All About the General Taxation System: Net Income, Personal Income Tax and Unified Social Contribution in 2026

Most entrepreneurs starting a business in Ukraine automatically choose the simplified taxation system — commonly known as the "single tax". When a business no longer meets the requirements of the simplified system or paying tax on total revenue becomes financially disadvantageous, an entrepreneur may switch to the general taxation system.

For many entrepreneurs, the general taxation system is associated with more complicated accounting and reporting. However, in certain cases, it may be more advantageous than the simplified system.

In this article, we'll explain how to determine net income, which expenses can be deducted, what taxes a sole proprietor pays under the general taxation system, and what to pay attention to in 2026.

The general taxation system may be a suitable option for you if:

1. You have low profit margins or high expenses. For example, you operate a wholesale business where you earn only 5–10% from the price difference, or a manufacturing business where raw materials and components account for 80–90% of the final selling price. Under the simplified system, tax for Group 3 sole proprietors is calculated on revenue rather than profit, so high expenses can significantly affect the actual tax burden.
2. Your type of business activity is restricted by law. Certain sectors, such as mineral extraction, transactions involving excisable goods (alcohol and tobacco), or certain types of financial intermediation, are simply not eligible for the simplified taxation system.
3. You are scaling your business. When your annual revenue exceeds the Group 3 single-tax limit (UAH 10,091,049), the rules for switching to another group or the general taxation system apply, depending on the circumstances.

If you are a sole proprietor operating under the general taxation system, your main professional responsibility changes: instead of simply monitoring revenue, you must maintain detailed management and tax accounting records. Simply recording amounts received in your bank account or cash register is no longer sufficient. You need to clearly and carefully distinguish between income and expenses.

The main characteristics of this system are:

• No restrictions on the number of employees — the number of hired employees is unlimited.
• No revenue limits — legislation does not impose restrictions on the amount of income.
• Reporting — an annual tax return on property and income; if the sole proprietor acts as a tax agent, an additional Tax Calculation must be submitted.

Remember that business transactions and expenses must be properly supported by primary accounting documents, including invoices, acceptance certificates, payment documents and other relevant records. Personal income tax and the military levy are calculated based on net taxable income — income minus expenses permitted by law. However, keep in mind that, as a general rule, if the total value of your taxable transactions involving the supply of goods or services over the previous 12 calendar months exceeds UAH 1 million excluding VAT, you are required to register as a VAT payer.

The general taxation system for sole proprietors requires taxes to be paid on net taxable income. What does this mean? Net taxable income is the key figure that determines the amount of tax payable. The formula is as follows:

Taxable income = total income (excluding VAT if the sole proprietor is a VAT payer) - documented expenses related to business activities. 

In practice, there are several important nuances. Under the general taxation system, sole proprietors use the cash accounting method to recognise income: income is recorded when money is actually received in your bank account or cash register. For example, if goods are shipped in December but payment is received in January, the amount is recognised as January income.

The matching principle also applies: the law refers to expenses directly related to earning income from business activities, and these expenses must be supported by payment documents. Documented expenses are taken into account when determining net taxable income in accordance with the requirements of the Tax Code.

This is the most important section for any business owner, as deductible expenses under the general taxation system are the main tool for reducing taxable income within the limits established by law.

According to Article 177 of the Tax Code, deductible expenses may include:

• Material expenses — purchases of goods, raw materials and fuel.
• Operating expenses — office and warehouse rent, utility payments.
• Payroll expenses — employee salaries and the unified social contribution accrued on them.
• Service expenses — advertising, telecommunications and banking services.
• Depreciation — depreciation expenses for fixed assets and intangible assets in cases and according to procedures established by law.

Not all business expenses can be deducted, but only those directly related to earning income, permitted by the Tax Code of Ukraine and supported by documentation. It is important to remember that all expenses must be properly documented with primary accounting records. These documents must be correctly prepared and confirm that the expense was incurred and paid. Errors or missing required details may result in expenses being disallowed when calculating taxable income.

Your tax burden is based on the current minimum wage, which is UAH 8,647 in 2026. Let's take a closer look at the tax rates (what exactly you pay) and payment deadlines (when payments are due).

A sole proprietor under the general taxation system is required to pay:

• Personal income tax (PIT) — 18% of net taxable income (income minus expenses).
• Military levy — 5% of net taxable income (paid alongside personal income tax).
• Unified social contribution (USC) — 22% of the contribution assessment base, which is the amount of taxable income (profit). If there is no income (profit) for a particular month, there is no obligation to pay the minimum USC for yourself.

Sole proprietors under the general taxation system must make advance personal income tax payments for the first, second and third quarters. No advance payment is calculated or paid for the fourth quarter. The annual tax return must be submitted before May 1 of the year following the reporting year, while the declared personal income tax and military levy must be paid within 10 calendar days after the tax return submission deadline. The unified social contribution for sole proprietors under the general taxation system is 22% of the contribution assessment base, determined based on net income (profit). If there is no income (profit), there is no obligation to pay the minimum USC for that month. However, an entrepreneur may choose to pay USC voluntarily.

Personal income tax, the military levy and USC are paid separately to their respective accounts. If the final payment deadline falls on a weekend or public holiday, it is postponed to the next working day.

• Personal income tax: 10,000 × 18% = UAH 1,800
• Military levy: 10,000 × 5% = UAH 500
• USC: 10,000 × 22% = UAH 2,200.

In this example, the total amount of tax payments is UAH 4,500.

USC for sole proprietors under the general taxation system is calculated separately based on the actual contribution assessment base and the rules applicable to the entrepreneur.

If you are a sole proprietor under the general taxation system and have no income during a particular month, you do not pay personal income tax or the military levy. As for USC, if there is no income (profit), there is no obligation to pay the minimum contribution for that month.

You must maintain records of income and expenses in accordance with the procedures established by law. Specifically:

• Annual tax return on property and income — must be submitted before May 1 of the following year.
• If a sole proprietor has employees or pays income to other individuals, they must submit a quarterly Tax Calculation as a tax agent, with a monthly breakdown for each quarter. Information on USC accrued by the sole proprietor for themselves is included in Annex USC 1 to the annual tax return on property and income.

Use the taxpayer's electronic cabinet to avoid accounting errors.

Imagine that a sole proprietor earns UAH 1,000,000 in revenue, while documented expenses related to business activities amount to UAH 950,000. In this case, net taxable income is UAH 50,000.

For comparison:

Group 3 Without VAT:

1,000,000 × 5% = UAH 50,000 in single tax

1,000,000 × 1% = UAH 10,000 in military levy

Total — UAH 60,000, excluding USC.

General Taxation System:

50,000 × 18% = UAH 9,000 in personal income tax

50,000 × 5% = UAH 2,500 in military levy

Total — UAH 11,500, excluding USC.

Therefore, the general taxation system may be more economically advantageous for businesses with a significant share of documented expenses. However, the final tax burden depends on the structure of income and expenses, as well as other mandatory payments.

Translation into English was created with the help of artificial intelligence