The 2015 holiday season in Ukraine was abundant with the adoption of long-discussed amendments to the Tax Code of Ukraine.
On December 24, 2015 the Parliament of Ukraine introduced material revisions of the Tax Code, with most of the amendments being effective from January 1, 2016 (the "Law").
While, on the one hand, the Law increases the statutory rates of certain taxes, on the other hand it materially overhauls the payroll tax regime and may generally be seen as a strong move towards easing tax administration and tax compliance, fostering a healthier relationship between taxpayers and the tax authorities.
What the Law Says
The Law introduces a number of important changes, including:
- quarterly reporting for CIT payers other than (i) agricultural enterprises; (ii) entities with annual revenues under UAH20 mln; and (iii) newly established entities, each of which would continue to report on an annual basis;
- abolishing Advanced Corporate Income Tax ("ACIT") with a transition period in 2016; ACIT for dividends remains in force;
- broadening the participation exemption for dividends by including (i) the 4th group of Unified Tax payers and (ii) any other taxpayers making ACIT payments on dividend distribution;
- Personal Income Tax ("PIT") being set at a flat rate of 18%; instead of 15%/20%; (with a preferential 5% rate for qualifying dividends remaining in force);
- Unified Social Contribution ("USC") for employers being set at a flat rate of 22%, going down from a varying rate of 37.6% to 47.8%;
- maximum tax base for USC being increased from 17 to 25 times the statutory subsistence minimum (through May 1, 2016 the maximum tax base for USC for this period would be capped at UAH34,450 or approx. USD1,300; on May 1, 2016 the maximum tax base for USC is scheduled to be UAH36,250 or approx. USD1,500);
- 3.6% USC for employees being abolished altogether;
- introducing, as of February 1, 2016, two VAT Refund Registers established for: (1) qualifying VAT payers entitled to an automatic VAT refund, and (2) all other VAT payers. The "qualifying" VAT payers must satisfy the following criteria: (i) export of goods must constitute at least 40% of the VAT payer's supplies within the preceding 12 months, (ii) the book value of fixed assets must exceed VAT claimed by a factor of three (otherwise, a VAT payer must procure a 1-year financial guarantee issued by a government-approved bank), (iii) a VAT payer is not subject to bankruptcy proceedings, etc. VAT is refunded to VAT payers on a first-come, first-served basis as regards other VAT payers in the same Register (i.e. qualifying VAT payers as regards other qualifying VAT payers);
- repealing certain formal grounds for annulling VAT registration, like absence of a VAT payer at the registered address;
- abrogating VAT exemption for supply and export of grain, making thus grain exporters eligible for VAT refunds;
- in 2016 limiting the special VAT regime for agricultural companies with the intention of abrogating this special regime as of 1 January 2017 in its entirety;
- permitting input VAT under defective VAT invoices so long as the underlying transaction, its substance, period, parties and the amount of VAT due are identifiable;
- reducing the statutory threshold of annual income for the 3rd group of Unified Tax payers from UAH20 mln to UAH5 mln;
- increasing the Unified Tax rate for 3rd group taxpayers from 2% to 3% (for registered VAT payers) and from 4% to 5% (for non-VAT payers);
- increasing Unified Tax for agricultural companies by a factor of 1.8;
- significantly increasing Excise Tax for most excisable goods, including by 100% for alcohol and alcoholic beverages and by 40% for tobacco products, with the new increased Excise Tax rates for alcoholic beverages being applicable as of March 1, 2016;
- broadening the application of Excise Tax by recognizing any realization of fuel at any stage as taxable and introducing mandatory registration as Excise Tax payers of all businesses engaged in realization of fuel in any amount;
- effective from March 1, 2016, tightening control over realization of fuel by means of (i) the electronic system of administration of fuel realization by the State Fiscal Service of Ukraine, and (ii) introducing mandatory digital Excise Tax invoices for every and each sale of fuel in any amount;
- applying Vehicle Tax in a fixed amount of UAH25,000 (approx. USD1,000) per annum to owners of luxury vehicles satisfying the following criteria: (i) having an average market value of over 750 times the minimum statutory monthly salary ("MSMS") (in 2016 being established at about UAH1,03 mln or approx. USD42,000), and (ii) being less than five years old;
- the average market value of vehicles is to be calculated and published by the Ministry of Economic Development and Trade of Ukraine according to the methodology established by the Cabinet of Ministers of Ukraine.
Real Estate Tax
- increasing the maximum annual statutory rate of the Real Estate Tax from 2% to 3% of the MSMS per square meter (UAH41,34 or approx. USD2 in 2016);
- introducing an additional fixed amount of Real Estate Tax of UAH25,000 (approx. USD1,000) per annum for luxury (i) apartments of over 300 square meters, and/or (ii) houses of over 500 square meters;
- reducing Rent Tax from 55% to 29% for natural gas produced for sale to industrial customers from deposits up to 5,000 meters deep and from 28% to 14% for natural gas produced for sale to industrial customers from deposits over 5,000 meters deep;
- gradually reducing Rent Tax for natural gas produced for sale to households from deposits less than 5,000 meters deep (i) from 70% to 50% effective April 1, 2016, and (ii) from 50% to 29% effective January 1, 2017;
- canceling Rent Tax for transportation of natural gas;
- amending the rules for calculation of the tax base for Rent Tax on natural gas.