Individual entrepreneur group 2 or 3 in 2026: which is more profitable in Ukraine, taxes and calculation
The issue of choosing between the second and third groups of individual entrepreneurs is relevant for many entrepreneurs, especially those who seek to minimize the tax burden. In 2026, the choice between the 2nd and 3rd groups of individual entrepreneurs directly affects the tax burden. In this article, we will compare the taxes of individual entrepreneurs of the 2nd and 3rd groups, show real calculations, points of profit and explain in which cases which group is more economically advantageous.
The importance of choosing the right group for a sole proprietor (FOP)
Usually, this form of doing business, such as a sole proprietor (FOP), is chosen by entrepreneurs with a relatively small annual income. In other cases, they register an LLC or another form of enterprise.
For successful activity, it is important not only to establish the process of trade or production, but also to correctly choose the single tax payer group. This helps avoid overpaying taxes and ultimately achieve a higher net income.
The rates of the single tax and other payments differ depending on the FOP group. In addition, some changes in taxation for taxpayers were introduced in 2026. To avoid mistakes when choosing, let’s take a closer look at what amounts of taxes entrepreneurs of the 2nd and 3rd groups will have to pay and which innovations need to be responded to in a timely manner.
What taxes do sole proprietors of the second and third groups pay
Sole proprietors of the second and third groups must regularly pay several taxes, and some of them are mandatory even if the FOP did not receive any income during a certain period.
Before choosing an FOP group, it is necessary to analyze in advance what the tax burden on the entrepreneur will be depending on the group, the income received, and other factors.
Single tax
The size of this tax is most influenced by which group the entrepreneur has chosen to carry out their activities:
Second group of sole proprietors (FOP)
Calculating the amount of the single tax is quite easy, since it equals 20% of the minimum wage established as of January 1 of the current year. As of 01.01.2026, the minimum wage in Ukraine is set at 8,647 UAH.
It should be noted that until the end of the current year, the amount of the tax will not change even if the minimum wage increases, since only its amount as of January 1 is used for the calculation.
The deadline for paying the single tax for second-group sole proprietors (FOP) is by the 20th day of the current month. Payment details can be found on the website of the State Tax Service by logging into your personal account and going to the “Settlements with the budget” section.
Third group of sole proprietors (FOP)
The amount of the single tax for third-group entrepreneurs is not fixed, as it is for second-group sole proprietors, but depends on the income received and is set as a percentage of it.
5% of income
for non-VAT payers
3% of income + VAT
for VAT payers
Whether an entrepreneur should register as a VAT payer or not depends on the specifics of their activity (which counterparties they work with, whether those counterparties are VAT payers, etc.). For further comparative calculations, we will use the option where the sole proprietor does not pay VAT, so the single tax rate for them is 5%.
Group 3 entrepreneurs pay the single tax quarterly - no later than 10 days after the deadline for filing the quarterly return. For example, the return for Q1 2026 is filed by 11 May 2026 (the 40-day deadline moves off a weekend), but it is safer to pay the tax by 20 May: moving the filing deadline does not move the payment deadline (clause 57.1 of the Tax Code).
SSC
Unlike the single tax, the SSC rate for entrepreneurs of the 2nd and 3rd groups does not differ depending on the group and amounts to 22% of the minimum wage. Starting from January 1, 2026, this is:
The social contribution for yourself is paid quarterly before the 20th of the month following the quarter (part 8, Article 9 of Law No. 2464-VI), so the last day is the 19th. If it falls on a weekend, pay earlier.
An entrepreneur must pay SSC for themselves even if they do not receive income, as long as they are registered as a sole proprietor. However, there are exceptions. Thus, in 2026, the following categories of payers are exempt from mandatory SSC payment:
- mobilized entrepreneurs - for the entire period of service;
- entrepreneurs who, in addition to having FOP status, are simultaneously employed at another enterprise, and the employer pays SSC for them;
- pensioners and persons with disabilities who receive a pension or social assistance.
If an entrepreneur has hired employees, SSC must also be paid for them at a rate of 22% of their salary, which must not be lower than the minimum wage.
Military levy
In 2026, second- and third-group sole proprietors (FOP) are also payers of the military levy at the following rates:
- second-group FOP - 864 UAH per month (10% of the minimum wage established as of January 1 of the current year);
- third-group FOP - 1% of income in accordance with Art. 292 of the Tax Code.
The military levy must be paid as an advance payment by the 20th day of the current month. There is no separate reporting for this tax; however, the accrued amounts must be reflected in the single tax payer’s tax return.
You can learn more about which taxes are paid by 2nd and 3rd group sole proprietors (FOP) and the payment details during a personal consultation with a tax service specialist at the taxpayer’s place of registration or in the electronic cabinet of the State Tax Service.
Taxes on salaries of hired employees
An entrepreneur may work independently, in which case it is possible to save on “payroll” taxes. However, in most cases, it is necessary to involve other employees in business operations (salespeople, cashiers, drivers, technicians, etc.), and in this case the tax burden increases.
The number of hired employees for 2nd group sole proprietors is limited to 10 persons, while there are no restrictions on the number of employees for 3rd group sole proprietors. Each employee must be accrued and paid a salary, and the relevant taxes must be transferred to the budget. Let’s consider how much this will cost the entrepreneur:
8,647 × 18% = 1,556.46 UAH
PIT (personal income tax on employees’ income)
8,647 × 5% = 432.35 UAH
military levy
8,647 × 22% = 1,902.34 UAH
SSC (accrued on salary)
Total costs for salary payment and tax transfers:
- “net” salary payable to the employee - 6,658.19 UAH;
- SSC - 1,902.34 UAH;
- PIT - 1,556.46 UAH;
- military levy - 432.35 UAH.
Total: 10,549.34 UAH.
Thus, the minimum cost per hired employee will be 10,549.34 UAH. If the salary amount is higher, the total costs will also increase proportionally. Hiring an employee for 0.5 or 0.25 of a full-time position is impractical, as it will hardly result in savings, since the amount of SSC paid must not be less than that calculated from the minimum wage.
Comparison of tax expenses for second and third group sole proprietors
Let’s consider examples of what tax expenses may look like for entrepreneurs of the second and third groups depending on income level and other factors.
Example 1. Conditions: annual income - 300,000 UAH, no hired employees.
As can be seen from the table, with such a relatively low income, the third group is more advantageous, since both the single tax and the military levy, which amount to 5% and 1% of income respectively, will be lower for such an entrepreneur. Overall, it will be possible to save 13,129.20 UAH.
If you want to see a calculation specifically for your business, order an individual tax burden assessment.
Example 2. Conditions: annual income - 1,000,000 UAH, no hired employees.
In the case of receiving an annual income of one million hryvnias, the entrepreneur of the second group will pay less in taxes. The savings will amount to 28,870.80 UAH.
Example 3. Conditions: annual income - 5,000,000 UAH, one hired employee (in addition to the entrepreneur) receiving the minimum wage.
With such an income level, staying in the second group is even more advantageous, as it allows savings of 268,870.80 UAH. However, a second-group entrepreneur should be careful not to exceed the maximum annual income threshold (7,211,598 UAH), as exceeding it will require paying a 15% single tax on the entire amount of excess revenue.
For more details on tax payments, deadlines, and payment details, see our video on the channel.
Not sure which group is more beneficial in your specific situation?
We will calculate two scenarios (Group 2 and Group 3), assess the tax burden and risks, and select the optimal option for you.
Restrictions that affect the choice of group
When choosing a group, it is necessary to consider a whole range of factors. These include not only the expected income, but also the selected types of activity, the number of employees, interaction with counterparties, and more.
Annual income
First of all, you need to forecast the expected annual income. If you exceed this threshold, you will have to pay the single tax on the excess income at a significantly higher rate - 15%.
For 2026, the following maximum allowable income limits are set for entrepreneurs:
- 2nd group - 7,211,598 UAH;
- 3rd group - 10,091,049 UAH.
Thus, if the income is up to 7,211,598 UAH, you can choose any group. If the income ranges from 7,211,598 to 10,091,049 UAH - only the third group. In cases where the expected annual income exceeds 10,091,049 UAH, you should consider other business options (possibly changing the legal form of your business).
The optimal decision regarding the tax group should be made after calculating the tax burden and reviewing the applicable limitations.
Types of activities and counterparties
Second group
Suitable for entrepreneurs who plan to engage in:
- their own production or sale of goods, including retail trade, although wholesale trade is also possible;
- activities in the field of public catering;
- providing services to individuals and other entrepreneurs who are single tax payers. One should not forget about the restrictions, namely: it is not allowed to provide services to legal entities and sole proprietors on the general taxation system, as well as to municipal enterprises, budgetary and non-profit organizations, and non-residents. The restriction on buyers applies only to services: group 2 may sell goods to any buyer, including non-residents (subclause 2, clause 291.4 of the Tax Code).
A critical restriction for freelance and IT: If you plan to work for export (provide services to foreign non-resident clients), the 2nd group is categorically not suitable for you. For developers, designers, marketers, and everyone working for the foreign market (via Upwork, Wise, Payoneer, etc.), the only legal choice is the 3rd group. Violation of this rule threatens cancellation of single tax status and payment of a 15% tax on the entire amount of income received.
For more details on tax payments, deadlines, and payment details, see our video on the channel.
Third group:
- There are almost no restrictions on types of activity; only certain activities typically carried out by legal entities (LLCs, financial institutions, etc.) are prohibited. The full list of restrictions is defined in paragraph 291.5 of Article 291 of the Tax Code. In particular, 3rd group single tax payers are not allowed to conduct technical research or provide audit, insurance, financial, and similar services.
- It is allowed to cooperate with any counterparties, including legal entities on the general taxation system, which is especially important for sole proprietors providing services;
- Cooperation with foreign companies is permitted.
In general, a third-group sole proprietor has more business opportunities, so this factor should be taken into account.
Number of hired employees
Entrepreneurs of the second and first groups may hire employees, but there are certain restrictions. Thus, up to 10 persons may work for a 2nd group sole proprietor. The third group provides more opportunities for business, as the number of employees is not limited.
At the same time, one should not forget about properly formalizing each employee and timely payment of payroll taxes within the established deadlines:
- SSC - by the 20th day of the following month, but no later than the day the salary is paid;
- PIT - on the day the salary is paid, but no later than the 30th day of the month following the reporting month;
- military levy - paid within the same deadlines as PIT, simultaneously with salary payment.
Changes in tax legislation for sole proprietors (FOP) in 2026
1. Single tax rate
In 2025 the group 2 single tax was calculated from the minimum wage as of 1 January - UAH 8,000. As of 01.01.2026 the minimum wage is UAH 8,647, so the rate went up: the group 2 single tax in 2026 is UAH 1,729.40 per month, UAH 20,752.80 per year. The social contribution for yourself is a separate payment of UAH 1,902.34 per month.
The single tax rate for 3rd group sole proprietors has not changed and remains at 5% of the received income, as before.
The maximum income limits that allow staying in a particular group have also changed, as they also depend on the minimum wage amount:
7,211,598 UAH annual income
for 2nd group sole proprietors
10,091,049 UAH annual income
for 3rd group sole proprietors
2. SSC
Until 31 December 2024 single tax payers could skip their own social contribution thanks to the wartime benefit.
From 1 January 2025 that benefit was suspended, and the suspension has been extended for 2026 (clause 9-19, section VIII of Law No. 2464-VI and the state budget laws). So the social contribution for yourself is mandatory, except for entrepreneurs with their own grounds for exemption - pensioners, people with disabilities and so on.
3. Military levy
Since 01.01.2025 single tax payers have been liable for the military levy (Law No. 4015-IX of 10.10.2024, refined for group 3 by Law No. 4113-IX of 04.12.2024). For group 2 the rate is 10% of the minimum wage (UAH 864.70 per month in 2026), for group 3 it is 1% of income.
4. Reporting
From 01.01.2026 the reporting frequency changed for sole proprietors with employees. Under the new wording of clause 51.1 of the Tax Code (Law No. 4536-IX of 16.07.2025), entrepreneurs file the tax calculation for personal income tax, military levy and social contribution quarterly with a monthly breakdown. Monthly reporting applies to legal entities acting as tax agents.
For a sole proprietor with staff this means one combined quarterly report with monthly data inside it. HR records and payroll are still kept monthly. If you would rather not deal with it yourself, consider professional accounting support.
As for other reports, they also need to be submitted to the tax authority, namely:
Group 2 files the single tax return once a year, within 60 days after the end of the reporting year, through the electronic cabinet (the return form is set by Ministry of Finance Order No. 578 of 19.06.2015 as amended).
Group 3 reports quarterly - the single tax return is filed within 40 days after the end of the reporting quarter (the return form is set by Ministry of Finance Order No. 578 of 19.06.2015 as amended).
An Appendix 1 on SSC is also attached to the annual single tax return for entrepreneurs of both groups.
FAQ: 2nd or 3rd group sole proprietor in 2026
Which is more profitable: individual entrepreneur group 2 or 3 in 2026?
There is no single answer - everything depends on the level of income and the client base.
- With low income (up to ~40-45 thousand UAH per month), the 3rd group is often more advantageous because taxes are paid as a percentage of income.
- With stable or higher income, the 2nd group becomes more profitable, as taxes are fixed and do not depend on turnover.
At the same time, if a sole proprietor provides services to legal entities on the general taxation system or to non-residents, the 2nd group is not suitable at all, regardless of tax benefits - in such cases, only the 3rd group is allowed.
At what income level does group 2 become more profitable than group 3 in 2026?
In 2026, the approximate break-even point is around 43,000-45,000 UAH of monthly income.
- Below this amount, the overall tax burden in the 3rd group is usually lower.
- Above it, the 2nd group becomes more profitable due to fixed payments.
This calculation works only if the type of activity and clients allow staying in the 2nd group.
Is it possible to move from group 3 to group 2 within a year?
Yes, switching between groups is possible, but with restrictions.
A sole proprietor may change the single tax group:
- starting from the next quarter;
- by submitting an application no later than 15 calendar days before the start of the new quarter.
Important:
- the switch is possible only if the type of activity and clients meet the requirements of the 2nd group;
- if the sole proprietor works with legal entities on the general taxation system or with non-residents, switching to the 2nd group will not be allowed.
What happens if a sole proprietor exceeds the income limit?
If the income limit is exceeded:
- 15% single tax is paid on the excess amount;
- the sole proprietor is required to switch to another group or to the general taxation system.
For 2026, the limits are:
- 2nd group - 7,211,598 UAH per year;
- 3rd group - 10,091,049 UAH per year.
You can read more about exceeding the income limit in our separate article.
Do I need to pay taxes if I have no income?
Yes, but not all taxes.
- 2nd group sole proprietors are required to pay:
- single tax;
- military levy;
- SSC - even without income.
- 3rd group sole proprietors:
- do not pay single tax and military levy if there is no income;
- but SSC for themselves must still be paid (except for preferential categories).
For this reason, with unstable income, the 3rd group is often a safer option at the start.
Conclusion
To summarize, let us highlight the advantages of each of the mentioned groups.
Second group:
- Suitable for small businesses with relatively stable income.
- An optimal choice for those who do not plan to significantly expand turnover volumes and do not provide services to counterparties on the general taxation system.
- Taxation for 2nd group sole proprietors is fixed, which helps avoid mistakes when calculating tax amounts.
Third group:
- Ideal for entrepreneurs who plan expansion and significant income growth.
- Suitable for scaling a business and working with large clients.
- Taxation for 3rd group sole proprietors depends on the level of income; however, it is necessary to carefully maintain reporting in order to avoid mistakes when calculating the single tax amounts.
When choosing a group, be honest about the expected turnover. By the break-even calculation, group 3 is cheaper up to roughly UAH 519,000 a year (about UAH 43,000 a month). Above that - up to the UAH 7,211,598 annual limit - group 2 makes more economic sense if your activities and clients allow it. With income up to UAH 10,091,049 a sole proprietor can only be in group 3.
Ultimately, if an increase or decrease in income level is expected, an entrepreneur may change the single tax group in order to comply with legal requirements and avoid overpaying taxes.
More on sole proprietors
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