Registering as an individual entrepreneur is free and takes approximately ten minutes through the government app. The difficulty is not the registration itself, but the several decisions that need to be made beforehand and one application that people forget and that ends up costing them dearly.

The Trap You Should Start With

The application to use the simplified taxation system is submitted separately from the registration application. If you fail to submit it on time, you automatically end up on the general taxation system, where the rates are eighteen percent income tax, five percent military levy, and twenty-two percent social contribution on net income. The deadlines are as follows. For Groups 1 and 2, the application must be submitted in the same month in which the individual entrepreneur is registered. For Group 3 without value-added tax, it must be submitted within ten days of registration. When registering through the app, both applications can be submitted simultaneously, and that is exactly what you should do. This is the most common and most expensive mistake at the start, because it can only be corrected from the next quarter.

The Three Groups and Which One Is Suitable for Whom

Group 1 is intended for retail trade in markets and household services provided to the public, without hired employees. The annual income limit is approximately UAH 1,444,000, and the single tax is approximately UAH 333 per month. For most readers of this article, it is unsuitable because the list of permitted activities is narrow.

Group 2 is intended for services provided to individuals and entrepreneurs on the simplified taxation system, as well as manufacturing, trade, and restaurant activities. The annual limit is approximately UAH 7,211,000, and the single tax is fixed at approximately UAH 1,729 per month, regardless of income.

Group 3 is intended for practically any type of activity, without restrictions on clients or the number of employees. The annual limit is approximately UAH 10,091,000, and the rate is five percent of income without value-added tax or three percent with it.

The Key Restriction of Group 2

Group 2 allows you to provide services only to individuals or entrepreneurs on the simplified taxation system. This means that you cannot work with legal entities on the general taxation system or with foreign clients under this group. Therefore, a freelancer who receives payments from a foreign company is fundamentally ineligible for it, leaving Group 3 as the only option. For a tutor, tradesperson, or hairdresser working with private clients, Group 2, on the other hand, is the optimal choice.

When Group 2 Is More Advantageous Than Group 3

If your activity allows you to choose either option, the calculation should be made as follows. Group 2 has a fixed payment regardless of income, while Group 3 charges a percentage of it. The break-even point, at which the two options are equal, is approximately UAH 28,000 in monthly income. Below this amount, Group 3 is more advantageous because you pay a percentage of what you actually earn. Above it, Group 2 is more advantageous because the fixed payment stops increasing, and at an income of UAH 100,000 per month, the difference becomes significant. However, this only works if your clients meet the restrictions of Group 2.

About the Social Contribution

Every individual entrepreneur must pay the social contribution regardless of whether they have earned any income.

In 2026, the minimum amount is approximately UAH 1,902 per month, or approximately UAH 23,000 per year. You can pay monthly or quarterly. The practical consequence is that registering as an individual entrepreneur makes sense only if you have regular income, because even if you earn nothing, you will still have to pay this amount. For one-off jobs, it is easier to declare the income as an individual.

Choosing Business Activity Types

During registration, you select one primary business activity and any number of additional activities.

The recommendation from practitioners is to declare all the codes you might need right away, because although you can add them later, doing so requires extra steps. For the most common areas, the guidelines are as follows. For online retail, the primary code is retail trade via the internet. For software development, codes for programming, information technology consulting, and data processing are used. For design, codes for specialized design activities and advertising agencies are used. For renting out your own real estate, the relevant real estate activities code is used. It is important to note that the selected codes determine whether you are allowed to use the simplified taxation system at all, because it is prohibited for certain types of activity.

How to Register

When registering online through the government app, the process looks like this. You need an electronic signature, meaning a qualified electronic signature, bank verification, or a signature within the app itself. You log in, select the individual entrepreneur registration service, specify your business activities, choose a group, check the data that the system retrieves automatically, and sign the application. You submit a separate application to use the simplified taxation system. Offline, the same process can be completed at any administrative services center or with a state registrar, and you will need your passport and tax identification number. Registration is free in both cases and usually takes one business day.

What to Do Immediately After Registration

Open a bank account for business activities, specifically a separate one rather than your personal account. For certain types of income, a condition for using the simplified taxation system is that the funds must be received directly into the business account, and I wrote about this mechanism in an article on withdrawing funds from advertising platforms. Open a foreign-currency account if you will be working with foreign clients. Obtain an electronic signature if you registered offline, as you will need it for reporting. Learn about fiscalization if you will accept cash or card payments from the public. Record tax payment dates in your calendar.

When and How Much to Pay

Individual entrepreneurs in Groups 1 and 2 pay the single tax monthly, no later than the twentieth day of the current month. Individual entrepreneurs in Group 3 pay the single tax quarterly, based on actual income. The military levy for Groups 1 and 2 is fixed and tied to the minimum wage, while for Group 3 it amounts to one percent of income. The social contribution is paid monthly or quarterly. You should check the exact amounts against the current information provided by the tax service before making payments, as they change along with the minimum wage.

Common Mistakes

Failing to submit the application for the simplified taxation system on time, which puts you on the general system. Accepting payments to a personal card instead of a business account, which may mean the income is not considered entrepreneurial income. Choosing Group 2 and then starting to work with legal entities on the general taxation system or with foreign clients. Forgetting about the social contribution in months without income. Failing to declare the required business activity codes, which can leave some income outside the permitted list. Working with cryptocurrency under the simplified taxation system, as this is prohibited and I have written about it separately. Exceeding the annual income limit, which automatically removes you from the simplified taxation system.

Which Group to Choose for a Specific Situation

A freelancer with foreign clients chooses Group 3 because there is no alternative.

A tutor, tradesperson, or other specialist working with private clients chooses Group 2 if their income exceeds approximately UAH 28,000 per month, and Group 3 if it is lower. An apartment owner who rents out their property chooses Group 3 because of the restrictions on Group 2. A content creator who receives payments from foreign platforms chooses Group 3. An online store chooses a group depending on whether it sells to individuals or businesses.

Summary

Registering as an individual entrepreneur is free and takes about ten minutes online, but the most expensive mistake does not happen during registration itself. It happens when the application for the simplified taxation system is submitted separately and the deadline is often missed. The choice between Groups 2 and 3 is determined primarily not by the tax rate, but by whom you work with, because Group 2 does not allow cooperation with legal entities on the general taxation system or with foreign clients. The main calculation to make before registering is that the social contribution, approximately UAH 23,000 per year, must be paid regardless of income, so registration makes sense only if you receive regular payments.

Sources

Data on single tax limits and rates for 2026 based on materials from Checkbox, Sense, Fidem Moris, and Sprava.prom; instructions for registration through Diia; explanations regarding the amount of the social contribution.