How Ukraine’s 2026 Tax Law Shocks Sole Proprietors and the Economy

The 2026 draft law forces sole proprietors to pay 32.8% tax, triggers a VAT shock, pushes business abroad, and undermines the budget during wartime.

Why are we poor? Because we’re foolish… Once again we’re killing sole proprietors and stepping on the same rake. This was reported by Anatoliy Amelin.

On March 18, 2026, the Ministry of Finance signed and submitted a draft law to the Verkhovna Rada.

This means an increase in the tax burden on legal (!) businesses.

The supposed motivation is the memorandum with the IMF — without raising taxes, the next tranche allegedly will not be provided.

In reality, the ideas in the memorandum originated in our Ministry of Finance; the IMF has nothing to do with them. It only wants to understand how Ukraine will repay its debts and reduce the budget deficit.

But, looking ahead:

1. The adoption of this bill will not lead to an increase in revenues, but rather to their decline (!)

2. The tax burden on entrepreneurs will rise to a level higher than in neighboring European countries (calculations below).

3. To a deterioration of the business climate in Ukraine, growth of the shadow economy, migration of businesses, and the final loss of Ukraine’s reputation among investors.

4. To violations of the Constitution and the subsequent repeal of the law (if it is adopted).

5. The destruction of the remaining political ratings.

6. An increase in social tensions.

The official title is long and boring — about “introducing amendments, digital platforms, and equality of VAT payers.”

I read all 42 pages. Carefully.

Together with our team of macroeconomists and tax experts, we discussed it, ran simulations, made calculations, and swore a lot.)

Now to the point.

Three things are happening at the same time.

1. Starting January 1, 2027, the State Tax Service will compile a list of entrepreneurs with income exceeding 4 million UAH and automatically register them as VAT payers. Without an application. Without consent.

You wake up — and you are already a VAT payer.

Based on what you earned in 2025–2026 — legally, within the framework of the current rules.

2. Every platform — Airbnb, Etsy, OLX, Rozetka, Booking — will now have to report (!) to the State Tax Service every year on each seller. Name, account, how much they earned by quarter. Automatically. This is an international OECD standard — DPI MCAA — which more than 50 jurisdictions have joined. The idea is correct. The details — as always.

3. Goods worth up to 150 euros from AliExpress and Amazon will now be subject to VAT at the platform level. That means you simply pay more.

This is European practice.

The issue is not protecting domestic producers; it is simply an additional tax on consumption.

But there is one detail that, for some reason, no one has calculated out loud. I will.

Let’s take a specific person. An IT consultant, designer, marketer — it doesn’t matter. A person who sells their knowledge.

Income — 5 million UAH per year. A sole proprietor on the third tax group.

Right now, this person pays a single tax of 5% plus a 5% military levy — a total of 10% of income, like all third-group sole proprietors since December 2024.

Plus the unified social contribution — 60,000 UAH.

Total: 560,000 UAH per year.

After the law, this person automatically becomes a VAT payer. And this is where things get interesting.

Their expenses include a laptop, internet, courses, and subscriptions to various services.

The amount of input VAT that can be claimed as a credit is at most 30–40 thousand UAH per year.

Everything else is services and time, for which VAT is not charged or cannot be confirmed with invoices.

The new tax burden:

1. VAT on income of 5 million UAH: 1 million UAH, minus a conditional credit of 35 thousand = 965 thousand UAH of net VAT.

2. Single tax of 3% (since they are now a VAT payer): 150 thousand UAH.

3. Military levy of 1%: 50 thousand UAH.

4. Unified social contribution: 60 thousand UAH.

Direct taxes alone: 1.225 million UAH per year.

But that’s not all. Because new mandatory expenses appear that the law does not mention:

5. An accountant for VAT reporting — minimal outsourcing: 80 thousand UAH per year.

6. A license for accounting software (M.E.Doc or an equivalent): 18 thousand UAH per year.

7. The time this sole proprietor spends on administration — at least 8–10 hours per month.

At a market rate of 2,000 UAH per hour: 192–240 thousand UAH per year in opportunity costs — money they could have earned instead of filling out tax declarations.

8. The risk of invoice blocking in the Unified Register of Tax Invoices — a well-known issue of the SMKOR system.

The average time to unblock invoices is 10–45 days, with lost clients: conservatively 50–80 thousand UAH per year in lost income.

The total new burden on the sole proprietor: from 1.565 to 1.643 million UAH per year.

Before: 360 thousand UAH (single tax 5% + military levy 1% + unified social contribution).

After: more than 1.6 million UAH.

An increase of 4.3 times (!).

Effective rate before the reform: 7.2% of income.

After the reform, including all costs: 32.8% of income.

Do you know how much it costs to register the equivalent of a sole proprietorship in Poland?

Zero hryvnias. One day through an online portal.

The effective tax burden there for an IT consultant is 15–18% of income with full social protection: sick leave, pension, insurance.

Poland is already deliberately advertising this to Ukrainians.

Polish consultants are making YouTube videos and writing posts about how to open a JDG or an Sp. z o.o. to “protect themselves from Ukrainian tax risks.”

This is happening right now (!).

Together with colleagues, we modeled the consequences using the Monte Carlo method — 15,000 scenarios with real parameters of business behavior.

Among other things, we used IMF research on VAT bunching in the United Kingdom as a basis.

Private companies, when alternatives exist, systematically slow down the growth of their tax burden (!) and artificially remain below the VAT threshold.

In Poland, after a similar reform, the number of microbusinesses just below the new threshold increased by 31% within two years.

Why grow if growth leads to VAT?

In Ukraine — with our level of trust in the state and a near-zero barrier to registering a new sole proprietorship — the effect will be no smaller.

Realistic estimate:

54–81 thousand entrepreneurs will split their businesses among relatives.

The budget will lose 31–44 billion UAH per year as a result — more than all the new VAT payers will bring in combined (!)

Once again (!) the reform destroys its own fiscal effect through behavioral responses that the authors did not model.

Business emigration is a trend.

Currently, 25–35 thousand Ukrainian entrepreneurs register businesses abroad each year.

After the law is passed, an additional wave of 35–60 thousand entrepreneurs per year is expected.

The multiplicative effect of 50 thousand medium-sized businesses is $1.5–2.5 billion annually withdrawn from economic demand, and 150–250 thousand jobs will not be created by 2030.

The weighted mathematical result of the entire reform, taking into account business splitting and emigration: a loss (!) of 8.5 billion UAH per year for the budget.

A loss. Not a gain.

Now about the Constitution.

Automatic VAT registration based on past income is a systemic legal problem.

Article 58 of the Constitution prohibits (!) retroactive application of the law.

The Constitutional Court of Ukraine, in decision No. 1-rp/99 and subsequent rulings, stated: if new obligations arise from previously lawful behavior, this constitutes retroactive effect in essence, even if formally the obligations start “in the future.”

You conducted your business legally — and these lawful actions become the basis for forcibly changing your status.

Article 19: government authorities may act only in the manner prescribed by law.

But the law says: the State Tax Service will compile “lists.” Where is the mechanism?

Where is the notification?

Where is the right to appeal before registration?

Article 67: equality in the fulfillment of tax obligations.

A consultant without input VAT pays 3.2 times more (!) than a merchant with the same income.

What legitimate purpose does this difference serve?

The explanatory note provides no answer.

My assessment: the probability of a successful constitutional challenge to automatic registration is 99%.

And the most important thing — all of this is happening during a war (!).

An entrepreneur in 2026 is already bearing a burden that no one accounts for in the law’s estimates.

McKinsey’s research on Ukrainian businesses under invasion records that 80% of companies have lost more than 10–30% of their income — and this is without new taxes.

Generators, rising electricity costs, fuel, salaries, personnel mobilization, logistics — all these are expenses that previously did not exist in the cost structure.

Kahneman and Tversky, in their prospect theory — for which they won the Nobel Prize — showed that a person who has already suffered significant losses perceives new burdens disproportionately sharply (!!!).

The pain of loss is twice as strong as the pleasure of an equivalent gain.

An entrepreneur “in the red” will respond to new pressure with flight, not adaptation.

This is neurobiology.

And here comes the most important question: why this law, and not something more effective?

According to research by CASE Ukraine and the Institute for Socio-Economic Transformation, smuggling and gray imports cost the budget 63–93 billion UAH per year (!!!).

According to Kantar Ukraine, in 2025 the share of the shadow cigarette market was 17.8%, resulting in budget losses of 26.5 billion UAH per year. In 2024 — 21.9 billion UAH.

And the shadow market for e-cigarettes — a staggering 93% of the total.

Salaries paid “under the table” — 115–230 billion UAH per year in budget losses, according to the same CASE Ukraine estimate.

Altogether, the realistic potential of these three areas: 76–115 billion UAH per year (!!!) — compared to a maximum of (if lucky) 20 billion UAH from the draft law in the best-case scenario.

Why choose the draft law?

Because smuggling is protected by specific people with specific opportunities, lobbying, and cover (everyone knows where).

But the small entrepreneur — is not.

And that’s the whole answer.

I am not against economic transparency. I support it.

Connecting to the international DPI standard is the right step, and it should be done.

But not like this, and not now.

Not with automatic registration without prior notice.

Not with a VAT shock for sole proprietors without input credits.

Not in a country where people are holding on by their last strength.

Ireland, during its debt crisis, lowered (!!!) corporate tax to 12.5% and achieved +40% GDP growth in 10 years.

Not through external aid — but through business trust in the state.

Israel, during the Intifada, protected startups from excessive burdens and created Silicon Wadi — now it has more startups per capita than anywhere else in the world.

They built conditions, not obstacles.

The World Bank, in its materials on Ukraine’s recovery, explicitly states: the private sector must cover one-third of reconstruction needs.

The private sector — these are the same sole proprietors whom we now want to burden with an effective 32.8% tax load.

There is a common view: “during the war, everyone must tighten their belts.” It’s a correct idea. But belts should be tightened evenly — not only for those who are easy to reach and who operate legally and transparently.

Honestly, I don’t believe this law will pass. The social tension is such that it could drive people to protest against the authorities.

But if it does happen… we will shoot ourselves not in the foot, but in the head.

Read, draw conclusions, share!

P.S. And tell me what you think about the consequences of this initiative.

Tags: global markets IMF Ukraine deal small business pressure sole proprietors FOP tax reform Ukraine Ukraine economy wartime economy