Doing Business in Ukraine
Moore Stephens - Kyiv PRECISE.Doing PROVEN. Business in UkrainePERFORMANCE. 2018 1 Introduction
The Moore Stephens Europe ‘Doing Business In’ series of guides have been prepared by Moore Stephens member firms in the relevant country in order to provide general information for persons contemplating doing business with or in the country concerned and/or individuals intending to live and work in that country temporarily or permanently.
Doing Business in Ukraine 2018 has been written for Moore Stephens Europe Ltd by Moore Stephens-Kyiv LLC, an independent member firm of Moore Stephens International Limited. In addition to background facts about Ukraine, it includes relevant information on business transactions and taxation matters. This Guide is intended to assist organizations that are considering establishing a business in Ukraine either as a separate entity or as a subsidiary of an existing foreign company. It will be helpful to anyone planning to come to Ukraine to work and live there either on secondment or as a permanent life choice.
Unless otherwise noted, the information contained in this Guide is believed to be accurate as at 31 December 2018. However, general publications of this nature cannot be used and are not intended to be used as a substitute for professional guidance specific to the reader’s particular circumstances.
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Brussels, December 2018
2 Doing Business in Ukraine 2018 Contents
1. Ukraine at a glance 4 VAT rates 22 Geography 4 Non-taxable and Tax-exempt transactions 22 Population 4 Calculation of VAT payable/receivables 23 History 4 Tax invoices and VAT accounts 23 Language & Religion 5 Reporting 23 Climate 5 Politics and government 5 Currency, time zone, weights and measures 5 7. Personal taxation 24 General Economic Outlook 5 Income tax 24 Tax residency 24 Tax agents 25 2. Doing Business 6 Tax base 25 Main forms of business organisation 6 Personal Income tax rates 26 The Limited Liability Company 6 Tax deductions 26 The Representative office 6 Tax calculation 26 The Joint Stock Company 7 Taxation of Individual Entrepreneurs and Labour relations and working conditions 7 Self-Employed Persons 26 Work permits, visas, etc. 7 Taxation of income from the sale of immovable property 27 3. Finance and investment 8 Business regulation 8 Banking and local finance 8 8. Other taxes 28 Exchange controls 8 Excise tax 28 Investment incentives 9 Property tax 28 Tax on real estate 28 4. The accounting environment 10 Transport tax 29 The audit environment 11 Land tax 29 5. Overview of tax system 12 8. Social security contribution 30 National-level and local taxes 12 Reporting and payment requirements 30 Appeals 15 9. IT taxes 31 6. Taxes on business 16 IT Sector 31 Corporate Profit Tax 16 VAT rules 31 Tax base 16 Tax status of individual developers 31 Tax rate 17 Depreciation 17 10. Agricultural Industry 32 Transfer Pricing 17 Single tax 32 Special Rules 19 Corporate Profit Tax 32 Reporting period 19 Value Added Tax 32 Dividends payment 19 State transfers 32 Peculiarities of taxation of nonresidents’ income 19 11. Moore Stephens-Kyiv LLC Single Tax 20 General Survey 33 Value Added Tax 20 Registration as VAT payers 21 Our office 33 Our team 33 Import VAT 21
Doing Business in Ukraine 2018 3 Ukraine at a glance
Geography History Ukraine is a country in Eastern Founded in 482 A.D., Kyiv, the capital existence: the Russian Empire, Europe, having the territory of of Ukraine, is one of the oldest cities Poland and then the Austro- 603,549 square kilometres (including in Europe. The formation of Ukraine Hungarian Empire had dominated 27,000 square kilometres of the as an independent state dates back to much of the land; but Ukraine Republic of Crimea which is currently the end of the 9th century, when most suffered the incursions of Swedes deemed to be the territory occupied of the current territory of Ukraine and Ottomans as well. by the Russian Federation). It is the formed the medieval state of Eastern second largest country in Europe by Europe, i.e. Kyivan Rus, with its centre In the second half of the 18th territory (after Russia). in Kyiv. In the days of Kyivan Rus, Kyiv century, most of the Ukraine’s was one of the most developed and ethnographic territory was governed Ukraine borders Belarus to the north, richest cities in Europe. However, the by the Russian Empire. After the Poland, Slovakia and Hungary to the Mongol-Tatar invasion in 1240 caused collapse of Tsarist Russia in 1917, west, Romania and Moldova to the the country’s long-term decline. Ukraine achieved a short period of southwest, Russia to the east and the state independency (1917–1920), northeast. In the south and the After a long period of fight for its soon changing for subjection to the southeast it is washed by the Black independence against Lithuania and Soviet Union. Sea and the Sea of Azov. Poland, Ukraine again appeared on the European political map. Now it With the collapse of the Soviet Population was represented by the Zaporizhian Union, on 24 August 1991, Ukraine As of 1 January 2018 the population Sich due to the victory of Hetman emerge as a sovereign state. Since of Ukraine is estimated to be about 42 Bohdan Khmelnytsky in the National then, Ukraine has successfully million inhabitants. The largest cities Liberation War of 1648–54. However, developed into a democratic and by population are Kyiv, the capital of a short period of sovereignty was independent country with rich and Ukraine, Kharkiv and Odessa. followed by centuries of colonial diverse cultural heritage. Lviv, Ukraine Lviv,
4 Doing Business in Ukraine 2018 Lviv, Ukraine Lviv,
Language & Religion The official language is Ukrainian. The sole body of legislative power is However, most of the population the parliament — the Verkhovna speaks both Ukrainian and Russian. Rada of Ukraine — that consists of The freedom of religion is enshrined deputies and is a permanent constitutionally. The main religions structure elected every five years on are Orthodoxy and Greek the majority-proportional basis. Catholicism; there are also some groups of citizens that are Muslims. Currency, time zone, weights and measures Climate The national currency of Ukraine is the On the territory of Ukraine, the hryvnia, the ISO abbreviation is UAH. temperate continental climate is As of 31 December 2018, USD 1 = featured by fairly hot summers (the UAH 27.7206, EUR 1 = UAH 31.856. warmest months temperature ranges from 25°C to 30°C) and relatively Ukraine lies in the EET time zone cold winters (the coldest months (UTC+2, in summer season — temperature falls far below zero, UTC+3). about –20°C). The country uses the metric system of Politics and government weights and measures; temperature Ukraine is a parliamentary-presidential units are degrees Celsius. unitary republic. On 8 June 2014 Petro Poroshenko became the fifth General Economic Outlook president of Ukraine. The president is On 16 September 2014 Ukraine elected for five years by means of ratified the Agreement of association ballot voting in general equal and with the European Union, thereby direct elections; having the total term securing its intentions to deepen the of the office of no more than two integration between Ukraine and the consecutive terms. The Prime Minister European Union. Ukraine is now of Ukraine leads the executive branch experiencing a period of democratic represented by the Cabinet of transformations and economic reforms Ministers of Ukraine. Since April on the path to European integration. 2016, this office has been held by Ukrainian business is open for new Volodymyr Groysman. potential partnerships to provide a valuable contribution to economic development and its modernization. Lviv, Ukraine Lviv,
Doing Business in Ukraine 2018 5 Doing Business
Main forms of business organisation Limited Liability Companies are Main forms of legal entities are required to submit monthly, quarterly designated in the Civil Code and the and annual tax returns as well as Commercial Code of Ukraine. Foreign monthly returns on social citizens and legal entities can be contributions and quarterly and founders and members of legal annual financial statements. entities on an equal basis with citizens of Ukraine. The Representative office In addition, a common form of doing The Limited Liability Company business is a formation of Limited liability company (LLC) in representative offices of foreign which the shareholders’ liability is companies in the territory of Ukraine. limited by their shares is the most In accordance with the legislation, the widespread form of commercial representative office is not a legal companies in Ukraine. The activity of entity and performs functions of LLC and corporate relationships protection and representation of between shareholders are governed interests of a foreign company. by the Law of Ukraine “On Limited Liability and Additional Liability There are two types of representative Companies,” company’s Articles of offices: (1) non-commercial Association and shareholders’ representative office can only function agreement. to represent its headquarters with no right of business activity on the LLC can be established by at least one territory of Ukraine; and (2) person, either physical person or legal commercial representative office (or entity, irrespective of the residency. At permanent establishment) can this, LLC in Ukraine cannot be conduct business and gain profit. Tax Odessa, Ukraine incorporated by a single legal entity benefits are only provided to non- which is owned by the only commercial representative offices shareholder. There is no minimum while a permanent establishment is share capital requirement. subject to taxation on ordinary terms. Nevertheless, the question of initial business financing (until the profit is Representative offices are established obtained) should be considered when by means of the registration with the decision is made concerning the Ministry of Economic Development amount of the share capital. The and Trade of Ukraine. The documents procedure of registration normally for the registration are considered by takes up to two weeks. the Ministry within 60 working days as from the date of the state duty
6 Doing Business in Ukraine 2018 Work permits, visas etc. payment which is USD 2,500. Then, a Ukrainian legislation also provides for To work in the territory of Ukraine representative office shall be registered other forms of legal entities; however, foreign citizens (including in some with the tax authorities and a bank they are used much less frequently. cases those sent to Ukraine for a account opened before a business trip) need to obtain a work representative office will become fully Labour relations and working permit which should be requested by operational. No business activities can conditions their prospective Ukrainian employer be conducted before registration with Labour relations and working from the Employment Service, to claim the tax authorities. conditions in Ukraine are regulated by a long-term visa at a consular office the Labour Code of Ukraine. The and upon arrival in Ukraine to receive Representative offices are required to maximum number of working hours an authorization document for submit monthly, quarterly and annual per week is 40. Ukraine has 11 public temporary residence. A work permit is tax returns and financial statements, holidays that are also days off for usually issued for the period from one even if they do not carry out business employees. Employees are provided to three years. In most of the cases the activity. with the basic annual paid holiday requirement of paying salary to an leave of 24 calendar days. expat employee in the amount not less The Joint Stock Company than 10 minimum wages (as of The activities of joint stock companies Traditionally, labour law establishes the January 2018, 1 minimum wage is are governed by the Law of Ukraine broad rights of employees and the UAH 3723) should be complied with “On Joint Stock Companies.” limited rights of employers with regard for a work permit to be issued. to termination of employment The share capital of a joint stock contracts and aims at protection of The state duty for a work permit company is divided into a certain employees’ rights. amounts to 6 minimum living wages (as number of shares of the equal nominal of 1 January 2018, 1 minimum living value. The legislation sets out the As of January 2018, the minimum wage is UAH 1762**) and a decision minimum capital dimension at the level wage is UAH 3723. According to the concerning issuance of the work permit of 1250 minimum wages (as of January Ministry of Finance of Ukraine, the should be made by the state authorities 2018, 1 minimum wage is UAH average wage is about UAH 9200 (as within 7 working days. 3723*). The shareholders of such joint of June 2018). stock company shall bear the risk of The work of foreign citizens in the losses related to the joint stock Both employees and employers are representative offices of foreign company’s activities within a value of free to be members of trade unions as companies does not require an their shares. well as to form them by themselves. employment permit and is performed However, trade unions in small and on the basis of the service cards issued Joint stock companies are of two types, medium-sized businesses are not by the Ministry of Economics upon a i.e. public joint stock companies and widespread. Employers make representative office’s request. private joint stock companies. Public mandatory contributions to the Social offering of shares can be carried out Security Fund by paying the unified only after payment of the full value of social tax (see in detail para 9). the shares by the founders.
* As of January 2019, the minimum wage is UAH 4173. ** As of January 2019, the minimum living wage is UAH 1921.
Doing Business in Ukraine 2018 7 Finance and investment
Business regulation In compliance with the domestic national currency and oversees its However, the foreign currency regime, when doing business in circulation, as well as regulates banks’ transactions are subject to bank Ukraine foreign citizens have the same activities in the territory of Ukraine. control and the National Bank of rights and fulfil the same obligations as Ukraine can place temporary citizens of Ukraine, except for the cases 82 banks are registered in Ukraine, restrictions on carrying out certain expressly provided for by the Ukrainian among which 23 banks are 100% currency transactions. Typically, their legislation and international treaties. owned by foreign investors (as of 1 performance requires additional Businesses owned by the foreign July 2018). Bank lending is a quite documents to confirm the nature of citizens or non-resident companies expensive mechanism and loans are such transactions. have the same legal status as generally granted against collateral. Ukrainian companies. Intellectual The proceeds of residents from the property is protected by the domestic The most common types of financing export of goods shall be accrued to legislation as well as international businesses in Ukraine are bank lending their account in Ukrainian banks treaties. and foreign investments through within 180* calendar days since the capital investments and loans. moment of customs clearance for Banking and local finance export and since the export of works The banking system of Ukraine is Exchange controls or transport of services — within 180 supervised by the National Bank of Generally, the foreign capital can be calendar days since the moment of Ukraine that defines and pursuesthe freely imported/exported into/out of signing a bilateral work completion monetary policy in Ukraine, issues the the territory of Ukraine. protocol. In case of exceeding this Kyiv, Ukraine Kyiv,
*The Exchange Control procedure is simplified in 2019.
8 Doing Business in Ukraine 2018 Kyiv, Ukraine Kyiv,
term, the penalties apply.The granting • 50% of proceeds in foreign currency Ukraine from time to time, it is of loans in foreign currency for the (with some exceptions) received by recommended that a professional benefit of residents from non-residents enterprises shall be subject to advice before contemplating a cross- is also subject to special regulations. obligatory sale in hryvnias; border transaction be received. According to the current requirements • foreign currency to perform any agreements concluded with non- payments under cross-border Investment incentives residents re granting of borrowings, agreements can be made after Foreign investors are guaranteed the loans, refundable financial aid shall be submission of the registry entries of national treatment of investments, registered with the National Bank of such payments to the National Bank i.e., foreign investors have the same Ukraine.* Besides, the interest rate for of Ukraine on the following day rights as Ukrainian ones. borrowings & loans from non-residents since the funds accrual on a special is limited in Ukraine: payment limits account, provided that no State support in specific industries like are established at 11% per annum for notification on behalf of the National agriculture and renewable energy is loans with a fixed interest rate, with Bank of Ukraine is received by the available in the form of state subsidies an over three-year maturity period bank re impossibility of making such as well as feed-in tariffs. (and 10% for mid-term loans) and at payments; 3-month Libor Index Rate in USD + • the purchase of the foreign currency Based on World Bank Group Doing 7.5% per annum under variable at the expense of funds obtained Business Project (http://www. interest rate loans. against a loan is prohibited; doingbusiness.org/en/rankings) • the mutual settlements under the Ukraine ranks #76 internationally and Certain restrictions as to the external economic contracts are it has shown consistent growth in repayment of foreign loans abroad prohibited. comparison with previous years. have also been introduced in view of the volatile environment on the Because the above restrictions are of monetary and foreign exchange temporary nature and can be markets of Ukraine. Current changed by the National Bank of restrictions have been introduced on the basis of the Regulation of the National Bank of Ukraine No 410 of 13 December 2016 (as amended from time to time). They are of a temporary nature and are as follows:
• prohibition of the early repayment of loans with some exceptions in force from August 2018; Kyiv, Ukraine Kyiv,
* The procedure is simplified in 2019.
Doing Business in Ukraine 2018 9 The accounting environment
The accounting environment is set For the purpose of statutory financial out by the Law of Ukraine “On reporting companies in Ukraine may Accounting and Financial Reporting choose between National in Ukraine.” Accounting Standards and the IFRS translated into Ukrainian and All the business entities in the published on the web-site of the territory of Ukraine should use the Ministry of Finance. However, public Chart of Accounts for accounting of interest entities are required to use assets, equity, liabilities and business the IFRS. Micro and small enterprises operations of enterprises and as well as representative offices of organizations, as established by law. non-residents, except for those Legal entities keep accounts and which are obligated to submit prepare financial statements in the financial statements prepared under national currency of Ukraine. IFRS, report only a Balance and P&L Account. Consolidated financial The above Law introduces the statements shall be provided by classification of all companies in holding (parent) companies. Such Ukraine (more information is obligation will not be applied in case available on page 11). the total indicators of business activity of both holding company For the purpose of classification an and subsidiaries are the same as enterprise must comply with at least those established for small two of the above criteria in the year enterprises. preceding the reporting one and the annual average of official UAH/EUR Financial statements cannot be exchange rates shall apply. recognized as confidential information and shall be provided Furthermore, enterprises-issuers of upon request. securities circulated on stock exchange, banks, insurers, non-state Starting from 2019 reporting year all pension funds and other financial PIEs, medium-sized enterprises as institutions (except for financial well as micro and small financial institutions classified as micro and institutions will be obligated to small enterprises) as well as publish their audited annual financial enterprises which are classified as statements on their web-sites. large enterprises — are defined as Public Interest Entities (PIE). Kyiv, Ukraine Kyiv,
10 Doing Business in Ukraine 2018 The audit environment The audit activity in Ukraine is rendered by auditors certified in firm’s staff and internal quality regulated by the Law of Ukraine “On Ukraine or audit firms included into control system, liability insurance, Audit of Financial Statements and the Ukrainian Registry of Audit Firms limitations as to non-audit services Auditing Activity,” statutory and Auditors. Certification exams for rendering, etc. documents of the Audit Chamber of auditors consist of theoretical and Ukraine as well as by the International practical parts; and ACCA or similar Control over the quality of audit Standards on Quality Control, certificates exempt the applicants services is exercised by the Audit Auditing, Review, Other Assurance and from the theoretical part of exams. At Chamber and the Public Related Services. The Code of Ethics this, they do not entitle their holders Supervisory Board. for Professional Accountants issued by to render audit services in Ukraine the International Ethics Standards independently. The Law also provides the guarantees Board for Accountants of the of auditing activity. Thus, an access to International Federation of The obligatory audit is conducted in the working paper of an auditor as Accountants, as entered into force by cases when an auditee is obligated to well as to any sensitive data (i.e. any the Decision of the Audit Chamber of disclose its financial statements information disclosed in the course of Ukraine on 18 April 2003, sets forth according to the law (e.g. all PIEs). rendering of audit services) is granted the professional standards on ethics for The Law of Ukraine “On Audit of only upon the court decision, except auditors in Ukraine. Financial Statements and Auditing for the cases when the quality control Activity” sets out additional specific over the audit services is performed. According to the above Law audit and requirements for obligatory audit, related services in Ukraine can only be including requirements to an audit
Criteria Micro enterprises Small enterprises Medium-sized enterprises Large enterprises
Balance value of assets < EUR 350k < EUR 4 mln < EUR 20 mln > EUR 20 mln
Net sales revenue < EUR 700k < EUR 8 mln < EUR 40 mln > EUR 40 mln
Average number of < 10 persons < 50 persons < 250 persons > 250 persons employees Kyiv, Ukraine Kyiv,
Doing Business in Ukraine 2018 11 Overview of tax system
The main statutory acts governing • Customs Fee (митний збір). the tax system in Ukraine are the Tax Code of Ukraine and the There are also four local taxes and Customs Code of Ukraine. The fees established by the law, the State Fiscal Service and its local rates of which are determined by bodies administer reporting and local authorities: payment of taxes. • Property Tax consisting of: transport tax (транспортний податок), a land fee National-Level and Local Taxes (плата за землю) and tax on real The current tax system comprises estate other than a land plot (податок seven national-level taxes which are на нерухоме майно відмінне від as follows: земельної ділянки); • Single Tax (єдиний податок); • Corporate Profit Tax (CPT) (податок • Tourism fee (туристичний збір); на прибуток підприємств); • Fee for vehicle parking (збір за місця • Personal Income Tax (PIT) (податок для паркування транспортних на доходи фізичних осіб); засобів). • Value Added Tax (VAT) (податок на The brief overview of the taxation додану вартість); base, tax rates and reporting • Excise Tax (акцизний податок); requirements is presented in the • Environmental Tax (екологічний table below: податок); • Rental Fee (рентна плата); Kyiv, Ukraine Kyiv,
Type of tax Payers Taxation base Rate Reporting National level taxes Profit before taxation Legal entities and according to the local GAAP Quarterly or 1 Corporate Profit Tax representative offices of non- 18% or IFRS adjusted for certain tax annually residents differences Ukraine-sourced income (profit), including non-resident 1.1 Legal entities — non-residents excluding proceeds from goods 15%* withholding tax and services For residents — the general Resident individuals and non- taxable income; for non- Quarterly or 2 Personal Income Tax 18% resident individuals residents — Ukraine-sourced annually income
Resident individuals and non- The same tax base as for Quarterly or 2.1 Military Tax 1.5% resident individuals Personal Income Tax annually
Transactions with respect to Legal entities and individuals goods and services supply 3 Value Added Tax 20% Monthly registered as VAT payers and import into the customs territory of Ukraine
* Reduced rates are available under bilateral double tax treaties.
12 Doing Business in Ukraine 2018 Legal entities and individuals — manufacturers, Quantity of manufactured, Ad valorem and specific 4 Excise tax importers and sellers of imported, sold excisable goods tax rates according to Monthly excisable goods; both or the volume of sales the type of goods residents and non-residents
Legal entities and Rates according to the Volumes and types of 5 Environmental tax representative offices of non- type of hazards and Quarterly contaminants residents waste disposal zone 6 Rental fee
Rental fee for the use Legal entities and resident/ Quarterly of mineral resources non-resident individuals, Volume/cost of commercial (monthly for 6.1 for purposes associated Specific rates stateless persons using minerals extracted extraction of with the extraction of resources oil and gas) commercial minerals
Rental fee for the use of mineral resources Legal entities and resident/ Rates according to for purposes not non-resident individuals, Volume of underground the type of mineral 6.2 Quarterly associated with stateless persons using facilities resources and per the extraction of resources volume unit commercial minerals
Legal entities and resident/ Rates according to Rental fee for the use non-resident individuals, the type of radio 6.3 Bandwidth of radio frequencies Monthly of radio frequencies stateless persons using communication for a resources MHz
Legal entities and resident/ Rates according to the Rental fee for the non-resident individuals, water supply sources 6.4 Actual volume of used water Quarterly special use of water stateless persons using in UAH per 100 cubic resources meters
Rates are established according to type of Legal entities and resident/ Rental fee for the forest tree depending non-resident individuals, Actual volume of forest 6.5 special use of forest on the forest belts in Quarterly stateless persons using resources used resources UAH per 1 cubic meter resources of wood substance with bark and without
For oil and petroleum USD 0.56–2.4 for transit Rental fee for products — actual volumes Legal entities and resident/ transportation of 1000 transportation of of transportation. For natural 6.6 non-resident individuals using cubic meters per every Monthly oil and petroleum gas and ammonia — the sum pipeline facilities 100 km of the relevant products of products of their relevant transportation routes transportation route distances
Customs value of goods Legal entities and resident/ Ad valorem, specific transferred through the customs non-resident individuals and combined rates 7 Customs fee border of Ukraine or the quantity transferring goods through according to the type of such goods or the combined the customs border of Ukraine of goods determination of taxation base
Local taxes:
8 Property Tax, including: Annually
Legal entities and resident/non- Quantity of motor vehicles resident individuals — owners registered in Ukraine up to five UAH 25000 per year 8.1 Transport tax of motor vehicles registered in years of use at the cost of more for each vehicle Ukraine than 375 minimum wages
Doing Business in Ukraine 2018 13 From 0.3% to 3% (for landowners) and up to Owners of land plots and land Normative valuation of land 12% (for land users) 8.2 Land tax users plots depending on the type of land and intended purpose
Upon decision of local Legal entities and resident/ Tax on real estate other Total area of residential and councils, but not more 8.3 non-resident individuals — real than a land plot non-residential real estate than 1.5% of minimum estate owners wage per square meter
9 Single tax
Individual entrepreneurs who do not use hired labour and Flat rate in 2018 — 9.1 The first group the amount of income of - Annually up to UAH 176 which in a calendar year does not exceed UAH 300 thousand
Individual entrepreneurs whose amount of income in a calendar year does not exceed UAH 1500 thousand and who Flat rate in 2018 — 9.2 The second group do not use the hired labour - Annually up to UAH 745 or the number of employees who have labour relations with them does not exceed 10 persons at the same time
Legal entities and individual Income in specie (cash and/or 3% for the VAT payers entrepreneurs whose amount 9.3 The third group non-cash), tangible or intangible and 5% for non-VAT Quarterly of income in a calendar year form payers does not exceed UAH 5 million
Rates are established according to the Normative monetary evaluation category (type) of land Legal entities — agricultural 9.4 The fourth group of the agricultural land and and its location, as Annually manufacturers water fund lands a percentage of the normative monetary evaluation
Local fees:
Resident & non-resident individuals, stateless Cost of the whole period of Rates are established persons receiving services dwelling in hotels, camping 10 Tourism fee by the local authorities Quarterly associated with the temporary areas, motels, hostels and other (0.5 1%) accommodation (overnight hotel facilities – accommodation)
Legal entities, individual entrepreneurs who organize Rates are established by and carry out the activity the local authorities for 11 Fee for vehicles parking associated with the parking Parking lot area Quarterly each day per 1 square of vehicles at the paid parking meter lots and specially allotted parking areas
Social taxes:
Payments accrued to the hired Legal entities and individual Unified Social employees, associated with the 12 entrepreneurs using hired 22% Monthly Contribution labour relations, but not more labour than 15 minimum wages
14 Doing Business in Ukraine 2018 Ukrainian Carpathians Four taxes (Corporate Profit Tax, Personal Income Tax, Value Added Tax, Excise Tax) make up about 80 per cent of the budget revenue. Appeals Decisions made by tax bodies can be appealed in accordance with the administrative procedure to the higher tax authority and/or to the court.
Appeals to the tax authorities can generally be submitted within 10 calendar days after receipt of a tax decision being appealed and in case when such appeal has been dismissed, the tax payer can appeal further to the higher tax body within 10 calendar days after the receipt of notification concerning dismissal of appeal. The tax authorities shall consider the submitted appeals within 20 calendar days. In case of their failure to consider an appeal within the above terms the decision is considered to be made for the benefit of a taxpayer.
Decisions of the tax authorities can be appealed directly to the administrative courts as well as in cases when the appeals in accordance with the administrative procedure have not brought any results within a month after the respective decision of the tax authority.
Doing Business in Ukraine 2018 15 Ukrainian Carpathians Taxes on business
General taxes applicable to the Reporting Standards (“IFRS”). Both companies in Ukraine are Corporate income and expenses shall be Profit Tax (CPT) and Value Added Tax recognized on accrual basis. (VAT). Additional taxes and fees may apply or the rates may differ The taxable profit defined in the depending on the area of business. financial reporting for the taxation purposes shall be adjusted by the Corporate Profit Tax accounting and tax differences which Tax Payers arise in the following cases: The Corporate Profit Tax is paid on the • when the depreciation of non-current territory of Ukraine by: assets is accrued; • when provisions (reserves) are made; • Resident legal entities, i.e. legal entities • when carrying out financial transactions of any type established on the territory (i.e. when the income from of Ukraine, except for the budget- participation in equity of other CPT funded institutions, non-profit entities, payers is accrued; in case of downward institutions, organisations and legal revaluation, upward revaluation of entities which apply simplified tax equity instruments reclassified as system. financial liabilities, etc.); • Non-resident legal entities, i.e. legal • when costs associated with royalty for entities established under the laws of the benefit of non-residents are other states, drawing their income from withheld when making transfer pricing the Ukrainian sources (except for adjustments; institutions and organizations with • when applying deductibility restrictions diplomatic privilege or immunity under for certain payments to non-residents; international treaties). • when carrying out transactions with • Permanent establishments of non- non-profit organisations; residents that draw their income from • in some other cases stipulated by the the Ukrainian sources or act as agents Tax Code of Ukraine. (representatives) or act otherwise • in respect of such non-residents or Thus, the Ukrainian legislation • their founders. provides for the restrictions on • inclusion of the loan interest to the Tax base tax-deductible expenses, as paid to The CPT in Ukraine shall be withheld non-resident-related parties. In from the Ukraine-sourced income as particular, if the amount of resident’s well as in some cases from income debt liabilities before a non-resident- derived abroad, as specified in the related party exceeds the amount of Company’s financial reporting equity capital by more than 3.5 times prepared according to the National (for financial and leasing companies Regulations (Standards) on Accounting — by more than 10 times), the in Ukraine and International Financial financial result before taxation shall Kyiv, Ukraine Kyiv,
16 Doing Business in Ukraine 2018 Kyiv, Ukraine Kyiv,
be increased by the excess of the financial sources: cost of goodwill 3. Transactions where one of the parties accrued percent in the accounting and non-productive fixed assets. The is a non-resident registered in the over 50 per cent of the financial term “non-productive fixed assets” state included in the list approved by result before taxation, financial costs shall mean non-current fixed assets the Cabinet of Ministers of Ukraine and depreciation charges. that are not used in the taxpayer’s (where the corporate profit tax rate is business activity. by five or more percent lower than in The CPT payers shall have a right on Ukraine, or where tax benefits are prepaid expenses carried forward for The useful life term for depreciation of provided with respect to the the following tax periods until intangible assets shall be established corporate profit tax; or in cases when complete repayment. according to the title documents. If no international treaties on exchange under the title document there is no of information have been concluded Tax Rate fixed period of effect of the right to between the state and Ukraine, or The basic CPT rate is 18%. The use intangible asset, such a period such exchange of information is not reduced rates of 0% or 3% apply to shall be determined independently by effectively ensured). the insurance activity of the resident the taxpayer, but shall not be less than 4. Transactions with non-residents entities. The base rate of the non- two and exceed 10 years of which are not payers of the resident withholding tax totals to 15 continuous operation. corporate profit tax or which are not per cent (the rates may differ tax residents of jurisdictions where depending on the type of income and Transfer Pricing they are registered (the list of based on the provisions of bilateral The pricing control in Ukraine is organizational forms and double taxation treaties). executed in the form of transfer pricing jurisdictions is approved by the rules. The transactions which are Cabinet of Ministers of Ukraine). Depreciation subject to transfer pricing rules are as 5. Transactions between non-resident Depreciation of fixed assets and follows: and its permanent establishment intangible assets for the purposes of in Ukraine. CPT calculation shall be calculated in 1. Transactions with non-resident — accordance with the National related parties. At this, transfer pricing rules are Accounting Standards or IFRS in view 2. Business transactions on sale of applicable only under following of the minimum allowable periods of goods by means of commissioners conditions which should be met their depreciation set forth by the — non-residents. simultaneously: Tax Code, in particular: see table on page 18.
When determining the tax depreciation the depreciation methods specified by the National Accounting Standards shall be applied, except for the “production” method.
The following groups shall not be subject to depreciation and are carried out at the cost of related Kyiv, Ukraine Kyiv,
Doing Business in Ukraine 2018 17 Minimum allowable Groups periods of useful life, years
Group 1 — land plots -
Group 2 — capital expenses for land improvement that are not related to construction 15
Group 3 — buildings 20
Facilities 15
Transmission devices 10
Group 4 — machinery and equipment 5 of which:
Electronic computing devices, other machines for automatic processing of information, related information readout and printing devices, related software (except for programs the expenses for acquisition of which are recognized as royalty and/or software recognized as intangible assets), other 2 information systems, commutators, routers, modules, modems, uninterrupted power supply sources and means of their connection to telecommunication networks, phones (including cell phones), micro-phones and portable radio sets the cost of which exceeds UAH 2500.
Group 5 — transport means 5
Group 6 — instruments, equipment, inventory (furniture) 4
Group 7 — animals 6
Group 8 — perennial plantings 10
Group 9 — other fixed assets 12
Group 10 — library funds; preservation of the National Archival Fund of Ukraine -
Group 11 — non-current tangible assets of low cost -
Group 12 — temporary (non-title) facilities 5
Group 13 — natural resources -
Group 14 — reusable containers 6
Group 15 — rent objects 5
Group 16 — long-term biological assets 7
18 Doing Business in Ukraine 2018 Dividends payment • total taxable annual income (excluding pricing, terms & conditions of If the decision on distribution of VAT) of a resident exceeds UAH 150 settlements, economic analysis, etc. A dividends is taken, the CPT payer- million; and fine in the amount of three (3) per issuer of corporate rights the • the volume of transactions with a cent of the amount of controlled dividends are accrued for shall make counterparty exceeds UAH 10 million transactions not documentary payments to the owner of such (excluding VAT) for the corresponding substantiated (but not more than 200 corporate rights regardless of whether year. minimum wages) shall be paid for a the taxable income is calculated or • failure to provide such not; at the same time the issuer of The transactions between non- documentation. corporate rights shall accrue and pay residents and their permanent to the budget the advance establishments in Ukraine shall be Special Rules contribution of the CPT. subject to transfer pricing rules in The Ukrainian legislation provides for case their volume exceeds UAH 10 special CPT taxation rules for: The amount of advance contribution million for the corresponding year. shall be calculated on the excess of • Insurers; payable dividends over the value of A Corporate Profit Tax payer, being a • Sales or other alienated securities; the taxation base with repaid financial participant of the controlled • Transactions with investment property liabilities for the same fiscal (reporting) transaction, shall determine the scope and biological assets; year the dividends are paid for. In case of the taxable profit by arm’s length • Investors in the context of the of an outstanding liability the advance principle, i.e. the circumstances of performance of production sharing payment shall be calculated on the full the controlled transactions shall not agreements; amount of dividends payable. The differ from the comparable • Non-residents; advance contribution shall be circumstances of the uncontrolled • Betting activities, issue and holding of calculated according to the basic CPT transactions. The Tax Code of Ukraine lotteries, gambling; rate. The amount of payable dividends specifies five methods to determine • Institutes of joint investment; shall not be decreased by the amount the compliance of the circumstances • Non-state pension provisions. of the advance contribution. of the controlled transactions with the arm’s length principle. The The enterprises and organizations At the same time if the dividends are Transfer Pricing Guidelines published established by the public paid for incomplete calendar year, the by OECD are applicable in Ukraine. organizations of the disabled ones mentioned excess amount shall be are exempted from CPT. calculated by applying the value of the A transfer pricing report is to be Reporting period taxation base calculated proportionally submitted to the tax authorities For the purposes of the CPT to a number of months the dividends st before the 1 of October of the calculation the reporting tax period is are paid for. The mentioned advance following year. Therein it should be considered to be a one-year period contribution shall be paid to the specified as follows: the list of all starting from the 1st of January until budget prior to/simultaneously with counterparties the controlled the 31st of December of the related the payment of dividends. transactions were carried out with, as reporting year, except for the well as the costs and volume of such producers of agricultural goods for The amount of the paid advance transactions. A failure to submit such which the annual reporting period contributions of CPT shall be paid to a report entails a fine in the amount shall start on the 1st of July of the reduce the outstanding CPT liability, as of 300 living wages and a failure to current reporting period and end on declared in the tax return for the report a controlled transaction in the the 30th of June of the following reporting (tax) year. submitted report — a fine in the reporting period. amount of 1 per cent of the amount Peculiarities of taxation of non- of the controlled transactions, but The tax return for the reporting tax residents’ income not exceeding 300 living wages. year shall be submitted to the tax Ukraine-sourced income received by authorities prior to the 1st of June of a non-resident shall be taxed in the All taxpayers carrying out the the following year. The taxpayer shall amount of 15 per cent of the income controlled transactions shall include into the tax return the sum, unless otherwise specified by undertake to maintain and keep calculation of the advance the effective international double documentation on transfer pricing contributions to be paid within the taxation treaties of Ukraine concluded and to submit it upon request of the period of 12 months from June until with the countries of residence of controlling authorities. The May in the subsequent years on a persons the income is paid to. This documentation on transfer pricing monthly basis. tax shall be withheld from the income shall contain data concerning the accrued for the benefit of a non- functions of the related persons, For tax payers the annual income resident by a resident or permanent description of transactions, financial (excluding indirect taxes) of which representative office of non-resident and economic conditions of exceeds UAH 20 million the reporting making any type of Ukraine-sourced transactions, substantiation of period is a calendar quarter. income payment.
Doing Business in Ukraine 2018 19 Kyiv, Ukraine Kyiv,
Single Tax Such income includes: • brokerages, commissions or agent Single tax is a special taxation regime 1. interest, discount income paid in fees paid by the non-resident or its which replaces the payment of certain favour of the non-resident, permanent establishment in Ukraine taxes and duties (in particular, including interest for loans and in favour of residents; corporate profit tax) with the payment debt obligations issued by the 11. contributions and premiums for of a single tax in line with resident; insurance and re-insurance of risks simultaneous keeping of the simplified 2. dividends paid by the resident; in Ukraine (including insurance of accounting and reporting. A legal 3. royalty; life risks) or insurance of residents entity or an individual entrepreneur 4. freight and revenues from against risks beyond the borders of can independently choose among four engineering; Ukraine; groups of a simplified tax system, if 5. leasing/rent payments made by 12. income obtained from activities in such an entity/entrepreneur complies residents or permanent the field of entertainment (except with the established requirements. representative offices in favour of for activities related to the the non-resident-lessor/landowner organization of the state lottery); Single tax of the third group cannot be under operative leasing/rent 13. income as charities and voluntary applied by legal entities in cases if contracts; contributions in favour of non- more than 25% of their authorized 6. proceeds from sales of real estate residents; capital is owned by legal entities — located in Ukraine, which is 14. other income from the non- non-payers of single tax as well as to owned by the non-resident, resident (permanent establishment permanent establishment. including the real estate of the of the latter or any other non- permanent establishment of the resident) business in Ukraine. Value Added Tax non-resident; In general, VAT is due on supplies of 7. income from trades in securities, Tax is withheld by resident which goods and services as well as the makes the payment to a non-resident derivatives or other corporate import of goods & services (in certain rights, as determined in line with at the expense of such payment. cases) to Ukraine. this section; The following non-residents’ income 8. income from joint ventures shall not be taxed: income as cash or The VAT taxation base, as a rule, shall be (operations) in Ukraine, income other compensations for the value of the agreed cost of goods/work/services. from long-term contracts on the goods/work/services transferred/ territory of Ukraine; provided/rendered to the resident by Since VAT is an indirect tax with the 9. fees earned for cultural, this non-resident (permanent real burden of VAT falling on final educational, religious, sports and establishment), including the cost of consumers, businesses registered as entertainment operations made by services for the international VAT payers are, in fact, acting as non-residents or the persons communications or international collecting agents for the state. They authorized thereby on the territory information support. are required to charge and report VAT of Ukraine; and they are also entitled to refund 10. brokerages, commissions or agent Special tax rates with respect to the input VAT. Any VAT incurred in the fees received from residents or specific types of income are available course of the taxable person’s taxable permanent establishments of based on the provisions of bilateral activity (e.g. charged by the taxable other non-residents as regards double taxation treaties. person’s suppliers), can in principle be
20 Doing Business in Ukraine 2018 Condition The first group The second group The third group The fourth group
Legal entities — Individual entrepreneurs Can be applied by Individual entrepreneurs — physical persons manufacturers of and legal entities agricultural products
Subject to receipt of 75 Amount of Up to UAH and more per cent of income per one Up to UAH 1,500 000 Up to UAH 5,000 000 income out of the calendar year 300, 000 agricultural productions for the previous year
Maximum number of hired - 10 Not limited employees
Manufacturing and/or sale of goods, Retail sale of goods restaurant business, rendering services to Production and sale of Any types of activities, on the markets single tax payers and/or population, agricultural products as Types of business except for those and/or rendering except for entities providing services in well as derivative activity specifically prohibited for consumer services the area of real estate, including products; agricultural the single tax payers to population assessment services and those carrying services out jewellery business
Settlements for the dispatched Solely in the monetary form (cash and/or non-cash). goods (performed No limitations Thus, the barter is prohibited. work, rendered services)
Fixed rate — is approved by the decisions of the local authorities Depending on the category (type) of land and its location (between 3 per cent including VAT or 0.09 and 3 per cent of Tax rates up to 10 per cent up to 20 per cent of a minimum salary 5 per cent excluding VAT the regulatory monetary of a living wage valuation of the land) based on the amount of land in use
Tax reporting Calendar year Calendar quarter Calendar year period
deducted or set off against the VAT territory of Ukraine through their Import into the customs territory of due. Only the net amount must be representative offices which are also Ukraine of goods with customs value paid to the tax authorities. entitled to get registered as VAT not exceeding EUR 150 equivalent payers in Ukraine. shall not be subject to VAT.* The Registration as VAT payers individuals (physical persons) can Any business entity shall have a The single tax payers of the second import the goods in hand luggage right to be registered as a VAT payer and third groups shall have a right and/or accompanied luggage without on a voluntary basis. not to be registered as the VAT paying VAT into the territory of payers provided that they do not Ukraine with total invoice value not Businesses with the total amount of exceed the statutory threshold of the exceeding EUR 1000 equivalent transactions on sales of goods/ income amount for their groups. through checkpoints on the State services of more than one million Border of Ukraine open for air traffic, hryvnias (excluding VAT) on the Import VAT and with total invoice value not territory of Ukraine for the last In the event of import of goods into exceeding EUR 500 and 50 kg twelve calendar months shall be the customs territory of Ukraine by through other checkpoints. subject to obligatory registration as persons not registered as the VAT VAT payers. payers, the tax shall be paid during the customs clearance of goods by Non-residents shall have a right to the said persons without registration carry out the business activity on the as a VAT taxpayer.
* Starting from 1 July 2019 — not exceeding EUR 100 equivalent.
Doing Business in Ukraine 2018 21 VAT rates VAT rates: agreement (including pension deposit • supply (sale/transfer) of land plots, land a) 20 per cent — basic rate; agreement), debt trading for monetary shares, lease payment for the land plots; b) zero per cent — for export funds or securities; • transactions for supply of services for transactions, duty free shops, • payment in specie of wages (other transit passenger and cargo carriage international traffic, maintenance and equivalent payments), pensions, grants, (transfer) through the customs territory refuelling of ships and aircrafts subsidies, payment of dividends, royalty of Ukraine; engaged in international flights; in specie in the form of securities by the • transactions for supply of services to c) 7 per cent — supply in the customs issuer; supply of services on a foreign and domestic seacraft territory of Ukraine and import into commission basis (brokerage, dealership) performing international passenger the customs territory of Ukraine of related to trade and/or management of luggage and cargo carriage owned and pharmaceutical products, medical securities (corporate rights), derivatives paid by them; products and medical equipment. and currency valuables; • transactions for supply of services for • reorganisation (merger, accession, air navigation service of aircraft Non-taxable and tax-exempt split-up, spin-off and transformation) of performing interstate, international and transactions legal entities; transit flights; The non-taxable transactions, in • supply of services for agenting and • transactions for import into the customs particular, include: chartering the merchant marine by territory of Ukraine of property by way shipping agents in favour of non- of international technical assistance • issue (emission) and sale of securities; residents; provided in accordance with the • transactions with respect to placing • lease or concession payment under lease international treaties of Ukraine, or by property in the custody, transfer to or concession agreements with respect way of humanitarian aid supplied concession or lease (rent), except for to integral property complex of state or according to the provisions of the Law of financial lease, accrual and payment of municipal enterprises (organisation units Ukraine “On Humanitarian Aid;” interest or commission fees as part of a thereof), where state or local self- • transactions for import into the customs lease (rent) payment under terms of a government authorities act as lessors or territory of Ukraine of renewable energy finance lease agreement; pledging concessors under agreements and equipment, energy conservation (mortgaging) property to the lender payments under the law are paid to the equipment and materials, means for (creditor); payment of a principal sum of State Budget of Ukraine or to local measuring, control and management of consolidated mortgage debt and of budgets. expenses for fuel and power resources, accrued interest; • equipment and materials for alternative • insurance, coinsurance or repeated Some transactions are recognized by fuel manufacture and for renewable insurance services by persons licensed to the Tax Code as VAT-exempt. In energy generation; carry out insurance activities under the particular, such transactions include: • transactions for import into the customs law; territory of Ukraine of purebred animals, • turnover of banking metals, other • supply of baby food products and baby breeding (genetic) resources; currency valuables; stuff; • transactions on supply within the customs • payment system organization services • supply of education services; territory of Ukraine and exportation related to money transfers, cash • supply of healthcare services by licensed within the customs treatment of grain collection, cash management services, healthcare institutions; • crops and technical crops. services for involvement, investment and • provision of housing (housing facilities), • repayment of money under loan, deposit except for the first provision thereof; • • charitable support; • • Kyiv, Ukraine Kyiv,
22 Doing Business in Ukraine 2018 Kyiv, Ukraine Kyiv,
Tax invoices and VAT accounts Furthermore, temporarily until 1 For each delivery of goods/services the automatically by the Unified Register January 2023, transactions on supply supplier of goods/services shall and, in fact, constitutes an advance of software (including operational undertake to prepare a tax invoice in VAT payment. systems, applications, web-sites, electronic form, wherein it shall be access to online services as well as indicated, inter alia, both the taxation Reporting their upgrading) and transactions with base and the tax amount. The VAT reporting period shall be one software which are not considered calendar month. The single tax payers royalty are VAT-exempt. All tax invoices prepared by the shall have a right to choose a VAT suppliers of goods/services shall be reporting period on a quarterly basis. Calculation of VAT payable/ registered with the Unified Register of The VAT return shall be submitted to receivables Tax Invoices on a mandatory basis. the State Fiscal Service within 20 For the VAT payers the tax amount calendar days following the last which is subject to budget payment or The VAT input of the registered VAT calendar day of the reporting (tax) budget refunding is determined as the payers shall include the amount of month. The specified tax amount due difference between the amount of tax Value Added Tax paid as part of shall be paid within 10 days following output of the accounting (tax) period purchase price of goods, materials, the deadline for submission of the tax and the amount of the VAT input of accessories, non-current assets, return. the accounting (tax) period. services and other expenses related to the taxpayer’s business activity. Special tax treatment of VAT is The positive difference (VAT payable) applied for: shall be paid to the state budget and The inclusion of the tax amounts into the negative difference (VAT the VAT input/receivable is possible • transactions depending on the customs receivable) is subject to the budget only under the tax invoices registered regime of the goods transfer through refunding for the benefit of the by the suppliers in the Unified Register the Ukrainian border; taxpayer or to the VAT payment of Tax Invoices. • tour operator and travel agency accrual in the subsequent accounting activities; (tax) periods. If the goods/services, during a • non-residents’ services rendered on the purchase of which the VAT amounts territory of Ukraine; VAT output/payable shall be were included into the VAT input, • transactions related with the work on determined as the taxation base were used in full or in part for carrying Nuclear Safety of Chornobyl Nuclear multiplied by the taxation rate. The out VAT-exempt/VAT-free transactions Power Plant; taxation base is determined on the or in the transactions not connected • cultural valuables, collector’s items basis of the agreed cost of the sold with the business activity, a taxpayer • or antiques. goods and services, but not lower shall undertake to accrue VAT output than the acquisition price or the based on the share of use of such historical cost. goods/services.
The date of incurrence of VAT liabilities VAT is paid through special VAT shall be considered to be the date of accounts which should be opened by event that occurred earlier — either each VAT-payer. The amount to be the payment date or the date of accumulated at the VAT special shipment of goods/services. account of a tax payer is determined
* Reduced rates are available under bilateral double tax treaties.
Doing Business in Ukraine 2018 23 Personal taxation
Income tax Personal Income Tax (hereinafter — Sufficient (but not exclusive) condition the “PIT”) is a tax levied on income of to determine the location of the centre physical persons. For the PIT purposes of vital interests of an individual in Ukraine, the compilation of two (physical person) would be a taxation principles are applied: the permanent place of residence of the income of the tax residents is taxed on members of his/her family or his/her the basis of the unlimited tax liability; registration as a business entity. and the income of non-residents shall be subject to taxation if received from If the resident status of an individual sources located on the territory of (physical person) cannot be Ukraine (limited tax liability). determined, using the provisions of this sub-clause above, an Individual is Payers of the PIT are individuals — considered to be a resident if he or she residents and non-residents as well as is a citizen of Ukraine. tax agents. If, contrary to the law, an individual — Tax residency citizen of Ukraine, is a citizen of For the PIT purposes a resident refers another country as well, for the PIT to an individual (physical person) purposes such person is deemed to be having a place of residence in Ukraine. a citizen of Ukraine not eligible for In cases where the individual (physical foreign tax credit provided for by the person) has a place of residence in a Tax Code of Ukraine or by provisions foreign country, he or she is of international treaties of Ukraine. considered to be a resident if such a person has a permanent residence in If an individual (physical person) is Ukraine; if the person has a stateless and is not subject to the permanent residence in a foreign provisions of paragraphs one through country, he or she is considered to be four of this sub-clause, his/her status is a resident if there are close personal or to be determined in accordance with economic ties (centre of vital interests) international law. in Ukraine. If it is impossible to determine the state of the person’s Sufficient basis to determine if the centre of vital interests, or if physical person is a resident is an independent person does not have a permanent determination of his/her primary place of residence in one of the states, residence in the territory of Ukraine in he or she is considered to be a the manner prescribed by the Tax resident if he or she resides in Ukraine Code of Ukraine or his/her registration for at least 183 days (including the day as a self-employed person. of arrival and departure) during the fiscal year period(s).
24 Doing Business in Ukraine 2018 Kyiv, Ukraine Kyiv,
Double Tax Treaties may contain specific Monthly taxable income shall include • amount of pensions, if it does not rules for determining a tax resident and as follows: succeed the amount of three minimum their provisions prevail over the national salaries (on a regulations. • income in the form of a salary; • monthly basis); • proceeds of performance of works • cost of free healthful and dietary Non-residents refer to the individuals under civil law and employment meals, milk or equivalent food-stuff, (physical persons) not having a place of contracts; special clothing and other personal residence in Ukraine. • part of income from property protection equipment provided under transactions; the Law of Ukraine “About a Labour Tax agents • income from sales of property and Safety;” Basically the PIT agents are considered non-property right objects, intellectual • amount of financial or property to be persons who accrue and pay property, royalty fee, other right of use supplies or provision of compulsory- income for the benefit of individuals or disposal fee for intangible assets, duty military servants; (employers, banks during the interest royalty; • amount of alimony received; payment, lessees, issuers during the • income from property lease, renting or • gifts and property received from the dividends payment, etc.) or participate sublease; first-degree family members; in the legal procedure of the income • passive income, gifts, prizes and • dividends, provided that such accrual payment (authorized persons, notaries awards; in no way changes proportions (shares) public, professional securities dealers). • investment profit; of shareholding (share ownership) in Pursuant to the Tax Code of Ukraine • value of property inherited or obtained issuer’s authorized capital; such tax payers shall be held liable for in grant (except for the property • funds or property cost provided as accrual, withholding and payment of inherited from relatives of the first medical treatment assistance; the PIT. degree of relationship); • funds paid by the employer in favour • over-expenditures of funds granted for of domestic higher educational Responsible for the PIT withholding and business trip expenses; institutions and vocational schools; payment transfer to the budget shall be: • funds or property obtained as a bribe, • income obtained from sale of own- stolen or found as treasure; produced agricultural products; • employers who pay salary and make • other income received by a taxpayer as • amount of insurance benefit and similar payments; additional material benefits; insurance indemnity; • tax agents for the taxable income • other income. • accommodation value transferred from originated from Ukraine; The total monthly taxable income does state or community property into the • taxpayers — for foreign income and not include the following: ownership of taxpayer free of charge, profit received as from carrying out and the amount of state support of entrepreneurial or independent • amount of state and social construction or acquisition of activities. • financial aid; affordable housing; • amount of State Prize of Ukraine or • cost of gifts, if their cost does not Tax base educational grants of Ukraine; exceed 50 per cent of one minimum The PIT base is considered to be an • aid amount paid (provided) to Nazi salary (on a monthly basis); annual taxable income, i.e. any income victims, to persons declared repressed • accrued, paid or provided for the and/or rehabilitated, or to their • benefit of an individual (physical descendants; • person) within a reporting period. • •
Doing Business in Ukraine 2018 25 Kyiv, Ukraine Kyiv,
• cost of booking documents for provided privilege in connection with • funds paid by a taxpayer in connection treatment or recreation in the maintaining two or more children with conversion of vehicle owned by a territory of Ukraine, donated to him under 18, the above amount is taxpayer, using biofuel; by a trade union or using the funds multiplied by number of children) and • taxpayer’s construction expenses of relevant fund of compulsory state salaries paid by businesses exceed (purchase) of affordable housing, social insurance; such threshold. Accordingly, in most including repayment of privileged • income obtained by a taxpayer for cases they are not used. residential mortgage loan. blood, breast milk and other kinds of Tax deductions are indicated in the donation; A taxpayer has a right to deduct his taxpayer’s annual tax return based on • some types of other income. taxable income by the following the results of the accounting tax year expenses actually made by him during and are only provided to resident As a general rule, unless specific type the accounting tax year: taxpayers. The total amount of tax of income is determined as a non- deductions cannot exceed the total taxable income, it shall be subject to • a part of interest paid according to the amount of taxable income in the form taxation by PIT. residential mortgage loan for purchase of salary. Personal Income Tax Rates or construction of the primary place of The general tax rate is non- residence of a taxpayer; Tax calculation progressive and amounts to 18%. • funds in the form of donations or The PIT amount shall be accrued and charitable contributions to non-profit withheld by the tax agents from the The passive income in the form of organisations in the amount not income of individuals and shall be dividends is taxed by PIT at the rate of exceeding four per cent of his total calculated as follows: the income 5%, in case when they are paid by taxable income for such accounting amount decreased by the unified Ukrainian companies (except for the year; social contribution and tax social dividends paid by collective • funds paid by a taxpayer in favour of privilege, if any, is multiplied by the tax investment institutions which are educational institutions for rate. Tax agents shall report the sums taxed at the rate of 18%) and 9% in compensation of education cost for of accrued income and withheld taxes case when dividends are paid by non- such taxpayer and/or his family to the regulatory authorities within 40 resident companies. The rate of 5% member of the first degree of calendar days following the last also applies to gains from property relationship; calendar day of a tax (accounting) disposal and income in the form of • funds paid by a taxpayer in favour of quarter. inheritance and gifts. health facilities for cost compensation of paid medical treatment services of A taxpayer, who obtains income from Tax deductions such taxpayer or his family member of a person/entity other than tax agent PIT taxpayers shall have a right on the first degree of relationship, (that is, from a non-resident or an decrease of total taxable income by including acquisition of medicaments, individual not registered as an the amounts of tax social privileges; prosthetic and orthopaedic devices, entrepreneur or independent however, the threshold amount of medical products for private use of professional), is obliged to include the income for the purpose of social persons with disabilities; amount of such income into the total privilege application is relatively low • insurance payments under the annual taxable income and submit tax (living minimum wage multiplied by long-term life assurance contracts and return based on the results of 1.4 and rounded to the nearest UAH under pension contract with non-state accounting tax year and pay tax from 10 and in case of taxpayers who are pension fund; such income on an individual basis.
26 Doing Business in Ukraine 2018 Taxation of Individual Entrepreneurs and Self-Employed installments. Such independent or its part, lodging, garden cottage and Persons professional activities refer to individual land plot not more frequently than once Apart from individual entrepreneurs — participation in scientific, literary, per accounting tax year, provided that single tax payers, the individual artistic, educational or teaching such property is owned by a taxpayer entrepreneurs shall independently activities, activities of doctors, private over three years, is tax exempt. The determine and pay the PIT from the notaries, lawyers, auditors, provision concerning taxpayer’s amount of net taxable income at the accountants, appraisers, engineers or ownership of such property over three rate of 18 per cent. architects, persons engaged in religious years does not apply to property (missionary) activities, other similar inherited by such taxpayer. Net taxable income is determined as activities, provided that such person is the difference between total taxable not an employee or an individual Income received by a taxpayer from the income (revenue in specie or in kind) entrepreneur and employs staff of no sale of more than one immovable and documented expenses associated more than four people. Self-employed property item within a one-tax year with business activity of such individual professionals shall be registered as such period shall be taxed at the rate of 5 per entrepreneurs. Personal income tax with the tax authorities. cent (for residents) and 18 per cent (for withheld from individual entrepreneurs non-residents) of the sales/purchase is paid by advance installments on a Foreigners and stateless persons, agreed price, but not lower than the quarterly basis, as calculated on the registered in regulatory authorities as estimated value determined by a basis of the tax amount accrued in the private entrepreneurs or self- certified assessment agency. previous year. The final tax calculation employed persons, are considered to for the tax reporting year shall be made be residents of Ukraine for the The tax shall be paid by the seller of by a taxpayer in the annual tax return in taxation purposes and, along with immovable property before notary view of the advance installments made. the income from carrying out an attesting the deal, and the written proof Individual entrepreneurs are obliged to independent professional activity, of payment shall be submitted to the keep the Ledger of income and other Ukraine-sourced income and notary public during execution of the expenditure wherein all income received foreign income should be specified in purchase-sales agreement. The notaries and all expenses incurred are itemized the annual tax return. public shall quarterly submit to the State in chronological order. Fiscal Service of Ukraine the information Taxation of income from the sale of on the amount of tax paid under the The income of self-employed persons immovable property agreements on purchase-sales of carrying out independent professional Income obtained by a taxpayer from the immovable property. activities shall be taxed in a similar way, sale of residential building, apartment yet without making advance Kyiv, Ukraine Kyiv,
Doing Business in Ukraine 2018 27 Other taxes
Excise tax The excise tax shall be paid by legal tear up at the time of corkage property location in the amount not entities and individuals, residents and (opening) of the goods. exceeding 1.5 per cent of the minimum non-residents — manufacturers as wage established by the law as of 1 well as importers and distributors of The manufacturers, importers and January of the reporting year, per 1 excise goods. distributors of excise goods shall square meter of taxation base. calculate independently the excise tax Excise goods include: due on a monthly basis and shall file The calculation of the tax amounts for th • ethyl alcohol and other alcohol excise tax return prior to or on the 20 the immovable property owned by the distillates, alcoholic beverages, day of the next period. The amount of individuals shall be made by the tax including beer; excise tax shall be paid by the authorities on the basis of the data • tobacco products, tobacco and manufacturers and sellers of excise received from the Unified State Register industrial tobacco alternatives; goods (products) within 10 calendar of Property Rights to Real Estate or on • fuel; days following the last day of the the basis of the original copies of • motor cars, car bodies, trailers and relevant deadline for filing tax return documents submitted by owners. The semitrailers, motorcycles, motor vehicles for a one month — tax period. results of such calculations should be designed for carriage of 10 and more Importers shall pay the excise tax prior sent by post to the taxpayers prior to persons, motor vehicles for cargo to and on the date of filling the the 1st July of the year following the transportation; customs declaration. The reporting one. The tax should be • electric energy. manufacturers and importers of payable by individuals within 60 alcoholic beverages and tobacco calendar days since the receipt of a The excise tax rates are set out: products shall pay the excise tax when tax notification. • as fixed amount per unit of commodity acquiring excise stamps. (products) sold (specific); Taxpayers — legal entities • as a percentage of the volume of sales Property Tax independently calculate tax amount as (ad valorem); Property Tax consists of: of the 1st January of the accounting • both as an ad valorem tariff and as a year, and not later than the 20th of fixed amount depending on the type of • tax on real estate other than a February of this year, submit to the tax excise goods. • land plot; authority at the location of the • transport tax; immovable property the tax return with Special provisions are established for • land tax. breakdown of annual amount by equal different types of excise goods. • parts on a quarterly basis. Tax should be Tax on real estate payable in the form of advance In case of production on the customs Tax on real estate other than a land plot payments on a quarterly basis until the territory of Ukraine of alcoholic shall be paid by individuals and legal 30th day of the month following the beverages and tobacco products or entities, residents and non-residents — reporting quarter. import of such goods to the customs owners of residential and non- territory of Ukraine, taxpayers are residential property. The taxation base Some immovable property is exempted required to mark those products with shall be the total area of the property. from taxation, including: non-residential the standard excise stamps in such a The tax rates are established by the property used by retailers-SME, manner, that the excise stamp will local authorities depending on the industrial and manufacturing buildings,
28 Doing Business in Ukraine 2018 warehouses, buildings and on payment of the transport tax shall and for the agricultural lands — 0.3–1 constructions for agricultural producers. be sent to the taxpayers before the 1st per cent of the normative monetary July of the accounting (tax) period. The value. As to the land users, the amount The individuals are entitled to the transport tax shall be paid by of the lease payment shall be following tax relief: the taxation base is individuals within 60 days after delivery established in the lease agreement, but reduced for apartment(s) regardless of of a tax decision notice. the annual amount of payment cannot their quantity — by 60 sq. meters; for be less than the amount of land tax residential building(s) regardless of Taxpayers — legal entities and may not exceed 12 per cent of the their quantity by 120 sq. meters or for independently calculate tax amount as normative monetary value. different types of residential property of 1 January of the accounting year, (in case of simultaneous ownership of and not later than the 20th of February The tax rate for the land plots the apartment(s) and residential building(s) of this year submit to the regulatory normative value of which has not been by a taxpayer) — by 180 sq. meters. authority, at the location of a taxable established shall be 5 per cent and Such reduction is provided once per item, the tax return with breakdown of 0.3–5 per cent — for agricultural land every basic tax (accounting) period annual tax amount by equal parts on a of the average normative monetary (year). quarterly basis. The tax is payable by value of unit area of arable land in the legal entities — by making advance corresponding region. Transport Tax installments on a quarterly basis not Transport tax shall be paid both by later than the 30th day of the month The tax payable by individuals is individuals and legal entities being in following the accounting quarter. calculated by the tax authorities based possession of the motor cars registered on the information obtained from the in Ukraine and produced not earlier Land Tax Unified State Register of Property than 5 years ago, of the average The payers of the land tax shall be the Rights to Real Estate. The results of market value of more than 375 owners of the land plots and land such calculations shall be sent to the minimum wages. shares as well as land users. taxpayers by post before the 1st of July of the year following the accounting The tax rate shall total to UAH 25 000 The taxation base shall be the (tax) one and shall be payable within per year for each motor car. A motor normative monetary value of the land 60 days after such notification receipt. car purchased during a year shall be plots in view of the indexation taxed in proportion to a number of coefficient or the land plots area, in The taxpayers — legal parties shall months left to the end of a year. case if the normative monetary independently calculate the amount of evaluation of the land plot has not the land plot as at the 1st of January of The tax amount payable by the been conducted. The normative the accounting year and prior to the individual taxpayers shall be calculated monetary evaluation of lands is carried 20th of February shall submit to the tax by the tax authority according to the out by the local authorities. authorities according to the land plots place of registration of a taxpayer on locations the tax return with the the basis of the data regarding vehicle The land tax with the normative breakdown of the annual tax amount owners provided by the traffic police monetary valuation shall total to 3 per in equal portions on a monthly basis. agencies. The tax notification-decision cent of the normative monetary value; Khotyn, Ukraine
Doing Business in Ukraine 2018 29 Social security contribution
The social tax is represented in • persons who decided to participate payments of obligatory state social Ukraine by the Unified Social in the system of taxation insurance for the insured persons Contribution (hereinafter — the voluntarily. should be prepared on the basis of “USC”). The unified contribution on The rate of USC is 22% of the tax the mentioned Reports. compulsory state social insurance is base which is the income in the The individual entrepreneurs shall deemed as a consolidated insurance form of salary or proceeds from the submit the Report on the accrued contribution to be collected to the business activity taking into amount of the unified social compulsory state social insurance consideration minimum and contribution for obligatory state system on the mandatory and maximum taxation bases. regulatory basis to ensure the rights social insurance once a year prior to th of the insured persons for receipt of For the purpose of USC calculation the 10 of February of the following the insurance payments (services) in the minimum tax base is the year. The self-employed persons shall cases provided for by the legislation submit the Report on an annual basis minimum wage and in case the tax st according to the type of the base does not exceed the amount as well, yet prior to the 1 of May of compulsory state social insurance, in of minimum salary, the USC is the following year. particular: calculated as a product of minimum The USC payers — employers shall • pension insurance; salary and USC rate. The maximum undertake to pay the unified • unemployment insurance; threshold for USC’s monthly tax contribution accrued for the calendar • insurance against accidents; base is 15 minimum wages. • disability insurance and other types month when the salary/other taxable of social insurance. income payment is made, but not Reporting and payment later than the 20th day of the The duties re collection, requirements following month. accumulation, distribution and The USC payers — employers shall, administration of USC are imposed on a monthly basis prior to the 20th The individual entrepreneurs under by the State Fiscal Service of Ukraine. date of a month following a the general system of taxation shall reporting one, prepare and submit pay the annual unified contribution th The USC payers are: in electronic form the Report on the not later than the 10 February of • employers — legal entities and accrued amount of the unified social the following year. The entrepreneurs individuals, residents and non- contribution for obligatory state under the unified taxation system social insurance, wherein it is shall pay the USC on a quarterly residents paying income th specified, inter alia, the personalized basis, not later than the 20 day of • to the individuals; the month following the reporting • individual entrepreneurs paying USC data re the income accrued for the benefit of Individuals and re accrued quarter. The self-employed persons from their entrepreneurial income; and withheld USC. The pensionable shall pay the USC for the calendar st • individual entrepreneurs under the service data, type of insurance and year not later than the 1 of May of simplified system of taxation shall the basis for making insurance the following year. pay the USC in minimum amount; Kharkiv, Ukraine Kharkiv,
30 Doing Business in Ukraine 2018 IT taxes
IT Sector According to the State Fiscal Service, the the above exemption the term VAT taxable and non-taxable amount of taxes paid by the IT ‘software’ includes: transactions is based on the fact companies in 2014–2017 grew annually • Results of computer programming in the whether the IP rights for software by the average of 27 percent and form of operational systems, software initially belong to the supplier and reached the point of UAH 4,1 billion. programs, entertaining or educational whether they are transferred to the That is a steady trend for the year 2018. computer programs, applications (their customer. Ukraine also has the largest and fastest- components) as well as in the form of growing number of IT professionals in internet-sites and/or online services and In case of cross border services with Europe with its IT engineering work access thereto; respect to software development the force expected to be doubled to over • Copies of computer programs or their place of services supply is determined 200,000 by 2020. components provided in physical and/or based on the place of the customer’s electronic form and/or as links for registration. Accordingly, such services At present, the most widespread software downloading and/or as codes rendered by Ukrainian companies to business model used by foreign for software activation; foreign customers are not VAT taxable businesses for outsourcing software • Any updates, adaptations, supplements in Ukraine. development to Ukraine is the to software; establishment of a local Ukrainian entity • Cryptographic means of data protection. Tax Status of Individual Developers to retain and coordinate the work of Most of software developers in Ukraine local developers (mostly as independent Even though the above mention are registered as sole entrepreneurs and contractors rather than hired transactions are VAT-exempt, their scope provide services to their clients — employees). is taken into consideration for the Ukrainian companies as independent purpose of calculating the threshold for contractors under service agreements. In some cases, when the scope of VAT payer registration. At this, the benefits usually associated activity is insignificant, foreign with employment (i.e. medical At the same time, IT services (including companies may enter into service insurance) are often provided. Such services with respect to software agreements with individual developers. structure of relationships allows development) are VAT taxable under However, the increase of presence in companies to minimize the tax burden general rules. Thus, the line between Ukraine may easily lead to the risks of of payroll related taxes. At this, sole VAT-taxable and VAT-exempt permanent establishment in Ukraine. entrepreneurs are payers of single tax at transactions may be indistinct in some the rate of 5% accrued on the total instances and each transaction should In order to contribute to the amount of their income and may pay be carefully analyzed. According to the development of IT industry the the unified social contribution in the currently used approach of the tax government introduced a number of tax amount of 22% of the minimum bodies the difference between incentives and special regimes, the statutory salary. overview of which is given herein below.
VAT rules Until 1 January 2023 transactions with respect to software supply as well as transactions with software whereunder payments are not deemed as royalty shall be VAT exempt. For the purpose of Kyiv, Ukraine Kyiv,
Doing Business in Ukraine 2018 31 Agricultural Industry
According to some estimates agricultural industry comprises 17– 18% of the country’s GDP. Thus, the state is implementing different mechanisms of the industry’s development, including special rules of taxation which are considered below.
Single tax In case when the scope of sale of the agricultural production for a reporting year exceeds 75% of the annual revenue, such agricultural producers may be registered as single taxpayers. The single tax substitutes, in particular, the corporate profit tax, land tax on lands used for agricultural activities and rent payment for special exploitation of water resources. The tax base is the value of the agricultural land in use of taxpayers; and the rates depend on the type of Corporate Profit Tax Value Added Tax land in use. The following special provisions are Export transactions of soya beans and established for agricultural producers rape are VAT-exempted until 31 The amount of tax is calculated by which are not eligible for single tax December 2021. taxpayers on an annual basis and is and are payers of corporate profit tax paid quarterly as follows: 10% of the in case when the scope of agricultural State transfers annual tax is paid within 30 calendar production sales exceeds 50% of Some agricultural producers, in days following the first and the their revenue: particular of vegetables and poultry, second reporting quarters; 50% — as well as the owners of the cattle following the third reporting quarter; • the tax reporting period is always farms, may apply for state transfers and 30% — following the fourth annual independently of provided they do not have VAT debts reporting quarter. • taxpayer’s revenue; and the scope of the agricultural • the tax reporting period may be production sales for a reporting year The eligibility for single tax shall be established from 1 July until 30 June. exceeds 75% of their annual revenue. confirmed by taxpayers annually until They shall be registered for less than a 20th of February of the current year. year and the scope of sales shall be calculated for each reporting period.
32 Doing Business in Ukraine 2018 Moore Stephens-Kyiv LLC General Survey
Our office Our team Right from the beginning Moore Stephens-Kyiv LLC filled Our team consists of skilled professionals having a niche in the Ukrainian audit market that is practically substantial work experience in the biggest international void: a local enterprise offering a broad array of high and local companies — market leaders. Although the firm quality, international and local audit/accounting services. is local, the staff has in-depth cross border experience and In the ever-changing Ukrainian business environment a commitment to provide outstanding customer service. many companies have found us to be a reliable option to the international audit firms. For building up close working relationships we take the time to listen, have the courage to debate different points Big dates for our office are: of view and are ready to provide prompt assistance whenever it is required. 2002 — Yakovlev & Partners LLC starts advising international businesses in Ukraine; Each member of our team contributes to the business & public image of the Company which is acquired in the 2007 — the firm becomes a member of the Moore wake of the long-term delivery of the high quality services Stephens global network of like-minded professionals; to our clients and is by all means the common heritage of all of the team personnel. This is what we value, cherish 2011 — the World Bank had completed assessment of and this is what we are proud of. audit firms in Ukraine and as a result of review the firm was acknowledged eligible to carry out audits of We are aimed at integrity, availability and continuous financial statements of projects and grants financed by enhancement of Excellence & Performance. the World Bank;
2014 — the company chooses innovations implementation as the only viable course for successful operation within the country’s instable political situation.
Alexander Yakovlev Valeriya Bondarenko Andrey Kagarlytskiy Galina Lysakovskaya Managing partner Consulting department Audit department Tax and Outsourcing department [email protected] [email protected] [email protected] [email protected]
Doing Business in Ukraine 2018 33 Audit Firm Yakovlev&Partners, LLC is an independent member firm of Moore Stephens International Limited
Building G, 67 Peremogy Ave, Kyiv 03062, Ukraine T +38 (0)44 206 1030 www.moorestephens.ua
34 Doing Business in Ukraine 2018