Simplified taxation system for law firms: what you should know

Ukraine has two main systems of taxation of legal entities: general (income tax and VAT payers or those without) and simplified (single tax payers with or without VAT). The latter is usually the most suitable for a law firm.

When submitting documents for the registration of a legal entity, a law firm may indicate in the application for state registration of a legal entity (Form No. 2) on the additional page 9, information on the choice of the simplified taxation system (single tax group 3, select the tax rate in %), indicate the place of business, and determine the desired date of voluntary registration as a value added tax payer (until the sales volume reaches UAH 1 million). The procedure for selecting and applying the simplified taxation system with the payment of a single tax is set forth in Section XIV «Special Tax Regimes» of the Tax Code of Ukraine.

If, when submitting documents for state registration, a banking institution fails to indicate the choice of the simplified taxation system, such banking institution will be registered as a taxpayer under general conditions (income tax payer). Subsequently, in order to choose the simplified taxation system, an application should be submitted in the form approved by the Order of the Ministry of Finance of Ukraine dated 16.07.2019 No. 308.

According to the second paragraph of subpara. 298.1.2 of the Tax Code, business entities registered in accordance with the procedure established by law (newly established), which within 10 days from the date of state registration have submitted an application for the simplified taxation system and the single tax rate established for the third group, which does not provide for the payment of value added tax, are considered single tax payers from the date of their state registration. The transition to the simplified taxation system with the choice of the single tax rate may be made at the beginning of any quarter, but only once a year.

In view of the current version of Article 293 of the Tax Code, a law firm may be a single tax payer of the third group only. The following rates are set for the third group of single tax payers:

• 3% of income - if VAT is paid on a general basis;
• 5% of income - if value added tax is included in the single tax (more convenient and easier to understand).

The reporting period for single tax payers of the third group is a calendar quarter.

The reporting deadline is 40 calendar days after the end of the reporting quarter.

The deadline for paying the single tax is within 50 calendar days after the end of the reporting quarter.

By the way, December 15, 2023 is the last day to apply for the simplified taxation system starting from the first quarter of 2024.

The article was prepared by Dmytro Khutornyi, Deputy Chairman of the UNBA Committee on Legal Practice.