Ukraine introduced a new anti-crisis law, “On Prevention of Financial Disaster and Creation of Grounds for Economic Growth in Ukraine”, No. 1166-VII, dated March 27, 2014 (hereinafter – the “Law”), the purpose of which is to increase revenues to the state budget and reduce state expenses. The majority of its provisions came into force on April 1, 2014, while some provisions will take effect on May 1, July 1 and September 1, 2014, as well as January 1, 2015. Given that some articles of the Law require further improvement, we expect that they will be revised in the near future. Below, we provide a brief overview of the major changes introduced by the Law in respect of taxation of business.
- The Law restored the 18% rate for corporate income tax and the 20% rate for VAT, which were effective until 2014.
- Supply of qualifying medicines and medical goods in Ukraine became subject to 7% VAT from April 1, 2014. Previously, such supplies were exempt from VAT.
- Import of medicines and medical goods became subject to 20% VAT from April 1, 2014. However, these provisions are expected to be amended soon and the rate should be decreased to 7%.
- From April 1 to October 1, 2014, 0% VAT for export of cereal and technical crops may be applied only by producers of such products. The first buyers of such crops from producers lost their entitlement to 0% VAT on such exports and, accordingly, to a respective VAT refund.
- A 0.5% charge to the State Pension Fund was introduced in respect of purchases of foreign currency by legal entities and individuals from April 1, 2014.
- Starting from July 1, 2014, a progressive scale of personal income tax rates on passive income (dividends, interest, royalty, investment income) will be introduced, as follows:
- 15% — for income less than 204 times the living-wage amount (for 2014, this cap amounts to approximately US$19,770 1 ),
- 20% — for income from 204 to 396 times the living-wage amount (for 2014, this range is from approximately US$19,770 to US$38,370), and
- 25% — for income above 396 times the living-wage amount (for 2014, the floor amounts to approximately US$38,370).
- Excise tax rates were/will be increased, as follows:
- for new automobiles and certain motorcycles – twice (for example, for new automobiles with engine capacity up to one liter – from US$0.69 to US$1.38 for one cubic centimeter), from April 1, 2014,
- for beer — by 42.5% (from US$0.069 to US$0.099 for one liter), starting from May 1, 2014,
- for tobacco products — by 25% (for example, for cigars – from US$17.26 to US$21.64 for one kilogram), starting from July 1, 2014,
- for alcohol drinks — by 25% (for example, for natural wine – from US$0.23 to US$0.28 for one liter), starting from September 1, 2014.
- Rates for some other taxes and duties were increased. For example, rates of levy for use of radio-frequency resources of Ukraine were doubled from April 1, 2014 (for example, for mobile signal – from US$810 to US$1,620 for one megahertz per month).