What is not included in the income of individual entrepreneurs of groups I – III / Collage of Channel 24
Many Ukrainian sole proprietors learn about their mistakes only after receiving notices from the tax office or fines. Confusion often arises with funds that are deposited into an entrepreneur's account but are not actually considered his income.
What is not included in the income of an individual entrepreneur?
So, not everything needs to be declared. The details for groups I – III on the simplified system were explained by the State Tax Service.
First of all, it is worth noting that the rules on this issue are set out in paragraph 292.11 of Article 292 of the Tax Code of Ukraine.
For example, the income of an individual entrepreneur does not include VAT, loans, and financial assistance if it is returned within 12 calendar months from the date of receipt. It also includes earmarked funds received from the Pension Fund, budgets, etc., including payments under state or local programs.
In addition, the following should not be considered income of a single tax payer:
- an advance or prepayment that is returned to the buyer or the individual entrepreneur himself after termination of the contract, return of the goods or official appeal;
- payment for goods or services, as well as VAT amounts, if they were sold while the entrepreneur was on a different taxation system;
- overpaid taxes, fees and social security contributions, which are returned to the individual entrepreneur from the budget or state funds;
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interest accrued by the bank on the balance of funds in the account of a Group III individual entrepreneur with e-resident status;
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medicines, medical products and aids received free of charge, which were purchased within the framework of healthcare programs (with funds from the budget, municipal or state medical institutions, grants from international programs, but such goods must be included in the official lists approved by the Cabinet of Ministers).
What to do with your own funds in the account?
Moreover, funds received from the sale of an individual's personal property, as well as their own money, are not considered business income if taxes on them have already been paid previously.
To ensure that such transfers to an individual entrepreneur's account do not raise questions from the tax authorities, it is important to follow several rules. First of all, the income must come from legal sources – such as salary, dividends, etc. Secondly, experts advise having supporting documents (income certificates, data from registers, and other papers).
Don't forget about financial monitoring . If the replenishment amount is significant, and you cannot confirm the source of the funds, the bank may block the account even before any questions from the tax office,
– warn Debet-Credit experts.
Thirdly, the purpose of the payment should be clear and unambiguous. For example, for spouses, it is “transfer of personal funds to husband/wife. Without VAT” or something like that.
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