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Accounting & Taxes in Ukraine

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Accounting & Taxes in Ukraine ACCOUNTING & TAXES IN UKRAINE Simple Structures Simply Success 3 Ukrainian Accounting ........................................................................................... 3 Taxes ................................................................................................................... 5 Main Tax Rates .................................................................................................... 5 Corporate Profit Tax (CPT).........……..…..….………………………………………………...7 Value-Added Tax (VAT)……...…….............……….……..…………………………….……..9 Unified Social Security Contribution (USSC)…………..………..……………………….….10 Personal Income Tax (PIT)………………….…...…….……...…….………………….……..11 Simplified Taxation System (ST) ....................................................................... 12 Penalties and Fines ........................................................................................... 14 Cash Payments ................................................................................................. 16 Tax Issues ......................................................................................................... 17 Tax Audits.....…….............…………………...………………………………………………..17 Loss Carry Forward...….….….…...………………………..…………………………….……17 Start-Up Cost……………………………………….……..………..……………………….….18 VAT Payer's Registration.…...............................….……..…………………………....……18 VAT Refund Claims....................................................……...………………………………18 Foreign Exchange Control .............................................................................................. 19 Banks and transactions of foreign currencies……………………………………………….19 Personnel Administration & Documentation as Part of Payroll Accounting ....... 21 Our Offices ......................................................................................................... 22 4 While working in Ukraine, all local subsidiaries of foreign companies, representative offices (regardless with or without commercial activities) and joint ventures are obliged to maintain accounting records based on either National Accounting Standards or IFRS. For this purpose, to be in line with the Ukrainian law requirements, local companies are forced to complete a significant number of different accounting and reporting forms (e.g. an “Act of acceptance” is obligatory for all services; a specific “tax certificate” is required for VAT refunds, etc.). Even if no particular forms are directly required by the Ukrainian law, local companies are often forced to prepare their own forms (e.g. business trip certificate, car travel certificate, etc.) to provide them to the Ukrainian financial authorities and confirm the legitimacy of the relevant transactions for both accounting and tax purposes. The introduction above may seem to be formal, but it gives a clear picture regarding the Ukrainian approach to accounting. In general, formal requirements prevail over substance (visible economic facts). Thus, a chart of accounts of a company cannot be designed in accordance with the economic needs of a company, but it is subject to governmental regulations. As a result, the number of accounting entries to be done by the local companies is about twice as much as in comparison with those required for entities from Western Europe under comparable circumstances. Correspondingly, the amount of supporting documents to be provided or produced by a local company exceeds Western standards by several times. There are a few peculiarities of Ukrainian accounting: . Balance sheet (SOFP), P&L, Statement of Comprehensive Income, Personal income tax declaration and several other obligatory reports/declarations are to be filed with the relevant authorities quarterly. VAT and Pension reports are filed monthly; Profit tax declaration is filed once per year. Neither contracts nor invoices are sufficient to confirm relevant income and expense for tax and accounting purposes in Ukraine. In fact, both contracts and invoices are only the basis for authorization of the related bank payments. The main documents for tax and accounting purposes are: the “customs declaration” (for import/export of the goods) and the “act of acceptance” (for other cases); . Without acts of acceptance, some of the incurred cost cannot be recorded as expense in the period when it actually occurred. For instance, in the balance sheet, Account 23, “Goods in process” accumulates production cost that is later transferred to Account 26, “Finished goods” based on the related acts of acceptance. If the acts are not signed, but work is completed, the expense will remain in Account 23, “Goods in process”. 5 . To transfer a payment from Ukraine to abroad, a company-payer is required to provide the bank with the relevant contract, invoice and act of acceptance. To pay for imported goods, the customs declarations must be provided as well. Sometimes the bank may require additional documents (and each particular case can be subject to discussion with the bank); . Given the requirement to report to the Social Security Funds, Statistic and Tax authorities, the number of reports to be filed by a local company may exceed 15 per quarter; . There are certain principles, applicable to the accounting in Ukraine, which have to be stated in the “accounting policy” which is applied by each local company. Ukrainian law assumes that the “accounting policy” is the document that establishes the foundations, methods and procedures to be used by a company to prepare its financial and tax reports. Once decided, a company should keep the same accounting principles. The Ukrainian government adopted a list of items to be regulated by the accounting policy. This is another example showing that the governmental regulations prevail over economic needs of the local companies; . Since 1 January 2012, all companies in Ukraine are allowed to use IFRS for financial reporting. However, the official templates of the financial statements do not correspond to all IFRS principles. Moreover, IFRS statements are not obligatory for small and medium sized entities (SMEs). Therefore, these companies, as a rule, apply local GAAP (NAS). At the same time, corporations, banks, insurance and several other companies must prepare their financial statements in compliance with IFRS. Basic Ukrainian accounting principles: Accounting is based on historical cost which is subject to inflation adjustments; Accounting directives are aimed at uniformity and continuity across businesses; Accounting forms are designed by the National Accounting Standards; The form of a transaction, rather than its substance, dictates its accounting; Accounting rules are developed by National Accounting Standards. The Ukrainian accounting system is under pressure by governmental regulations which are a carry-over from the Soviet period when the financial statements were solely used and controlled by governmental organizations. 6 Taxes as of January 2014 Main Tax Rates in 2014 . Corporate Profit Tax (CPT) -18% as of January 1, 2014; . Value Added Tax (VAT) - 20% (Export VAT 0%); . NEW as from April 1st 2014 Imported medical and pharmaceutical products (according to the approved list by the Cabinet of Ministers of Ukraine) will be subject to 7% VAT; Cereal crops supply and export will be VAT exempt. The rule will be applied till October 1st 2014. The rule is not applicable for first supply and the export by the producer; 0.5% contribution to the pension fund is applied to the purchase of cash and non-cash foreign currency by businesses and individuals; . Personal Income Tax (PIT) – 15% / 17%; The 15% PIT rate applies to monthly income up to an amount equal to 10 times the minimum monthly wage (as from December 1, 2013 - UAH 12,180 (equivalent to approx. €1,125)). The excess is subject to a 17% tax rate; . NEW as from July 1st 2014 As from July 1st 2014 passive income of individuals (e.g. interest, dividends, royalties, investment income etc.) will be subject to taxation at increased tax rates of 15%, 17%, 20% and 25% depending on the amount of income: o 15% for taxable income which exceeds 204 minimum living wages (currently – UAH 248,472); o 20% for taxable income which exceeds 204 minimum living wages but does not exceed 396 minimum living wages (currently – UAH 482,328); o 5% for taxable income which exceeds 396 minimum living wages; o interests should be taxed if exceed 17 minimum living wage (currently – UAH 20,706); . NEW as from August 3rd 2014 1.5% temporary military tax (to expire on January 1, 2015), applied to income in the form of salaries, wages, incentive and compensatory payments and any other forms of consideration paid to the payer in connection with employment or under civil law contracts. 7 . Unified Social Security Contribution (USSC); Employer 36.76% – 49.70% vs. Employee 3.6%; USSC that paid by an employee is deductible for PlT purposes; Taxable base for the USSC is capped in Ukraine (till June 30, 2014 the cap is UAH 20,706 (equivalent to app. €1, 915)); . Withholding Tax – 15% (depending on the Double Tax Treaty, this could be reduced to 5% - 15% or even to 0%). Fixed Agriculture Tax1 Fixed Agricultural Tax is, in fact, corporate profit tax for an agricultural manufacturer. The tax was implemented to stimulate investments in the agricultural sector of the Ukrainian economy. The tax is to be paid for each hectare of agricultural lands and/or water resources that are used for agricultural manufacturing, and depends on the category (type) of the lands and their locations. The taxable
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