Choosing between the second and third group of sole proprietors: what is the benefit maximization and tax calculation?

The Importance of Choosing the Right Group for FLP

Usually, entrepreneurs with not too large an annual income choose such a form of doing business as FLP. In other cases, they register an LLC or another form of enterprise.

For successful activity, it is necessary not only to establish the process of trade or production, but also to correctly select the group of the single tax payer. This will help to avoid overpayment of taxes and ultimately receive a higher net income.

The rates of the single tax and other payments differ depending on the group of the individual entrepreneur. In addition, in 2025, some changes were introduced in the taxation of taxpayers. In order not to make a mistake with the choice, let’s take a closer look at what amounts of taxes entrepreneurs of groups 2 and 3 will have to pay and what innovations need to be responded to in a timely manner.

What taxes do sole proprietors of groups 2 and 3 pay?

Single proprietors of groups 2 and 3 must regularly pay several taxes, and some of them are mandatory even if the sole proprietor has not received any income for a certain period. 

Before choosing a group of sole proprietors, you first need to analyze what the tax burden on the entrepreneur will be depending on the group, the income received and other factors.

Single tax

The amount of this tax is most influenced by the group the entrepreneur has chosen to carry out his activities:

Second group of sole proprietors

Calculating the amount of the single tax is quite easy, because it is 20% of the established for 1 January of the current year of the minimum wage. As of 01.01.2025, the minimum wage in Ukraine is set at UAH 8,000. Therefore, the single tax per month will be: UAH 8,000 × 20% = UAH 1,600.

During the year, the entrepreneur will have to pay: UAH 1,600 x 12 months = UAH 19,200. It should be noted that the tax amount will not change until the end of the current year 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 individual entrepreneurs of group 2 is the 20th day of the current month. Payment details can be found on the STS website if you log in to your personal account and go to the “Budget Settlements” section there.

Third group of sole proprietors

The amount of the single tax for the third group of entrepreneurs is not fixed, like for the second group of payroll, but depends on the income received and is set as a percentage of it.

Single tax: 5% of income for non-VAT payers or 3% of income + VAT for payers VAT. 

Whether an entrepreneur should register as a VAT payer or not depends on the specifics of his activities (what counterparties he works with, whether they are VAT payers, etc.). For further comparative calculations, we will use the option when an individual entrepreneur does not pay VAT, so the single tax rate is 5%.

Entrepreneurs of the third group pay a single tax quarterly. The payment deadline is no later than 10 days after the deadline for filing a quarterly declaration of a single tax payer. For example, for the 1st quarter of 2025. The declaration must be submitted by May 12 (the 40-day period is extended through weekends), and the tax must be paid by May 20, 2025, that is, within 50 days after the end of the reporting quarter.

Unified Social Contribution

Unlike the single tax, the Unified Social Contribution rate for entrepreneurs of groups 2 and 3 does not differ depending on the group and is 22% of the minimum wage. Starting from January 1, 2025, this is:

8000 UAH × 22% = 1760 UAH.

The unified social contribution must be paid for the quarterly by the 20th day of the month following the end of the reporting period (quarter). If the last day of payment is the initial day, then the tax must be paid earlier (for example, on the 18th or 19th).

An entrepreneur must pay the unified social tax for himself, even if he does not receive income, but is registered as a sole proprietor. However, there are exceptions. Thus, in 2025, the following categories of payers are exempt from mandatory payment of the unified social tax:

• mobilized entrepreneurs — during the entire term of service;
• in addition to holding the status of a sole proprietor, an entrepreneur is simultaneously an employee at another enterprise, and the employer pays the unified social tax for him;
• pensioners and persons with disabilities receiving a pension or social assistance.

If an entrepreneur has hired employees, the unified social tax must be paid for them at a rate of 22% of their salary, which must not be less than the minimum.

Military tax

In 2025, sole proprietors of the second and third groups are also payers of the military tax at the rates:

• Sole proprietors of the 2nd group — 800 UAH per month (10% of the minimum wage established as of January 1 of the current year);
• Group 3 sole proprietorships – 1% of income according to Article 292 of the Tax Code.

Military tax must be paid in advance by the 20th day of the current month. There is no separate reporting for this tax, but the accrued amounts should be reflected in the tax return of the single tax payer.

You can find out more about what taxes are paid by individual entrepreneurs of groups 2 and 3 and by what details during a personal consultation with a tax service specialist at the location of the payer or in the electronic account of the State Tax Service.

Taxes on salaries of hired workers

An entrepreneur can work alone, then you can save on “salary” taxes. However, in most cases, other workers (salespeople, cashiers, drivers, craftsmen, etc.) need to be involved in the business, and in this case the tax burden increases.

The number of hired workers for individual entrepreneurs of group 2 is limited to 10 persons, for individual entrepreneurs of group 3 there is no limit on the number of personnel. Each employee must accrue and pay wages, as well as transfer the relevant taxes to the budget. Let’s consider how much this will cost the entrepreneur: 

• accrued min. salary – 8000 UAH;
• Personal income tax (tax on income of employees) – 8000 x 18% = 1440 UAH;
• military tax – 8000 x 5% = 400 UAH;
• UST (accrued on salary) – 8000 x 22% = 1760 UAH.

The employee’s salary after taxes will be: 8000 – 1440 – 400 = 6160 UAH

Total expenses for salary payment and tax transfer:

• “net” salary before payment to the employee – 6160 UAH;
• Unified social contribution — 1760 UAH;
• Personal income tax — 1440 UAH;
• military tax – 400 UAH.

Total: 9760 UAH.

Thus, the minimum costs per employee will be 9760 UAH. If the salary is higher, then the total costs will also increase proportionally. It is not advisable to hire an employee for 0.5 or 0.25 of a rate, it will be almost impossible to save, because the amount of the paid unified social contribution should not be less than the amount calculated from the minimum salary.

Thus, the minimum costs for one hired employee will be 9760 UAH. If the salary is higher, then the total costs will also increase proportionally. Hire a worker it is not advisable to reduce the rate by 0.5 or 0.25, it will be almost impossible to save, because the amount of the paid unified social tax should not be less than the amount calculated from the minimum wage.

Comparison of tax expenses for the second and third groups of sole proprietors

Let’s look at examples of what tax expenses may be for entrepreneurs of the second and third groups depending on their income level and other factors.

Example 1. Conditions: annual income – 300 thousand UAH, no employees.

As can be seen from the table, with such a low income, the third group is more profitable, because both the single tax and the military tax, which are 5% and 1% of income, respectively, will be lower for such an entrepreneur. In total, it will be possible to save 89040 UAH.

Example 2. Conditions: annual income – 1 million UAH, no employees.

In case of receiving a million annual income, the entrepreneur of the second group will pay less taxes. The savings will be 31200 UAH.

Example 3. Conditions: annual income – UAH 5 million, one employee (except the entrepreneur himself) receiving the minimum wage.

With such income, being in the second group is even more profitable, because you will be able to save 605,280 UAH. However, an entrepreneur of the 2nd group should be careful not to go over the maximum threshold of annual income (6,672,000 UAH), in case of exceeding which you will have to pay a 15% single tax on the entire amount of excess revenue.

Restrictions Affecting the Choice of a Group

When choosing a group, you need to pay attention to a number of factors. This is not only the expected income, but also the selected types of activities, the number of employees, interaction with contractors, etc.

Annual Income

First of all, you need to forecast the expected amount of annual income. If you exceed this level, you will have to pay a single tax at a higher rate of 15% from the excess income.

The following maximum permissible income levels for entrepreneurs have been established for 2025:

• Group 2 — 6,672,000 UAH;
• Group 3 — 9,336,000 UAH.

Thus, in case of income up to UAH 6,672,000, you can choose any of the groups. If the income is between UAH 6,672 and UAH 9,336,000, only the third group. In cases where the expected amount of income for the year exceeds UAH 9,336,000, you need to consider other options for activity (possibly change the organizational and legal form of your business).

Types of activity and contractors

Second group

Suitable for entrepreneurs who plan to engage in:

• own production or sale of goods, including retail, although wholesale is also possible;
• activities in the catering sector;
• provision of services to the population and other entrepreneurs who are payers of a single tax. One should not forget about the restrictions, namely: it is prohibited to provide services to legal entities and sole proprietors-general system operators, as well as to public utilities, budgetary and non-profit organizations and non-residents. However, they can sell goods to them (except for foreign customers), unlike the provision of services.

Third group:

• There are almost no restrictions on the types of activities, only some types are prohibited, which are mainly carried out by legal entities (LLC, financial institutions, etc.). The full list of restrictions is defined in clause 291.5 of Article 291 of the Tax Code. Thus, single taxpayers of the 3rd group cannot conduct technical research, provide audit services, insurance, financial services, etc.
• You can cooperate with any counterparties, including legal entities on the general taxation system, which is especially important for individual entrepreneurs providing services;
• It is allowed to cooperate with foreign companies.

In general, individual entrepreneurs of the third group have more opportunities for business, so this factor must be taken into account.

Number of hired workers

Entrepreneurs of the second and first groups can hire workers, but there are certain restrictions. Thus, in FLP group 2 up to 10 people can work. The third group provides more opportunities for business, because the number of employees is not limited.

At the same time, do not forget about the proper registration of each employee and the timely payment of taxes within certain deadlines:

• Unified social contribution — before the 20th day of the following month, but not later than the day of salary payment;
• Personal income tax — on the day of salary payment, but not later than the 30th day of the month following the reporting month;
• military tax — paid within the same timeframes as personal income tax, simultaneously with salary payment.

Changes in tax legislation for sole proprietors in 2025

1. Single tax rate

Last year 2024, the tax rate of the single taxpayer of group 2 was calculated taking into account the minimum wage established on January 1 (UAH 7,100). As of 01.01.2025, the minimum wage is UAH 8,000, accordingly, the single tax rate also increased. In 2025, the amount of the single contribution per month for individual entrepreneurs of group 2 is set at 1600 UAH, per year – 19200 UAH.

The single tax rate for individual entrepreneurs of group 3 has not changed and is still 5% of the income received.

The maximum income limits that give the right to be in one or another group have also changed, because they also depend on the size of the minimum wage: 834 times the minimum wage (minimum salary), i.e. 9336000 UAH — for group 3.

2. Unified Social Contribution

Until December 31, 2024, a “military” benefit was in effect for sole proprietors, according to which it was possible not to pay the unified social contribution for themselves. However, starting from January 1, 2025, payment of the unified social contribution for sole proprietors became mandatory, with the exception of entrepreneurs who have benefits (pensioners, persons with disabilities, etc.).

3. Military tax

Starting from 01.01.2025, sole proprietors are payers of military tax. According to Law No. 4015-IX, the rate of the fee is: for individual entrepreneurs of group 2 – 10% of the minimum wage, for individual entrepreneurs of group 3 – 1% of income.

Even earlier (from December 1, 2024), the rate of military tax on the wages of hired workers was increased from 1.5% to 5%.

4. Reporting

From 01.01.2025, mandatory monthly reporting on personal income tax, military tax and unified social contribution is introduced if the entrepreneur has hired employees.

As for other reports, they also need to be submitted to the tax service, namely:

The second group of sole proprietors is the tax return of the single tax payer according to form F0103406 through electronic cabinet STS within 60 days after the end of the reporting year.

The third group of sole proprietors provides for quarterly reporting – the tax return of the single tax payer according to form F0103308 must be submitted within 40 days after the end of the reporting quarter.

Appendix 1 on the Unified Social Contribution is also attached to the annual declaration on the single tax of entrepreneurs of both specified groups.

Plans for business expansion

To summarize, we note the advantages of each of the groups.

The second group:

• Suitable for small businesses with a relatively stable income.
• The optimal choice for those who do not plan to significantly expand turnover volumes and does not provide services to general system contractors.
• Taxation of group 2 sole proprietors is fixed, which helps to avoid errors in calculating tax amounts.

Third group:

• Ideal for entrepreneurs planning expansion and a significant increase in income.
• Suitable for scaling a business and working with large clients.
• Taxation of individual entrepreneurs of group 3 depends on the level of income, but it is necessary to carefully o keep records to avoid making mistakes when calculating the amounts of the single tax.

Entrepreneurs should carefully analyze their expected turnover volumes to select the optimal group of sole proprietors. For small businesses with a turnover of up to UAH 350,000 per year, the third group may be more profitable. For large businesses with a turnover of up to UAH 6,622,000 per year, it is more economically feasible to be in the second group. In case of even higher incomes within the limits of up to UAH 9,336,000, the sole proprietor may be only in the third group.

Finally, in case of an expected increase or decrease in the income level, the entrepreneur can change the single tax group in order to comply with the requirements of the law and not pay excess taxes.