How Ukrainian business has survived the quarantine crisis year

Author

Maksim Nechiporenko

A year has passed since the start of the pandemic and business has been adapting to the new reality as best it can. Not everyone succeeded. Youcontrol named the changes in business circles, showed the number of closed companies and the most affected industries.

Situation with legal entities

In 2020, almost 54,000 new legal entities were opened in Ukraine. This is 20% less than in 2019—then more than 67,500 thousand enterprises began their work.

Slightly less than a third indicated Kyiv as the place of registration—more than 15,500. Following with a large margin are the traditional centers of business: Dnipropetrovsk, Odesa, Lviv, Kharkiv, and Kyiv regions. These regions account for a third of all new legal entities, or slightly less than 18,000.

The smallest number of newcomers is in the Luhansk region. A little less than 50 enterprises of various forms of organization began to work there in 2020. Data in Crimea has not been studied.

Most of the new legal entities indicated their main activity as complex service of objects. These are public utilities service providers (ZhEKs in Ukrainian), apartment building co-owner associations (OSMD in Ukrainian) and other service companies. Almost 3,500 of them appeared in Ukraine. After the reform of the housing and communal services sector carried out in 2016, the number of such enterprises confidently holds the leadership every year.

On the second place in terms of prevalence is non-specialized wholesale trade. This industry attracted more than 3,200 legal entities. In general, in the field of wholesale trade in various goods, almost a fifth of all companies that opened in 2020 were registered.

Wholesale trade has been one of the most attractive for several years in a row. In 2016-18, the number of agents here increased from 25% to 33%. However, in 2020 this trend changed somewhat and there was a slight drop.

This could be affected by restrictions related to the spread of infection. Therefore, the business chose less dynamic, and therefore less dependent, industries: cargo transportation, logistics, rental and construction of real estate.

Contrary to expectations, there were fewer business closings. In 2020, just a little more than 10,000 legal entities ceased to exist. This is a third less than in the pre-crisis 2019, when more than 15,000 of them were liquidated. Kyiv is the leader in closing legal entities—about a fifth of the total.

This trend is related to the simplification of tax documentation. It is easier for legal entities to "sit out" hard times than to start the liquidation procedure.

Individual entrepreneurs

The dynamics of individual entrepreneurs (IEs) is somewhat different. In 2020, more than 247,500 individual entrepreneurs began their work. This is almost 5% less than in 2019, when almost 261,700 of them were opened.

Most of the registrations were in the city of Kyiv, Kharkiv, Lviv, Odesa, Dnipropetrovsk regions. Least of all were in the Luhansk and Kirovohrad regions, where 2,760 and 4,690 IEs began to work, respectively.

By the end of 2020, there was no significant decline, and about 15,000-20,000 new entrepreneurs were registered every month.

But individual entrepreneurs closed by 16% more than in 2019—232,000 against 199,8007. Of these, more than a tenth stopped their activities in Kyiv. Only Dnipropetrovsk and Odessa regions showed negative dynamics, that is, the ratio between open and closed individual entrepreneurs in 2020. The rest of the regions showed the positive dynamics.

Most of all entrepreneurs closed their activities traditionally in December: almost 26,700. July was in second place with more than 23,000 liquidated ones. And if quarantine affected the registration data instantly, then the delayed closure dynamics was just as noticeable as with legal entities.

Legislative factors significantly affected the reduction in the number of individual entrepreneurs. For example, the government forecasted introduction of mandatory application of cash registers by all individual entrepreneurs from January 1, 2021.

The tax burden also played an important role. Firstly, the need for fixed payments, in particular, for entrepreneurs working on a simplified taxation system. Second, an increase in the minimum wage. This led to an increase in the size of the single social security tax that they have to pay even in the absence of income.

It is difficult to say how many IEs were discontinued due to epidemic restrictions. The statistics were affected by a complex of factors, quarantine was only one of them.

It is too early to talk about a crisis among small businesses. As of the beginning of 2021, more than 1.9 million individual entrepreneurs were active in the country. This is almost the same as in 2016, when there were exactly 2 million of them. Recall that then there was a sharp decrease in their number after changes in tax legislation.

Nevertheless, over the past three years, the dynamics of the opening and closing of the IEs has shown a systematic growth.