Does individual-entrepreneur have a right to apply simplified accounting and reporting system for provision of electronic communication services?

Simplified system of taxation, accounting and reporting is a special mechanism for payment of taxes and levies, which establishes replacement of payment of separate taxes and levies, established by Paragraph 297.1 Article 297 of the Tax Code of Ukraine (hereinafter – Code), for the single tax payment with simultaneous maintenance of simplified accounting and reporting.

Paragraph 291.5 Article 291 of the Code defines list of activity types, conduction of which does not give a right to apply simplified system of taxation, accounting and reporting.

Sub-paragraph 8 of Sub-paragraph 291.5.1 Paragraph 291.5 Article 291 of the Code stipulates that business entities, in particular, individuals-entrepreneurs, who carry out activity of providing mail services (except for courier activities), activity of providing fixed telephone communication services with a right of technical maintenance cannot be the single tax payers of Groups I – III and operation of telecommunication networks, provision of telecommunication channels (local, long-distance, international), activities for provision of fixed telephone communication services using wireless access to the telecommunications network with a right of maintenance and provision of telecommunication channels (local, long-distance, international), activity of provision of mobile (cellphone) telephone services with a right to maintain and operate telecommunication networks and provision of telecommunication channels, activity of services provision with technical maintenance and operation of telecommunication networks, broadcast television and radio broadcasting networks, wire radio broadcasting and television networks.

It should be noted that prohibition on staying on the simplified taxation system applies to business entities that, as a part of provision of services in the electronic communications sphere, perform maintenance and operation of relevant networks, including providing access to such networks.

Law of Ukraine № 1089-IX as of 16.12.2020 "On electronic communications" (hereinafter – Law № 1089), which entered into force on 01.01.2022, stipulates that operator is a supplier in provision of electronic communication services. Provider of electronic communication services is the business entity that provides and/or has a right to provide electronic communication services on its own networks and/or on networks of other providers of electronic communication services. However, previous Law of Ukraine № 1280-IV as of 18.11.2003 "On telecommunications" (valid until 01.01.2022) separated these concepts and separately defined concept of "telecommunications provider" (business entity that has a right to carry out activities in the telecommunications sphere without the right to maintenance and operation of telecommunication networks and provision of telecommunication channels). To date, provisions of the Law № 1089 do not define separate business entity that has a right to carry out activities in the electronic communication services without the right to maintain and operate networks.

That is, in accordance with provisions of the Law № 1089, single tax payers – individuals-entrepreneurs providing electronic communication services do not have the right to choose simplified system of taxation, accounting and reporting.

At the same time, to apply simplified taxation system, taxpayers submit application using form approved by Order of the Ministry of Finance of Ukraine № 308 as of 16.07.2019. Form of this application requires taxpayers to indicate the activity types according to codes from Classification of economic activity types of the State Classifier 009:2010, which the business entity must carry out, being on simplified taxation system.

Classification of economic activity types was approved by Order of the State Statistics Committee of Ukraine № 396 as of 23.12.2011. This Order defines methodological bases and explanations for positions of the Classification of economic activity types of the State Classifier-2010. According to Classification of economic activity types of the State Classifier-2010, activity of providing services, access to Internet is not separated into a separate class or subclass of economic activity types, but is a component of classes 61.10 – "Activities in the wired telecommunications sphere", 61.20 – "Activities in the wireless telecommunications communication sphere ", 61.30 – "Activities in the f satellite telecommunications sphere " and class 61.90 – "Other activities in the telecommunications sphere".

Therefore, individuals-entrepreneurs who chose above-specified Classification of economic activity types of the State Classifier-2010 and provide electronic communication services do not have the right to apply simplified taxation system.

At the same time, it should be noted that according to Sub-paragraph 4 of Sub-paragraph 298.3.1 Paragraph 298.3 Article 298 of the Code for single tax payers there is the possibility of entering information in Register of single tax payers regarding changes in economic activity type.

In addition, the single tax payers according to Sub-paragraph 5 of Sub-paragraph 298.2.3 Paragraph 298.2 Article 298 of the Code are obliged to pay other taxes and levies in case of activities that do not give the right to apply simplified taxation system, from the first day of month following tax (reporting) period in which such activities were carried out.

Therefore, such payers are obliged to submit application and refuse the simplified taxation system not later than 10 calendar days before the beginning of new calendar quarter (year), i.e. by September 20, 2024 (Sub-paragraph 298.2.1 Paragraph 298.2 Article 298 of the Code).

In case of non-fulfillment of obligation to exclude relevant activity types or transition to other taxes and levies, registration of such payer may be canceled by exclusion from Register of the single tax payers by the decision of controlling authority.