Despite expectations, the tax novelties which became effective from 2016 introduce neither drastic nor systematic changes into tax legislation. At that, the result of long lasting discussions between the legislators, experts and within the government held during 2015 with respect to development and implementation of the comprehensive tax reform is the compromise draft law demonstrating 'piecemeal' amendments yet allowing to adopt the budget for 2016 and meet the requirements of IMF program.
Instead, the elaboration of the full-featured thorough tax reform remains on agenda in 2016. The anticipated changes will affect virtually all taxes including such basic taxes as corporate profit tax, VAT, personal income tax, unified social contribution, single tax, as well as tax administration. The draft of such new law on tax amendments is planned to be completed by 2016 midyear so that respective changes would become effective starting from 2017.
At that, below is the review of the novelties which became effective starting from 2016.
The law on amendments and its entering into force
On December 24, 2015 the Parliament of Ukraine adopted the Draft Law No. 3688 "On Amending the Tax Code of Ukraine and Certain Legislative Acts of Ukraine with Regard to Ensuring the Balance of Budgetary Revenues in 2016".
The President of Ukraine signed it on December 31, 2015. Thus, the Draft Law became the Law No. 909-VIII which was immediately published on the day of its signing by the President of Ukraine.
The amendments come into effect on January 1, 2016 except the amendments as to the budgetary refund of VAT that come into force on February 1, 2016 and the amendments concerning the excise tax coming into effect on March 1, 2016.
The main proposed novelties are as follows.
Corporate Profit Tax
The basic tax rate remains at the level of 18%.
Advance CPT payments are cancelled. Advance CPT payments accomplished upon distribution of dividends remain.
At that, CPT payers shall make advance CPT payments by December 31, 2016 in the amount of 2/9 of the corporate profit tax calculated based on the results of three quarters of 2016. The amount paid will reduce the tax liability calculated in the annual tax return. Yet, it is not quite clear whether this provision applies to the taxpayers who shall report on an annual basis.
The quarterly reporting period is established (on a cumulative basis) for all taxpayers except:
- newly created during the reporting year taxpayers;
- agricultural producers;
- taxpayers whose annual income from any activities (minus indirect taxes) for the previous annual reporting (tax) period does not exceed UAH 20 million.
For such taxpayers, the annual reporting period is set.
From now on, the financial result subject to taxation can also be reduced for the amount of:
- income from participation in the capital of single taxpayers of the fourth group;
- income in the form of dividends if they were distributed by the taxpayer who accomplished the advance CPT payment upon distribution of such dividends.
Before, the financial result subject to taxation could only be reduced for the amount of the income from participation in the capital of CPT payers.
Remains without changes.
Value Added Tax
The tax rate remains at the level of 20%. The tax rate upon export is 0% (without changes). No changes are introduced to the tax rate of 7% for operations on import and supply of the registered pharmaceuticals, medical products and medical equipment.
Grounds for annulment of VAT registration
The record in the Unified State Register of Legal Entities and Individual Entrepreneurs on non-availability of a legal entity or an individual entrepreneur at the address of its location (place of residence) and the record on the absence of confirmation of the data on the legal entity have been excluded from the list of the grounds for annulment of registration of VAT payers.
The Law envisages that the tax base for the transactions on supply of produced goods/services shall not be lower than usual prices. A usual price is a price for the goods (works, services) as set by the parties of the agreement. Unless proved otherwise, such price is deemed to correspond to the level of market prices (subpara. 14.1.71 of para. 14.1 of art. 14 of the Tax Code).
The previous wording of the Tax Code envisaged that the base could not be lower than the cost of such goods/services.
Thus, the taxpayers may use the price of the agreement as a tax base unless it is proved that such price is not a market price.
Absence of previously purchased goods
If in the course of the tax audit upon inventory the tax authorities detect the absence of previously purchased goods such goods will be deemed as used within non-business activities of the taxpayer (except for the force majeure events).
Exemption from taxation
Supplies of the international technical and humanitarian aid is exempt from taxation.
The operations of banks and other financial institutions on supplies of property acquired as a result of execution upon such property are exempt from taxation, at that the tax base is the positive difference between the supply price and the purchase price of such property.
Right to declare input VAT
The taxpayer has the right to declare input VAT based on the VAT adjustment calculation which has been registered in the Unified Register of VAT invoices with delay within 365 days from the moment of drafting of such VAT adjustment calculation (before, the taxpayer had such right only in relation to VAT invoices).
The procedure of budgetary refund of VAT is changed.
The eligibility criteria for receipt of budgetary refund of VAT have been cancelled, namely:
- the taxpayer had to be registered as a VAT payer at least 12 calendar months before the month, based on the results of which such taxpayer applied for budgetary refund of VAT (except for input VAT formed upon acquisition or building (construction) of fixed assets);
- the taxpayer had to declare the volumes of taxable transactions for the last 12 calendar months that exceed the amount requested for budgetary refund of VAT (except for input VAT formed upon acquisition or building (construction) of fixed assets).
Since February 1, 2016, the provisions on automatic budgetary refund of VAT lose effect.
From now on, the following two registers are established:
- the register of applications for budgetary refund of VAT to the taxpayers who meet the criteria of para. 200.19 of art. 200 of the Tax Code;
- the register of applications for budgetary refund of VAT to the taxpayers who do not meet the criteria of para. 200.19 of art. 200 of the Tax Code.
Both registers will be maintained by the State Fiscal Service (SFS), they shall be publicly available and updated on a daily basis at the SFS website. Their form and order of their maintenance shall be approved by the Cabinet of Ministers of Ukraine.
The criteria envisaged by para. 200.19 of art. 200 of the Tax Code correspond to the previous criteria set for automatic budgetary refund of VAT, except the following:
- taxpayer's investment into non-current assets in the amount at least UAH 3 million within the last 12 calendar months;
- absence of tax debt.
From now on, it is clearly set when SFS authorities have the right to conduct documentary audits of the amount of budgetary refund. Such audit may be conducted if the amount of budgetary refund was calculated based on the negative value of VAT formed on the basis of the transactions:
- that took place in the periods before July 1, 2015, that are not confirmed by documentary tax audits;
- on purchase of goods/services from agricultural producers who used the special taxation regime before January 1, 2016.
In other cases, only in-office tax audits are conducted.
Budgetary refund of VAT shall be provided in the chronological order as the applications were submitted to each register.
Thus, the refund may be obtained by any taxpayer who declared the negative value of VAT and underwent an in-office tax audit. The actual process of refund receipt will depend on how the newly introduced registers will function in practice.
Although the provisions of the Tax Code do not envisage any preferences to either of the registers, it is expected, however, that preferences will be later given to the taxpayers listed in the register of applications that meet the criteria of para. 200.19 of art. 200 of the Tax Code.
Use of budgetary refund
Budgetary refund of VAT may now be used for payment of tax liabilities or tax debts with regard to other payments due to the state budget.
At the moment, the tax authorities do not have a position on this issue. Based on the systemic analysis of this provision, however, it appears that the negative value of VAT may be set off against other taxes (including the corporate profit tax). The controlling authority may set off such an amount against other payments upon an in-office tax audit (or a documentary tax audit as outlined in the above cases).
System of Electronic Administration (SEA) of VAT
As expected, the indicator of ΣOverdraft has been introduced into the VAT SEA Formula. This is the average monthly amount of the tax liabilities declared by the taxpayer for the last 12 reporting (tax) months to be paid to the budget and then settled, installed or deferred, as well as those declared by the taxpayer - agricultural enterprise on the special tax regime .
Now, the excess amounts of VAT paid to the budget may also be returned onto the VAT SEA account.
VAT Invoice requisites
From now on, formal mistakes in VAT invoices such as mistakes in requisites (except the code of the good) that do not affect identification of the transaction, its content, period, parties and the amount of tax liabilities, and which do not result in understatement/overstatement of the registration amount in SEA shall not be the ground for refusal to declare input VAT.
Special regime for the agricultural sector
Until January 1, 2017, the special tax regime will be preserved for agricultural producers.
Distribution of VAT liabilities between the budget and the special account is tied to the agricultural producer's activity (before, 100% of the VAT liabilities were transferred to the taxpayer's special account):
- for transactions with grain crops and technical crops:
- to the state budget – 85%;
- to special accounts of agricultural enterprises – 15%.
- for transactions with livestock products:
- to the state budget – 20%;
- to special accounts of agricultural enterprises – 80%.
- for other transactions (except the abovementioned):
- to the state budget – 50%;
- to special accounts of agricultural enterprises – 50%.
Transactions on supply within the customs territory of Ukraine and on export of grain crops of the commodity positions 1001-1008 under the Ukrainian Classifier of Commodities for External Economic Activities (UCCEEA) and technical crops of the commodity positions 1205 and 1206 under UCCEEA are not exempt from VAT any more. In addition, exporters of grain crops and technical crops are now eligible to VAT refund.
The single tax rate is established at the level of 18% (previous rates: 15% and 20%). The tax base is not changed.
Passive income is taxed at the rate of 18%, but the dividends from CPT payers are taxed, as previously, at the rate of 5%.
The funds provided to the taxpayer by international financial organization for the energy efficiency and energy saving activities are exempt from taxation.
The amounts annulled by the creditors on the loans in foreign currency obtained for purchase of single housing are exempt from taxation.
The military duty remains at the level of 1.5%.
Unified Social Contribution
The rate of unified social contribution (USC) to be paid by the employer is decreased. This rate is set at the level of 22% (previous rates: from 34.7% to 49.7%).
Withholding of USC at the employee's cost is fully cancelled (previously - 3.6%).
The maximum base for USC accrual is increased to 25 minimum wages (previously - 17 minimum wages). As of January 1, 2016, such amount is UAH 34 450.
Simplified taxation system
Groups I and II remain unchanged.
For the taxpayers of Group III, the eligibility criteria - annual income - is decreased from UAH 20 million to UAH 5 million.
Also, the taxrate is increased for Group III taxpayers: from 2% to 3% (for VAT payers) and from 4% to 5% (for VAT non-payers).
The taxrates for taxpayers of Group IV (agricultural enterprises) are increased by factor of 1.8.
As before, cash registers are not to be used by single taxpayers from Group I and taxpayers from Groups II and III (individual entrepreneurs) irrespective of the activity area if their income during a calendar year does not exceed UAH 1 million.
Tax on immovable property other than land plots
The maximum tax rate is increased to 3% (previously 2%) of the minimum wage per 1 sq. m of immovable property.
As before, the effective tax rates are set by local authorities (councils).
The benefits set for the taxpayers on immovable property remain at the same level:
- 60 sq. m for flats irrespective of their number;
- 120 sq. m for houses irrespective of their number;
- 180 sq. m if a person owns several types of residential property (for instance, a flat and a house).
Local councils have been deprived of the right to set additional benefits for immovable property, i.e. to set dimensions of immovable property exempt from taxation at the higher level than envisaged by the Tax Code.
For the owners of flats over 300 sq. m and houses over 500 sq. m, an additional payment is set in the amount of UAH 25 000 for each unit (its part).
Certain changes in administration of taxes
Excessively paid VAT liabilities shall be returned only onto the special VAT account of the taxpayer within the system of VAT electronic administration.
It is now envisaged that if a controlling authority unilaterally terminates the agreement on recognition of electronic documents the taxpayer whose agreement is terminated is entitled to submit tax reports to the controlling authority personally or by mail until the new agreement is concluded.
The provisions on liability for errors made by the seller in the mandatory requisites of the VAT invoice have been added.
One of the grounds for off-schedule documentary tax audits has been changed, in particular, now such tax audit may be conducted if:
- tax authorities received tax information on the taxpayer's breach of currency or other legislation, the compliance with which is under control of tax authorities, unless the taxpayer provided explanations and documentary proof upon the mandatory written request of controlling authorities within 10 working days.
Before, this ground was also applied in the cases of breach of tax legislation while now it in fact covers the breach of the currency and other legislation except the Tax Code.
Administration changes connected with the excise tax
Due to the establishment of the system of electronic administration of sales of the fuel, additional ground for in-office tax audit is introduced. Namely, such in-office tax audit may be conducted based on the data of the Unified Register of Excise Invoices and the data of the system of electronic administration of fuel sales.
New grounds have been introduced for the off-schedule documentary tax audits:
- receipt of a complaint in relation to the taxpayer with regard to its failure to provide the excise invoice to the buyer or violation of the procedure for completion and/or registration of the excise invoice in case of the failure of the taxpayer to provide explanations and documentary proof upon the written request of controlling authorities indicating information from the complaint.
- detection of discrepancies in the data contained in the registered excise invoices / adjustment calculations in the Unified Register of Excise Invoices and excise tax returns submitted by the excise taxpayer carrying out fuel sales.
Liability is established for the breach of the procedure of registration of excise invoices and adjustment calculations to such excise invoices in the Unified Register of Excise Invoices.