On 24 December 2015, the Ukrainian Parliament adopted the Law of Ukraine On Amendments to the Tax Code of Ukraine and Some Other Legal Acts to Balance Budget Revenues in 2016 (the "Law"), which was signed by the President of Ukraine and officially published on 31 December 2015.

The Law introduces certain amendments to the Tax Code of Ukraine. Key changes, which specifically concern the banking sector of Ukraine, are summarized briefly below:

New VAT rules for transactions on the sale of the property, received by the bank in the course of foreclosure on such property

It is not clear from the Law how these rules work. According to comments of the representatives of the State Fiscal Service of Ukraine, it is expected that the portion of the value of the property sold by the bank, which is directed to the payment of the debt under the loan will be VAT exempt. The remainder is taxed at 20 percent VAT in general order.

Previously, such transactions were VAT taxable in general order.

Forgiveness of individual debt under the foreign currency mortgage loans for the purchase of social housing is exempt from personal income tax

This exemption is effective only for the forgiveness of debts in the course of restructuring foreign currency debts of individuals, which will be prescribed by special law. It is expected that that law will be adopted in the nearest future.

Losses of banks due to the forgiveness of debts of borrowers-legal entities in the course of the special financial restructuring procedure may be deducted from banks’ taxable profit

The procedure of financial restructuring of debts will be prescribed by the special law, bill of which is under consideration in the Ukrainian Parliament.

The above changes came into force on 1 January 2016.

In addition, we note that the Law has abolished the VAT exemption for domestic and export supplies of grain and industrial crops. From now, such transactions are VAT taxable in general order. These changes may have an impact on structure of financing of agricultural and grain trading companies.

Source: Law of Ukraine On Amendments to the Tax Code of Ukraine and Some Other Legal Acts to Balance Budget Revenues in 2016 No. 909-VIII dated 24 December 2015.