Tax Reform vs. the Beauty Industry: Ukrainians Will Face Sky-High Prices as Early as Next Year
26 March 18:31
The Ukrainian beauty industry—from salons and barbershops to independent stylists—is entering a period of turbulence and anticipated price increases for services. The reason lies in the tax reforms demanded of Ukraine by the IMF and its ongoing integration into the EU.
The key changes currently being actively discussed at the government and business levels are a revision of the simplified tax system (specifically, the introduction or expansion of VAT for sole proprietors) and the legalization of self-employed individuals without entrepreneur status.
Why the “simplified system” is changing: IMF and EU requirements
Reforming the simplified system is one of the conditions for Ukraine’s long-term financial cooperation with the IMF. The Fund insists on reducing tax distortions and broadening the tax base.
Specifically, this involves:
- mandatory registration as a VAT payer upon reaching a certain turnover;
- combating “business fragmentation” schemes through sole proprietorships;
- equalizing the tax burden between employees and entrepreneurs.
Experts emphasize that the current model creates an imbalance: sole proprietors may pay 5% in taxes, while employees pay up to 50% of total deductions. At the same time, these changes are part of European integration: Ukraine must align its VAT rules with EU directives, which set mandatory registration thresholds (approximately €85,000 in turnover).
Initially, a strict measure was discussed—mandatory VAT for most sole proprietors starting at a low income threshold. However, due to protests from the business community and political risks, the approach was softened.
As of 2026:
- a threshold of 2–4 million UAH in annual income is being considered;
- this could affect hundreds of thousands of entrepreneurs;
- most small businesses will formally remain exempt from the new requirements.
At the same time, the gradual expansion of VAT to small businesses is already incorporated into the revenue strategy through 2030.
How this will affect the beauty industry
Beauty salons, cosmetologists, manicurists, and hairdressers operate primarily as sole proprietors in tax groups 2–3. In the event of a transition to VAT:
- the tax burden could rise from 5% to an effective 20% (including VAT);
- part of the costs will be passed on to the customer.
Businesses are already warning that new taxes could lead to higher service prices and a reduction in the number of entrepreneurs. Rising costs will drive:
- the consolidation of salons;
- the exit of weaker players;
- some technicians to go “under the table.”
This is a typical effect in markets where the tax burden increases.
At the same time, the government is preparing another significant change—the legalization of activities by individuals without registering as sole proprietors (through digital platforms or simplified tax regimes).
This means:
- the emergence of a new category of “legal non-sole proprietors”;
- lowering the barrier to entry into the profession;
- increased competition for traditional salons.
Combined with VAT, this creates a paradox:
part of the business faces a higher tax burden, while new players enjoy simplified market access.
At the same time, economist Danylo Monin, in a comment for “Kommersant Ukrainian,” emphasizes that the scenario of fully legalizing work without registering a business currently seems unlikely:
“I don’t think they’ll allow people to work from home without registration—there are virtually no relevant bills. It’s more about income generated through digital platforms, but in that case, a person must officially receive income specifically through the platform. What we’re seeing now, however, is often illegal cash income from working from home.”
He also highlights the potential tax implications for the beauty industry in the event of changes to the simplified tax system:
“Beauty salons, if they exceed an annual turnover of 4 million UAH, may find themselves in a situation where they have to pay 3% of turnover plus 20% VAT—effectively about 23% of turnover.”
At the same time, the expert notes that businesses will likely seek ways to adapt to the new conditions:
“But I think nothing prevents salons from ‘splitting up’ as well, with each stylist registered as a separate sole proprietor and not exceeding the 4 million UAH annual limit.”
So we see that reforming the tax system is not limited to the issue of VAT. Within the framework of the so-called consolidated tax bill, broader changes are also being discussed: taxation of income received through digital platforms, a review of approaches to tax administration, as well as tighter control over entrepreneurs’ actual income. Taken together, these steps signify a gradual transition of the beauty industry from a semi-formal operating model to a more transparent, standardized system aligned with European regulations.
Under the new conditions, the market will inevitably undergo a transformation, creating both winners and those who will lose ground. Large chain salons, which benefit from economies of scale and can operate more efficiently under a higher tax burden, are likely to come out ahead. Businesses with transparent financial accounting and aggregator platforms that operate within the legal framework and meet the new requirements will also gain an advantage.
Conversely, the greatest risks arise for small sole proprietorships with high turnover, which may fall under the new tax rules, as well as for service providers lacking proper financial discipline. The “gray” sector of the market will also come under pressure, as it will have to either legalize its operations or gradually lose its competitiveness.
