Tax Debt for Sole Proprietors: Could It Cost You the Simplified Tax Regime?

For sole proprietors in Ukraine, paying taxes on time is not just a matter of compliance — it’s essential for business survival. Since most wartime tax relief measures ended in 2025, even small amounts of tax debt can now trigger serious consequences. Ukrainian tax law allows the authorities to forcibly cancel a sole proprietor’s simplified tax status if debt persists beyond a set period.

What Counts as Tax Debt Under the Law

Tax debt is defined as:

• an agreed tax obligation that was not paid by the due date (single tax, military levy, or other taxes);
• unpaid penalties (interest) accrued for late payment.

Thus, debt arises not when the deadline arrives, but when the payment remains outstanding past that deadline.

In 2025, the military levy has become particularly important: all sole proprietors, regardless of tax group, must pay it. Failure to do so creates tax debt and increases the risk of deregistration from the simplified tax system.

When Debt Leads to Deregistration

According to the Tax Code of Ukraine (sub-para. 8, para. 298.2.3, Article 298):

• having tax debt exceeding UAH 3,060 on the first day of the month for two consecutive quarters is grounds for deregistration as a single tax payer;
• this rule applies even during martial law.

For example, if debt exists on January 1 and again on April 1, the entrepreneur loses their simplified tax status at the end of the second quarter.

Exceptions That Can Save Your Status

Despite the strict rules, there are circumstances under which debt will not trigger deregistration:

• Force majeure related to war: being in an active combat zone, evacuation, injury, or lack of communications. These must be documented.
• Sole proprietors in Groups 1–2 in combat/occupied zones: exempt from paying the single tax while wartime benefits apply. Debts from this period are not counted.
• “Historical” debt from April 2022 to July 2023: such arrears are disregarded when deciding on deregistration.

What to Do If You Have Tax Debt

1. Check the cause: sometimes it’s a technical error or incorrect payment code.
2. Pay promptly, including accrued penalties.
3. If you cannot pay: collect evidence (evacuation papers, medical certificates, official information about combat operations) and submit an application to the tax office to recognize impossibility of payment.
4. Appeal decisions: first administratively, then in court if necessary. Deadlines are short, so act quickly.

Practical Advice from Andrii Spektor

• Regularly monitor your balance in the Electronic Taxpayer’s Cabinet.
• Always use up-to-date payment details and correct budget classification codes.
• Pay close attention to the military levy — late payment also counts as tax debt.
• If you receive a debt notice, respond immediately: prompt action can save your simplified tax status.

Conclusion

In 2025, tax debt is no minor technicality — it poses a real risk of losing simplified tax status. Even under martial law, there is no automatic forgiveness of arrears.

The key to protecting your business is a proactive approach: monitor your payments, correct errors promptly, and be prepared with a legal strategy if disputes with the tax authorities arise.