New Tax Code of Ukraine: in-depth overview

On January 1, 2016¹, Law of Ukraine No. 909-VIII “On Amendments to the Tax Code of Ukraine and Some Other Legislative Acts of Ukraine on Provision of Balance of Budget Revenues in 2016” (the “Law”) entered into effect.

An overview of the main amendments is provided below.

1. Value Added Tax (VAT) 

• The Law introduces two registers of applications for VAT refund from the budget. The first register shall include applications from VAT payers that meet certain criteria (i.e. taxpayers currently not in bankruptcy proceedings, or those that obtained a financial guarantee, as well as other taxpayers listed in paragraph 200.19 of Article 200 of the Tax Code of Ukraine), with all other VAT payers’ applications included in the second register. The VAT shall be refunded automatically in a chronological order depending on the date the VAT refund applications are recorded in the respective register.
  
  
• The VAT exemption shall no longer apply to the supplies of cereals and industrial crops.
  
  
• The Law provides that transactions of supply of foreclosed property by banks and other financial institutions at the price that does not exceed the amount of debt settled by such foreclosure shall be exempt from VAT.
  
  
• Tax invoices containing errors in payment details provided that such errors allow to identify the transaction performed, its contents, period, parties and amount of tax due for such transaction (except for a commodity heading according to the Ukrainian Classification of Goods in Foreign Economic Activities (UCG FEA), shall be used by purchasers as a basis for the formation of tax credit on VAT.
  
  
• The Law provides that records in the Unified State Register of Legal Entities and Individual Entrepreneurs regarding the VAT payer's absence at its/his/her registered office address (registered place of residence) or regarding non-confirmation of information on the respective legal entity shall no longer be the ground for cancellation of VAT registration.
  
  
• The Law abolishes VAT refund restrictions, i.e., from now on, all persons registered as VAT payers less than 12 calendar months prior to the month for which the VAT refund application is submitted and having a taxable turnover for the last 12 calendar months, which is less than the claimed VAT refund, shall be entitled to VAT refund.
  
  

2. E-Administration of VAT 

• The formula used by VAT payers for calculation of the amount of VAT for which the VAT payer is entitled to register tax invoices and/or adjustment calculations in the Unified Register of Tax Invoices has been supplemented with a new concept, namely Overdraft that increases such amount of VAT. The overdraft is an average monthly amount of VAT reported as payable to the budget by VAT payers for the last 12 months.
  
  
• The overpaid amounts of VAT may be refunded only to the VAT account of VAT payers. Such funds may not be refunded to the VAT payers’ current account. 
  
  

3. Special VAT Treatment for Agricultural Producers

The amount of VAT calculated by agricultural enterprises that are entitled to special tax treatment shall be transferred in the following percentages:

    - 85% - to the state budget, 15% - to a special account - applicable to supplies of cereals and industrial crops;

    - 20% - to the state budget, 80% - to a special account - applicable to supplies of animal products; and

    - 50% - to the state budget, 50% - to a special account - applicable to supplies of other agricultural products and services. 

4. Corporate Income Tax

• Under the general rule, the tax reporting periods are: a calendar quarter, two calendar quarters, three calendar quarters, and a calendar year. The annual tax reporting period is set for newly established taxpayers, agricultural producers, and taxpayers whose annual income does not exceed UAH 20 million.
  
  
• The Law abolishes monthly advance corporate income tax payments. However, by December 31, 2016, the payers of this tax will have to make monthly advance corporate income tax payments in the amount of 2/9 of the corporate income tax amount for three quarters of the reporting year 2016.
  
  
• The Law establishes that the financial result before taxation will also be reduced by the amount of the accrued income from equity participation in flat-rate tax payers of the fourth group (agricultural enterprises).
  
  

5. Individual Income Tax

• The Law introduces the flat rate of 18% replacing the progressive rates of 15% and 20%.
  
  
• Dividends calculated by corporate income tax payers will be taxed at the rate of 5%, while all other passive income will be taxed at the rate of 18%.
  
  
• The military tax of 1.5% will apply until completion of military reform in Ukraine.
  
  

6. Flat-Rate Social Contribution (FRSC)

• The FRSC will be paid at the flat rate of 22% (previously 34.7% – 49.7%), while the tax base is to be increased from 17 to 25 minimum subsistence amounts (UAH 34,450 in 2016).
  
  
• The Law abolishes the FRSC of 3.6% previously payable by employees.
  
  

7. Excise Tax

• The Law raises excise rates for such excisable goods as liquor and vodka beverages, fortified wines, low-alcohol beverages, sparkling wines, etc.
  
  
• The Law introduces an e-administration system for fuel sales. This system will operate in a test mode in the period of February 29, 2016 to April 1, 2016. All enterprises engaged in fuel sales must register as excise tax payers. The Law also introduces the use of excise invoices.
  
  

8. Simplified Taxation System

• The third group of flat-rate tax payers will include only those individual entrepreneurs and legal entities whose annual income during a calendar year does not exceed UAH 5 million (previously UAH 20 million).
  
  
• The Law raises the flat rates for taxpayers of the third group from 2% to 3% for VAT payers and from 4% to 5% for non-VAT payers.
  
  
• The tax rates for the fourth group of taxpayers (agricultural enterprises) will be increased from 0.09%-3% to 0.16-5.4%, depending on the land category.
  
  

9. Vehicle Ownership Tax

• The taxable items will includes vehicles costing more than 750 minimum wage amounts (over UAH 1.03 million) (previously, the applicable criterion was the engine capacity of over 3 L) and not older than five years. The rate remains unchanged at UAH 25,000 per year.
  
  

10. Real Estate Tax

• The Law raises the maximum tax rate applicable to real estate other than a land plot from 2% to 3% of the minimum wage amount per square meter per year.
  
  
• The Law also increases the amount of this tax by UAH 25,000 per year for taxpayers owning an apartment (its share) with an area of over 300 sq. m. or a house (its share) with an area of over 500 sq. m., per each such real estate.