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Ukraine: Tax Guide 2013

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Ukraine: Tax Guide 2013 Ukraine: Tax guide 2013 Tax & Legal Table of contents Introduction 3 Regulatory environment 4 System of taxation 14 Tax administration 16 Corporate income tax (CIT) 18 Value-added tax 26 Transfer pricing 31 Excise tax 33 Taxation of cross-border transactions 34 Special tax regimes 36 Personal income tax (PIT) 42 Unified Social Security Contributions 46 Duties for use of natural resources 47 Other taxes 49 Contacts at Deloitte CIS 51 2 Introduction Ukraine today represents one of the most exciting Despite the country’s excellent prospects, several factors emerging markets for international companies. Situated have restrained the inflow of investments into Ukraine. at the crossroads of Eastern Europe, Russia, Central Like any growing transitional economy, there are several Asia and the Middle East, the country benefits from a ongoing problems, including structural and political consumer market of 45.5 million people, a favorable issues (mainly related to overcoming the global and climate, rich natural resources, a relatively cheap labor local financial crises), along with issues related to the force and well-developed infrastructure.Ukraine has privatization (or re-privatization) of enterprises and established a reputation as a major exporter of grain, a lack of clear guidance on taxation issues. Other machinery and rolled-metal products. factors include inconsistency in the most crucial economic decisions (such as the regulatory approval The country’s growth rates in the pre-crisis period system and legislation), the shortcomings of the judicial and its industrial and agricultural potential attracted system, the instability of the national currency and weak the attention of investors from across the globe. liquidity in the stock market. Euro 2012, the football tournament held in Ukraine last year, has increased the visibility of the nation’s tourism Ukrainian GDP experienced a recovery in 2011, rising industry, mostly due to improvement of its transport 5.2%. However, growth stagnated again in 2012, infrastructure. amounting only to 0.2%. Experts predict no growth in 2013. The weakening of the hryvnia during the crisis had a beneficial effect on the competitiveness domestic Loans from world’s financial organizations helped manufacturers’ products on overseas markets. Imports Ukrainian economy to survive also helping the banking and exports of goods account for the vast majority system to escape crash. As a result, the size of the of favorable economic figures coming out of Ukraine. national debt owed to the IMF amounts to USD The country’s main import partners are Russia, China, 8 billion. Ukraine’s national debt has been gradually Germany, Belarus and Poland while its main export increasing over the past several years, and now amounts partners are Russia, China, and Turkey. to USD 64.4 billion. Business activity, which was recovering during 2011, slowed down in 2012 in line The nation’s main imports are energy, mineral products, with the overall European recession. automobiles, machinery, transportation equipment, chemicals, and textiles, while its main exports are grain, ferrous metals and metal products, transport and mechanical equipment, chemicals, fuel and petroleum products, vehicles and food products. Tax guide 3 Regulatory environment One of the major problems of the Ukrainian business However, it is the agricultural sector that has climate is the very complex and not always favorable tax demonstrated the most dynamic growth, with a couple legislation, which is a major reason for the suspension of agro companies even having listed their shares on of investment projects or for international companies western stock exchanges. to refrain from entering the Ukrainian market. The adoption of a Tax Code that, for the first time since Yet, despite all the good news, the current economic independence, brings together Ukrainian tax legislation recovery remains quite shaky. Much will now depend on in its entirety was a breakthrough event. The Code how Ukraine copes with the transitional stage following adjusts the rates and benefits, as well as the process the introduction of its new tax legislation. of tax imposition. At the same time, the adoption of the Tax Code will hopefully help resolve one of We will need to see how the rules and regulations the main problems companies operating in Ukraine of the Tax Code work in practice, whether encounter, i.e., the issue of timely VAT recovery. representatives of the international business community have faith in the rule of law in Ukraine, and whether The fact that the document was adopted during new developments are consistent and see the economic stabilization also raises hopes. Companies widespread adoption of regulatory documents. have started recovering ground in the wake of the crisis – in 2012 industrial production volumes increased Please note that the information included in this by over 10%, export operations have grew by nearly publication is not exhaustive, and is based on the laws 30%, and investment volumes have also increased of Ukraine as of 01July 2013. There is new legislation (the volume of private investments into Ukraine over still pending while this document is being prepared, 2012 was about USD 6 billion). The labor market has but which may come into force at the moment of seen a slight improvement and the currency stabilized. publication. The new on transfer prcing was signed Manufacturing, transportation and telecommunications by the President on 31 July 2013. Some amendments have all managed to adapt to the new realities, and are on payroll taxes and personal income tax rates are being recovering their positions. discussed. Please contact our professionals to get the latest update. 4 Investment in Ukraine State registration of foreign investments 1 For additional information on General rules governing investment activities In most cases, Ukrainian legislation requires that joint-stock companies, please refer to the Types of Legal in Ukraine foreign investors make investments through investment Entities section of this guide. This guide will start by outlining the provisions accounts opened with authorized Ukrainian banks. of Ukrainian legislation that concern investment activities It is important to note that foreign currency contributed in Ukraine. In particular, we provide the definition of into Ukraine as an investment must be converted into the term “foreign investment” and describe the types of local currency. foreign investment that may be made in Ukraine, as well as detailing the formal procedure for registering foreign If the share of a non-resident in the authorized share investments. This guide will also outline the general capital of a Ukrainian company exceeds 10%, the privileges and state guarantees available to companies company may obtain the status of a “company with that receive foreign investment. foreign investments”, provided that it completes the appropriate formalities with regard to registration. Definition of a foreign investment, types Foreign investors are entitled to certain privileges and of investments and methods of investing guarantees that under Ukrainian legislation are granted Ukrainian legislation defines the term “foreign to companies with foreign investments, provided investment” as a direct contribution by a foreign that all foreign investments contributed to their investor to an investment target, with the aim of authorized share capital are registered with the state receiving income or “having a social effect” (e.g., administrations and the tax authorities. non-profit organizations). A company in receipt of foreign investment is any company or organization, Table 1 established in accordance with Ukrainian legislation in any organizational or legal form, with 10% or more Popularity Type of business Primary characteristics/requirements of its authorized share capital made up of foreign Charter required, limited liability, capital investments. 1 Limited liability company divided into shares (units), may be established by one person The law also provides for investors to make several types of investments in Ukrainian companies, which include, Public or private joint- Charter required, limited liability, issues 2 1 but are not limited to, investments in the form of foreign stock company shares, may be established by one person or local currency, movable and immovable property and Unlimited personal liability, partnership related proprietary rights, shares, bonds, other securities 3 General partnership agreement only, at least two partners and corporate rights expressed in foreign currency. (very rarely used in practice) Foreign investors usually choose one of the following Limited liability partners and at least one options when entering the Ukrainian market: general partner (unlimited liability), at 4 Limited partnership • acquisition of shares in an existing company owned by least two partners (very rarely used in Ukrainian legal entities and/or individuals; practice) • acquisition of shares in a company that is already Personal liability limited by foundation wholly-owned by foreign investors; Company with additional documents, charter, may be established 5 • establishment of a representative office or another form liability by one person (very rarely used in of separate subdivision of a foreign legal entity. practice) National and local state Owned by local and state governmental 6 enterprise bodies Sole proprietorship, Single owner and single employee; single private enterprise, owner and multiple employees; multiple
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