — an important distinction from other groups.
Military levy: 864.70 UAH per month (10% of the minimum wage of 8,647 UAH).
USC: 1,902.34 UAH per month (22% of the minimum wage), regardless of actual income.
Reporting: Annual — a single tax declaration is filed within 60 days after the end of the calendar year.
VAT: Not applicable.
Key limitations:
- No employees permitted
- Cannot provide services to legal entities or other FOPs
- Activity restricted to retail trade at markets and household services
Group 1 suits small-scale sole traders with a local individual customer base. It is rarely the relevant structure for foreign investors.
Group 2 — FOP Only
Who it is for: Individual entrepreneurs engaged in trade, restaurant services, or services provided to the general population or to other simplified system taxpayers. Up to 10 employees permitted.
Revenue limit: Up to 834 minimum monthly wages per year — 7,211,598 UAH in 2026.
Single tax rate: A flat monthly amount set by local authorities, up to 20% of the minimum wage. In 2026, the maximum single tax for Group 2 is 1,729.40 UAH per month.
Military levy: 864.70 UAH per month (10% of the minimum wage of 8,647 UAH).
USC: 1,902.34 UAH per month (22% of the minimum wage).
Reporting: Annual — a single tax declaration is filed within 60 days after the end of the calendar year.
VAT: Not applicable.
Key limitations:
- Cannot provide services to general system taxpayers — this is a critical commercial limitation for B2B operations
- Activity restricted to trade, restaurant services, and services to the population or other simplified taxpayers
Group 2 works for service businesses whose clients are primarily individuals or other simplified taxpayers. However, the restriction on serving general system clients makes it unsuitable for most B2B arrangements.
Group 3 — FOP and Legal Entities
Who it is for: Both individual entrepreneurs and legal entities. No restriction on activity type, with the exceptions listed below. No employee number limit for legal entities.
Revenue limit: Up to 1,167 minimum monthly wages per year — 10,091,049 UAH in 2026.
Single tax rates:
- 3% of gross revenue — if the taxpayer is also a VAT payer
- 5% of gross revenue — if VAT is not included
For legal entities, Group 3 is the only available simplified system option.
Military levy: 1% of gross revenue, paid in addition to the single tax. The effective combined rate is therefore 4% or 6% of gross revenue.
USC: 1,902.34 UAH per month minimum per FOP (22% of the minimum wage). For entities with employees, USC is 22% of each employee’s gross salary, with a minimum base of 8,647 UAH per employee.
VAT: Voluntary at this group level. Choosing the 3% rate means registering as a VAT payer.
Reporting:
- Single tax declaration: Quarterly — filed within 40 days after the end of the reporting quarter, with the tax due within 10 days after the filing deadline (effectively 50 days after the quarter ends)
- Payroll reporting (if employees): From 1 January 2025, employers file a monthly unified report covering PIT (ПДФО), ЄСВ, and military levy — due by the 20th of the following month. Prior to 2025, this report was quarterly. For businesses with employees, this change significantly increases administrative workload.
Important: The tax base is gross revenue, not profit. Therefore, if revenue is high and margins are thin, the simplified system can produce a higher effective tax burden than the general system.
Who Cannot Use the Simplified System (All Groups)
The following activities are excluded regardless of group:
- Financial intermediation, lending, currency exchange
- Insurance activities
- Gambling and lotteries
- Production and sale of excise goods (alcohol, tobacco, fuel)
- Extraction of certain mineral resources
- Operations with land plots (with limited exceptions)
If your planned activity falls into a restricted category, the general system applies by default.
The General Tax System
The general system is the default regime. It applies unless you actively elect the simplified system. It imposes no revenue cap and no activity restrictions.
General System for FOPs
A FOP on the general system pays tax on net income — revenue minus documented business expenses.
- Personal income tax (PIT): 18% on net income
- Unified social contribution: 22% on net income. The minimum monthly payment is 1,902.34 UAH (22% of the minimum wage of 8,647 UAH). This minimum applies even in months with low or zero activity.
- Military levy: 5% on net income, effective from 1 January 2025
The general system requires maintaining income-expense records and filing an annual declaration by 1 May of the following year. Additionally, quarterly advance PIT payments apply. It is therefore more administratively demanding than the simplified system. However, it is more efficient when expenses are high relative to revenue, because the tax base is profit rather than turnover.
General System for Legal Entities
A legal entity on the general system pays:
- Corporate income tax (CIT): 18% on taxable profit (revenue minus allowable deductions)
- VAT: 20% on taxable supplies — mandatory registration once the annual revenue threshold is exceeded; voluntary registration below the threshold
- Additional taxes depending on activity: land tax, environmental tax, excise duty where applicable
For businesses with significant deductible expenses, the general system taxes only what remains after costs — making it structurally more efficient than Group 3 for high-cost operations.
Payroll reporting: From 1 January 2025, entities with employees file a monthly unified report covering PIT, ЄСВ, and military levy — due by the 20th of the following month.
Comparison: All Options
Comparison: All Options
| Group 1 FOP | Group 2 FOP | Group 3 FOP / Entity | General FOP | General Entity | |
|---|---|---|---|---|---|
| Available to | FOP only | FOP only | Both | FOP only | Entity only |
| Tax base | Fixed amount | Fixed amount | Gross revenue | Net income | Taxable profit |
| Single tax / main rate | Up to 332.80 UAH/month | Up to 1,729.40 UAH/month | 3% or 5% | 18% PIT | 18% CIT |
| Military levy | 864.70 UAH/month | 864.70 UAH/month | 1% of gross revenue | 5% of net income | 5% from employee salaries |
| USC minimum | 1,902.34 UAH/month | 1,902.34 UAH/month | 1,902.34 UAH/month (FOP) | 1,902.34 UAH/month | 22% per employee |
| Revenue cap (2026) | 1,444,049 UAH/year | 7,211,598 UAH/year | 10,091,049 UAH/year | None | None |
| Employees | None | Up to 10 | No limit (entity) | No limit | No limit |
| VAT | No | No | Optional (3% rate) | No | Above threshold |
| Reporting | Annual (60 days) | Annual (60 days) | Quarterly (40 days) | Annual + advances | Quarterly CIT + monthly payroll |
| Activity limits | Very narrow | Moderate | Most, with exceptions | All | All |
Military Levy — Current Rates and Stability Outlook
The military levy applies regardless of which tax system you choose. Rates were revised with effect from 1 December 2024:
For employees (under any system): 5% of gross salary, withheld by the employer. The rate increased from 1.5% on 1 December 2024.
For FOPs on the simplified system:
- Groups 1 and 2: 864.70 UAH per month (10% of the minimum wage of 8,647 UAH)
- Group 3 (FOPs and legal entities): 1% of gross revenue, paid in addition to the single tax rate
For FOPs on the general system: 5% of net income, effective from 1 January 2025.
Stability note: In April 2026, the Ukrainian parliament adopted Law No. 15110, which provides that the current military levy rates will remain in force for three years after the end of martial law. For businesses planning operations in Ukraine, this signals that the current rates should be treated as a medium-term baseline rather than a temporary wartime measure.
Which System and Group to Choose
Group 1 suits small-scale individual traders and service providers with a purely local, individual client base and minimal turnover.
Group 2 works for service businesses and traders whose clients are individuals or other simplified taxpayers. However, it is unsuitable for B2B operations with general system counterparties.
Group 3 is the practical choice for most FOPs and all legal entities that need flexible counterparty access, operate within the revenue cap, and prefer flat-rate taxation over profit-based accounting.
General system is more appropriate when:
- Revenue exceeds or is likely to exceed the Group 3 cap
- The planned activity is excluded from the simplified system
- Margins are thin and expenses are high — the general system taxes profit, not turnover
- The entity needs full VAT payer status with tax credit entitlements
For foreign investors establishing a Ukrainian legal entity, the decision typically comes down to Group 3 vs general system for a LLC, depending on projected revenue and cost structure.
Timing: When to Elect
The simplified system must be actively elected — it is not automatic. Election happens at registration or within a defined window after. Furthermore, switching between systems during the year is procedurally constrained — transitions are not freely available at any time.
For foreign founders, the tax system decision is best resolved before incorporation. It is easier to choose correctly from the start than to restructure after the entity already exists.
How I Can Help
I advise foreign individuals and companies on business setup in Ukraine, including legal form selection, tax regime analysis, and registration. If you are planning to establish a presence in Ukraine, contact me before making structural decisions — the right tax system depends on your specific situation.