How to Reduce the Risk of Tax Audits - Effective Rules for Individual Entrepreneurs.

When running their own business, entrepreneurs may receive warnings from the tax authorities regarding non-compliance with established legal requirements. However, more often the controlling body simply arrives for an audit to confirm or deny suspicions. Individual entrepreneurs can avoid monitoring by minimizing tax risks.

This was explained by lawyer Bohdan Yankiv in his own blog.

How to Avoid Problems with the Tax Authorities

The State Tax Service is implementing an experimental project regarding the functioning of the tax risk management system. It is based on a distribution of situations where a taxpayer may violate legal norms and provoke the imposition of financial sanctions, audits, or the accumulation of debt. There are four main types expected:

• registration risk;
• reporting risk;
• payment risk;
• declaration risk.

If recommendations are followed, individual entrepreneurs can minimize the likelihood of tax monitoring. For example, registration risks arise from dubious schemes, errors in official documents, data discrepancies, etc. To avoid problems, it is advisable to use real legal addresses and choose reliable contractors.

Tax Payments, Debts, and Declarations

The State Tax Service pays attention to untimely payment of tax liabilities, the presence of debts, and incorrect reflection of financial and economic transactions. Avoiding audits can be helped by monitoring calculations with the state budget. Individual entrepreneurs are recommended to:

• use electronic services of the State Tax Service for verification;
• keep track of deadlines using special calendars;
• promptly resolve debt issues without ignoring the situation;
• maintain proper documentation to confirm the legality of transactions;
• justify all expenses;
• avoid dubious schemes.

As Bohdan Yankiv clarified, business operations must have a clear economic rationale and correspond to the actual activities of the enterprise. Otherwise, it will be difficult to avoid tax monitoring.

What Else Ukrainians Should Know

It should be noted that tax officials have several effective tools for tracking individuals who sell goods online without official registration or using cash registers. The controlling body conducts test purchases or applies the data accounting system for cash registers.

We also wrote that the International Monetary Fund requires Ukraine to introduce new taxes. This refers to the payment of 18% personal income tax and a 5% military tax on the sale of goods through online platforms such as OLX, Prom, Kabanchik, etc.

The tax service is conducting an experimental project on managing tax risks, recommending adherence to rules and conducting economic activities legally to avoid problems with audits.