Business and Taxes

Inna Podolian, Head of audit department

Content

• Corporate Income Tax • Simplified taxation • Value Added Tax • Currency regulation • Transfer pricing • Taxpayers' problems • Contacts

Corporate Income Tax – Computation

Tax base = EBIT according to IFRS or UA GAAP +/- tax adjustments * Tax rate = 18% Tax return: for the companies whose income exceeds 20 MUAH − quarterly for other companies − yearly

Tax adjustments

Depreciation of non-current assets

Financial transactions

Changes in accruals and provisions

30% of the value of services provided by company of low-tax jurisdiction or partnerships (Hong Kong) (if there are no TPD)

Other differences (differences derived from valuation of securities, property investments, biological assets, TPD adjustment)

* Note: For taxpayers with income < 20 MUAH Tax base = EBIT according to IFRS or UA GAAP

Tax Reconciliation

Description Amount, UAH

EBIT according to UA GAAP 100 000 Accounting depreciation 25 000 Tax depreciation (20 000) Impairment of non-current assets in accounting, included in the expenses for the period

3 000

Provisions for future expenses 15 000 Provisions used for current expenses (10 000) Price adjustment for goods, acquired not at arm’s length 8 000 30% of the value of services provided by company of low-tax jurisdiction or partnerships (Hong Kong) (no TPD)

6 000

Interests paid to mother company exceeding the limit 4 000 Tax loss of the previous periods (45 000) Taxable result 86 000 Tax rate 18% Corporate Income Tax 15 480

Corporate Income Tax – Computation

CIT - Interests Capitalization Rules

Transactions Liabilities/Equity Tax deductible interests Note

Loan from foreign affiliated parties to residents of Ukraine

Liabilities exceed 3,5 times the equity Leasing companies and finance institute10 times

The interest amount exceeding the limit will be tax deductible in the following periods, in the amount annually reduced by 5%

Result before tax + Financial expenses + Depreciation

50%

CIT – Interests Capitalization Rules

Example: Equity*: 40 MUAH Liabilities to affiliated companies*: 200 MUAH Interest amount for a loan from a foreign parent company: 12 MUAH Liabilities to affiliated companies exceed 3,5 times the equity Tax deductible interests:

Out of 12 Mio UAH 9 Mio UAH are not tax deductible in this period, but next year 9 MUAH -5% = 8,55 MUAH could be tax deductible.

Result before tax= -10 Mio UAH + Financial Expenses = 12 Mio UAH + Depreciation = 4 Mio UAH

50% 3 Mio UAH

* Average at the beginning and end of the year

CIT – Royalty

Non-taxable expenses exceeding the limit is calculated by the formula:

Max = Royalty income + 4% Income from sales of the previous year

Private entrepreneur and simplified taxation

Amendments for single taxpayers

Group Taxation 2019

1st group Single tax

Max 10 % of the minimum living wages 10%*1 921 UAH = 191,10 UAH

Social contribution

22 % of the minimum wages 22%*4 173 UAH = 918,06 UAH

2nd group Single tax

Max 20 % of the minimum wages 20%*4 173 UAH = 834,60 UAH

Social contribution

Min 22% of the minimum wages 22%*4 173 = 918,06 UAH

3rd group

Single tax

3% of income (for VAT-payers) 5% of income (for non-VAT-payers)

Social contribution

Min 22% of the minimum wages 22%*4 173 = 918,06 UAH

Private entrepreneur / simplified taxation Agriculture

Amendments for agricultural producers - single taxpayers (4th group) Agriculture products equals or exceeds 75% of total sales

Land type 2019

Tax rate based on the normative and monetary land evaluation per 1 ha, %

Tillage, hayfields and pasture fields 0,95

Tillage, hayfields and pasture fields in mountain and forest areas 0,57

Perennial plantings 0,57

Perennial plantings in mountain and forest areas 0,19

Water resources 2,43

Tillage, hayfields and pasture fields for breeding and processing on protected ground 6,33

VAT - Administration

VAT Administration

General approach

• Mandatory registration: volume of transactions for the previous 12 months > 1 MUAH • Taxation base for goods and services ≥ acquisition or production costs • Taxation base for non-current assets ≥ net book value

Electronic administration. Objective

• Prevention of tax fraud

Electronic administration. Key points

• Mandatory electronic registration of all tax invoices within 15 days from the date of issue • The right for tax credit shall be retained for 1095 days • Tax invoices registration is possible, provided that tax liabilities are covered by the tax credit

from other counterparties or by money transferred to a special account

VAT - Administration

∑Inv = ∑InvCre + ∑Cust + ∑TransAcc +∑Overfraft- ∑InvLia - ∑Re - ∑Excess where:

∑Inv – liabilities according to tax invoice; ∑InvCre – total amount of received tax credit; ∑Cust – total amount of tax paid at customs while importing the goods; ∑TransAcc – amount transferred to a special account; ∑Overdraft – average monthly tax liabilities declared and paid to the budget ∑InvLia – total amount of tax liabilities; ∑Re – total tax amount for state budget reimbursement; ∑Excess – total excess amount of tax liabilities disclosed in tax declarations over tax liabilities in the registered tax invoices.

VAT - Administration

Tax invoice is to be registered, the VAT amount: 80 000 UAH

Input VAT: 20 000 UAH

VAT paid at customs while importing goods: 30 000 UAH

Tax liabilities according to tax invoices already registered: 10 000 UAH

Sum on a special account: 0 UAH

20 000 + 30 000 – 10 000 = 40 000

In order to register tax invoices, the amount of 40 000 UAH must be transferred to a special account

80 000 = 20 000 + 30 000 + 40 000 – 10 000

Example:

VAT - Refund

VAT-refund

All VAT-payers have rights for VAT refund. A General register of VAT amounts is implemented.

• general register of refund, which works an application for refund in chronological order; • tax review within 30 days (out of VAT payer office); • the amount of refund is agreed within 30 days regardless of performed tax review; • transfer to the current account of the taxpayer within 5 days after approval; • refund is carried out within funds available on the General treasury account.

In practice refund can be obtained up to 3 months.

Currency regulations

Regulations 2019

Disclosure of Beneficiary Owners For all companies

Exchange transactions are not a subject to currency control

<150 TUAH

The time limit for payments under the export and import agreements 365 days

Return of investments by share capital <5 MEUR per month

Loans from non residents Allowed early repayment

Рenalties 2019 The penalties for delay payments (365 days for export and import with prepayment)

0,3 % for each day of delay, but not more than 100 % of the amount of transaction

Legislative requirements

Controlled transactions 2019

Conditions Type of

transactions Parties

1) Year income of a taxpayer more than 150 MUAH

and

2) Amount of transactions with separate counterparty exceeds 10 MUAH

Buying (selling) goods or services

Between related persons – non-residents

All transactions

1. Operations of selling goods via commissioners

2. Non-resident, registered in a country, where income tax by 5 or more percents lower, than in Ukraine or in countries, which doesn`t have international treaties of information exchange with Ukraine. The list of countries is confirmed by the Cabinet of Ministers of Ukraine.

Taxpayers' problems

Taxpayers' Concerns • Tax administration issues: 2019

- poor quality of tax inspections -> illegal fines - careless records of tax payments ("taxpayers' cards") -> illegal fines - formalist approach to taxpayers' claims -> rule of law is at danger - ignorance of the provisions of the Convention for the avoidance of double taxation and evident sabotage of problems related to the application of the Convention - permanent changes from the tax authority side related to the amendments of VAT administration and IT-systems, which leads to frequent interruptions of the IT-systems or their incorrect function

IB Interbilanz Audit TOV Kyrylivska Str. 1-3 UA-04080 Kyiv T +38 067 656 72 47 E inna.podolian@interbilanz.co.ua

Contacts

Inna Podolian IB Interbilanz Wirtschaftsprüfung & Steuerberatung GmbH & CO KG Schönbrunner Straße 222-228/1/7 A-1120 Vienna T +43 1 505 43 13 0 E wilfried.serles@ibgroup.at

Dr. Wilfried Serles

IBD Steuerberatung GmbH & CO KG Schönbrunner Straße 222-228/1/7 A-1120 Wien T +43 1 505 43 13 2030 E office@ibdaustria.com IB Interbilanz Consulting TOV IB Interbilanz Audit TOV Kyrylivska Str. 1-3 UA-04080 Kyiv T +380 44 590 51 81 E office@interbilanz.co.ua IB Interbilanz Lviv TOV Gorodotska Str. 172 UA-79022 Lviv T +380 50 379 59 93 E office@interbilanz.co.ua

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