Business splitting through sole proprietors (FOPs): red flags, risks and how to structure operations lawfully

Using several individual entrepreneurs (FOPs, the Ukrainian sole-proprietor status) within one project, a chain of shops or a group of related businesses is not a violation in itself. The law does not prohibit family members, partners or other related persons from running separate businesses, working in the same premises or lawfully using a shared brand.

The problem arises when several formally independent FOPs in fact serve a single business, are managed from one centre, bear no entrepreneurial risk of their own, and the revenue is split between them mainly to stay on the simplified tax system, keep within income limits or avoid other tax obligations.

This is exactly what the State Tax Service of Ukraine (STS) calls artificial business splitting.

Below we look at which red flags can attract the attention of the tax authorities, how a lawful structure differs from a formal one, and what an entrepreneur should check right now.

What business splitting is

The term “business splitting” is not defined in the Tax Code of Ukraine as a separate tax offence.

Therefore, having two, five or even more FOPs does not in itself give automatic grounds for a fine or additional tax assessment.

The tax authority has to establish specific violations, for example:

• exceeding the income limit;
• unlawful use of the simplified tax system;
• improper use of cash registers (RRO) or software cash registers (PRRO);
• failure to register sales transactions;
• lack of proper inventory accounting;
• use of unregistered workers;
• replacing employment relationships with contracts with FOPs;
• carrying out activities incompatible with the relevant single-tax group;
• understating tax liabilities or concealing actual income.

In practical terms, splitting is a situation where a single business activity is artificially divided among several entities without a sufficient independent business purpose.

The key question is not how many FOPs there are, but whether each of them is a genuinely independent entrepreneur.

Why the issue has become especially relevant

In 2026 the STS stepped up its scrutiny of retail chains, food service outlets and other businesses where sales are formally made through a large number of FOPs.

According to an STS announcement of 3 February 2026, the tax service identified 10 retail chains that involved more than 800 FOPs, with possible budget losses estimated at over UAH 1 billion. In August 2026 the STS reported more than 500 brands and trademarks showing signs of splitting, 23 large retail chains involving over 1,000 FOPs, and possible budget losses of at least UAH 1.7 billion; a further 18 chains are under review.

This shows that the authorities no longer analyse just one entrepreneur’s reporting, but the entire actual business model:

• who manages the business;
• who owns the goods and equipment;
• who hires the staff;
• who sets the prices;
• how the revenue is distributed;
• who deals with suppliers;
• which bank accounts, cash registers and IP addresses the entrepreneurs use.

Main red flags of possible business splitting

No single indicator proves a violation automatically. The risk is assessed on the totality of the facts.

1. A single management centre

The risk increases if one person actually runs all the FOPs:

• sets the prices;
• decides on the product range;
• distributes the revenue;
• approves purchases;
• hires and dismisses staff;
• negotiates with landlords and suppliers;
• decides which FOP a particular sale goes through.

The entrepreneurs may be formally registered in different people’s names but make no independent decisions in practice.

2. Switching revenue once the limit is approaching

One of the most telling signs is when, as one FOP approaches its income limit, sales start going through another entrepreneur — with no change of shop, staff, goods or business processes.

In 2026 the income limits for single-tax payers are:

Group	Multiple of the minimum wage	Annual income limit
Group I	167 × UAH 8,647	UAH 1,444,049
Group II	834 × UAH 8,647	UAH 7,211,598
Group III	1,167 × UAH 8,647	UAH 10,091,049

The limits are set under paragraph 291.4 of Article 291 of the Tax Code of Ukraine and are calculated from the minimum wage in effect on 1 January of the relevant year (UAH 8,647 in 2026). The amounts are confirmed by the STS.

Reaching the limit is not a violation in itself. What is problematic is artificially moving the flow of sales to another FOP without any real change of seller or business model.

3. The same retail premises

The tax service pays attention when several FOPs operate in one shop, restaurant, salon or office, and the customer does not really know whom they are buying goods or ordering services from.

The risk is higher when:

• there is no clear division of floor space;
• there are no lease or sublease agreements;
• the goods of different entrepreneurs are mixed together;
• one employee takes payment for everyone;
• the customer is handed a receipt from whichever of several FOPs happens to be used.

4. A single brand, website and advertising

A shared brand does not in itself mean unlawful splitting. Franchisees, licensees, partners or individual shops of a chain can lawfully operate under one brand.

However, there must be documents explaining the legal and economic model:

• a licence agreement;
• a commercial concession (franchise) agreement;
• a marketing services agreement;
• trademark usage rules;
• agreements between the website owner and the sellers.

If the brand, website and advertising are shared but there are no agreements, and customers are arbitrarily distributed among FOPs, the risk increases.

5. Shared staff

A risk indicator may be a situation where cashiers, sales assistants, administrators or technicians work for several FOPs at the same time, while the employment relationship is formalised with only one entrepreneur or not formalised at all.

The authorities also examine who actually:

• gives the worker their tasks;
• sets the schedule;
• supervises the work;
• provides the workplace and equipment;
• pays the remuneration.

A separate risk is converting employees into FOPs if they then continue to do the same work, follow internal work rules and have no real entrepreneurial independence.

6. A shared warehouse, goods and equipment

Questions may arise if several FOPs use:

• one warehouse;
• shared stock;
• the same equipment;
• the same vehicles;
• shared cash registers or payment terminals;
• the same accounting software.

Shared use of assets can be lawful, but it must have a documented basis: a lease, sublease, loan for use, safekeeping agreement, or the provision of logistics or other services.

7. Identical IP addresses and centralised administration

Among the typical signs of splitting, the tax service explicitly names a shared IP address for banking operations and RRO/PRRO (clarification by the Main STS Office in Odesa Region, February 2026).

This is not independent proof of a violation. One IP address may be explained by a shared accountant or office network. Together with other signs, however, it may confirm centralised management of a group of FOPs.

8. The same suppliers and no customers of their own

The risk increases when all the FOPs:

• buy the same goods on the same terms;
• do not negotiate independently;
• have no customer base of their own;
• depend on one business organiser;
• cannot explain why a sale was made through a particular entrepreneur.

9. Formal or sham transactions between related entities

Contracts between FOPs must reflect actual transactions. Simply signing acts for marketing, consulting, logistics or information services is not enough.

You need evidence of actual performance:

• reports;
• correspondence;
• terms of reference;
• work results;
• documents on the movement of goods;
• support for how the price was calculated.

Under paragraph 44.1 of Article 44 of the Tax Code of Ukraine, tax accounting data must be supported by primary and other documents required by law.

When several FOPs can operate lawfully

Several entrepreneurs can work side by side or within one project if each of them has genuine economic substance.

Independence is supported by:

• their own contracts with customers and suppliers;
• setting prices independently;
• separate bank accounts, cash registers and accounting;
• their own staff or properly documented shared use of personnel;
• documented use of premises, equipment and the brand;
• their own expenses and business risks;
• the ability to make a profit or incur a loss independently of other participants;
• a clear business purpose for setting up each entity;
• actual performance of contracts between related parties.

For example, separate entrepreneurs may work in shared premises, one selling goods, another providing services and a third doing repairs. But the customer must understand whom they are contracting with, and each entrepreneur must have separate accounting, documents and liability.

What the tax authority cannot do automatically

A conclusion of “business splitting” alone is not enough to assess additional taxes.

The tax authority must:

• identify the specific taxpayer;
• determine the relevant tax period;
• describe the actual violations;
• identify the legal provision that was breached;
• calculate the tax liability;
• support its conclusions with proper evidence.

The Tax Code does not contain a universal procedure under which the income of all related FOPs is automatically combined merely because of a shared brand, address or accountant.

At the same time, a body of evidence may become grounds for audits, additional assessments and referral of materials to other authorities.

Possible consequences for the business

Depending on the violations established, the following are possible:

• desk or field audits of several related entities;
• additional assessment of taxes and levies;
• applying the increased single-tax rate to certain income;
• cancellation of single-tax payer registration under paragraph 299.11 of Article 299 of the Tax Code of Ukraine;
• VAT assessment where the grounds provided by law exist;
• fines and late-payment interest;
• financial penalties for breaching the rules on using RRO or PRRO;
• liability for unregistered workers;
• bank requests as part of financial monitoring;
• temporary suspension of, or refusal to carry out, certain transactions in cases provided by law;
• referral of materials to the Economic Security Bureau of Ukraine (ESBU).

Criminal liability under Article 212 of the Criminal Code of Ukraine does not arise automatically from using several FOPs. It requires proof of intentional tax evasion, the relevant amount of unpaid taxes and the other elements of the criminal offence.

Self-check: ten questions for the business owner

1. Can each FOP explain its role in the business model?
2. Who actually sets the prices and makes management decisions?
3. Are sales switched once one FOP approaches the limit?
4. Does the customer understand whom exactly they are buying goods or services from?
5. Is the use of premises, equipment, the warehouse and the brand documented?
6. Does each FOP have its own staff or a lawful model for sharing them?
7. Do the contracts between related entities match the actual transactions?
8. Are there documents confirming the movement of goods and the provision of services?
9. Are contractor-FOPs in fact performing the functions of ordinary employees?
10. What is the business purpose of each entity other than reducing the tax burden?

If several of these questions have no clear answer, the structure is worth reviewing before the tax service, the bank or the ESBU does so.

What to do if the business already operates through several FOPs

Step 1. Carry out a legal and tax audit

Map all the FOPs and companies, and identify their functions, customers, staff, assets, contracts and financial flows.

Step 2. Define the business purpose

For each entity it must be clear why it exists and what independent function it performs.

Step 3. Document the use of shared resources

Review the lease, sublease, storage, brand licensing, staffing, accounting, marketing and logistics services agreements.

Step 4. Review the staff

Identify the actual employer of each person and bring the contracts into line with the real relationship.

Step 5. Review RRO, PRRO and inventory accounting

Each sale must go through the proper entity. The data in the cash register, contract, receipt, payment terminal and inventory records must be consistent with one another.

Step 6. Eliminate sham contracts

Every transaction between related parties must be backed by real work, services or goods and by proper supporting documents.

Step 7. Assess whether the structure needs to change

If several FOPs are not in fact independent, a safer solution may be to consolidate the activity within one FOP or a legal entity, switch to another tax system, or set up a transparent franchise, agency or partnership model.

Changes should be made on the basis of prior analysis. Simply closing a FOP does not remove the risks for past tax periods.

The same risks matter to a buyer: if the business you are acquiring operates through a group of FOPs, this is a separate item in due diligence before buying a business.

Conclusion

Business splitting is not the mere fact that several FOPs are operating. The main risk arises when formally separate entrepreneurs are in fact parts of one business, have no independent business purpose and are used to artificially split income or avoid tax and employment obligations.

A shared brand, premises, accountant or website does not prove a violation on its own. But combined with centralised management, shared staff, revenue switching and the absence of real contracts, they may become grounds for an in-depth audit.

That is why it is important for a business not only to have properly registered FOPs, but also to be ready to demonstrate the economic logic, independence and genuine activity of each entity.

Legal framework

• Tax Code of Ukraine No. 2755-VI — para. 44.1 of Art. 44 (tax accounting data must be supported by primary documents), para. 291.4 of Art. 291 (single-tax groups and income limits), Arts. 298–299 (procedure for opting into the simplified system, registration and cancellation of single-tax payer registration)
• Law of Ukraine No. 265/95-VR “On the Use of Cash Registers in Trade, Catering and Services”
• Labour Code of Ukraine — Art. 265 (liability for allowing a person to work without a formal employment contract)
• Criminal Code of Ukraine — Art. 212 (evasion of taxes, levies and other mandatory payments)

ARGUS Consulting group carries out legal and tax analysis of business structures, identifies signs of possible splitting, reviews contracts, staff, use of assets and financial flows, and prepares a practical plan to reduce tax and legal risks. If the tax service has already sent a request or started an audit, we can help with tax dispute support; for a planned review of your structure, see legal support for business.

Legal framework as of 24.09.2026. Income limits change every year together with the minimum wage.