7 August 2014
Legal alert: Significant changes in tax legislation of Ukraine

On 1 August 2014, the President of Ukraine signed the Law of Ukraine № 1621-VII "On Amendments to Tax Code of Ukraine and other legislative acts of Ukraine" (on improvement of certain provisions) (the “Law”). The Law introduces amendments to the Tax Code of Ukraine, laws on national social insurance, the Law of Ukraine "On State Regulation of Production and Turnover of Ethyl Alcohol, Cognac and Fruit spirits, Alcoholic Drinks and Tobacco Products” and other laws.

The Law, inter alia, introduces the following amendments to the Tax Code of Ukraine:

  • temporarily, until 1 January 2015, a new nationwide military duty is introduced – tax, which shall be charged at the rate of 1.5% of personal income. The new tax shall be charged according to the procedure prescribed for the income tax of individuals receiving income in the form of salary, other compensatory or incentive payments and remunerations accrued to the taxpayer either in connection with employment and under civil law contracts; it applies to winnings from state and non-state lottery, winnings in gambling.

VAT:

  • as of 1 November 2014, tax reporting of value added tax shall be submitted electronically to the supervisory authority by all payers following the registration of electronic signature of the reporting persons in accordance with the law;
  • VAT determination base of supplies of goods/services shall not be lower than the purchase price of such goods/services;
  • the date for recognition of VAT credit upon import of services shall be the date of issuing by the payer of the tax invoice, provided that the invoice is registered in the Unified register of VAT invoices;
  • as of 1 November 2014, threshold (the total amount of transactions for the supply of goods/services subject to VAT, within the last 12 calendar months) required for compulsory business registration as VAT payers shall be increased to UAH 1,000,000 (now – UAH 300,000);
  • as of 1 November 2014, electronic VAT administration system shall be introduced. The system includes:
  1. automatic opening of a VAT payer account on the day of the registration of the taxpayer in electronic administration system;
  2. issuing of tax invoices only in electronic form and their registration in the Unified Register of VAT invoices (the “URVI”) if the total amount of the VAT invoice does not exceed the amount calculated by the special formula;
  3. if the amount determined by the formula is lower than the amount of VAT in the invoice, the payer is obliged to transfer the required amount of funds from the current account to the account in the electronic VAT administration system;
  4. as of 1 November 2014, all tax invoices, regardless of the amount of VAT in the tax invoice, shall be subject to registration in the URVI.
  • the amount of VAT not supported by the tax invoices registered in the URVI shall not be referred to the VAT credit;
  • VAT budgetary refund to the taxpayers who meet the established criteria shall be carried out automatically;
  • criteria of taxpayers eligible for automatic budgetary refund are amended.

 Corporate profit tax:

  • privileged corporate income taxation of joint investment institutes is limited;
  • reduced tax rate (10%) on transactions with securities and derivatives is abolished;
  • profit exemption has been abolished for:
  1. the hotel business;
  2. companies producing energy solely from renewable sources.

Natural resources duty:

  •  natural gas:
  1. temporarily, until 1 January 2015, rates for the natural resources duty for extraction of natural gas sold not for public consumption are increased: for gas deposits up to5 km– from 28% to 55%, for gas deposits of more than5 km– from 15% to 28%;
  2. VAT determination base is changed for the natural gas sold not for public consumption. Thus, it was stated that the tax determination base is considered to be the maximum price for natural gas sold to industrial consumers established by the NERC (before the amendment was introduced, the base was considered to be the average customs value of imported natural gas); 
  3. introduced the use of step-down ratio 0.55 on gas extracted from new wells (rate valid for two years from the date of such wells are registered in the State Registry of Oil and Gas Wells);
  • oil products:
  1. temporarily, until 1 January 2015, rates for the natural resources duty for extraction of oil and condensates out of deposits up to5 kmshall be 45%, and more than5 km- 21%;
  • iron ore:
  1. temporarily, until 1 January 2015, rates for the natural resources duty for extraction of iron ore are rated 8% of its value based on the content of chemically pure metal.

 Excise duty:

  •  the amount of excise tax and the minimum excise tax liability of payment of excise duty on tobacco products are increased by 5%;
  • alcohol products shall include products based on alcoholic fermentation of sugar-containing materials or materials based on alcohol containing 8,5% spirit or more. The excise tax for such beverages is set at the level of vodka – UAH 70.53 USD per1 literof 100% spirit, with markings of such beverages by excise tax;
  • temporarily, until 1 January 2015, tax on alternative fuels shall be introduced in the amount of EUR 99 per1000 kg.

Law of Ukraine № 1621-VII «On Amendments to the Tax Code of Ukraine and other legislative acts of Ukraine" came into force on 3 August 2014.

By Arsen Miliutin, Senior Associate at Egorov Puginsky Afanasiev & Partners Ukraine.

Practices