KVED Explained: Selecting Economic Activity Codes for Sole Proprietors

Every entrepreneur faces the question of choosing NACE codes during registration. Let's figure out together what this abbreviation means and why it's important to choose the correct NACE code when registering as a sole proprietor.

What is NACE?

NACE is a classifier of economic activities, in accordance with the Order of the State Committee of Ukraine for Technical Regulation and Consumer Policy "On Approval and Revocation of National Classifiers" No. 457 dated 11.10.2010 (hereinafter – Order No. 457). Its main purpose is to define and code the primary and secondary types of economic activity for legal entities, separate subdivisions of legal entities, and sole proprietors.

Where to find the list of NACE codes

You can review and select the appropriate NACE codes on the official website of the State Statistics Service of Ukraine (Ukrstat) via the link.

How many NACE codes can a sole proprietor have

There are no legislative restrictions on the number of NACE codes chosen, so during registration, you can specify as many types of activity as you wish, and add or change them later. One NACE code must necessarily be the primary type of activity.
Important! The NACE code listed first in the registration application, during initial registration, will be considered the primary type of activity.

How to choose NACE codes for a sole proprietor

Before registering as a sole proprietor, it is important to carefully consider the types of entrepreneurial activity and correctly select the appropriate NACE codes. All sole proprietors should pay attention to the choice of NACE codes, both those who have chosen or intend to choose the simplified taxation system - single tax (ST), and those who are on the general taxation system.

If a sole proprietor is on the general taxation system and receives income from activities not registered by them in the USREOU, then in accordance with para. 177.6 of Art. 177 of the TCU, such income is taxed according to the general rules established by this Code for individual taxpayers.

If a sole proprietor is registered as a single tax payer or plans to become one, then we draw attention to the fact that a sole proprietor has the right to receive income and, accordingly, pay single tax only from registered types of activity. In addition, in accordance with part 5 of Art. 291 of the TCU, for single tax payers, a number of activities are prohibited or special conditions for applying the simplified taxation system are provided.

If a single tax sole proprietor is found to be engaged in activities that are not registered by them or are prohibited for single tax payers or a specific group of single tax payers, this can lead to negative consequences, such as deprivation of single tax payer status and the imposition of penalties by controlling authorities.
Therefore, to avoid such negative consequences, the entrepreneur must correctly determine the NACE codes during state registration or change them before commencing the relevant economic activity.

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How a sole proprietor can change or add a new NACE code

If you want to change or add a new NACE code, then you need to submit to the state registrar an Application for State Registration of an Individual Entrepreneur (Form 1).

In the application, you need to:

1. Fill in the sole proprietor's data.
2. Select the registration action "State registration of changes to information about an individual entrepreneur".
3. In the "Information on changes" section, mark the box next to "Change of economic activities".
4. List the NACE codes (including new ones, or excluding those you wish to remove) in the corresponding field, indicating your primary activity first.
5. After making changes to the information contained in the USR, it is also necessary to submit to the tax office at the sole proprietor's registration address, either in person or by mail, an Application for the application of the simplified taxation system with relevant changes. To make changes, you need to initially mark the "Making changes" field and specify the NACE codes in point 8.

Sole proprietors of groups 1 and 2 are obliged to submit the Application to the controlling authority no later than the 20th day of the month following the month in which such changes occurred. Sole proprietors of group 3 submit it together with the tax declaration for the reporting period in which the changes occurred, in accordance with the requirements of paras. 298.5 and 298.6 of Art. 298 of the TCU.

How a sole proprietor can change or add a new NACE code online

For that, you need to:

• register or log in on the website diia.gov.ua
• select "Making changes to sole proprietor information" in the "Services" menu
• in the "Types of economic activity" block, click "Edit"
• delete irrelevant NACE codes, if any, and/or add new ones (to do this, you only need to start entering the code, and the system will then provide relevant options, from which you choose the desired one and save by clicking "Edit")
• save changes
• after making changes, the system will ask if you are a single tax payer. If so, the changes will automatically be entered into the register of single tax payers. You will need to specify the tax office where the sole proprietor is registered and the sole proprietor's tax address
• verify the data and sign with a qualified electronic signature (QES).
  Changes are made within 24 hours. After the changes are entered into the information, a corresponding letter and a link to verify the information in the USR and the register of single tax payers will be sent to the email address registered in "Diia".

And although Order No. 457 dated 11.10.2010 clearly establishes that NACE is purely a statistical tool, from the perspective of taxing entrepreneurial activity, NACE is at the same time a mechanism for common language used in many other non-statistical areas (social and tax regulation, licensing, tariff systems, etc.).

Therefore, it is extremely important to specify precisely those NACE codes that denote your activity, as a seemingly minor statistical tool (NACE) can cause many inconveniences for further business operations and lead to the imposition of penalties by controlling authorities.

The experienced team of Olha Petrukhina Law Office will provide you with qualified assistance in any matters related to the activities of sole proprietors, including issues of NACE code selection, their registration and changes, registration as a simplified taxation system payer, and appealing decisions of controlling authorities regarding the imposition of penalties.