FOPs to be checked: the NBU offers a proven way to combat drops
21 October 11:36
ANALYSIS FROM 
As of October 1, according to the State Statistics Service, 1,773,900 individual entrepreneurs (IEs) were registered in Ukraine, which is almost 84,000 more than as of July 1 this year. This growth can be explained, among other things, by the simplicity of the procedures related to their registration and termination of activities. However, it is the closure of a sole proprietorship that may cause problems. What they may be, we found out in the article
The National Bank proposes to introduce an audit of individual entrepreneurs before they are closed. In a recent interview with Forbes, NBU Governor Andriy Pyshnyi explained that private entrepreneurs have been used in drop schemes – people who hand over their bank cards or accounts for illegal transactions for a fee. To minimize the risks, the NBU proposes to maximize inspections.
“We propose that before closing a sole proprietorship, it should be possible to analyze its activities. In particular, it will be possible to verify information on the turnover of the sole proprietorship and the completeness of the sole proprietorship’s taxes to the budget by the regulatory authorities, and only after such actions – to register the termination of the sole proprietorship’s business activity,” the head of the National Bank emphasized.
As you know, it is a bit more difficult for Ukrainians to close a sole proprietorship than to register it: they need to dismiss employees, pay off customers, suppliers and the state, i.e. pay taxes, as well as cancel existing licenses, if any, and close current accounts. Everything is more or less simplified and almost automatic. At least, without the scrutiny of regulatory authorities regarding the turnover of the sole proprietor’s funds and the completeness of tax payments. But this may change.
Recognizing the problems
Entrepreneurs with whom I spoke
“There is a need to increase transparency in the financial sector and, importantly, to ensure fairness – businesses that really work and pay taxes should not compete with those who “hide” behind formalities or use illegal schemes,” the Alliance of Regional Small Businesses (RMB) emphasizes.
“Now we need to understand the tools and how it will work.” This is emphasized by Maksym Malyovanyi, entrepreneur, chairman of the NGO BUSINESS EDUCATION INSTITUTE, member of the National Platform for Small and Medium Business.
“I understand the state perfectly well in terms of its desire to prevent financial fraud and increase the transparency of business activities. But how productive this will be in today’s environment is a question. The situation now is that many people are forced to go abroad because of the war and cannot physically continue their activities. That’s why the procedure for terminating business activities should remain as simple as possible with the ability to do it remotely,” the entrepreneur said.
In his opinion, the inspection should be clear and fast, and, importantly, risk-oriented.
“That is, if, for example, a sole proprietor automatically checks debts, reports on banking transactions without contacting officials, then this is normal. And additional attention from the state should be paid only when there are objective signs of risk, some suspicious transactions. In addition, there should be some kind of guarantee from the state that the system will work quickly, transparently, non-corruptly and free of charge,” emphasizes Maksym Malovanyi.
Risk awareness
According to entrepreneurs, the purpose of the NBU’s proposal seems to be noble – to fight financial crimes – but the main thing is that in practice this innovation does not turn out to be another bureaucratic trap for ordinary entrepreneurs.
The Alliance of Regional Associations of Small Businesses has already analyzed what entrepreneurs should be concerned about.
First, we can expect an increase in bureaucracy in the process of closing a sole proprietorship.
“This is when, instead of automatic or simplified closure, there will be additional checks and the need to prepare documents, reports, and prove “integrity,” which may require additional time and money spent on lawyers, auditors, or accountants,” the Alliance explains.
Secondly, the lack of clear rules and the risk of misinterpretation.
“What is considered ‘questionable activity’? There may be cases when a sole proprietor has unnoticedly become a “drop” through fraud and without his own will. But the entrepreneur will be responsible. If the inspection is carried out only if there is a suspicion, it is one thing, but if it becomes the default procedure and then every sole proprietor is inspected, this violates the principle of “suspicion implies proof.” Also, the audit may reveal accidental and unintentional errors in reporting or accounting, but the fines can be significant and especially painful for small entrepreneurs,” the ROMB Alliance emphasizes.
Thirdly, there are reasons to believe that additional inspections before closing a sole proprietorship do not comply with the principle of business simplification declared by the authorities.
“A sole proprietorship is a small form of business designed to be easy to operate and easy to close. That is, a model with minimal regulation and costs. This is especially important for those who have almost zero turnover. Or they decide to close the sole proprietorship because it is no longer needed. In this case, such a check can become an unnecessary obstacle for them. Instead of “pressing a button and closing,” we again get a procedure that can last for weeks or months,” the Alliance of Regional Small Business Associations states.
Instead, Maksym Malyovanyi, head of the BUSINESS EDUCATION INSTITUTE NGO, member of the National Platform for Small and Medium Business, and entrepreneur, expects the government to take steps to simplify the division of sole proprietorships.
“Currently, we don’t have such a tool as a temporary suspension of activities, or, as it is called, freezing without paying taxes. This would be a simplification for those who have now gone abroad, i.e. if there was a suspension mechanism, it would allow not to close the sole proprietorship and resume operations in, for example, 3-4 months. Personally, I hope that I will never close my sole proprietorship and continue to run my business, but if I were to put myself in the shoes of a person who would close a sole proprietorship, I would also like to see some kind of tool, perhaps a website with advice and information support for entrepreneurs before closing,” the entrepreneur emphasized.
To summarize, among the entrepreneurs with whom the publication spoke
Author: Serhiy Vasylovych
