Forget about IE: the council wants to allow legally earning up to 834 minimum wages per year with a 5% tax

Ukraine is preparing to introduce a voluntary tax regime for households that will allow legalizing income from side jobs. Baking cakes to order, selling homemade cheese or honey, tutoring, repairing clothes or equipment without registering as an IE — will become completely legal.

Today, a significant part of citizens earn income precisely from such activities, for which it is legally required to register as an IE or create a legal entity. Therefore, for such types of small economic activities, Ukraine proposes to introduce a new voluntary tax regime. It will allow legalizing income from family, seasonal, or one-time work. At the same time, the bill changes the taxation principle: when determining the tax, not only the individual’s income but also the number of family members and dependents will be taken into account.

The new bill No. 15449 proposes a complete change of approach, namely a transition to the household as the basic socio-economic unit of taxation, similar to the systems in France, Germany, and the USA.

Introducing the household status in Ukraine is an ambitious step towards the European model of social justice, where the tax burden will depend on the actual composition of the family and the number of dependents. If the law is adopted, the everyday life of many Ukrainians will change significantly, as there will be an opportunity to earn money from their own business without mandatory IE registration, which will forever remove the fear of fines for illegal entrepreneurship.

However, behind such attractive benefits as a reduced tax rate and the right to a tax discount, lies a high level of responsibility: the voluntariness of this regime is key, as the family must realize the transition to joint property responsibility, where all household members are liable for the household’s tax debts with their own property.

What is a "household" according to the law?

The bill defines a "household" as a voluntary association of two or more resident individuals who share a common tax address, run a joint economy, and have voluntarily chosen a special tax regime.

A person can be a member of only one household at a time, and persons fully supported by the state cannot be members of the household.

The authorized person of the household is considered an adult capable member who exercises the rights and obligations of the taxpayer under the Tax Code based on the household’s economic activity results.

Economic activity without IE registration

This is one of the most important changes. Households will be allowed to carry out economic activities (selling self-produced goods, performing work, providing services) without state registration as a business entity.

A household can use the simplified tax regime only if several conditions are met:

• annual income must not exceed 834 minimum wages (if the law is adopted, the limit will be reviewed annually according to the minimum wage size);
• all work or services must be performed exclusively by household members without hired employees;
• the regime does not apply to activities requiring a license by law;
• all household members must have access to the Taxpayer’s Electronic Cabinet to interact with controlling authorities.

Tax mechanism and 5% rate

The bill establishes a preferential rate of 5% for income from the household’s economic activities. Additionally, the concept of non-taxable income is introduced. It is calculated as the difference between the total subsistence minimums for all family members and the received state aid (pensions, subsidies, etc.). This significantly reduces the tax base for large families or families with dependents.

In other words, the more dependents in the household, the smaller the tax base can be.

Tax discount: how to get money back?

If household members work officially and 18% PIT has already been withheld from their salaries, the authorized person can submit a single household declaration.

The declaration sums up all the family’s income and expenses and calculates a "fair" tax considering the subsistence minimums for each member.

The difference between the actually paid tax and the calculated one is refundable from the budget as a tax discount.

According to preliminary estimates, in the first year, the state may pay citizens about 60 billion UAH of such discounts.

Thus, the project proposes a so-called "family" tax calculation mechanism. First, the amount necessary for the basic support of household members is deducted from the total household income, and tax is charged only on the remainder. After the year ends, the state compares the calculated tax with the actually paid tax: if citizens overpaid, funds will be returned as a tax discount; if underpaid, the difference must be paid to the budget.

Who will feel the changes most?

The greatest benefit will be felt by families where only one adult works or there are many children and pensioners. Thanks to the tax discount mechanism, such families will be able to get back part of the paid PIT if the total subsistence minimums of family members exceed their income. This is a direct adaptation of the French and German experience regarding the consideration of the "family coefficient."

The changes will be a breath of fresh air for home craftsmen and microbusinesses, i.e., those providing household services, tutoring, repairs, or selling garden produce and self-made products without hired labor. Now they will be able to legalize their activities through a simplified procedure if their annual income does not exceed 834 times the minimum wage.

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