Draft Law of Ukraine “On Amendments to the Tax Code of Ukraine and Certain Other Legislative Acts of Ukraine on the Introduction of a Special Regime of Taxation of Income Received by Individuals.

According to the latest data of the State Statistics Service of Ukraine, in 2021, more than 3 million people in Ukraine are considered fully or partially employed informally, that is, they do not work under the conditions of official employment and are not registered individuals - entrepreneurs. But there is no official data on such persons as of today.

That is, illegal employment has always had a threatening scale for the economy of our country. In wartime, many of our compatriots continue to work informally, agreeing to the employer's terms and giving preference to quick and easy earnings without paying taxes.

The leaders in terms of informal employment are (in absolute numbers):

• agriculture — 1464.33 thousand people (44.7% of the total number of informally employed population);

• wholesale and retail trade — 520.87 thousand people (15.9% of the total number of informally employed population);

• construction — 556.9 thousand people (17.0% of the total number of informally employed population);

• industry — 183.45 thousand people (5.6% of the total number of informally employed population);

• transport, postal and courier activities — 134.31 thousand people (4.1% of the total number of informally employed population);

• temporary accommodation and food — 81.9 thousand people (2.5% of the total number of informally employed population).

On October 20, 2023, the Verkhovna Rada of Ukraine registered the draft Law of Ukraine “On Amendments to the Tax Code of Ukraine and Certain Other Legislative Acts of Ukraine on the Introduction of a Special Regime of Taxation of Income Received by Individuals from Certain Activities” No. 10166.

The authors of this draft law note that “if the law is adopted, a transparent and understandable regulation of the activities of large online platforms such as Uber, Bolt, Uklon, Glovo, which employ more than 300 thousand self-employed drivers and couriers will be created. For the state, there will be additional sources of financing to the budget and clear conditions of activity of operators of digital platforms that will provide tax data on the income of such self-employed persons will be solved, one of the most painful problems will be solved - accounting of cash receipts, which will lead to de-tinization of the economy and will be a significant step forward in the digitalization of taxes. In that special mode, it will not be necessary to register individual entrepreneurs, hire accountants, file reports.”

According to the explanatory note, the purpose of this draft law is to create conditions for obtaining additional, irregular or insignificant income without registration by an individual — entrepreneur during the conduct of certain activities (in the field of provision of services) by introducing a special regime for the payment of income tax by such individuals.

It follows from the content of the draft Law of Ukraine No. 10166 that its provisions will apply to individuals who are not considered self-employed and receive income from conducting certain types of activities. The right to apply a special income tax regime will be granted to individuals — residents who have reached the age of 18, are not self-employed persons and meet certain requirements, namely:

• do not use the labor of hired persons;

• the amount of income from the conduct of certain types of activities with the application of a special tax regime during the calendar year does not exceed 153 of the minimum wage established by law on January 1 of the tax (reporting) year;

• make calculations for the work performed or services rendered exclusively using the registrar of settlement operations and/or the software registrar of settlement transactions in accordance with the Law of Ukraine “On the Application of Registrars of Settlement Operations in the Field of Trade, Catering and Services”, with the exception of persons who carry out certain activities exclusively by obtaining access to digital platforms and informed the operator of the digital platform about the application of a special income tax regime.

The activities of individuals applying a special regime are proposed to include the following:

1) provision of services for the care of patients, persons with disabilities, incapacitated or limited able-bodied persons, elderly persons;

2) provision of taxi services and other transportation services by passenger cars;

3) courier activities (home delivery services);

4) carrying out repair work of objects of residential and/or non-residential real estate;

5) the provision of translation services;

6) training and care of pets;

7) activities for the organization and holding of festive events (tamada, presenter);

8) activities in the field of human health that do not require a license (activities of nurses, physiotherapists or other paramedical personnel in the field of optometry, hydrotherapy, therapeutic massage, occupational therapy, speech therapy, chiropodia, homeopathy, manual therapy, acupuncture, the activities of psychoanalysts, psychologists and psychotherapists);

9) services for the execution of photo works;

10) domestic servant services;

11) child care services;

12) services related to cleaning and cleaning of residential premises by individual order of individuals;

13) home repair services of clothing and household textiles;

14) home repair services of knitwear;

15) home repair services of leather haberdashery and road products;

16) services at home for the repair of radio and television and other audio and video equipment;

17) services at home for the repair of electrical appliances and other household appliances;

18) services at home for maintenance and repair of musical instruments;

19) hairdressing services at home;

20) home manicure and pedicure services.

The draft law provides for the introduction of a special regime of taxation of income received by individuals from the conduct of certain activities, the rate of which will be 6% if the amount of income received during the year does not exceed 153 of the minimum wage established by law on January 1 of the tax (reporting) year, and in case of exceeding for such an amount, a rate of 18% is applied to the amount of the excess.

To apply the special income taxation regime, an individual must submit an appropriate application to the supervisory authority at his tax address by electronic communication in electronic form in compliance with the requirements of the Laws of Ukraine “On Electronic Documents and Electronic Document Circulation” and “On Electronic Trust Services”.

The form of the application, the procedure for its submission and consideration by the supervisory authority are established by the central executive body, which ensures the formation and implementation of state financial policy.

Information about such individuals shall be entered in the State Register of Individual Taxpayers.

For individuals who will apply a special regime of taxation of income from the conduct of certain activities, calculations must be made exclusively with the help of the registrar of settlement transactions and/or the software registrar of settlement transactions, regardless of the method of settlements, in accordance with the Law of Ukraine “On the use of registrars of settlement transactions in the sphere of trade food, catering and services”, with the exception of payments for services provided using digital platforms. Registrars of settlement transactions are not used by individuals applying a special income tax regime, provided that such persons conduct their activities exclusively through the operator of digital platforms and have notified it of the application of a special income tax regime.

The income of an individual from the conduct of certain activities is: (1) income received in cash (cash and/or non-cash) from the performance of works, the provision of services within the activities listed above; (2) income received by an individual according to the data of the operator of the digital platform. The amount of income is determined by deducting the remuneration (commission) of the operator of the digital platform for the provided services of access to the digital platform.

The date of receipt of income is the date specified in the settlement document created in paper and/or electronic form (electronic settlement document) and registered in the prescribed manner by the registrar of settlement operations or the software registrar of settlement operations, or the date of actual receipt of funds by the taxpayer Which carries out certain activities.

The income received by individuals from the conduct of the mentioned activities is taxable and is not included in the total taxable income of an individual, provided that the individual complies with the requirements for the income of an individual. At the same time, income received from tax agents (other than operators of digital platforms entered in the Register of Digital Platform Operators) and income received in violation of the rules of calculations are included exclusively in the total taxable income, and their taxation is not determined by this norm. The income determined by the relevant article does not include the amounts of funds (advance payment, prepayment) returned to the customer of works/services.

The draft law provides that such individuals have the right to open a special account exclusively in one bank of their choice, available for election when submitting an application for the application of a special income tax regime.

The bank is obliged to send a notice of opening or closing a special account by an individual applying a special income tax regime to the central executive authority implementing the state tax policy on the day of opening or closing the account in the manner prescribed by Article 69 of the Tax Code.

For an individual applying a special tax regime, the tax liability is determined by the supervisory authority within ten working days following the last day of the relevant deadline for providing information by the operator of digital platforms for the calendar quarter, by sending a tax notification-decision to this person, as well as a copy of such notification solution-decision — a bank in which a person has opened a special account. To determine the tax liability, the data of registered registrars of settlement transactions and/or operators of digital platforms obtained during the reporting (tax) period are used. An individual is obliged to ensure the availability and/or transfer to a special account an amount of funds sufficient for the timely transfer by the bank of the amount of the agreed tax liability within ten calendar days from the date of receipt of the tax notification-decision, except in the case of its appeal.

If the bank cannot pay (transfer) the monetary obligation to the budget in accordance with the tax notification-decision due to the absence/insufficiency of funds in a special account and in the absence of the fact of its appeal, the bank informs the supervisory authority about the impossibility of transferring the amount of the agreed tax liability, so it becomes a tax debt of the taxpayer.

The draft law No. 10166 also provides grounds for the decision of the supervisory authority to terminate the application by individuals of a special income tax regime, which include the following:

• obtaining information about the death of a person, recognizing him missing;

• obtaining information about the limitation of a person's civil capacity or recognition of him as incompetent;

• obtaining information on the non-compliance of a person with the requirements for the amount of income from the conduct of certain activities using a special tax regime during the calendar year, with the exception of exceeding the maximum level of income (153 amounts of the minimum wage established by law on January 1 of the tax (reporting) year).

To terminate the application of the special income taxation regime on a voluntary basis, an individual no later than 10 calendar days before the beginning of the new calendar quarter submits to the supervisory authority at his tax address by means of electronic communication an application in electronic form in compliance with the requirements of the Laws of Ukraine “On electronic documents and electronic document circulation” and “About electronic trust services”.

At the same time, the termination of the application of the special income tax regime is not a basis for the termination of the tax obligation of the payer to fulfill his tax/monetary obligations in relation to the payment of the tax that arose during the stay on the special income tax regime. Collection of tax debt in respect of such amounts is carried out in a general manner.

Also, the draft law No. 10166 provides that an individual loses the right to apply a special income tax regime in the event of:

• voluntary refusal, receipt of information about the death of a person, recognition of him missing, limitation of civil capacity of a person or recognition of him incapacitated — from the first day of the month following the month in which the application was filed or the relevant decision was made;

• detection by the supervisory authority of violations committed by an individual applying a special income tax regime, namely if it uses the labor of employees, makes calculations for work performed or services rendered without using the registrar of settlement operations and/or the software registrar of settlement transactions, in accordance with the Law of Ukraine “On the use of registrars of settlement transactions in the sphere of trade, catering and services”, with the exception of persons who carry out certain activities exclusively by obtaining access to digital platforms and informed the operator of the digital platform about the application of a special income tax regime — from the first day of the month following the month in which the violation was detected. An individual loses the right to apply a special income tax regime for the period of elimination of the violation.

The Draft Law of Ukraine “On Amendments to the Tax Code of Ukraine and Certain Other Legislative Acts of Ukraine on the Introduction of a Special Regime of Taxation of Income Received by Individuals from Certain Activities” provides that this law will enter into force from January 1, 2024.

The authors of the draft law note that the document complies with the legislation of the European Union, meeting the requirements of the Administrative Cooperation Directive (DAC7) regarding the automatic exchange of information of digital platform operators.

In view of the foregoing, it can be concluded that in the case of the adoption by the Verkhovna Rada of Ukraine of draft law No. 10166, the advantages for the state will be the additional receipt of funds to the budget, the creation of the opportunity to simply pay taxes for more than 500 thousand self-employed persons, and the definition of understandable conditions for the activity of digital platform operators.

At the same time, the advantages for individuals who will apply a special regime of taxation of income from the conduct of certain activities will be simplification and automation of accounting, low tax (6%).

How this law will actually work in the event of its adoption and how many individuals voluntarily express a desire to submit to the supervisory authority an appropriate application for the application of a special income tax regime against them, to switch to a new system, since such a transition, as the authors of the draft law note, will be voluntary, it will become known very soon

Victor Surnyk, Managing Partner of Alarius