26 01 2018
A new wording of the Tax Code of Ukraine came into effect since 1 of January 2018. This year the tax laws of Ukraine have not suffered significant changes as compared to the last years. However, I would like the business community to focus in this article on some novelties in such industries as IT, agriculture and pharmaceutical industry.
The business community, court and tax authorities used to understand differently provisions of the Tax Code of Ukraine governing relations in the IT industry, including, in particular, those related to the taxation of software products supply transactions. Therefore, tax authorities have issued lots of explanations to such effect, but questions still remained.
Starting from 2013, the Tax Code of Ukraine provides that software products supply transactions are exempt from VAT taxation. But, since then, there has been such a practice when tax authorities interpreted differently the same relationships involving software product supply. There were such situations when software products passed from the distributor to reseller with no VAT charged, while VAT was charged when such products passed from intermediaries to the ultimate consumer, and vice versa.
This year's changes are aimed at unifying the approach to taxation of software products supply transactions between the owners, software product distributors, resellers and ultimate consumers.
Moreover, the legislative innovations clearly provide that a list of software products, which supplies are exempt from VAT, includes access to software (Software as a Service), software hard or soft copies (software resale and distribution), codes for downloading and activating software products, software updates, additions or extended version, subscription.
In view of such alignment and improvement of the tax laws governing the IT industry, their mutual relations with counterparties now require an audit to verify whether they comply with the laws, and review the VAT treatment of transactions related to the purchase of fix assets, goods and services used in the aforementioned transactions exempt from VAT.
Furthermore, temporary VAT exemption of exports of soybean (from 1 September 2018 to 31 December 2021) and rapeseeds (from 1 January 2020 to 31 December 2021) was perceived by the agricultural business community as an important change in taxation. However, this means that no VAT will be refunded upon exporting these products, which will consequently give rise to the growth of exported product prices.
Thus, exporters will have to review their cooperation conditions and agreements with suppliers and buyers that are usually made in the agrarian planning sector for the next three to five years. It is clear that such legislative changes are aimed at encouraging the processing of raw materials into finished products within Ukraine. Moreover, such novelties will be especially beneficial to production facilities owners and may boost investments in the processing industry.
As far as the pharmaceutical industry is concerned, the tax regulation of medicinal product supply within the customs territory of Ukraine and importation to the customs territory of Ukraine is now closer to the European laws on taxation of medicinal products. A reduced VAT rate of 7% is not exclusively applicable to the products listed by the government, as it always has been, but to all products recorded in the State Register of Medical Equipment and Medical Devices or meeting the relevant regulations.
The purpose of such changes is to simplify administering such tax by the State Fiscal Service of Ukraine and prevent the practice of selective preferential taxation of medical products from the further application. In return, such legal developments will result in reducing the cost of most of the medical products for consumers and patients treated in healthcare facilities.
Published: Kyiv Post, issue 4, January 26, 2018
Author: Tetyana Berezhna