UKRAINIANTAXBIZ COMPANION2016

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The information contained in our Ukrainian Taxbiz companion is for informational purposes only. Such information should not be regarded as substitute for professional advisory service nor used as basis for decision or action without prior consultation with our advisors.

2016UKRAINIAN

TAXBIZ COMPANION

Informa on contained in this publica on is based on the current tax laws and prac ces including the amendments

to the Tax Code of Ukraine as of 1 January 2016. Due to the fast changing environment in Ukraine and new legisla ve ini a ves, further changes in the Ukrainian tax law might

come in the future. Therefore, we encourage you to follow our news and Tax Alerts on www.mazars.ua.

This publica on is intended to serve as a general guide and should not be acted upon without professional advice. Mazars

Ukraine shall not be responsible for or liable to any claims, damages cost or expenses arising from the use of informa on

contained in this publica on.

INDEX

MAIN TAX CHANGES AS OF 1 JANUARY 2016 . . . . . . . . . . . . . . 1TAX SYSTEM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3CORPORATE PROFIT TAX (CPT). . . . . . . . . . . . . . . . . . . . . . . . . 10VALUE ADDED TAX (VAT) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19PERSONAL INCOME TAX (PIT) . . . . . . . . . . . . . . . . . . . . . . . . . 25SOCIAL INSURANCE CONTRIBUTION (SIC) . . . . . . . . . . . . . . . 28SIMPLIFIED TAXATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30EXCISE TAX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34PROPERTY TAX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37TRANSFER PRICING (TP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40SPECIAL REGIME FOR AGRICULTURAL ENTERPRISES . . . . . . . 42

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MAIN TAX CHANGES AS OF 1 JANUARY 2016On 31 December 2015, the President of Ukraine signed the law on tax reform. Tax changes are eff ec ve from 1 January 2016.

We would like to draw your a en on to the brief overview of changes provided by this law.

KEY STATEMENTS TAX LEGISLATION – 2015 TAX LEGISLATION – 2016Corporate profi t tax (CPT) rate 18% 18%

Value added tax (VAT) rate 0%/7%/20% 0%/7%/20%

Personal income tax (PIT) rate 15%/20% 18%

Social insurance contribu on (SIC) rate – employer’s contribu on

36.76%-49.7% (depending on the category of

professional risk of an enterprise)

22%

SIC rate – employee’s contribu on 3.6% None

SIC cap 17 minimum wages(UAH 23 426)25 minimum wages

(UAH 34 450)Maximum SIC payment(in 2015 for low level of professional risk)

UAH 8 611 UAH 7 579

Maximum annual income of single tax payer UAH 20 million UAH 5 million

• CPT changes:o Quarterly repor ng for companies with revenue exceeding UAH 20 million

(previously yearly repor ng);o Cancella on of monthly advance CPT payments star ng from 1 January 2016;

• VAT changes:o Cancella on of VAT exemp on for agricultural crops;o Implementa on of 2 registers for VAT refund with chronological repayment

(eff ec ve from 1 February 2016);

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MAIN TAX CHANGES AS OF 1 JANUARY 2016• Salary related payments changes:

o PIT rate – 18% (previously 15%/20%);o SIC rate – 22% (previously 36.76%-49.7%);o SIC contribu on is capped at the equivalent of 25 minimum wages – UAH

34 450 (previously 17 monthly minimum wages);o Cancella on of withholding SIC for employees (previously 3.6% was withheld

from monthly salaries);o Prolonga on of temporary 1.5% military tax;

• Simplifi ed tax regime changes:o Maximum annual income of individual entrepreneurs as a single taxpayer is

limited to UAH 5 million (previously UAH 20 million);o Single tax rate – 3% for VAT payers, 5% for non VAT payers (previously 2% and

4% respec vely);

• Excise du es:o Implementa on of electronic excise system for petroleum sales;o Increase of excise duty rates (beer by 100%; spirits by 50%; wine by 100%;

low alcohol drinks by 300%; fuel by 13%; tobacco by 40%);

• Special VAT regime for agricultural companies will be cancelled star ng from 1 January 2017. For 2016 year, it is eff ec ve with the following changes (previously agricultural producers accumulated 100% VAT on special accounts):o For grain – 85% should be paid to budget, 15% accumulated;o For milk and meat – 20% should be paid to budget, 80% accumulated;o For others – 50% should be paid to budget, 50% accumulated.

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TAX SYSTEMINDEX

Tax Legisla on of UkraineMain Taxes and Du esTax Authori esTax PeriodsTax ControlDecisions of a Controlling BodyResponsibility and Period of Limita onTax Ruling

TAX LEGISLATION OF UKRAINE

Tax legisla on of Ukraine consists of:• Cons tu on of Ukraine;• Tax Code of Ukraine (hereina er referred as TCU);• Law of Ukraine on Social Insurance Contribu on;• Customs Code of Ukraine;• Other customs legisla on which regulates import or export taxa on;• Interna onal trea es ra fi ed by the Ukrainian Parliament;• Supervisory authority acts which regulate tax issues.

If provisions of an interna onal treaty ra fi ed by the Ukrainian Parliament diff er from the TCU, the provisions of the interna onal treaty should prevail.

According to the TCU:• Tax is a mandatory and uncondi onal payment to the relevant budget that is

levied from a taxpayer.• Fee (payment, duty) is a mandatory payment to the relevant budget

that is levied from a payer under the condi on of obtaining a special benefi t, including services provided by public bodies, bodies of local self-governments, other authorized bodies and en es.

The Ukrainian tax system consists of the totality of na onal and local taxes and fees paid in compliance with provisions s pulated in the TCU.

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TAX SYSTEMMAIN TAXES AND DUTIES

The list of Ukrainian taxes and du es is established by the TCU. In accordance with the TCU all taxes and du es are classifi ed as either:

• Na onal (established in the TCU and are mandatory within the whole territory of Ukraine); or

• Local (set in compliance with the list and within the boundary rates as specifi ed by TCU, local, rural and municipal councils according to their mandates, are mandatory for payment within the territories of respec ve communi es).

The TCU provides for the following 11 taxes and du es:• Corporate profi t tax (CPT);• Personal income tax (PIT);• Value added tax (VAT);• Excise tax;• Ecological tax;• Rent tax;• Customs du es;• Property tax (including real property tax and land tax);• Single tax;• Fee for parking of vehicles;• Tourist tax.

In addi on to the taxes and du es s pulated by the TCU, Ukrainian taxpayers are required to remit other taxes and du es:

• Mandatory social insurance contribu ons (SIC);• Military tax;• Contribu on to the Pension Fund on services of mobile communica on;• Contribu on to the Pension Fund on cash purchases of foreign currency.

The TCU and Law of Ukraine on Mode of Foreign Investment provide for na onal treatment of investment, taxa on and other economic ac vi es by foreign investors in Ukraine. Therefore, foreign investors and companies do not benefi t from any preferences.

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TAX SYSTEMTAX AUTHORITIES

There are three levels of tax authori es in Ukraine.

The State Fiscal Service of Ukraine is the central execu ve body superior to regional offi ces that, in their turn, are superior to state tax inspec ons in districts, ci es, city districts, etc.

Main task of tax authori es of the two fi rst levels is to organize opera on of their subordinate tax agencies, carry out rule making, generalize experience, provide explana ons, etc. Direct control over tax payments, inspec ons, taxpayers’ registra on and amounts paid in taxes, etc. are carried out by state tax inspec ons.

There are separate tax inspec ons for large taxpayers (taxpayers with income exceeding UAH 500 million or paid taxes exceeding UAH 12 million for the last year).

TAX PERIODS

Tax period is a me interval, for which taxes are accrued and paid.

Basic tax periods Deadline for return submissionDeadline for tax

liabili es paymentCalendar year 60

10 calendar days following the last day of a respec ve

deadline for return submission

Calendar half year (6 months) 40

Calendar quarter 40Calendar month 20* A year is the tax period for individuals, however, special terms are set for submi ng reports and paying taxesFor private entrepreneurs 40For individuals – payers of PIT

not later than 1 May of the following year

not later than 1 August of the following year

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TAX SYSTEMTAX CONTROL

Tax authori es may carry out desk, documentary (scheduled and unscheduled, remote and fi eld) and ex post tax audits.

Desk tax audit is an inspec on carried out at the offi ce of tax authority based on the data included in tax returns.

Ex post (actual) tax audit is an inspec on carried out at the taxpayer’s loca on to control compliance with requirements regarding cash turnover, se lements and cash opera ons, employment rela onships, availability of state registra on of business ac vity, licenses, and patents.

Documentary tax audit is an inspec on that can be carried out either at the offi ce of tax authority (remote) or at the taxpayer’s loca on (fi eld) to inspect meliness, credibility, completeness of accruals and payments of all taxes and fees, compliance with tax legisla on, etc. Such inspec on is carried out based on fi nancial statements and tax returns, accoun ng informa on and primary documents.

Documentary inspec on may be scheduled, in other words, provided for by a schedule, or unscheduled, in other words, not provided for in a schedule and carried out exclusively when specifi c condi ons s pulated in the TCU are met.

Type of inspec on

Dura on of inspec on depending on a category of taxpayer, working days

Large taxpayers (annual income exceeding UAH

500 million)1

Others (annual income between

UAH 260 and500 million)

Small business en ty (annual

income less than UAH 260 million)2

Documentary scheduled 30 20 10May be extended by 15 10 5Documentary unscheduled 15 10 5May be extended by 10 5 2Ex post (actual) 10May be extended by 5

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1) Large taxpayers – en es with income exceeding UAH 500 million or taxes paid exceeding UAH 12 million for the last 4 quarters (defi ni on is provided by the TCU);

2) Small business en ty – private entrepreneurs and legal en es with less than 50 employees and income less than EUR 10 million for the year – approximately UAH 260 million (defi ni on is provided by the Law of Ukraine on Small Entrepreneurship).

Results of tax audit are presented in the form of tax audit act indica ng all iden fi ed breaches or in the form of a reference (if no breaches are found).

DECISIONS OF TAX AUTHORITIES

Tax authori es may charge tax liabili es, decrease tax losses or nega ve amounts and/or budget VAT recovery, resul ng from tax audit. Therefore, the taxpayer is sent a tax no fi ca on-decision. Tax amounts should be paid within 10 day period or appealed.

If a taxpayer fails pay tax amounts specifi ed in tax returns or determined in tax no fi ca on-decisions in a mely manner, such taxpayer may be sent a tax claim and a right to tax lien may arise (prohibi on to dispose of property without permission of tax authori es).

A taxpayer may appeal any decision of the tax authority. The TCU s pulates two procedures of appeal: administra ve and li ga on.

Administra ve appeal has two levels. Primary appeal is submi ed to the tax administra on of a respec ve region. In case the appeal is not sa sfi ed, repeated appeal may be submi ed to the State Fiscal Service of Ukraine. The term for appeal is 10 days from the receipt of respec ve decision; the term for considera on of the appeal is 20 days, which may be extended to 60 days. In case the repeated appeal is not sa sfi ed, a taxpayer may fi le a court claim. Li ga on procedure is usually me-consuming and passes through three instances (district court, court of appeal, and court of cassa on).

During the period of appealing tax no fi ca on-decision by administra ve or li ga on procedure, addi onally charged tax liability is considered as unreconciled and may therefore not be subject to enforcement measures.

TAX SYSTEM

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RESPONSIBILITY AND PERIOD OF LIMITATION

According to the TCU, a taxpayer may be charged with penal es and/or fi nes:

Type of breach

Penalty size in case of:

First breachRepeated breach

(within the specifi ed period)

Breach of order of registra on (registra on, re-registra on) UAH 510 UAH 1 020 (over a year)

Breach of order of providing informa on on income paid to individuals UAH 510 UAH 1 020 (over a year)

Non-submission (late submission) of tax returns UAH 170 UAH 1 020 (over a year)

Breach of terms on keeping primary documents UAH 510 UAH 1 020 (over a year)

Penal es for understa ng tax liabili es (or oversta ng amounts of budget repayments) found by a tax authority

25% of addi onally charged amount

50% of addi onally charged amount (during

1095 days)Non-payment/delayed payment of agreed tax liability

10% of debt amount for up to 30-day delay20% of debt amount for over 30-day delay

Non-calcula on, non-withholding and/or non-payment of taxes before or simultaneously with paying income for the benefi t of other taxpayer (tax on income of non-resident, individuals, etc.)

25% of tax liabili es

50% of tax liabili es (second viola on during

1095 days)75% of tax liabili es (third

and further viola on during 1095 days)

Late registra on of VAT invoices

10% of VAT amount for up to 15-day delay20% of VAT amount for up to 30-day delay10% of VAT amount for up to 60-day delay40% of VAT amount for over 60-day delay

Disposal of property in tax lien without permission of a tax authority 100% of property value

Petroleum sales without excise registra on 100% of sold petroleum value

TAX SYSTEM

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TAX SYSTEMBesides, statutory penalty interest is applied to late payment of tax liabili es (including penal es) at the rate of 120% of the discount rate of Na onal Bank of Ukraine.

Tax authori es are en tled to set the amount of tax liabili es (including penal es) no later than within 1095 days a er deadline for submission of the tax return.

Taxpayers are temporary exempted from penal es for submission of inaccurate CPT returns for 2015 year.

TAX RULING

A taxpayer may apply for a tax ruling by tax authori es to clarify tax legisla on. Tax authori es are obliged to provide tax rulings within 30 days from the date of applica on. Tax ruling has a binding eff ect only for the benefi t of the individual applicant and may be used only by the taxpayer, to whom such advice was provided.

Taxpayers ac ng in compliance with a tax ruling may not be liable for breach of tax legisla on. The taxpayer may fi le a court claim to appeal the tax ruling if such ruling does not comply with eff ec ve tax legisla on.

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CORPORATE PROFIT TAX (CPT)INDEX

Tax RatesTax PayersTax PaymentsGeneral Tax Accoun ng RulesTaxa on of Resident En esTaxa on of Non-Resident En esDouble Tax Trea es

TAX RATES

The corporate tax in Ukraine is at the standard fl at rate of 18%. Special rates of 0% or 3% are available for income generated from life insurance and other insurance respec vely.

TAX PAYERS

In accordance with the TCU under general provisions taxpayers of the CPT are:

• Residents, legal en es who carry out business ac vity both in the territory of Ukraine and abroad;

• Non-residents:o Legal en es who receive income from Ukrainian source;o Representa ve offi ces of non-residents who receive income from Ukrainian

source or provide agent (representa ve) and other func ons to such non-residents or their founders.

TAX PAYMENTS

The deadlines for submission of tax returns and tax payments are as follows:

• The repor ng periods for CPT are quarterly, half yearly, three consecu ve quarters and yearly;

• The repor ng period for newly created companies and companies with revenue less than UAH 20 million is yearly;

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CORPORATE PROFIT TAX (CPT)• Quarterly tax returns should be submi ed within 40 calendar days a er the

end of the repor ng quarter, annual tax returns should be submi ed within 60 calendar days a er the end of the repor ng year;

• CPT should be paid within 10 calendar days following the deadline for the return’s submission;

• The amount of CPT liability to be paid should be decreased by the following amounts:o Advance CPT payments on dividends;o CPT paid abroad;o Property tax paid.

Ukrainian tax legisla on envisages advance CPT payments according to the following provisions:

• Taxpayers are obliged to pay single advance CPT payment in the amount not less than 2/9 of CPT liability reported for 3 quarters of 2016 year before 31 December 2016;

• Advance CPT payments on dividends are paid before or along with the payment of dividends.

GENERAL TAX ACCOUNTING RULES

According to the TCU tax base is:

• For residents – fi nancial profi t before tax (reported in the Profi ts and Loss Statement according to Ukrainian GAAP or IFRS) adjusted by a number of items specifi ed by the TCU. If the company’s annual income for the last repor ng year does not exceed UAH 20 million, such taxpayer is en tled not to make any adjustments (except for tax losses carry forward).

• For non-residents – profi t received from Ukrainian source and calculated in accordance with special rules.

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CORPORATE PROFIT TAX (CPT)TAXATION OF RESIDENT ENTITIES

Since 1 January 2015, taxable profi t is calculated as fi nancial profi t before tax (reported in the Profi ts and Loss Statement according to Ukrainian GAAP or IFRS) adjusted by a number of items, as follows:

• Tax losses carry forward;• Diff erence between deprecia on of fi xed assets and amor za on of

intangibles in fi nancial and tax accoun ng, devalua on of fi xed assets;• Accruals and provisions, except for vaca on and payroll costs;• Bad debts;• Thin capitaliza on adjustment;• Trade in securi es;• Investment income;• Transfer pricing adjustment;• Transac ons with non-residents;• Transac ons with non-profi t organiza ons.

Tax losses carry forward

Tax losses may be carried forward indefi nitely without any limita on. The carryback of losses is not permi ed.

Deprecia on of assets

Deprecia on of fi xed assets and amor za on of intangibles should be recalculated according to the tax rules. These rules provide a list of assets not subject to deprecia on in tax accoun ng, the minimum useful lives of assets and minimum cost of asset subject to deprecia on. Impairment of the assets is not deduc ble for CPT purposes. Special rules for calcula on of residual value of fi xed and intangible assets are specifi ed for their disposal or liquida on.

Accruals and provisions, except for vaca on and payroll costs

The provisions on future expenses are deducted at the period when relevant expenses are incurred and the provision is realized. Provisions for vaca on and payroll are deducted at the period of their accrual.

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Bad debts

Bad debts write-off may be deducted if certain condi ons are met (limita on period is expired, etc.). Bad debts provisions are deducted at the period when the provision is realized under specifi c condi ons.

Thin capitaliza on rules

Thin capitaliza on rules should apply to companies with fi nancial debts to non-resident related par es exceeding net assets more than 3.5 mes. Tax deduc on of interest under the thin capitaliza on rules is limited to 50% of earnings before interest, tax, deprecia on and amor za on (EBITDA) of the current year. The amount not deducted within the repor ng period may be carried forward indefi nitely, but with an annual reduc on of 5% of the residual amount.

Trade in securi es

Financial result of transac ons with securi es should be determined separately from the fi nancial result of other ac vity. Devalua on of securi es is not deduc ble.

Investment income

Equity income (including dividends received from other CPT payers and single taxpayers of fourth group) is recognized as non-taxable income.

Transac ons with non-residents

Expenses on goods and services purchased from non-residents from low-tax jurisdic on are deducted in the amount of 70%. The list of low-tax jurisdic ons is approved by Cabinet of Ministers of Ukraine and currently contains 65 countries and territories.

Deduc on of royalty payments to non-residents is limited to 4% of net income of previous year.

Deduc on of royalty payments to the following par es is not allowed:

• Non-benefi ciary owners;• Non-residents from low-tax jurisdic on;

CORPORATE PROFIT TAX (CPT)

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• Non-residents exempted from tax on royal es;• Non-residents for intellectual property rights origina ng in Ukraine.

Abovemen oned limita ons can be waived if a taxpayer confi rms the arm’s length price according to the transfer pricing rules, even if such transac ons are not subject to those rules.

Transac ons with non-profi t organiza ons

Expenses on goods and services from non-profi t organiza ons are deducted in the amount of 70%.

Deduc on of expenses on goods and services provided free of charge to non-profi t organiza ons as well as deduc on of charity payments is limited to 4% of net income of previous year.

Special condi ons

The TCU also contains special condi ons of tax accoun ng for several types of opera ons:

• Insurance;• Produc on sharing;• Sports be ng and gambling;• Joint investment;• Non-state pension provision.

TAXATION OF NON-RESIDENT ENTITIES

Non-resident en es are subject to taxa on of two types of income received on the territory of Ukraine:

• Ac ve income (income received from commercial ac vity on the territory of Ukraine through a representa ve offi ce);

• Passive income (income received from Ukrainian source).

CORPORATE PROFIT TAX (CPT)

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Ac ve income

The TCU provides 2 methods available for calcula on of CPT for representa ve offi ces with commercial ac vity:

• Direct method;• Indirect method.

The direct method is used when the en ty can easily determine the amount of income a ributable to the ac vi es or assets of its representa ve offi ce.

The indirect method is used by companies who could not easily determine the amount of a ributable income under the direct method. To calculate a ributable taxable income, a 30% profi t margin is applied to gross income a ributable to the representa ve offi ce. This margin is then subject to tax. A 30% margin may be high compared to probable arms-length economic return, but it does simplify the bookkeeping somewhat.

Passive income

The following types of passive income received by non-residents from a Ukrainian source are subject to withholding tax (hereina er referred as WHT):

• Interest;• Dividends;• Royalty;• Freight and engineering income;• Lease payments under opera ve lease contracts;• Income from sales of real estate located in Ukraine;• Profi t from sale or disposal of securi es;• Income from joint ventures (opera ons) and long term contracts;• Fees earned from cultural, educa onal, religious, sports, and entertainment

ac vity;• Compensa on of brokerage, commission or agency services provided by

non-residents;

CORPORATE PROFIT TAX (CPT)

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• Contribu ons and premiums for insurance and re-insurance of risks in Ukraine (including insurance of life risks) or insurance of residents against risks beyond the borders of Ukraine;

• Charity contribu ons in favor of non-residents;• Other income of non-residents except for sales revenue for goods/works/

services.

Under general rules, the rate of WHT equals 15% and may be reduced according to double tax trea es signed by Ukraine.

DOUBLE TAX TREATIES

68 countries have signed double tax trea es with Ukraine and the withholding tax rates for various types of payments are as follow:

CountryWHT Rates

Dividends (%)1 Interest (%) Royal es (%)Algeria 5(25)/15 10 10Armenia 5(25)/15 10 0Austria 5 (10)/10 2/5 5Azerbaijan 10 10 10Belarus 15 10 15Belgium 5(20)/15 2/5 5Bulgaria 5(25)/15 10 10Brazil 10(25)/15 15 15Canada 5(20)/15 10 10Croa a 5(25)/10 10 10China 5(25)/10 10 10Cyprus 5 (20)/15 2 5/10Czech Republic 5(25)/15 5 10Denmark 5(25)/15 10 10Egypt 12 12 12Estonia 5(25)/15 10 10Finland 5(20)/15 5/10 5/10

CORPORATE PROFIT TAX (CPT)

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CountryWHT Rates

Dividends (%)1 Interest (%) Royal es (%)France 5(20)/15 5/10 10Georgia 5(25)/10 10 10Germany 5(20)/10 2/5 5Great Britain 5(20)/10 0 0Greece 5(25)/10 10 10Hungary 5 (25)/15 10 5Iceland 5(25)/15 10 10India 10(25)/15 10 10Indonesia 10(20)/15 10 10Iran 10 10 10Israel 5(25)/10/15 5/10 10Italy 5(20)/15 10 7Japan 15 10 10Jordan 10(20)/15 10 10Kazakhstan 5(25)/15 10 10Korea 5(20)/15 5 5Kuwait 5 0 10Kyrgyzstan 5(50)/15 10 10Latvia 5(25)/15 10 10Lebanon 5(20)/15 10 10Libya 5(25)/15 10 10Lithuania 5(25)/15 10 10Macedonia 5(25)/15 10 10Malaysia 15 15 10/15Moldova 5(25)/15 10 10Mongolia 10 10 10Montenegro 5(25)/10 10 10Morocco 10 10 10Netherlands 5(20)/15 2/10 10Norway 5(25)/15 10 10Poland 5(25)/15 10 10

CORPORATE PROFIT TAX (CPT)

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CountryWHT Rates

Dividends (%)1 Interest (%) Royal es (%)Portugal 10(25)/15 10 10Romania 10(25)/15 10 15Russian Federa on 5/15 10 10Serbia 5(25)/10 10 10Singapore 5(20)/15 10 7.5Slovakia 10 10 10Slovenia 5(25)/15 5 10/5South Africa 5(20)/15 10 10Spain 18 0 5Sweden 5(20)/10 10 10Switzerland 5(20)/15 10 10Syria 10 10 18Tajikistan 10 10 10Thailand 10(25)/15 10/15 15Turkey 10(25)/15 10 10Turkmenistan 10 10 10UAE 5(10)/15 3 10USA 5(20)/15 0 10Uzbekistan 10 10 10Vietnam 10 10 10

1) As for dividends, fi gures in brackets “()” mean the minimum amount (in percentage) in share capital that give rights to non-residents to apply WHT rate that are noted before brackets. Figures disclosed a er slash “/” mean that diff erent rates depend on condi ons enumerated in double tax treaty.

CORPORATE PROFIT TAX (CPT)

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VALUE ADDED TAX (VAT)INDEX

Tax RatesTax PayersGeneral Tax Accoun ng RulesTax BaseElectronic VAT SystemSpecial Rules for ImportVAT refundTemporary Vat Incen ves

TAX RATES

The standard rate of VAT in Ukraine amounts to 20%.

The TCU divides transac ons into the following groups for VAT purposes:• VAT-able transac ons at the rate 20%;• VAT-able transac ons at the rate 7% (pharmaceu cals and medicinal

products according to the list approved by the Cabinet of Ministers of Ukraine);

• VAT-able transac ons at the rate 0% (mainly export transac ons);• Transac ons exempted from VAT (e.g. baby food products, educa on

services, health care, and charity, etc.);• Transac ons which are not subject to VAT (e.g. issue of securi es, opera ng

lease, insurance services, banking services, salary payment, etc.).

TAX PAYERS

According to the general provisions of the TCU, VAT payers are:• Person engaged in business ac vi es and registered as a taxpayer on a

voluntary basis;• Person registered or subject to mandatory registra on as a taxpayer;• Person impor ng goods to the customs territory of Ukraine (if the value of

goods exceeds certain amounts).

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VALUE ADDED TAX (VAT)VAT registra on is required (for residents and non-residents) if VAT-able turnover exceeds UAH 1 million during any rolling 12-month period. A legal en ty may apply for voluntary registra on without any limita ons.

GENERAL TAX ACCOUNTING RULES

VAT is imposed on the following transac ons:

• Supply of goods within the customs territory of Ukraine;• Supply of services within the customs territory of Ukraine;• Import of goods and auxiliary services into the customs territory of Ukraine

under the import or re-import customs regimes;• Export of goods and auxiliary services from the customs territory of Ukraine

under the export or re-export customs regimes;• Interna onal transport services.

As a general rule, the place of supply of services is the place where the supplier is registered. However, there are exemp ons for certain types of services (for instance, services related to real estate, consul ng services, etc.).

In general, VAT should be recognized following the “fi rst event rule”:

• VAT liabili es (VAT output) arises from sales:o VAT liability on the sale of goods is generally recognized at the date

the goods are delivered to the customer or at the date the payment is received from the supplier, whichever is earlier;

o VAT liability on the provision of services is generally recognized at the date of the document evidencing delivery of the service or the date of receipt of the payment from customer, whichever is earlier.

• VAT credit (VAT input) arises from purchases and is generally recognized on the date of payments to suppliers or on the date which the goods/services are received, whichever is earlier.

Taxpayers should submit VAT returns for each monthly (mainly) or quarterly (for single taxpayers) repor ng period and make respec ve monthly or quarterly tax payments:

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VALUE ADDED TAX (VAT)• Monthly VAT returns should be submi ed within 20 days of the last calendar

day of each repor ng period. Monthly tax payments should be made within 30 days of the end of a repor ng period;

• Quarterly VAT returns should be submi ed within 40 days of the last calendar day of each repor ng period. Quarterly tax payments should be made within 50 days of the end of a repor ng period.

If the fi ling deadline date falls on a holiday or a weekend, it is automa cally moved to the following business (banking) day.

TAX BASE

According to the general provisions of the TCU, the tax base for VAT is determined as the contractual value of goods/services, including customs du es, excise and other mandatory taxes/payments, but may not be lower than the fair market prices for such goods/services.

Also, the TCU provides special condi ons for defi ning the tax base for VAT in several cases, par cularly:

• Import – the contractual value of goods imported into the customs territory of Ukraine is considered as the tax base, but may not be less than the declared customs value, determined in accordance with the Custom Code of Ukraine (including excise tax and import du es);

• Financial lease – for fi nancial lease purposes, the VAT base is determined on a contractual basis, but may not be less than the purchase price of the object of the fi nancial lease;

• Free of charge supplies – in case of non-cash se lements and free of charge supplies, the fair market price is determined as taxable base;

• Nontaxable supplies / non business ac vity (in case VAT credit was previously deducted) – VAT base is determined as net book value of fi xed assets (non-current assets) or purchasing price of goods.

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VALUE ADDED TAX (VAT)ELECTRONIC VAT SYSTEM

The electronic VAT system was implemented in Ukraine on 1 July 2015. Special VAT accounts for each VAT payer were opened with the State Treasury of Ukraine. The purpose of such accounts is to guarantee the fulfi llment of VAT liabili es by taxpayers.

VAT invoices should be registered with the electronic register kept by tax authori es. All VAT repor ng should be submi ed electronically within the total amounts of their input VAT under VAT invoices issued by suppliers, “import” VAT paid during customs clearance of the imported goods and funds transferred to the VAT account.

VAT invoices are registered within limita on by the VAT amount calculated under the formula:

+ ∑ VAT total amount of input VAT under received VAT invoices

+ ∑ VAT paid during customs clearance of imported goods

+ ∑ total transfers of taxpayer funds from current account to VAT account

- ∑ total amount of output VAT in VAT invoices issued

- ∑ VAT declared for refund

- ∑ posi ve diff erence between VAT liabili es reported in VAT return and VAT liabili es according to the Unifi ed Register of VAT Invoices

+ ∑ overdra (average monthly amount of VAT liability reported for last 12 months)

If the amount of VAT invoice to be registered surpasses the VAT amount calculated according to the above-men oned formula, the supplier will have to transfer the amount of funds necessary to cover the diff erence from its business bank account to its special VAT account. The VAT account is used for paying VAT to the budget according to the VAT returns.

● ● 23 ● ●

VALUE ADDED TAX (VAT)SPECIAL RULES FOR IMPORT

If a company imports goods to Ukraine in taxable quan es, it is obliged to pay VAT during the customs clearance process (VAT on imported goods is payable by the importer). Then, the en ty may set off this amount against VAT from sales.

Reverse-charge mechanism is a special mechanism for VAT taxa on of opera ons related to services provided by non-residents to residents on the territory of Ukraine.

Generally, Ukrainian VAT rules are based on Council Direc ve No. 2006/112/EC dated 28 November 2006. However, the amendments made by VAT Direc ve EC 2008/8/EC since 2008 as regards the place of supply have not been implemented in Ukrainian tax law. There is no concept of B2B and B2С services in Ukraine, and in general rule the place of supply of services is the place where the supplier is registered (which is contrary to the Direc ve’s general rule). Therefore, double VAT taxa on of the services supply is possible.

VAT REFUND

Automa c VAT refund is available under 2 registers with chronological order of repayment:

• Automa c compensa on;• General procedure.

Such registers should be published on the website of State Fiscal Service of Ukraine on a daily basis.

Automa c compensa on is available for VAT payers who meet the following criteria:

• Taxpayer is not in legal bankruptcy proceedings;• Taxpayer is properly registered in the state register;• Taxpayer has non-current assets with net book value three mes exceeding

the amount of claimed VAT refund;• Export sales amount to not less than 40% of total sales.

● ● 24 ● ●

VALUE ADDED TAX (VAT)Tax authori es may carry out desk tax audit regarding VAT refund within 30 calendar days from the deadline of VAT return submission. Moreover, tax authori es may carry out documentary tax audit if:

• VAT for refund was accumulated before 1 July 2015 and was not subject to tax audit;

• VAT for refund was accumulated before 1 January 2016 on transac ons with agricultural producers which apply special VAT regime.

TEMPORARY VAT INCENTIVES

The TCU provides temporary VAT incen ves for scrap and waste paper supplies. Scrap (including import of waste, ferrous and nonferrous scrap metals) supplies according to the list approved by the Cabinet of Ministers of Ukraine and waste paper supplies are not subject to VAT in Ukraine. Such VAT exemp on is eff ec ve ll 1 January 2017.

● ● 25 ● ●

PERSONAL INCOME TAX (PIT)INDEX

Tax PayersTax ResidenceGeneral Tax Accoun ng RulesTax CreditTaxa on of Passive IncomePit Repor ngMilitary tax

TAX PAYERS

In accordance with the TCU under general provisions, taxpayers of PIT are:

• Individual residents;• Individual non-residents receiving incomes at source of their origin in

Ukraine;• Tax agent – legal en ty, self-employed person, representa ve offi ce of non-

resident who shall charge, keep and pay PIT to the budget on behalf and at the expense of the person from the income paid to such person.

TAX RESIDENCE

There are several criteria for determina on of an individual’s tax residence status:

• Individual is tax resident in Ukraine if he/she has a permanent home in Ukraine;

• If an individual has a permanent home in more than one country, he/she is considered a tax resident in Ukraine if he/she has closer personal and economic es (center of vital interest) with Ukraine;

• If it is impossible to determine residence under either of the preceding tests, an individual will be deemed to be tax resident in Ukraine if he/she is present in Ukraine at least 183 days cumula vely during a calendar year (the day of arrival and the day of departure are calculated separately);

● ● 26 ● ●

PERSONAL INCOME TAX (PIT)• If tax residence s ll cannot be determined, the individual will be deemed a

tax resident, if he/she is Ukrainian na onal. The presence of the individual’s family in Ukraine also is a factor in determining tax residence.

GENERAL TAX ACCOUNTING RULES

Tax residents of Ukraine pay PIT on their worldwide income. Non-resident individuals pay PIT on their Ukrainian source income.

PIT rate for both residents and non-residents is 18%.

The tax base is net annual taxable income that is defi ned by reducing the total taxable income for the amount of tax credit of the repor ng year. Total taxable income of a taxpayer includes salary, remunera ons and other payments accrued (paid) based on civil law agreements, income from the sale of property and non-property rights, income in the form of the value of property inherited or obtained as a gi , passive income etc.

TAX CREDIT

The taxpayer has the right to include in tax credits as a reduc on of taxable income, for such costs actually incurred by him/her during the repor ng year:

• Part of the amount of interests paid by such taxpayer for use of a mortgage housing loan;

• Amount of funds or property value transferred to non-profi table organiza ons in the form of dona ons or charity contribu ons in an amount not exceeding 4 percent of his/her total taxable income for a given repor ng year;

• Amount of funds paid for the benefi t of educa onal facili es to cover the cost of secondary, voca onal or higher educa on;

• Amount of funds paid by the taxpayer for the benefi t of medical facili es to cover the cost of paid services of treatment for the respec ve taxpayer or his/her family member in the fi rst degree of affi nity;

• Costs incurred by the taxpayer for payment of insurance contribu ons (insurance payments, insurance premiums) and pension contribu ons paid by the taxpayer under long-term life insurance agreements, non-state pension provision etc.

● ● 27 ● ●

TAXATION OF PASSIVE INCOME

For the taxa on of passive income (interest, dividends, royal es, etc.) special rates are applied:

• Interest, royal es, investment profi ts are subject to 18% PIT;• Dividends are subject to 18% PIT, except for dividends distributed by

Ukrainian companies that are subject to 5% PIT;• Real estate sales:

o Income received from the sale of real estate is not taxable if property is sold once during tax repor ng year and provided that the property has been owned for longer than 3 years or obtained by means of inheritance;

o Income earned from the second and any further sale of real estate – within a tax repor ng year is subject to 5% PIT;

• Movable property sales:o Income received from the sale of movable property is not taxable if

property is sold once during tax repor ng year;o Income earned from the second and any further sale of movable

property within a tax repor ng year is subject to 18% PIT;• Inheritance is subject to:

o 0% PIT if the recipient is a resident classifi ed as a close rela ve (i.e. parent, spouse, parent of spouse, child/adopted child);

o 5% PIT if the recipient is a resident not classifi ed as a close rela ve;o 18% PIT if the recipient or testator is a non-resident.

PIT REPORTING

PIT repor ng for employers’ is quarterly. PIT returns should be submi ed by the employer within 40 days following the repor ng quarter.PIT return for individuals is annual. The deadline for the submission of PIT return is 1 May of the following year. PIT should be paid by 1 August of the following year.

MILITARY TAX

Temporary military tax (temporary un l the comple on of the military reform) applies to the same tax base as PIT at the rate of 1.5%.

PERSONAL INCOME TAX (PIT)

● ● 28 ● ●

SOCIAL INSURANCE CONTRIBUTION (SIC)INDEX

Tax PayersSic PayersGeneral SIC Accoun ng RulesResponsibility

TAX PAYERS

Depending on the income received, there are three types of accrual base:• Accrued wages including basic and addi onal wages, other incen ves and

compensatory payments under civil agreements;• Amounts of compensa on to individuals for delivered works (services)

under civil agreements;• Income (earnings) received by self-employed individuals or private

entrepreneurs.

Maximum chargeable amount for SIC per month is 25 months’ minimum wages (UAH 34 450).

SIC PAYERS• Employers (legal en es and private entrepreneurs) employing under labor

agreements or civil agreements;• Self-employed individuals and private entrepreneurs.

GENERAL SIC ACCOUNTING RULES

Basic repor ng period is a calendar month for employers, and calendar year – for self-employed individuals and private entrepreneurs.

Employers should pay SIC within 20 days a er the end of the repor ng period. SIC should be paid at the same me as wages, but not later than this deadline.

Private entrepreneurs that apply the general tax regime should pay SIC before 10 January of the following year. Private entrepreneurs that apply simplifi ed tax

● ● 29 ● ●

SOCIAL INSURANCE CONTRIBUTION (SIC)regime should pay SIC quarterly – within 20 days a er the end of each quarter. Self-employed individuals should pay SIC before 1 of May of the following year.

SIC is levied on non-residents in the same way and is withheld in line with the same procedural rules applying to residents.

SIC rate is 22% for employers, self-employed individuals and private entrepreneurs.

Since 1 January 2016, 3.6% SIC will not be withheld from employees’ wages.

RESPONSIBILITY

Un mely payment of SIC is subject to a penalty of 10% of the outstanding amount. The amount of arrears is also subject to a fi ne amoun ng to 0.1% of arrears per each day of delay in payment, etc.

● ● 30 ● ●

SIMPLIFIED TAXATIONINDEX

Taxpayer GroupsSingle Tax RateOther Characteris cs

TAXPAYER GROUPS

The TCU contains rules regarding simplifi ed tax regime, accoun ng and repor ng system and payment of single tax. Depending on the status of a business en ty (legal en ty or individual), number of employees, income, type of ac vity, etc. taxpayers are divided into 4 groups. More details on the fourth group (agricultural producers) are provided in Chapter “Special Regime for Agricultural Enterprises” (pages 42-44).

CHARACTERISTICTAXPAYER GROUP

FIRST SECOND THIRDStatus of a business en ty Individuals Individuals or legal en es

Number of employees 0 0-10 Unlimited

Maximum annual income

UAH 300 thousand

UAH 1.5 million UAH 5 million

Restric ons on types of ac vi es

Retail sales in markets or providing consumer services to individual consumers only. General restric ons established for 3rd group should also be taken into account.

Providing services to single taxpayers and/or people, selling goods, restaurant business. General restric ons established for 3rd group should also be taken into account.

En es and individuals carrying out gambling business, currency exchange, business related to excisable goods (excluding certain opera ons), precious metals, stones, minerals, management of enterprises, an ques, works of art, carrying out fi nancial transac ons and providing fi nancial services, non-residents, etc. may not be single taxpayers.

● ● 31 ● ●

SIMPLIFIED TAXATION

Addi onal restric ons

Individuals carrying out engineering tests and research, providing audit services, ren ng out land plots with total surface area exceeding 0.2 hectare, housing premises with total area exceeding 100 square meters, non-housing premises (construc ons, buildings) and/or their cons tuent parts with a total surface area exceeding 300 square meters may not be single taxpayers.En es with authorized capital, in which aggregate parts owned by legal en es not being single taxpayers cons tute or exceed 25%, may not be single taxpayers.

Tax base

Tax is accrued on the basis of the minimum wage as of 1 January of the tax year.Income is controlled for compliance with the maximum annual income requirement.

Any income in a monetary form (cash and/or non-cash); tangible or intangible form, including wri en-off credit debts and assets received free of charge. In case of services, works under contract of agency, transport and forwarding contracts, or contracts of agency, income corresponds to the amount received as compensa on of forwarder (agent). With regard to fi xed assets, legal en es include sales profi t in their income. Individuals do not include passive income (in the form of interest, dividends, royal es, insurance payments and coverage, and income received from selling movable property and real estate owned by the individual and used in the business ac vity) into their income.

CHARACTERISTICTAXPAYER GROUP

FIRST SECOND THIRD

● ● 32 ● ●

SIMPLIFIED TAXATION

Basic tax rateUp to 10% of the minimum monthly wage

Up to 20% of the minimum monthly wage

3% of income - for VAT payers5% of income - for non VAT payers

Repor ng period Calendar year Calendar quarter

Terms of repor ng 60 calendar days a er repor ng period end40 calendar days a er end of

repor ng period

Terms of payment By monthly advance payment not later than the 20th day of

each month

10 days a er deadline for reports submission

SINGLE TAX RATE

SINGLE TAX RATE IS INCREASED

Applied:

• In case maximum annual income for respec ve group is exceeded;

• When applied to income from ac vity not en tling applica on of the single tax system or not provided for in a cer fi cate.

Size According to the rules of the next taxpayer group 15% of income

Terms of payment 10 days a er deadline for submission of quarterly reports

Grounds for cancella on of a single taxpayer cer fi cate

• When applied to income in case of se lements in non-monetary form.

• Failure to pay tax debt during two consecu ve quarters;• Carrying out ac vity that does not en tle applica on of the

single tax system or noncompliance with requirements of organiza onal and legal forms of business ac vity;

• Exceeding number of individuals having labor rela ons with a taxpayer;

• Exceeding income in the tax (repor ng) quarter (calendar year) en tling applica on of the single tax system in the following tax (repor ng) quarter (calendar year).

CHARACTERISTICTAXPAYER GROUP

FIRST SECOND THIRD

● ● 33 ● ●

OTHER CHARACTERISTICS

OTHER CHARACTERISTICS

Exemp on from certain taxes and fees

Single taxpayers are exempt from payments of CPT; PIT; VAT (except for individuals and legal en es of the third group that pay single tax at 3% rate); land tax (except for a land tax on land plots not used for economic ac vity).Charging, paying and repor ng of other taxes and fees are carried out in order and in sizes s pulated by the TCU.In case of import of goods to the customs territory of Ukraine, taxes, fees and customs du es are paid on general grounds.Under the TCU, a single taxpayer acts as a tax agent in case of charging (paying, assignment) income subject to PIT in favor of civil agreements.

Cash register (in case of cash se lements)

Notestablished

Mandatory usage star ng from 1 January 2016 if the amount of cash income exceeds UAH 1 million

Mandatory usage star ng from 1 January 2016 if the amount of income paid in cash exceeds UAH 1 million

SIMPLIFIED TAXATION

● ● 34 ● ●

EXCISE TAXINDEX

Tax PayersGeneral Tax Accoun ng RulesExcisable GoodsTax Payment ProcedureElectronic Excise System for Petroleum Sales

TAX PAYERS

In accordance with the TCU excise tax payers are:

• Person manufacturing (producing) excisable goods on the customs territory of Ukraine, for instance from customer-provided raw materials;

• Legal en ty impor ng excisable goods into the customs territory of Ukraine;• Resident or non-resident individual impor ng excisable goods into the customs

territory of Ukraine in amounts subject to taxa on according to customs legisla on;• Other persons selling forfeited or found ownerless excisable goods, or in

case of viola on of the condi ons of tax exemp on for excisable goods;• Legal en es of retail trade selling excisable goods;• Wholesale suppliers of electricity;• Producers of electricity who sell outside the wholesale electricity market;• Owners of imported vehicles which are subsequently converted to passenger

cars;• Petroleum sellers.

GENERAL TAX ACCOUNTING RULES

According to the TCU an object of taxa on is:

• The sale of excisable goods manufactured (produced, extracted) in Ukraine;• The impor ng of excisable goods into the customs territory of Ukraine;• Any other transfers of ownership including own consump on, consump on

by employees, industrial processing, losses of excisable goods exceeding the established loss allowances;

● ● 35 ● ●

• The sale of the electricity, except for when obtained from renewable sources of energy.

The TCU establishes ad-valorem and specifi c tax rates.

In the case of specifi c rates, the taxable amount should be based on weight, volume, quan ty of goods, car engine displacement volume or other in-kind indicators.

In the case of ad valorem rates, the taxable amount should be based on the maximum retail prices set by the manufacturer or the importer.

EXCISABLE GOODS

Excisable goods are:

• Ethyl alcohol and other alcohol dis llates, alcoholic beverages, beer;• Tobacco products, tobacco and industrial tobacco subs tutes;• Petroleum products, liquefi ed petroleum gas;• Passenger cars, car bodies, trailers and semi-trailers, motorcycles;• Electricity.

The tax rates are defi ned by the TCU and depend on the type of goods.

TAX PAYMENT PROCEDURE

The basic tax excise period is the calendar month. Excise tax returns should be submi ed within 20 days following the last day of repor ng month. The tax amounts should be paid within 10 calendar days following the submission of the excise tax return.

The tax on excisable commodi es (products) imported into the customs territory of Ukraine should be paid before or on the date of submission of respec ve customs declara ons.

Amounts of excise tax on alcoholic beverages should be paid upon issuance of excise tax stamps.

EXCISE TAX

● ● 36 ● ●

The owner of fi nished goods produced from customer-provided raw materials on a tolling basis should pay the excise tax to the producing (processing) en ty not later than on the date of the shipment of fi nished goods to the owner.

Excise rates are provided in the TCU for a wide range of excisable goods according to the detailed product codes.

ELECTRONIC EXCISE SYSTEM FOR PETROLEUM SALES

The electronic excise system for petroleum sales was implemented on 1 March 2016. Excise taxpayers are obliged to issue excise invoices on the day of sale. Excise invoices should be registered with the electronic register maintained by tax authori es. Excise invoices should be registered within the established me limits depending on excise amount calculated under a specifi ed formula.

EXCISE TAX

● ● 37 ● ●

PROPERTY TAXINDEX

Land TaxReal Property TaxMovable Property Tax

Property tax in Ukraine consists of land tax, real property tax and movable property tax.

LAND TAX

LAND TAX PAYERS

In accordance with the TCU land tax payers are:

• Owners of land plots and land shares (units);• Land users.

Objects of taxa on:

• Land plots owned or used;• Land shares (units) owned.

LAND TAX RATES

Taxable amount should be determined as:

• The monetary land plot valua on subject to the indexa on rate;• The area of land plots which have not been evaluated.

The land tax rates depend on the land category (type) and the loca on of land plot:

• No more than 3% of the land value – for evaluated land plots;• No more than 1% of the land value – for evaluated agricultural land plots;• No more than 12% of the land value – for land plots in sustained use;• No more than 5% of cropland value in the relevant region – for non-

evaluated land plots;• Land fee for forest lands is part of the ecological tax.

● ● 38 ● ●

PROPERTY TAXThe exact land tax rates within the specifi ed limits should be established by local authori es.

LAND TAX PAYMENT PROCEDURE

A calendar year is the repor ng period for the purposes of land tax.

Land taxpayers (other than individuals) should submit land tax return to the tax authority at the place of land plot registra on by 20 February of the repor ng year. Tax liability should be paid in equal installments on a monthly basis within 30 calendar days following each month.

Individuals obtain tax no fi ca on-decisions from tax authori es not later than 1 July of the repor ng year. Tax should be paid within 60 days following receipt of a tax no fi ca on decision.

REAL PROPERTY TAX

Individuals and legal en es should pay real property tax annually if any of the following condi ons is met:

• The area of an apartment or apartments owned exceeds 60 square meters;• The area of an individual house or houses owned exceeds 120 square

meters;• The total area of apartments and individual houses owned exceeds 180

square meters.

The excess over the specifi ed area (for both residen al and non-residen al real property) is subject to real property tax at the rate up to 3% of the minimum wage (UAH 41) per square meter. The exact tax rates within the specifi ed limit should be established by local authori es. If an individual or legal en ty owns real estate with a smaller area than men oned above, such property is not subject to real property tax.

Owners of apartments with an area exceeding 300 square meters or houses with area exceeding 500 square meters should pay addi onal annual real property tax in the amount of UAH 25 000.

● ● 39 ● ●

PROPERTY TAXLegal en es should submit real property tax returns not later than 20 February of the repor ng year. Tax should be paid by advance payments within 30 days a er the end of each quarter.

Individuals receive tax no fi ca on-decisions from tax authori es not later than 1 July of the following year. Tax should be paid within 60 days from the date of receipt of respec ve tax no fi ca on-decisions.

MOVABLE PROPERTY TAX

Individuals and legal en es should pay movable property tax annually if they own a car and the following condi ons are met:

• The car is not older than 5 years;• The market average price of the car is higher than 750 minimum wages (UAH

1 033 500).

The above men oned cars are subject to the annual movable property tax in the amount of UAH 25 000.

Legal en es should submit moveable property tax returns not later than 20 February of the repor ng year. Tax should be paid by advance payments within 30 days a er the end of each quarter.

Individuals obtain tax no fi ca on-decisions from tax authori es not later than 1 July of the repor ng year. Tax should be paid within 60 days from the date of receipt of respec ve tax no fi ca on-decision.

● ● 40 ● ●

TRANSFER PRICING (TP)INDEX

Controlled Transac onsTP MethodsTP Repor ngTP Penal es

CONTROLLED TRANSACTIONS

TP rules in Ukraine are generally based on the OECD transfer pricing guidelines. However, there are some local diff erences. The TP rules apply to controlled transac ons in Ukraine, as follows:

• Transac ons with non-resident related par es;• Sales of goods through the non-resident commission agents;• Transac ons with non-residents registered in low-tax jurisdic ons.

Transac ons with the same counterparty will be treated as controlled transac on if:

• The volume of transac ons exceeds UAH 5 million for the relevant year;• Taxpayer revenue exceeds UAH 50 million in total for the relevant year.

TP METHODS

Ukrainian tax legisla on provides that the method used to test the appropriateness of related party prices should be that method which produces the most reliable measure of arm’s length results. However, it establishes a hierarchy of TP methods and defi nes cases for the applica on of each method:

• Comparable uncontrolled price (based on the price of iden cal/similar goods);

• Resale price method (based on the price of resale to a non-related party);• Cost plus method (based on the cost of a purchase from a non-related party

and a sale in a controlled transac on);• Net margin method (used in the cases of absence or lack of informa on for

the applica on of other methods);

● ● 41 ● ●

TRANSFER PRICING (TP)• Profi t split method (used in the cases of interdependent controlled

transac ons and/or essen al intangible assets owned by the par es).

Special rules apply to cross-border transac ons involving the sale of goods traded on commodity exchanges, under which the comparable uncontrolled price method is preferred.

TP REPORTING

The repor ng period for TP purposes is the calendar year. Taxpayers should submit:

• Transfer pricing documenta on – within 1 month from the date of the request of tax authori es;

• Report on controlled transac ons – by 1 May of the following year.

TP PENALTIES

The following penal es may be applied:

• 300 minimum salaries (UAH 413 400) – for non-submission or late submission of report on controlled transac ons;

• 1% of the value of not reported transac on (not more than 300 minimum salaries – UAH 413 400) – for the failure to report a controlled transac on in report on controlled transac ons;

• 3% of the value of the controlled transac on (not more than 200 minimum salaries – UAH 275 600) – for the lack of TP documenta on.

If the price of a controlled transac on is out of the range determined by TP documenta on, addi onal charges should be calculated to the median of the range.

● ● 42 ● ●

SPECIAL REGIME FOR AGRICULTURAL ENTERPRISESINDEX

Tax PayersObject of Taxa onTax RatesTax Exemp onsTax Accrual and Tax Payment ProcedureSpecial VAT Regime for Agricultural Enterprises

Agricultural producers may apply simplifi ed tax regime as taxpayers of the fourth group.

TAX PAYERS

Agricultural commodity producers may apply the simplifi ed tax regime, on the condi on that the produc on of agricultural commodi es equals or exceeds 75% of their ac vi es for the preceeding tax year.

Newly established agricultural commodity producers may apply the simplifi ed tax regime star ng from the following year, provided that the produc on of agricultural commodi es equals or exceeds 75% of their ac vi es for the preceding tax year.

In case the 75% ra o is no longer met, the en ty must migrate to the payment of taxes on the basis of the general tax system star ng from the month following the month in which the condi on was no longer fulfi lled.

The following en es may not apply for the simplifi ed tax regime:

• Agricultural producers, for whom the sale of ornamental plants wild animals, birds, furs make up more than 50% of overall income for the previous year.

• Agricultural en es which produce excisable goods.

● ● 43 ● ●

SPECIAL REGIME FOR AGRICULTURAL ENTERPRISESOBJECT OF TAXATION

The area of agricultural land (arable land, hayfi elds, pastures and perennial planta ons) and/or water fund surface area (intra-farm water pools, lakes, ponds and reservoirs) owned by the agricultural commodity producer or granted to the agricultural commodity producer for the use, for instance on the basis of a lease, shall cons tute the object of taxa on for agricultural commodity producers.

Monetary land plot valua on of 1 hectare of agricultural land plot subject to the indexa on rate cons tutes the tax base.

TAX RATES

Tax rates per hectare of agricultural land and/or water fund surface area depend on the category (type) of land/surface area and its loca on and may range from 0.16% to 5.4% of the tax base.

TAX EXEMPTIONS

Agricultural producers which are registered as agricultural companies and as payers of fi xed agricultural tax do not bear the following taxes and du es:

• Corporate profi t tax;• Land tax (except for land tax on land plots not used for the agricultural

commodity produc on).

TAX ACCRUAL AND TAX PAYMENT PROCEDURE

The base tax (repor ng) period for the purposes of this tax is a calendar year.

The agricultural enterprises should independently calculate the tax amount on an annual basis as of 1 January and submit the tax return for the current year to the appropriate state tax service agency, at the loca on of the taxpayer person and the loca on of the land plot by 20 February of the current year.

● ● 44 ● ●

SPECIAL REGIME FOR AGRICULTURAL ENTERPRISESThe tax should be paid quarterly within 30 calendar days following the last calendar day of the repor ng quarter on the basis of the annual tax amount at the following rates:

• 10% in Quarter I;• 10% in Quarter II;• 50% in Quarter III;• 30% in Quarter IV.

SPECIAL VAT REGIME FOR AGRICULTURAL ENTERPRISES

An agricultural enterprise should be considered as an en ty whose share of agricultural commodity produc on in the previous year is not less than 75 percent.

Agricultural enterprises may apply a special VAT regime in 2016 year. However, such special regime will be cancelled from 1 January 2017.

According to the special VAT regime, agricultural enterprises may accumulate part of VAT owed (in case VAT liability exceeds VAT credit) for produc on purposes instead of paying such amounts to the budget. The propor on of VAT to be accumulated depends on the type of agricultural produc on:

• Transac ons with grain – 85% should be paid to budget, 15% accumulated;• Ca le breeding (milk and meat) – 20% should be paid to budget, 80%

accumulated;• Others – 50% should be paid to budget, 50% accumulated.

If the amount of VAT credit exceeds VAT liability, the diff erence is not subject to VAT refund and should be included as VAT credit for the following repor ng period. If an agricultural enterprise exports its goods, it is en tled to VAT refunds under general procedures.

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