16.01.2023

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On April 5, 2022, the Law of Ukraine “On Amendments to the Tax Code of Ukraine and Other Legislative Acts of Ukraine on Improving Legislation for the Period of Martial Law” No. 2142-IX dated March 24, 2022 (“Law No. 2142”) came into force.

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The Law No. 2142 aims at decreasing of tax and administrative burden for businesses, entrepreneurs and individuals. Major changes include the following:

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Unified tax

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The date starting from which a taxpayer is considered a taxpayer of the 3rd group on special conditions (2% rate) was clarified. The following rules apply to identify the date:

• from April 1, 2022, if the taxpayer submitted an application for special tax conditions before April 1, 2022;

• from the day following the day of submission of the application for special tax conditions, if such application is submitted after April 1, 2022; or

• from the date of state registration, if the newly incorporated taxpayer has submitted an application for special tax conditions within 10 days from the date of its state registration.

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Upon termination or cancellation of martial law, all taxpayers will be automatically reverted back to paying taxes they used to pay before their transition to payment of the Unified Tax under special conditions.

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VAT

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The Law No. 2142 clarified the VAT rules regarding payers of the Unified Tax of the 3-d group with tax rate of 2 %. Such tax payers for the period until the termination or cancellation of the martial law are exempt from obligation to charge and pay VAT on supply of goods, works and services within the customs territory of Ukraine, as well as from VAT tax reporting. Their registration as a VAT payer is suspended during the period of the martial law in Ukraine. Transactions performed by a Unified Tax payer of the 3-d group under special conditions are not subject to VAT.

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At the same time, if goods / services (i) were purchased or manufactured with VAT before the start of the application of 2 % rate by a Unified Tax payer and (ii) were used or sold during the period of application of 2% rate in transactions that are not subject to VAT taxation, then the VAT payer is obliged not later than the last day of the reporting period during which its VAT registration is renewed to increase its VAT liabilities. At the same time, the tax base for increasing VAT liabilities on non-current assets is determined on the basis of their book value as of the beginning of the reporting (tax) period during which such operations are executed. In case no accounting for non-current assets was done - based on the market prices. In terms of the tax base for goods / services, such VAT liabilities shall be increased on the basis of the cost of their acquisition.

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Import / export of goods and transport

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Law No. 2142 simplifies customs formalities to facilitate and speed up importation of goods to the customs territory of Ukraine, in particular, the Cabinet of Ministers of Ukraine can determine the goods for which exemption from the customs clearance documents necessary for importation will be provided.

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Also, Law No. 2142 gives the Cabinet of Ministers of Ukraine the right to make the following decisions:

• to establish the transfer of goods on the basis of not expanding export control in accordance with the Law of Ukraine "On the State Control over International Transfers of Military and Dual-Use Commodities";

• to establish a list of goods not subject to prohibitions and restrictions on their movement across the customs border of Ukraine as per the Customs Code of Ukraine; and

• establish the list of goods in respect of which the customs authorities do not take measures to promote the protection of intellectual property rights as per the Customs Code of Ukraine.

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Aside from the mentioned, for the period of the martial law / state of emergency, non-residents are exempt from the obligation to be registered within the customs authorities, as required by Art. 455 of the Customs Code of Ukraine.

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Environmental Tax and Property Tax

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Law No. 2142 stipulates that taxpayers are exempt from the Environmental Tax if the source of pollution or the location of the waste is within the territory of active combat operations or in the temporarily occupied territory.

Law No. 2142 also provides for exemption from Property Tax (other than land) on residential real estate if is (i) located within the territory of active combat operations, temporarily occupied territories or (ii) is unsuitable for habitation in connection with the military aggression of the Russian Federation according to the following rules:

• If such residential real estate was owned by natural persons, the tax is not accrued and is not paid for 2021-2022 reporting years;

• If such residential real estate was owned by legal entities, the tax is not accrued and is not paid for the period from March 1, 2022 to December 31, 2022.

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Owners of non-residential real estate (natural persons and legal entities) are also exempt from the obligation to pay Property Tax: from March 1, 2022 to December 31 of the year in which martial law will be terminated.

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The list of territories with active combat operations, temporarily occupied territories, as well as the procedure for declaring residential real estate uninhabitable will be established by the Cabinet of Ministers of Ukraine.

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Taxes administration

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Local authorities may establish local taxes and fees without following all procedures of state regulatory policy. In particular, local authorities do not have to hold public hearings on the issues of establishing taxes, publish a draft act for discussion, etc.

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Until the termination or cancellation of martial law, a moratorium has been introduced on customs audits: new audits shall not start, and the started audits are to be stopped; customs audit acts, statements and tax notices shall not be sent. At the same time, the state of limitations for customs audits was stopped.

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Other planned changes in the taxation of business entities associated with economic ties with the aggressor state

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On April 1, 2022, the Draft Law No. 7232 “On Amendments to the Tax Code of Ukraine on the Taxation of Business Entities Connected by Economic Relations with the Aggressor State” (hereinafter – the Draft) was preliminary approved. In accordance with the Draft, a business entity that has economic ties with the aggressor state shall pay taxes at the tax rate with a multiplier of 1.5.

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The multiplier will be applied to the following taxes:

• Corporate Profit Tax (except for withholding tax);

• Environmental Tax;

• Rent on Subsoil Use; and

• Property Tax.

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The following business entities – Ukrainian residents – are proposed to be recognized as connected by economic ties with the aggressor state:

• which founder or ultimate beneficial owner (controller) directly or indirectly is the aggressor state or a resident of the aggressor state;

• receiving income in any form originating from the aggressor state, or which conduct operational, financial or investment activities generating or which may in future generate income in any form originating from the aggressor state or which directly or indirectly have a share or other participation in a business entity - resident of Ukraine or a foreign business entity - non-resident of Ukraine, that in its turn receives income originating from the aggressor state or conducts operational, financial or investment activities generating or which may in future generate income in any form originating from the aggressor state, or other Ukrainian business entities being the members of business structures (chains) where the aggressor state residents are the members as well, or which have financial obligations to residents of the aggressor state or residents of the aggressor state have the similar obligations to Ukrainian business entities, or which provide economic support to the aggressor state;

• participants of an international group of companies, if the parent company or any other participant of such international group of companies receives income from a source originating from the aggressor state, conducts operational, financial or investment activities generating or which may in future generate income originating from the aggressor state, or if the parent company or other participant of international group of companies have financial obligations to residents of the aggressor state or residents of the aggressor state have the similar obligations to participants of international group of companies, or if the parent company or any other member of international group of companies provides economic support to the aggressor state.

 

Certain economic entities with economic ties to the aggressor state may be exempted from the application of the multiplier if their activities are of social, humanitarian or economic significance for Ukraine. The list of criteria for granting exemption shall be established by the Cabinet of Ministers of Ukraine.

 

As of now, the Draft Law No. 7232 is awaiting for its consideration by the Verkhovna Rada of Ukraine in the second reading.