September 25, 2026
Vita Prykhodko, Attorney, for Yurydychna Hazeta
Business splitting is one of the mechanisms used to minimize tax and other mandatory payments. Essentially, it involves the artificial division of a profitable business into the activities of separate business entities, most commonly through the involvement of individual entrepreneurs (FOPs) who are entitled to apply the simplified taxation system.
In practice, when one FOP approaches the income threshold applicable to its single-tax group, another trusted and controlled entrepreneur may be brought into the business model. At the same time, the business may continue to operate as an integrated network, using the same stores or offices, personnel, trademarks and product range. This allows the business to formally remain within the statutory thresholds and minimize its tax liabilities.
For a long time, operating through a network of related FOPs was considered a common way of reducing the tax burden, and many types of businesses used this model. However, in 2026, state oversight has intensified significantly. Such arrangements are attracting increasing attention from both tax and law enforcement authorities. The State Tax Service, together with the Bureau of Economic Security and banks conducting financial monitoring, is identifying entrepreneurs who split a larger business among several smaller companies or FOPs in order to remain under the simplified taxation system with increasing frequency.
Although the concept of “business splitting” is not expressly defined in Ukrainian legislation, tax authorities may seek to establish that such a structure was artificially created and that the income threshold applicable to the relevant single-tax group has been exceeded. This, in turn, may result in additional tax liabilities and penalties.
In February of this year, the State Tax Service of Ukraine published information stating that it had identified 10 well-known retail chains that had used so-called “business splitting” schemes. The potential tax evasion was estimated at no less than UAH 1 billion. The publication referred to retail chains selling household appliances and electronics, clothing and footwear, and food products, with more than 800 individual entrepreneurs allegedly involved in the arrangements. The materials concerning the identified facts were transferred to the Bureau of Economic Security of Ukraine, where pre-trial investigations are being conducted.
The Main Departments of the State Tax Service in Odesa and Dnipropetrovsk regions have published guidance on preventing manipulation of statutory provisions and the use of artificial “business splitting.” The tax authorities have identified the key indicators of such arrangements.
It should be taken into account that tax and other regulatory authorities assess not only documentary evidence but also how the business actually operates, including the availability of personnel, where profits are ultimately accumulated, the degree of control over the respective entities, and other relevant circumstances. Even where FOPs are formally registered in the names of different individuals, the fact that they effectively constitute a single business and a unified system of financial flows to one individual or a group of related persons may raise concerns. The following section examines the indicators used by tax authorities and banks to identify artificial business splitting, as well as the risks and consequences that may arise in the event of violations.
The main indicators used by tax authorities and banks to identify business splitting may include the following:
Entrepreneurs involved in business splitting schemes often operate from the same address, using a shared office, and may have the same registered address, warehouse or retail premises, website or even telephone number. The use of the same IP address for banking transactions may also be one of the key indicators used to identify business splitting.
FOPs are often registered in the names of family members or senior company managers, meaning that trusted individuals are involved in the business structure.
The same sales staff, accountants, lawyers and IT specialists may provide services to several entrepreneurs simultaneously. The entrepreneurs may also use identical cooperation agreement templates and, in many cases, have the same level of remuneration or compensation.
The use of the same trademark or brand by several formally independent entrepreneurs may also indicate that their activities are part of a single business structure.
Substantial transfers may be made between related persons, with income generated by different FOPs ultimately being accumulated in the accounts of one individual or family.
Despite the formal independence of several FOPs, business decisions within a business-splitting structure may in fact be made centrally by the business owner.
It is also important to distinguish between business splitting and the lawful separation of business activities or the operation of a family business. The mere registration of several FOPs or companies by family members is entirely lawful in itself. The activities of entrepreneurs who are related by family ties should not be regarded as business splitting where each FOP operates independently and autonomously, has its own assets and bank accounts, maintains separate accounting and tax records, and has its own material and technical resources and customer base. These circumstances indicate that each entrepreneur is carrying out independent business activities aimed at achieving an independent economic objective, which is a characteristic of genuine entrepreneurship.
Nor should a situation in which several independent FOPs operate within the structure of a single business automatically be regarded as artificial business splitting. The key factor in such a case is full autonomy: each specialist manages a separate project, has their own customer base and bears individual responsibility for the documentation supporting their business activities.
To avoid concerns from tax authorities and banks conducting financial monitoring regarding the absence of artificial business splitting, it is important to follow the recommendations below:
Thus, risks arise where regulatory authorities determine that a group of entrepreneurs operates jointly as a single business and that the division of activities is carried out solely to remain within the simplified taxation system. If tax authorities identify the relevant violations, this may constitute grounds for cancellation of the taxpayer’s single-tax status and transfer to the general taxation system, with a recalculation of tax liabilities for previous periods.
Additional corporate income tax and other mandatory payments may be assessed for the entire period during which the arrangement was used, together with applicable penalties. If business splitting resulted in the actual failure of significant amounts to be paid into state or local budgets or state targeted funds, the persons responsible may face criminal liability for tax evasion.
Businesses should therefore take steps to prevent violations of tax legislation and periodically review their tax structures and business models.