Tax simplification in 30 pages: what the Verkhovna Rada is changing for businesses and entrepreneurs

European directive in Ukrainian bureaucratic language

The Verkhovna Rada has taken on the task of simultaneously aligning Ukrainian tax legislation with European directives and simplifying VAT administration. One direction promises new rules for limiting interest expenses, while the other offers easier reporting and fewer inspections. However, behind the technical improvements remains the main question: will the tax system become simpler for entrepreneurs if the mechanism for blocking tax invoices remains unchanged?

On October 13, the Verkhovna Rada, according to the results of the session, approved in the first reading two tax draft laws - No. 16036 and No. 16037-d. Both relate to tax administration but address different tasks. The first aims to bring Ukrainian profit taxation rules closer to EU legislation. The second changes the procedures for working with value-added tax, particularly for individual entrepreneurs.

Draft law No. 16036 is dedicated to the implementation of Article 4 of the European ATAD directive (Anti-Tax Avoidance Directive), which limits the ability to reduce taxable profit through excessive interest expenses. The idea is clear: international groups of companies should not be able to artificially shift profits to jurisdictions with lower taxes by using debt financing.

Ukrainian legislation already contains restrictions on the inclusion of interest in expenses. Now the rules are proposed to be restructured according to the European approach. The problem lies not so much in the goal itself, but in the complexity of its implementation. The relatively compact principle of the European directive is turned into a large array of amendments to the Tax Code, which will require additional analysis from accountants, tax consultants, and companies.

However, the short text of the basic principle does not mean that its implementation can necessarily be equally brief: the directive provides for exceptions, definitions of indicators, and special rules. The real question is whether each additional provision of the Ukrainian draft law is necessary to achieve the goal, or whether part of the complexity arises from the peculiarities of domestic law-making.

The proposed start date for the application of the new rules is January 1, 2028. Until then, businesses will have the opportunity to prepare. And the state will fulfill another obligation in the context of European integration and cooperation with international partners. However, formal alignment with EU directives does not yet guarantee a proportional economic effect.

VAT for individual entrepreneurs: simplification with additional conditions

Draft law No. 16037-d appears more practical. Its task is to reduce the administrative burdens on VAT payers, primarily through the digitalization of reporting and changes to inspection procedures. The document was supported by 264 MPs.

Compared to the initial government version, the deputies made several significant changes. The ability to pre-fill the VAT declaration based on data from tax invoices has been extended to all payers, not just individual entrepreneurs. This is a rational solution: if the tax service already has information about transactions, there are no obvious reasons to force entrepreneurs to re-enter it into the reports.

The second important innovation was the increase of the threshold for relevant documentary checks of budget refund amounts and negative VAT values from 100 thousand to 1 million UAH. In the revised version, the controversial provision that effectively allowed such inspections regardless of the amount was also removed. For businesses, this is a potential reduction in administrative burden, although other legitimate grounds for tax control remain.

The possibility of issuing consolidated tax invoices for transactions with buyers who are not registered as VAT payers has also been retained. This can reduce the number of documents that sellers with a large number of small transactions have to process.

However, the situation with quarterly reporting for individual entrepreneurs is less straightforward. Instead of automatically applying a quarterly tax period, the revised project provides for its selection upon the entrepreneur's request. From the legislator's perspective, this is a right to choose. From the entrepreneur's point of view, this is another administrative action. Simplification, for which an additional application must be submitted, has quite a specific bureaucratic logic.

Cars, VIN codes, and new details

Some provisions of the draft law go beyond the usual administration of VAT. In particular, for applying preferential taxation of the first and second sale of a car, motorcycle, or moped by an individual, it is proposed to consider the ownership period of more than 183 days. The likely purpose of such a restriction is to distinguish between the sale of personal property and systematic commercial trade. However, it may also affect citizens who sell a car shortly after purchasing it for entirely ordinary reasons.

Moreover, tax invoices for transactions with vehicles will require the inclusion of the VIN code. For tax control, this provides an additional tool for product identification. For payers, it adds another requirement for the correct completion of the document.

The proposed date for the main changes to take effect is January 1, 2027. At the same time, both draft laws have only currently passed the first reading. Their final provisions may still change during preparation for the second reading.

The main question the draft law does not address

The most important problem of Ukrainian VAT remains outside the center of this reform. We are talking about the risk monitoring system and the blocking of the registration of tax invoices. For an entrepreneur, the ability to automatically generate a declaration is indeed useful. But if their invoice is stopped, and further work depends on explanations, documents, and decisions from the tax service, the savings in reporting time quickly lose their meaning.

This issue may become particularly acute in the case of the future expansion of the circle of individual entrepreneurs required to pay VAT. Draft law No. 16037-d does not establish a general obligation for all individual entrepreneurs to switch to VAT. However, if such a transition becomes part of a broader tax reform, new payers will face not only the need to keep records but also all the risks of the existing administration system.

The government has grounds to call the proposed changes simplification: automation of reporting, higher thresholds for inspections, and consolidated invoices can indeed reduce business costs. However, these improvements primarily concern procedures. They do not eliminate the fundamental question of how predictable the taxpayer's interaction with the state is.

Ukraine is simultaneously striving to fulfill international obligations, align legislation with European standards, and reduce bureaucracy. But the success of tax reform should not be measured by the number of implemented directives or new functions of the electronic cabinet, but by how much time, money, and legal uncertainty it takes away from entrepreneurs.

A tax declaration can be filled out automatically. The trust of businesses in the tax system cannot.