Can a Sole Proprietor Use Funds from a Business Account for Personal Needs — Explanation

For many entrepreneurs, the question of using funds from a sole proprietor's account remains one of the most common. Doubts often arise about whether it is permissible to pay personal expenses directly from an account opened for business purposes and whether this could lead to claims from regulatory authorities. Current tax legislation does not prohibit an entrepreneur from using their own funds received from business activities for personal needs.

Tax obligation is a priority

The tax authorities reminded that relations in the field of tax and fee collection are regulated by the Tax Code of Ukraine.

According to Article 36 of the Tax Code, a tax obligation is the duty of a taxpayer to calculate, declare, and/or pay taxes and fees within the established deadlines and in the manner prescribed by law.

The tax obligation arises for each individual tax and fee and, according to paragraph 36.3 of Article 36 of the Tax Code, is unconditional and takes precedence over other non-tax obligations of the taxpayer, except in cases provided by law.

The Tax Code also stipulates that the taxpayer is responsible for failure or improper fulfillment of the tax obligation.

Which accounts must an entrepreneur open

The State Tax Service drew attention to the requirements of the Instruction on the procedure for opening and closing accounts by users and payment service providers servicing accounts, approved by the Board of the National Bank of Ukraine No. 162 dated July 29, 2022.

According to the document, an individual must open separate accounts for:

• conducting entrepreneurial activity;
• independent professional activity;
• personal needs.

Electronic residents (e-residents) open current accounts for conducting entrepreneurial activity.

What is prohibited with personal accounts

The NBU Instruction explicitly prohibits using current and payment accounts of individuals opened for personal needs to conduct operations related to entrepreneurial or independent professional activities.

Only payment operations unrelated to business or independent professional activity may be conducted through personal accounts of resident individuals.

Can funds from a sole proprietor's account be used personally

The Tax Code does not contain provisions restricting an individual entrepreneur from freely disposing of funds received from business activities and credited to an account opened for entrepreneurial activity.

Also, the Tax Code lacks a definition of the term "personal needs" of an individual taxpayer.

Therefore, an individual entrepreneur who is a single tax payer has the right to use funds from the current account opened for entrepreneurial activity for personal needs.

Conclusion for sole proprietors

The State Tax Service essentially confirmed that funds earned by an entrepreneur within the scope of business activities and credited to a sole proprietor's account may be used for personal expenses. At the same time, the entrepreneur must properly fulfill tax obligations and comply with requirements to separate personal and business accounts. Personal accounts cannot be used for business purposes, but the law does not prohibit using funds from a business account for personal needs.

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