The most complete guide for entrepreneurs about LLC taxation, in simple words.
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The most complete guide for entrepreneurs about LLC taxation, in simple words.
A lot of useful information and links will follow. If you don’t figure it out yourself, don’t torture yourself, it’s really difficult sometimes. Delegate this task to an expert. The accountant will quickly select the right taxation system for you, and if necessary, will also provide full accounting support.
In Ukraine, LLCs can choose between two main taxation systems: the general taxation system and the simplified taxation system. Each system comes with its own tax rates, limitations, and reporting requirements. For certain companies, such as residents of Diia City or technoparks, special taxation conditions apply. It is important to consult with an accountant or lawyer before choosing a tax system for your LLC in Ukraine.
The general taxation system is often chosen by larger companies operating in various sectors of the economy, as it allows for flexible accounting of expenses and profits. This is an important factor when selecting the system for your business.
The base corporate income tax rate under the general taxation system is:
18%
* Depending on the type of activity and the taxpayer’s category, rates of 0%, 3%, 9%, 10%, or 30% may apply.
The taxable amount is calculated as profit = income – expenses. You can include almost all necessary business expenses such as rent, wages, payments to suppliers, materials, and more. LLCs under the general taxation system must also consider VAT when necessary.
Under the simplified taxation system, an LLC pays only a single tax (ST) and sometimes VAT. Other taxes, such as excise, transport taxes, etc., are only paid when necessary.
The single tax rate depends on the selected tax group. In Ukraine, LLCs can choose between the third and fourth groups.
In most cases, LLCs choose the third group, as the fourth group is only available to companies engaged in agricultural activities.
The primary option for LLCs under the simplified system is the third group single tax.
Single tax rates for the third group:
3 % with VAT
5 % without VAT
* The tax is calculated based on total income (revenue). The reporting period is a calendar quarter, meaning tax payments are made quarterly.
An LLC cannot be registered under the simplified tax system if its activities fall under the following categories:
If there are both payers and non-payers among buyers and suppliers, the task becomes more difficult. It is necessary to calculate the forecast turnover and VAT amounts. Contact an accountant.
VAT under the General Taxation System
Under the general taxation system, VAT registration becomes mandatory once the total sales revenue from goods or services exceeds 1 million UAH in the last 12 calendar months, excluding the amount of VAT paid (Article 181 of the Tax Code of Ukraine).
However, there is an exception to this rule. If you provide services exclusively to non-residents listed in Article 186.3 of the Tax Code, VAT registration is not required, even if your income exceeds 1 million UAH. Such services are not subject to VAT.
VAT under the Simplified Tax System
For businesses using the simplified taxation system, VAT registration is also voluntary, as long as you don’t exceed the income limit for the simplified system.
Reporting
The VAT return must be filed monthly by the 20th of the following month. However, if you opt for quarterly reporting, you may file your VAT reports quarterly.
Before registering as a VAT payer, it is important to determine whether it makes sense for your business to become a VAT payer. Ask yourself: Are our primary customers and suppliers VAT payers? If your company buys goods from VAT payers (or imports them) and simultaneously sells to VAT payers, then registering for VAT is necessary. If both your customers and suppliers are non-VAT payers, registering for VAT will not benefit your business. If some of your customers and suppliers are VAT payers and others are not, you will need to calculate your projected turnover and VAT amounts.
Additionally, if you are providing services exclusively to non-residents listed in Article 186.3 of the Tax Code, VAT registration is not required, even if your income exceeds 1 million UAH, because such services are not subject to VAT.
According to Article 180.2 of the Tax Code, the entity responsible for VAT accrual and payment to the budget, in case of services provided by non-residents, including their permanent establishments not registered as VAT payers, is the service recipient.
If your company officially employs workers, you must pay salaries twice a month, and taxes must be paid for each employee as well.
How much does it cost?
Let’s calculate the salary expenses for an employee receiving the minimum wage as of April 1, 2024.
8,000 UAH
The latest minimum wage rate can be checked here.
* It is not recommended to pay less than the minimum wage as this attracts attention from tax authorities.
Here is a breakdown of the costs for one employee earning the minimum wage:
1,440 UAH PIT
120 UAH ML
1,760 UAH USSC
6,440 UAH is the net amount the employee receives “in hand”.
Consolidated reports on PIT, ML, and USSC must be submitted quarterly, within 40 days after the end of the quarter.
⚠️ Note: The taxes listed above are the basic taxes for LLCs. Other taxes may also apply, such as property tax, transport tax, or excise tax. The number of applicable taxes depends on the business activities of the LLC. The more activities an LLC engages in, the more taxes it may be subject to.
If it is difficult, delegate your accounting to professionals. Our experienced accountants will analyze your business, take into account all the nuances and ensure complete order in your reports and taxes.
Main taxes and reporting for LLC:
Corporate Income Tax – the report is submitted as part of the LLC’s financial statements within 25 days after the reporting year.
VAT – the report must be submitted monthly by the 20th of the following month (VAT return). If you choose quarterly reporting, you can submit VAT reports quarterly.
Combined Reporting for PIT, ML, and USSC – submitted quarterly within 40 days after the end of the quarter.
Single Tax – quarterly reporting within 40 days after the end of the quarter is the final filing deadline.
Single Tax – payable within 10 days after the last day of the declaration submission (or within 50 days following the reporting quarter).
Financial Reporting – for those who report annually, the report must be submitted by February 28 of the following year. For quarterly reports, no later than the 30th of the month following the reporting quarter.
For submitting reports, accounting, and document management, you will also need
Electronic Taxpayer Cabinet – the Ukrainian State Tax Service’s portal
Electronic Signature Key (ESK):
Optional tools
M.E.Doc – a program for reporting and document exchange
Vchasno – electronic document flow, online document exchange
Dilovod – a Ukrainian online service for management, accounting, and reporting
The profit of an LLC belongs to the company, not the director or founder. The LLC can manage these assets: buy real estate, cars, equipment, etc. The founder indirectly owns these profits through the LLC and theoretically cannot use them for personal purposes.
But what if you need to withdraw money and spend it at your discretion? There are two options.
Withdraw funds as dividends to an individual. However, you will need to pay taxes at a rate of 19.5%, specifically:
If a foreigner withdraws dividends to a foreign account, taxes are paid in the country of their tax residency. But you will need to pay taxes in any case. The tax authority will definitely notice such a transaction. In addition, before paying dividends, you must pay all the taxes owed by the LLC.
Withdraw income to an FOP. Let us warn you: this is not a legitimate method and is a violation. You should not do this. However, we will explain how many businesses in Ukraine operate.
Income is withdrawn by paying for services to the FOP, supported by a set of documents.
For the company, this is an expense that reduces the corporate income tax under the general taxation system. For the FOP, this is income, taxed at 5% under the third group or less under the second group. This method saves at least the difference between 19.5% and 5% in taxes.
However, tax authorities are well aware of this “scheme”. They view it as tax avoidance or as employment relationships. If this method is abused or used carelessly, you may face additional taxes on PIT, corporate income tax, and penalties. Do not do this without a qualified accountant.
A Limited Liability Company (LLC) is the most common form of legal entity (company) in Ukraine.
A company in the form of an LLC is a separate entity, a “legal person”. This means that the owners and participants of the LLC do not bear responsibility for the company’s obligations. The enterprise is solely responsible with the assets contributed to the charter capital. LLCs can own both movable and immovable property.
Why choose an LLC:
Everything is flexible and at your discretion.
It’s important to know: you can contribute the first (and not only the first) funds to the charter capital for LLC expenses, and these contributions can even be made from abroad. This amount will not be considered profit and will not be taxed. If the company needs to purchase something or pay for something but lacks the funds, contributing to the charter capital is the perfect tool to use.
If these funds are contributed in any other way (not as a contribution to the charter fund), they will almost certainly be considered income and will be taxed.
The charter capital is the total contribution of all the company’s participants. This is the amount creditors will claim if the company “goes into debt”. At the same time, participants do not risk their personal funds or property. The charter capital can be used for company needs, salaries, services, equipment, or materials.
Can you contribute 100 UAH to the charter capital and be satisfied? Yes, you can.
However, a low charter capital amount can negatively impact the company’s reputation. Contractors, and especially investors or tenders, may be reluctant to cooperate with small enterprises. In addition, the size of each participant’s share in the LLC determines their share of the company’s profit. It can also influence rights and responsibilities according to the charter.
How to properly choose the LLC’s taxation system
If you are just planning the registration of an LLC and want to determine in advance all pitfalls regarding the authorized capital, rights of participants, limits of liability – please seek legal advice. Nakaz tax lawyers will analyze your situation and provide useful recommendations.