Having signed a memorandum with the International Monetary Fund, Ukraine has committed itself to introducing VAT registration for individual entrepreneurs whose annual turnover exceeds UAH 1 million and thus to abolishing the simplified taxation system. Could it be a ‘time bomb’ that can disrupt the IT and business sectors in Ukraine? Indeed, it may be so mostly for IT freelancers, online stores, service industry, consultants, second and third group individual entrepreneurs engaged in the provision of services. As the tax burden is expected to increase, they will bear additional expenses of UAH 200 to 300 thousand annually for administration purposes only. This has already caused a wave of large-scale protests in such IT communities as Reddit, Telegram, and LinkedIn. This reform is a key precondition for the IMF tranche, but the price the business is expected to pay is enormous.
The IMF is killing Ukrainian IT: individual entrepreneurs will have to go underground or leave for abroad in large numbers
, such are the highlights of discussions reposted by thousands. Analysts predict an outflow of 20% of specialists, as competitors in Poland and Estonia are ready to offer a zero VAT rate for the digital industry. According to estimates of industry-specific associations, 150 thousand individual entrepreneurs will be affected. In their comments, some experts already recommend modeling two scenarios: either you shift to an LLC with optimization or segment your business.
In the memorandum signed with the International Monetary Fund in the autumn 2025, Ukraine has undertaken to reform drastically the simplified taxation system. The key novelty is the mandatory registration as VAT payers for all individual entrepreneurs with an annual turnover above UAH 1 million. This requirement, which is expected to take effect from 1 July 2026, has already hit the business community as an earthquake and instigated vivid discussions among IT entrepreneurs on their Telegram channels and top managers on LinkedIn. According to the experts, about 150-200 thousand entrepreneurs, primarily IT freelancers, online stores, consultants, and service providers, will suffer the consequences.
Field-oriented lawyers and tax planning consultants are already noting an increase in requests for consultations specifically stemming from such an innovation. This is not just a tax, but a change in the business model
, attorney at law Illia Shaposhnikov comments. He says that an annual tax burden for an ordinary third group IT entrepreneur will grow from 5% of the single tax to 23% (20% VAT + 3% single tax), giving rise to additional UAH 30-40 thousand per month for an average freelancer who provides IT services for UAH 200 thousand monthly.
Who is affected and what could be the consequences for the business?
The key focus is on second and third group individual entrepreneurs, so called flat tax payers. This is equally about those who work with non-residents (IT outsourcing, digital marketing) and those who generate a high internal turnover. A typical example includes a developer earning UAH 2 million annually. Such developers currently pay a flat tax of 5% (UAH 100 thousand) and a single social contribution (UAH 21 thousand). After the reform, it will be 20% VAT (UAH 400 thousand, of which the input tax only can be refunded, which is hardly possible in practice for the service and IT sectors) and 3% flat tax (UAH 60 thousand), single social contribution and military tax. Thus the tax burden is expected to increase 4 to 5 times in total.
Online discussions have reached a peak as the FOP UA Telegram channel’s post about the IMF got 25 thousand views for a day, being commented like "mass outflow to Estonia" and "IT becoming uncompetitive". There are many among the Reddit / UkraineBusiness community saying that their turnover is UAH 1.2 million and they would shut down their business as individual entrepreneurs to shift to an LLC and offshore. Poland and Estonia are already offering a zero rate for the digital industry, making Ukraine an outsider in this business. The IT Ukraine Association expects that 15 to 20% of specialists will leave for abroad in 2026.
Such a reform will be very painful for second group individual entrepreneurs and for the domestic market as a whole, including online stores with drop shipping via AliExpress, SMM agencies, educational platforms, most of consulting firms, and the service industry. The entrepreneurs stress that a plat tax payer with the turnover of UAH 1 million is a small business, not a tycoon. Having analyzing the risks and challenges, some consultants note that the cash method is a key risk factor because you pay as you go with the prospect of waiting for the refunding, if any, for many years. In addition, there will be inspections and fines, coupled with administration and accounting expenses, so that entrepreneur's actual losses can be fivefold or sixfold in practice.
Realistic prospects and deadlines to introduce and implement VAT for individual entrepreneurs
Andrii Pisotskyi, an associate at Alva Privacy, stresses that time works against the business. Scenario modeling, auditing contracts and counterparties, and preparing for registration are the things that should be done now. This reform is not merely about taxing, but a geopolitical challenge. Though the IMF seemingly requires this to disburse a new tranche of USD 500 million, the price is that the IT sector who generates 7% of the GDP, including USD 50 billion in foreign currency earnings, will lose its competitiveness.
In the European Solidarity Telegram channel, Nina Yuzhanina, MP from the European Solidarity faction, notes that the registration of all individual entrepreneurs as VAT payers will not eliminate the problem of smuggling, nor destroy illicit business practices, nor increase the efficiency of customs offices, nor replace normal tax administration. Instead, it will increase administrative burden on small businesses, expand the scope for abuse, and create new expenses without any guarantee of additional budget revenues. The problem of replenishing the state budget is not exclusively about individual entrepreneurs.
Moreover, according to Yaroslav Zhelezniak, MP, the draft law is expected to be submitted to the Verkhovna Rada in March 2026 and the legislative amendments so adopted should take effect at least from 1 January 2027. Many experts, however, recommend taking it easy and waiting until the draft law is discussed in the parliament, suggesting that a sufficient number of MPs would be simply unavailable to vote for abolishing the flat tax and introducing VAT. It seems as though there will be few parliamentarians willing to vote for the bill in such a wording.
In addition, the experts stress that such a draft law is inconsistent even with EU tax rules, noting that the VAT registration threshold reaches EUR 65-80 thousand in most European Union countries. It is several times higher than the UAH 1 million threshold proposed to Ukraine (being about EUR 20 thousand at the current exchange rate).
Written by Sofiia Ohiievych, lawyer.
