On 3 August 2014 a new law No. 1621-VII dated 31 July 2014 (the “Law”) came into force. The Law introduces material changes to the Ukrainian tax legislation. It covers all sectors of the Ukrainian economy and is aimed at increasing revenues of the National Budget of Ukraine.
The Law introduces the following changes to the Tax Code of Ukraine:
1. CORPORATE PROFIT TAX (CPT)
The Law abolishes the reduced CPT rate of 10% for transactions with securities and derivatives. From now on such transactions will be taxed at the general CPT rate of 18%.
The Law abolishes CPT breaks for the hotel and renewable energy businesses. From now on their profits will be taxed at the general CPT rate of 18%.
Finally, the Law abolishes the additional cost deduction benefits formerly available to the fuel and energy, and water and heat supplying industries.
2. VALUE ADDED TAX (VAT)
The Law introduces a new electronic system of VAT administration. From now on all VAT payments shall be made through specially designated bank accounts (“VAT Accounts”) where VAT payments shall be accumulated. Each VAT payer shall be required to maintain its individual VAT Account with the bank designated by the Cabinet of Ministers of Ukraine.
VAT Invoices and VAT Reports
From now on all VAT invoices and VAT reports shall be submitted in electronic form and bearing electronic signatures only. All VAT invoices will have to be registered with the Unified Registry of VAT Invoices.
The Law introduces the following new special formula to calculate the maximum amount of a VAT invoice (the “Maximum VAT”):
∑ = (A + B + C) – (X+Y+Z), where:
A stands for the aggregate amount of the paid VAT under the received VAT invoices;
B stands for the aggregate amount of the paid import VAT;
C stands for the funds wired to the VAT Account by the VAT payer;
X stands for the aggregate amount of VAT in accordance with the issued VAT invoices;
Y stands for the aggregate amount of VAT declared for refund from the National Budget of Ukraine; and
Z stands for the negative balance between VAT liabilities declared in the VAT report and the aggregate amount of VAT in accordance with the issued VAT invoices.
If a VAT payer wishes to issue a VAT invoice in excess of the Maximum VAT calculated as per the above formula, then such VAT payer is obliged to wire the balance between the two amounts to its VAT Account.
(i) VAT base calculation
With the exception of (i) goods/services that are subject to regulated prices and (ii) natural gas sold to households, the sale price of goods/services for VAT liability calculation purposes may not be lower than the price of their purchase by the seller.
(ii) VAT threshold increased
The Law increases the mandatory VAT payer registration threshold to UAH 1 million (approx. EUR 62.5 thousand) in VAT-able transactions per year.
(iii) The Law substantially reduces the overall number of mandatory requirements that a VAT payer needs to meet in order to qualify for automatic VAT refund purposes. That means less paperwork and bureaucracy for an average VAT payer.
(iv) The Law abolishes certain specific exemptions from the general VAT regime formerly available to business entities doing business in certain sectors (namely, supply of timber, fuel made of wood and wood waste businesses). From now on they will be ordinary VAT payers to the National Budget of Ukraine.
(v) The no-VAT regime for the export of grains and technical cultures has been extended until 31 December 2014.
(vi) 0% VAT on Intercity+ train services is abolished. From now on they will be subject to the general VAT rate of 20%.
3. NEW WAR TAX IS INTRODUCED
The Law imposed a new interim war tax to be levied until 1 January 2015. It shall be payable from the personal income of individuals at the rate of 1.5%. Employers and/or other payers shall act as tax agents for purposes of withholding and transferring of the war tax to the National Budget of Ukraine.
4. SUBSOIL USE ROYALTY RATES
The Law provisionally - until 1 January 2015 - increases royalty rates for the production of oil, gas and iron ore. For the time being rates will be as follows:
Click here to view table.
Adjusting Indexes. The Law amended the list of adjusting indexes applicable to the royalty rates:
Click here to view table.
Finally, the Law cancels preferential royalty rates (2% for oil and 1.25% for the natural gas) for oil and gas production under the production sharing agreement (“PSA”) regime for all new PSAs that may be entered into after the Law becomes effective.
5. EXCISE TAX
The Law provisionally levies excise tax on bio-fuel (EUR 99 for 1,000 kilograms) until 1 January 2015.
As of 1 September 2014 the excise tax rates for tobacco products will generally go up with the rates varying depending on the particular variety of a tobacco product.
In addition, the Law amended the definition of alcohol products in the Tax Code of Ukraine. From now on that term includes all of the products containing 8.5% or more alcohol by volume with no exceptions (e.g. bitters that were previously considered as dietetic products and were not subject to excise tax). The Law establishes the excise tax on such products at the rate of UAH 70.53 (approx. EUR 4.4) for 1 litre of 100% spirit.
Legislation: Law of Ukraine On Amending of the Tax Code of Ukraine and Certain Other Legislative Acts of Ukraine No. 1621-VII dated 31 July 2014.