Dropshipping and the Single Tax: Why a Popular Sales Model Can Create Problems for Sole Proprietors

In Ukraine, dropshipping remains one of the most popular online trading models. Its main advantage is that the seller does not need to purchase goods in advance or maintain their own warehouse. After receiving an order from a buyer, the information is passed to the supplier, who independently ships the product to the customer.

However, despite the simplicity of this model, for sole proprietors under the simplified taxation system, dropshipping can hide a number of tax risks. This concerns entrepreneurs operating under the second group of the single tax and formalizing cooperation with suppliers through commission or agency agreements.

Can a dropshipper operate as a sole proprietor?

Ukrainian legislation does not contain a separate definition of dropshipping. At the same time, such activity fully falls under the norms of the Civil and Tax Codes of Ukraine.

According to Article 50 of the Civil Code of Ukraine, an individual has the right to engage in entrepreneurial activity after state registration. Since a dropshipper systematically sells goods for profit and acts at their own risk, such activity has the characteristics of entrepreneurship.

That is why the most common form of operation for a dropshipper is registering as a sole proprietor.

Dropshipping is most often conducted under:

• Group 2 sole proprietor — suitable for retail trade and work with the population and single tax payers. It has a fixed monthly tax.
• Group 3 sole proprietor — a more flexible model where the tax is a percentage of actual income and work with any clients, including legal entities and non-residents, is allowed.

According to subparagraph 2 of paragraph 291.4 of Article 291 of the Tax Code, payers of the single tax of the second group can be sole proprietors who provide services to single tax payers and/or the population, as well as engage in production or sale of goods.

This is where the main problem for dropshippers arises.

In the classic dropshipping model, the entrepreneur often works under a commission or agency agreement. In this case, they actually provide intermediary services to the supplier of the goods — manufacturer, importer, or wholesale seller. If such a counterparty is not a single tax payer, the entrepreneur may face risks regarding compliance with the conditions of staying in the second group of the simplified system. Because of this, for many dropshippers, the third group of the single tax, which does not have such restrictions regarding counterparties, is considered a safer option.

How a dropshipper can register as a sole proprietor: first steps

Registration of an individual entrepreneur in Ukraine is a mandatory step for legally conducting dropshipping. The procedure is available both online via the “Diia” portal and offline through the Administrative Services Centre (ASC). To submit an application, a passport, taxpayer identification number (TIN), and a qualified electronic signature (QES) if registering remotely are required.

Before submitting documents, the future entrepreneur must decide on the types of economic activity (KVED) and choose the taxation system. For dropshipping, several basic KVEDs are usually applied depending on the business model.

In particular, NASE 47.91 “Retail trade conducted by mail order firms or via the Internet” is used when the dropshipper actually acts as the seller of the goods. Meanwhile, NASE 46.19 “Activities of intermediaries in the trade of a wide range of goods” applies if the entrepreneur acts as an intermediary between the supplier and the end customer. Additionally, other NACE codes such as 73.11 or 63.11 may be used depending on the nature of ancillary activities.

It is important that the choice of NACE codes corresponds to the actual business model. A mismatch between declared types of activity and real operations can be grounds for tax claims during inspections.

Separately, responsibility for conducting activities without state registration should be considered. Such actions fall under Article 164 of the Code of Ukraine on Administrative Offenses and may entail fines with the possibility of confiscation of received income. Additionally, banks conduct financial monitoring of individuals’ transactions, and regular incoming funds without confirmation of their origin often lead to account blocking or demands to provide documents on income sources.

Thus, registering as a sole proprietor is a basic condition for legally starting dropshipping and minimizing financial and legal risks.

Single tax and military levy rate

From January 1, 2026, updated rates of the single tax and military levy will apply to sole proprietors operating under the first and second groups of the single tax.

Maximum monthly single tax amount:

• Group 1 sole proprietor – UAH 332.80 (no more than 10% of the subsistence minimum),
• Group 2 sole proprietor – UAH 1,729.40 (no more than 20% of the minimum wage)

For single tax payers of groups 1, 2, and 4, the military levy rate is UAH 864.70 (10% of the minimum wage).

The specified amounts are determined based on social indicators established by the Law of Ukraine “On the State Budget of Ukraine for 2026,” namely:

• subsistence minimum for able-bodied persons – UAH 3,328;
• minimum wage – UAH 8,647.

The military levy for sole proprietors of groups 1, 2, and 4 is UAH 864.70 (10% of the minimum wage).

According to Article 293 of the Tax Code of Ukraine, single tax rates for sole proprietors are set in relation to basic social indicators. Specifically, for payers of group 1, they are determined as a percentage of the subsistence minimum, while for group 2 – as a percentage of the minimum wage.

The actual tax amount is set by decisions of village, settlement, and city councils and depends on the type of economic activity of the sole proprietor. It is calculated and paid monthly in a fixed amount.

The Tax Code provides for an increased rate of 15% on the income of single tax payers of groups 1–3 in certain cases. These include exceeding the maximum income threshold, receiving income from activities not listed in the single tax payers’ registry, using prohibited payment methods, as well as conducting activities not allowed under the simplified system.

The increased rate also applies when a sole proprietor of group 1 or 2 conducts activities that do not meet the requirements of the respective group as defined by the Tax Code of Ukraine.

Risks for VAT payers

The issue of risky VAT payer status is one of the key problems in dropshipping. During audits of tax invoices, the tax service analyzes not only documents but also how the business actually operates. Dropshipping often lacks warehouses, own transport, or a large number of employees. Because of this, the tax authorities may doubt whether the entrepreneur has real capabilities to fulfill such supply volumes.

If a sole proprietor or company is included in the list of risky VAT payers, this leads to problems with registering tax invoices. As a result, difficulties arise not only for the seller but also for their counterparties.

At the same time, dropshipping itself is a legal business model. Risks arise not because of the format of work itself, but because of how it is formalized and whether real operations are supported by documents. For sole proprietors in this area, it is important to correctly choose the single tax group, properly formalize relationships with suppliers, and have documents confirming the activity. This determines whether dropshipping will be a safe business or create tax problems.

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