Home-Based Bakery: What You Need to Know

KVED and NACE 2.1 Codes 

Please note that the economic activity codes under DK 009:2010 (Classification of Types of Economic Activity) will remain valid until the end of 2026. Starting from 1 January 2027, however, the NACE 2.1-UA Classification of Economic Activities will apply. The changes are minor, so if you already have, or register, any of the activity codes listed below, you will not need to amend your registration documents.                                       

Taxation System

The simplified taxation system, which requires taxpayers to maintain records of income only, is typically chosen for home-based confectionery production. It should be noted at the outset, however, that source documents supporting expenses must still be retained in this type of business, as food products are subject to stricter regulatory requirements. As for the choice of simplified taxation group, the following two groups are generally the most suitable.

Group 2

If you operate under this group, you may sell products to both individuals and individual entrepreneurs or companies, regardless of their tax regime. You pay a fixed single tax each month regardless of your income level (the amount is set by local councils but may not exceed UAH 1,729.40 per month), as well as the unified social contribution (USC) of UAH 1,902.34 per month and a military levy of UAH 864.70 per month. This group is a suitable option where production volumes are expected to be stable and relatively high, generating monthly income in excess of the total amount of taxes and contributions payable. Overall, the tax burden is fairly substantial. The fixed-rate tax becomes significantly more advantageous only at higher income levels (up to UAH 7.2115 million per year), making this option particularly well suited to high-volume retail sales conducted via online channels, social media, or direct consumer orders.

Group 3

If you do not yet have any customers, or have only a few, it is generally preferable to choose Group 3 with the 5% single tax rate and no VAT registration. This group also imposes no restrictions on customer categories, allowing you to conduct business officially with individuals, cafés, restaurants and supermarkets alike.

The 5% single tax and the 1% military levy are payable quarterly and are calculated based on the income actually received during the reporting period. If no income is received, these taxes do not apply. The USC, however, must be paid regardless of whether any income is earned. The minimum contribution is equal to 22% of the statutory minimum wage. In 2026, this amounts to UAH 1,902.34 per month (UAH 8,647 × 22%). The annual revenue limit for Group 3 is UAH 10.091 million.

Medical Examination

Confectionery products are food products. Their manufacture is considered an activity that poses an increased risk to consumer health. Therefore, entrepreneurs intending to manufacture confectionery products on their own are required to undergo an initial medical examination before commencing operations and periodic preventive examinations, in accordance with the List of Occupations, Industries and Organizations Whose Employees Are Subject to Mandatory Preventive Medical Examinations, approved by Resolution No. 559 of the Cabinet of Ministers of Ukraine dated 23.05.2001 No. 559 (the "Resolution No. 559"), at their own expense. Individual entrepreneurs (FOPs) undergo medical examinations and obtain a Personal Medical Record Book (Form No. 1-OMK). The procedure for conducting mandatory preventive medical examinations and issuing Personal Medical Record Books is established by Resolution No. 559.

Registration of Facilities

Any individual entrepreneur (FOP) engaged in the production and sale of food products, regardless of where such products are manufactured, is considered a food business operator. This means that the requirements of the Law of Ukraine No. 771/97-ВР of 23 December 1997 On Basic Principles and Requirements for Food Safety and Quality (the "Law No. 771/97") must be complied with. Pursuant to Part 1 of Article 25 of Law No. 771/97, all facilities used for the production and/or circulation of food products that do not require an operating permit are subject to state registration. It should be noted that the home-based production of confectionery products does not require an operating permit; therefore, the state registration procedure for a facility applies instead (part 2, article 23 of Law No. 771/97). To obtain registration, an application must be submitted no later than 10 calendar days before the commencement of operations. The application may be submitted free of charge through the Diia Portal or in paper form via a Centre for Administrative Services (CNAP) or the State Service of Ukraine on Food Safety and Consumer Protection. The application must specify the actual address of the production facility, which, in this case, is the entrepreneur's home address.

Food Safety

Basic hygiene requirements for premises, equipment and utensils, as set out in section VII of Law No. 771/97 must be complied with at home-based facilities just as at industrial production facilities. It is also necessary to implement a HACCP system, the absence of which may result in penalties. For small-scale production operations (which include an individual entrepreneur operating from a home kitchen), the law permits the use of simplified HACCP procedures involving less stringent requirements and a reduced volume of documentation. Implementing a HACCP system requires the development, implementation and ongoing application of documented procedures. An individual entrepreneur may either develop these independently or engage local HACCP consultants, who can typically help put the required documentation and procedures in place within one to two weeks.

It should be noted that even under the simplified HACCP procedures, it is mandatory to identify:

-           factors that may render products unsafe (hazard analysis);

-           measures required to prevent such hazards (control measures);

-           personal hygiene and sanitation requirements applicable to the production area;

 -          appropriate temperature controls for the storage and preparation of products and raw materials

Practical tip. To avoid penalties during a possible inspection, you should pay particular attention to maintaining proper sanitary and hygiene conditions at the production site. In a residential dwelling, the kitchen will normally be used as the production area unless the entire premises have been specifically adapted for production purposes. Raw materials, finished products and household items should be stored separately or otherwise in a manner that ensures safe storage. Cross-contamination and contact with animals must be prevented. Specific control measures and documentation requirements should be determined based on the risks associated with the production process. Allergenic products should be stored separately. Drinking water used in production should be of appropriate quality, comply with sanitary requirements and be supported by evidence of its quality.

Product Labelling

Even though products are manufactured at home, each package and label must contain complete consumer information, including:

-         the name of the product;

-         a complete list of ingredients;

-         storage conditions (e.g. Store at +2 to +4°C);

-         the production date and use-by date;

-         net weight or quantity;

-         the name and contact details of the manufacturer (individual entrepreneur).

Allergens must be clearly identified on the label (in bold or capital letters). If a product contains nuts, eggs, milk, gluten or other allergens and this is not indicated on the label, this will be considered a breach of the requirements for providing complete and accurate consumer information and may result in a fine of 10 minimum wages (UAH 86,470).

Payments

Since an individual entrepreneur(FOP) is a business entity, they are generally required to provide customers with a payment document confirming the purchase of their products. Where payment is made from the customer's bank account (IBAN) directly to the entrepreneur's business account using the account details provided, the bank payment instruction serves as proof of payment. In this case, a cash register (RRO) or software cash register (PRRO) is not required. However, if payment is made by card, through payment terminals or in cash, the entrepreneur must register an RRO/PRRO and issue customers with a fiscal receipt as usual.

Product Costing

Obtaining all the required registrations and permits alone will not make a business profitable. It is equally important to determine the correct cost of each product.

First of all, for each product, it is necessary to determine the cost of: all required ingredients, packaging, utilities and depreciation of equipment (oven, mixer, etc.), labour time, and at least a notional share of USC expenses or all taxes, where such taxes are fixed. Add the desired profit margin to the resulting amount. This will give you the actual product price. The price can then be adjusted upward or downward based on market analysis and a comparison with competing products.

Nataliia Shcherbak, Accounting and Tax Consultant