Limitation of Interference in the Activities of Business Entities

The draft “Law on Amendments to the Law of Ukraine on Fundamental Principles of State Supervision (Control) in the Field of Economic Activity” as to limitation of interference in the activities of business entities registered under number 0937 dated 12 December 2012 was adopted by the Verkhovna Rada on 22 July 2014. 

Specifically, the draft Law provides for the following:

  • Imposing a ban on scheduled state supervision (control) measures taken with respect to a business entity during a calendar year by different state supervision (control) authorities, except for complex scheduled state supervision (control) measures, i.e. measures taken simultaneously by all state supervision (control) authorities whose state supervision (control) implementation plans include that business entity;
  • Supplementing the current “Law of Ukraine on Fundamental Principles of State Supervision (Control) in the Field of Economic Activity” with a rule prohibiting the seizure of original financial and economic, accounting and other documents as well as computers and computer parts from business entities during the performance of state supervision (control) measures, except cases stipulated by the criminal procedure legislation;
  • Imposing a ban on scheduled state supervision (control) measures taken by different state supervision (control) authorities with respect to one and the same matter;
  • Supplementing the current “Law of Ukraine on Fundamental Principles of State Supervision (Control) in the Field of Economic Activity” with a rule on state compensation for damage caused by unlawful decisions, actions or omissions of an officer or official of a state supervision (control) authority.

Concerning Taxation of Income from Capital

The draft “Law on Amendments to the Tax Code of Ukraine” registered under No. 4101а dated 18 June 2014 was adopted by the Verkhovna Rada on 4 July 2014. The draft Law was submitted to the President for signature on 14 July 2014.

Specifically, the draft Law provides for the following:

  • Setting a single tax rate on passive income of individuals in the form of interest - 15 percent;
  • Restoration of the procedure for taxation of passive income of individuals in the form of royalty, investment income and dividends effective until 1 July 2014, in particular:
    • Passive income of individuals in the form of royalty and investment income shall be taxed at the rate of 15 percent (17 percent);
    • Passive income of individuals in the form of dividends shall be taxed at the rate of 5 percent.

The Law is to take effect from 1 August 2014. It also envisages that starting from 1 July 2014 taxes assessed (levied) on income in the form of interest according to the progressive scale shall be abolished and not payable to the budget.

Summarizing Tax Consultations

On 1 July 2014 the Ministry of Revenues and Duties of Ukraine adopted a number of Summarizing Tax Consultations:

  • Order No.367 dated 1 July 2014 approved the Summarizing Tax Consultation on tax accounting of repayable financial assistance (Order No. 402 dated 8 July 2014 introduced changes and amendments to the Summarizing Tax Consultation);

The Consultation clarifies the procedure for tax accounting of receipt and return of repayable financial assistance to income tax payers with annual/quarterly basic reporting period, as well as in case of a taxpayer’s switch to the simplified taxation system before or after the receipt of repayable financial assistance. 

In particular, it explains that repayable financial assistance received from a non-payer of income tax during the period of time when a special taxation regime was applied to the taxpayer (payment of the single tax or fixed agricultural tax) and remained outstanding as of the day of the taxpayer’s switch to the general taxation system shall not be included in the taxpayer’s income and in the expenses on its return.

  • Order No.366 dated 1 July 2014 approved the Summarizing Tax Consultation on the costs of warranty repair (maintenance) or warranty replacement of goods;

The Consultation explains that the costs associated with warranty repair (maintenance) or warranty replacement of goods with respect to which the seller’s warranty obligations have been declared shall be taken into account by the taxpayer – seller when determining the object of the income tax subject to proper record of purchasers who received such replacement of goods or repair (maintenance) services regardless of their status (natural persons or legal entities) in the manner prescribed by the Procedure for record of purchasers who received a warranty replacement of the goods or warranty repair (maintenance) services approved by Order No. 1263 of the Ministry of Finances of Ukraine dated  03 December 2012, and confirmation of such expenses by duly executed primary documents.

  • Order No.368 dated 1 July 2014 approved the Summarizing Tax Consultation on certain matters concerning application of the rules of tax legislation concerning transfer pricing which restates the Summarizing Tax Consultation on certain matters concerning application of the rules of tax legislation concerning transfer pricing approved by Order No. 699 dated 22 November 2013;

Thus, unlike the previous version of the Summarizing Tax Consultation, it explains that in determining the 50 million criterion of controlled operations (matter 2) amounts of credits, deposits, loans, repayable financial assistance, dividends, investment cost shall not be taken into account.