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3 march 2011
Tax & Legal
Taxation in Ukraine
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Introduction 3
Regulatory enviroment 5
System o taxation 12
Tax administration 14
Corporate income tax (CIT) 16
Value-added tax 24
Excise tax 29
Taxation o cross-border transactions 30
Special tax regimes 32
Personal income tax (PIT) 38
Unied Social Security Contributions 41
Duties or the use o natural resources 42
Other taxes 44
Contacts at Deloitte CIS 45
Table of contents
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Introduction
Ukraine today represents one o the most exciting
emerging markets or international businesses.
A population o 45 million people oers high
consumption potential, while the country’s vast
resources and cheap labor create avorable conditions
or setting up production acilities. In addition, Ukraine
has established a reputation as a major exporter
o grain, machinery and rolled-metal products.
Ukraine’s growth rates in the pre-crisis period attracted
the attention o investors rom across the globe. Despite
the crisis having aected both Ukrainians’ purchasing
power and Ukrainian businesses, demand is still evident,
even i, in light o the current economic situation,
it is put on hold until the economy stabilizes. Euro 2012,
an event, or which Ukraine is preparing proactively,
will enhance the nation’s tourism potential, while also
improving the quality o its transport inrastructure.
The weakening o the hryvna during the crisis
had a benecial eect on the competitiveness
o the products o domestic manuacturers on overseas
markets. The importation and exportation o goods
accounts or the vast majority o avorable economic
gures coming out o Ukraine. The country’s main
import partners are Russia, Germany and Turkmenistan,
while its main export partners are Russia, Germany,
Turkey, Italy and the US. The nation’s main imports are
energy, machinery, equipment and chemicals, while
its main exports are errous and nonerrous metals,
uel and petroleum products, chemicals, machinery
and transport equipment, and ood products.
Several actors have restrained the infow
o investments into Ukraine until now. Like
any growing transitional economy, there are
a number o ongoing problems, including structural
and political issues (mainly related to overcoming
the global and local nancial crises), along with issues
related to the privatization (or re-privatization)
o enterprises and a lack o clear guidance on taxation
issues. Other actors include inconsistency with regard
to the most crucial economic decisions (such
as privatization processes, the regulatory approval
system and legislation), the shortcomings o the judicial
system, the instability o the national currency and weak
liquidity in the stock market.
The eect the nancial crisis had on the durability
o the Ukrainian economy and Ukrainian companies
cannot be understated. In 2009 alone, Ukraine’s
GDP dropped by 15% – at the time the biggest
economic decline on record – and only loans
rom various nancial organizations helped the
national economy survive, while the banking system
managed to escape widespread crashes. As a result,
Ukraine is second only ater Romania with regard
to the size o the national debt owed to the IMF
(USD 14.12 billion*). The entire Ukrainian national
debt has more than doubled over the last three
years, and now amounts to USD 36 billion. Today,
business is making up or time lost during the crisis;
however, it may take several years beore it reaches
pre-crisis levels.
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One o the major problems o the Ukrainian business
climate is the hostile corporation tax legislation
that used to be a major reason or the suspension
o investment projects or a reusal by international
companies to enter the Ukrainian market. The adoption
o the Tax Code that, or the rst time since
independence, brings together Ukrainian tax legislation
in its entirety, was last year’s major event. The Code
adjusts both rates and benets, as well as the process
o tax imposition. At the same time, adoption
o the Code will hopeully help resolve one o the main
problems companies operating in Ukraine encounter,
i.e. the issue o timely VAT recovery. Time will tell how
the document actually works in practice.
The act that the document was adopted during
stabilization o the economy also raises hopes.
Companies have started recovering ground in the wake
o the crisis – industrial production volumes have
increased by over 10%, expert operations grew by nearly
30%, and investment volumes have also increased
(the volume o private investments into Ukraine
over the past year exceeded USD 4.5 billion). The
labor market has seen a slight improvement and the
currency has stabilized. Manuacturing, transportation
and telecommunications have all managed to adapt
to the new realities, and are recovering their positions.
However, it is the agricultural sector that has
demonstrated the most dynamic growth, with a couple
o agro companies even having listed their shares
on western stock exchanges.
Yet, despite all the good news, the current economicrecovery remains quite shaky. Much will now depend
on how Ukraine copes with the transitional stage
ollowing the introduction o its new tax legislation.
We will need to see how the rules and regulations
o the Tax Code work in practice, whether
representatives o the international business
community have aith in the rule o law in Ukraine,
and whether new developments are consistent and see
the widespread adoption o regulatory documents.
We hope that the ollowing overview o taxes
and related legislation will be helpul to you. Please
note that the inormation included in this publication
is not exhaustive, and is based on the laws o Ukraine
as o 1 January 2011.
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Regulatory enviroment
Investment in Ukraine
General rules governing investment activities
in Ukraine
This guide will start by outlining the provisions
o Ukrainian legislation that concern investment activities
in Ukraine. In particular, we provide the denition
o the term “oreign investment” and describe the types
o oreign investment that may be made in Ukraine,
as well as detailing the ormal procedure or the
registration o oreign investments. This guide will also
outline the general privileges and state guarantees
available to companies that receive oreign investment.
Defnition o a oreign investment, types
o investments and methods o investing
Ukrainian legislation denes the term “oreign
investment” as a direct contribution by a oreign
investor to an investment target, with the aim
o receiving income or “having a social eect” (e.g.
non-prot organizations). A company in receipt
o oreign investment is any company or organization,
established in accordance with Ukrainian legislation
in any organizational or legal orm, with 10% or more
o its authorized share capital made up o oreign
investments.
The law also provides or investors to make several types
o investments in Ukrainian companies, which include,
but are not limited to, investments in the orm o oreign
or local currency, movable and immovable property and
related proprietary rights, shares, bonds, other securities
and corporate rights expressed in oreign currency.
Foreign investors usually choose one o the ollowingoptions when entering the Ukrainian market:
•Acquisition o shares in an existing company owned
•by Ukrainian legal entities and/or individuals
•Acquisition o shares in a company that is already
wholly-owned by oreign investors
•Establishment o a representative oce or another orm
o separate subdivision o a oreign legal entity
State registration o oreign investments
In most cases, Ukrainian legislation requires that
oreign investors make investments through investment
accounts, opened with authorized Ukrainian banks. It is
important to note that oreign currency contributed into
Ukraine as an investment must be converted into local
currency.
I the share o a non-resident in the authorized share
capital o a Ukrainian company exceeds 10%, the
company may obtain the status o a “company with
oreign investments”, provided that it completes the
appropriate ormalities with regard to registration.
Foreign investors are entitled to certain privileges
and guarantees, which are granted to companies
with oreign investments under Ukrainian legislation,
provided that any oreign investment contributed
to their authorized share capital is registered with the
state administrations and the tax authorities.
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Types o businesses
Ukrainian legislation provides or a number o dierent
orms o legal entity or carrying out business activities,
which we have summarized in table 1 above.
The most common orms o doing business in Ukraine
or oreign companies are:
•Legal entities (primarily limited liability, open/public and
closed/private joint-stock companies)
•Joint ventures (especially in the oil and gas exploration
sector)
•
Representative oce (common or oreign companiesthat are only looking to perorm marketing, promotional
and other auxiliary activities).
Foreign investors who plan to carry out active business
operations may choose to establish a legal entity
in Ukraine, instead o merely a representation.
I a oreign investor chooses to do business in Ukraine in
a orm other than a legal entity, it is important
to determine whether that oreign company’s presence
in Ukraine would lead to the creation o a permanent
establishment (hereinater, “PE”) under Ukrainian tax and
oreign currency legislation. For an additional discussion
o PEs, please reer to the “Taxation o non-resident
entities” section o this guide.
Representative ofces
A representative oce o a oreign business in Ukraine
is not a legal entity, but rather an “extension” o its
parent company.
A representative oce may either represent its oreign
parent company in the market and carry out various
auxiliary activities, or carry out business (commercial)
activities that may give rise to a taxable permanent
establishment.
It is also possible to perorm certain types o businessactivities in Ukraine without establishing a representative
oce or any other ormal presence in the country.
Examples o this would include one-time contracts,
or joint production agreements with Ukrainian partners.
Representative oces that do not carry out business
activities and simply unction as the representation
o a legal entity (‘non-commercial representative oces’)
are only required to register with the Ministry o the
Economy o Ukraine (hereinater, the “MEU”). However,
in practice, non-commercial representative oces also
do register with the tax authorities and social security
unds. Unlike non-commercial representative oces,
Permanent Establishments (‘commercial representative
oces’) are required to register with the local tax
authorities and social security unds. Due to some
ambiguity in the legislation, Permanent Establishments
are usually registered with the MEU as well.
Popularity Type o business Primary characteristics/requirements
1 Limited liability company Charter required, limited liability, capital divided into
units, may be established by one person
2 Open/public or closed/private joint-
stock company1
Charter required, limited liability, issues shares, may be
established by one person
3 General partnership Unlimited personal liabili ty, partnership agreement only,at least two partners (very rarely used in practice)
4 Limited partnership Limited liability partners and at least one general partner
(unlimited liability), at least two partners (very rarely
used in practice)
5 Company with additional liability Personal liability limited by oundation documents,
charter, may be established by one person (very rarely
used in practice)
6 National and local state enterprise Owned by local and state governmental bodies
7 Sole proprietorship, private enterprise,
amily enterprise, other entitiesSingle owner and single employee; single owner and
multiple employees; multiple related owners
Table 1
1 For additional inormation
on joint-stock companies,
please reer to the Types o
legal entities section o this
guide.
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Registration procedure
Representative oces are legally obliged to register with
the MEU, while they may also choose to register with
the tax authorities.
1. The MEU
The registration process or representative oces
involves the ollowing steps:
1. Filing a set o registration documents, as required by
law, and paying a state registration ee (USD 2,500)
2. Examination o the documents by the MEU (within 60
working days)
3. Approval or rejection o registration (may be appealed
in court)
4. Upon approval, inclusion into the Unied Register o
Representative Oces and issuance o a Registration
Certicate
5. I a representative oce constitutes a taxable PE, then
it is obliged to register with the tax authorities (i this
has not already been done) and Ministry o Statistics o
Ukraine within 10 days
6. Approval o the design o an ocial company seal
and opening o company bank accounts
Upon completion o the above ormalities, a registered
entity has the right to apply to:
•the respective departments o the Ministry o Internal
Aairs to obtain visas or and register the passports o
its employees;
•trac police oces, to register vehicles owned by the
representative oce.
2. State tax authoritiesThe procedure or registering a representative oce
with the state tax authorities is as ollows:
1. A PE must le the required documents with the tax
authorities in the region/district, in which it is located.
2. Within ve days o submitting the documents, a tax
ocer will examine them or compliance with legal
requirements, and make a decision on whether to
approve or reject the registration.
3. Within 20 days o a positive decision, the tax
authorities will issue a tax registration number to the PE
and include it in the Unied State Register o Enterprises
and Organizations.
4. The tax authorities issue a Certicate o Registration
or a corporate income tax payer.
5. Ater registration with the state tax authorities, the PE
will also be required to register with the social security
unds, open a bank account, and obtain an ocial seal.
Types o legal entities
The two most common types o legal entities envisaged
under Ukrainian law are limited liability companies and
joint-stock companies. The latter may be open/public or
closed/private.
The main legislative acts regulating the activities o
these types o legal entities are the Civil and Commercial
Codes o Ukraine and the Laws o Ukraine “On Business
Entities” and “On Joint-Stock Companies.”
The new Law o Ukraine “On Joint-Stock Companies”
was adopted on 17 September 2008, and came into
eect on 30 April 2009. This law introduced new
terminology, such as the use o the terms public and
private to describe joint-stock companies, instead o
open and closed. According to the law, open and closed
joint-stock companies should be reregistered as public
and private joint-stock companies within two years o
this law coming into orce (i.e. by 30 April 2011).
The main legislative requirements or joint-stock
companies remained intact. However, the law also
introduced a number o procedural issues and
mechanisms to protect shareholders. Moreover,
according to the law, when establishing a public joint-
stock company, a private joint-stock company should
rst be established, which is then reorganized into a
public joint-stock company by way o a public shareissue.
A Ukraine-based company or partnership is considered
to be a legal entity upon its state registration. Ukrainian
businesses are established and operate on the basis
o their constituent (oundation) document, i.e. their
Charter. A constituent document should contain the
specic inormation required by law or each type o
business.
It should be noted that a Ukrainian entity (either a
limited liability company or a joint-stock company) may
not be solely owned by a ounder that has only one
participant (shareholder). Furthermore, an entity cannot
be a sole participant in more than one Ukrainian LLC.
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Generally speaking, Ukrainian legislation does not
contain any restrictions or limitations on the level
o oreign investments or shared membership by a
oreign investor in a Ukrainian business. However, there
are some restrictions on oreign ownership in certain
highly regulated businesses (e.g. insurance companies,
publishing companies, television, etc.). Some o the
restrictions that should be taken into consideration prior
to investing in Ukraine relate to ownership structure and
land use.
Open/public joint-stock companies (Vydkryte/
Publichne Aktsionerne Tovarystvo)
The main dierence between open/public joint-stock
companies and closed/private joint-stock companies
is that the shares o closed/private joint-stock companies
are distributed exclusively among the ounders, while
the shares o open/public joint-stock companies are
oered or public subscription or may be sold publicly
on the stock market.
An open/public joint-stock company (hereinater,
“PJSC”) may have an unlimited number o shareholders.
Subject to elaborate disclosure requirements, PJSCs
are the only orm o legal entity whose shares may
be openly traded and, thus, are similar to “public”
companies in the usual sense.
The minimum authorized share capital or these
companies is set at 1,250 minimum monthly wages (as
at 1 January 2011, the minimum monthly wage was
xed at UAH 9412).
Closed/private joint-stock companies (Zakryte/
Pryvatne Aktsionerne Tovarystvo)
The most common type o joint-stock company is a
closed/private joint-stock company (hereinater, “PrJSC”).
According to the eective legislation, an owner
o shares in a PrJSC is limited in terms o transerring
their shares to a third party, unless consent has been
obtained rom the PrJSC’s other shareholders.
PrJSCs are one o the most popular corporate vehicles
or oreign investors in Ukraine, along with limited
liability companies. The main eatures o these
companies are as ollows:
•Shareholders are not liable or the obligations o the
company, and bear the risk o losses only to the extent
o the value o their shares (limited liability).
•PrJSCs may be involved in any type o activity, provided
that the activity in question is not directly prohibited
•by law.
•The minimum authorized share capital o a PrJSC
is determined the same way as or an PJSC.2
•The requency o shareholders’ meetings is established
by the Charter, but must be at least once a year.Among
other things, the shareholders’ meeting
is responsible or electing a Supervisory Board
to represent shareholders’ interests, or controlling the
activities o the Board o Directors (or Director), and or
electing the Board o Directors (or Director) (or only the
election o a Supervisory Board or private JSCs)
•The company is established or an indenite period,
unless otherwise stipulated by the charter.
•The day-to-day management unctions o a PrJSC
are perormed by the entity's Board o Directors (or
Director). There are no legislative limitations on the
number o members o the Board o Directors.
•The ounders have to pay at least 50 percent o the
value o the authorized share capital, in order or the
company to be allowed to perorm activities other than
those linked to its oundation. According to the Law
o Ukraine “On Joint-Stock Companies,” shareholders
may use cash unds, property, property and
non-property rights, securities (except promissory notes
or any debt securities issued by the PrJSC) as a means
o paying or their share in the authorized share capital
o a PrJSC.
•An Audit Committee controls the activities o the Board
o Directors.
•
I there are more than 50 shareholders in a PrJSC(10 shareholders in a private JSC), establishment o a
Supervisory Board is mandatory.
•Distribution o the net (ater-tax) prots o a PrJSC
between its shareholders is normally done on a pro
rata basis, according to the company’s shareholding
structure.
•JSC may issue common and preerred shares. Unlike
common shares, there may be various classes
o preerred shares that grant dierent rights to their
owners. All common shares issued by JSC have equal
voting and distribution rights.
•Unlike shares (participation) in the LLC, shares in JSC,
as securities, may be eectively pledged.
2 Resulting in a minimum
authorized share capital or
PJSCs o UAH 1,176,250
(approximately USD 148,000);
however, rom 1 April 2011,
the minimum monthly wage
will be increased to UAH 960,
rom 1 October, to UAH 985,
and rom 1 December 2011,
to UAH 1,004, resulting in a
minimum authorized share
capital or PJSCs o UAH
1,200,000 (approximately
USD 151,000) rom 1 April
2011, UAH 1,231,250
(approximately USD
155,000) rom 1 October
2011 and UAH 1,255,000
(approximately USD 158,000)
rom 1 December 2011.
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Limited liability companies (Tovarystvo z
Obmezhenoyu Vidpovidalnistyu)
Along with PrJSCs, limited liability companies
(hereinater, “LLCs”) are one o the most popular orms
o doing business in Ukraine. As with PrJSCs, the shares
o an LLC cannot be transerred without the consent
o the other shareholders. At the same time, the
nancial and reporting requirements or an LLC are less
burdensome than or a PrJSC.
The main eatures o an LLC are as ollows:
•Participants in an LLC have limited liability, which
does not exceed their contribution to the company’s
authorized share capital.
•The ounders o an LLC have to pay at least 50 percent
o the company’s declared authorized share capital
prior to its state registration. Contributions to an LLC’s
authorized share capital can be made in cash, property,
securities, property, or other alienable rights, which have
a monetary valuation.
•The highest management authority o an LLC is its
General Meeting o Participants. The requency
o meetings o the participants should be stipulated
by an LLC’s Charter. At the same time, the e ective
legislation stipulates that meetings o the participants
should be held at least twice a year. Additional meetings
may be held when required. Responsibility or the
day-to-day activities o an LLC rests with its General
Director/Director.
•Shareholders are obliged to pay the ull value
o their shares within one year o the company’s state
registration.
•Distribution o the net (ater-tax) prots o an LLC
among its participants is normally done on a pro rata
basis, according to the stake o each participant in the
company.
•The minimum authorized share capital or an LLC equals
one monthly minimum wage.3
Special regulation regarding the acquisition o plots
o land
Ukrainian law provides regulations aimed at protecting
land (which is considered to be the property o the
Ukrainian people, in accordance with the Ukrainian
Constitution) and its designated usage. First o all,
the current Moratorium on the Sale o Agricultural
Land prohibits the sale o any agricultural land until
the enorcement o the Law o Ukraine “On the State
Land Cadastre” and the Law o Ukraine “On the Land
Market,” but no earlier than 1 January 2012. Secondly,
according to Ukrainian legislation, Ukrainian legal
entities are entitled to purchase any plot o land situated
in Ukraine (that is or sale), except under the conditions
described below.
•In inhabited areas, i the plot o land in question
is purchased along with any associated real estate
assets, or i the land is purchased with a view to the
construction o real estate assets that will be used in the
course o business activities
•Outside o inhabited areas, i the plot o land is
purchased along with any associated real estate assets
Meanwhile, oreign legal entities (including entities
established in Ukraine with 100% oreign capital) are
only entitled to purchase non-agricultural land.
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Currency control
Currency control regulations
The hryvnia (UAH), the Ukrainian currency, has limited
convertibility. Residents and non-residents may hold
hard currency and UAH accounts with authorized banks,
and may import and exchange currency in accordance
with the procedures established by the National Bank
o Ukraine (NBU). However, currency operations that
take place in Ukraine all under state currency control
regulations, a key eature o which is the concept o
residency.
For the purposes o currency regulations and control
requirements, a resident o Ukraine is dened as the
ollowing:
•Any person, including oreign citizens, permanently
residing in Ukraine
•Legal entities, representative oces or other structural
subdivisions thereo, located and perorming business
activities on Ukrainian territory
•Ukrainian diplomatic, consulate, trade and other ocial
governmental institutions abroad that enjoy diplomatic
privileges and immunity
•Representative oces or other structural subdivisions
o Ukrainian companies and organizations abroad,
i these subdivisions perorm representative unctions
only and are not engaged in business activities
Any other person or structural subdivision that is not
a resident o Ukraine is treated as non-resident or
exchange control purposes. Stricter currency restrictions
are imposed on residents than on non-residents.
In particular, oreign currency control regulates theollowing relations:
•In general, only local currency may be used in business
transactions between residents.
•The means o payment between residents and
non-residents involved in international transactions, in
connection with trade and investment activities,
is generally taken to be oreign currency.
•Foreign currency proceeds received by a company rom
its oreign clients must be credited to a local bank
account within 180 days o the export date o the
services or goods in question. Failure to comply with
this provision will result in the Ukrainian company being
liable to pay a penalty o 0.3% o the non-received
proceeds or each day o the delay.
•Goods must be imported into Ukraine within 180 days
o prepayments being made by a Ukrainian company
to its suppliers. Failure to comply with this provision will
result in the Ukrainian company being liable to pay
a penalty o 0.3% o the non-received proceeds or each
day o the delay.
Certain other transactions involving local and oreign
currency are subject to licensing by the National Bank
o Ukraine (e.g. settlements made in oreign currency
on Ukrainian territory). Ukrainian residents are also
required to obtain an individual license to make
investments abroad. Investing abroad includes
purchasing securities issued by oreign entities, opening
an account with a oreign bank and issuing or taking
out oreign-currency loans. I one party to a currency
transaction has obtained the required license, the other
party is also treated as having acquired it.
These licenses are issued or a limited period, and with
a limited amount o oreign currency specied. The
procedure or obtaining an individual license is quite
onerous, and requires a specic set o documents to be
submitted to the NBU or approval. Normally, a license
can be obtained within 4-6 weeks o ling the required
set o documents with the NBU, unless the NBU nds
sucient grounds to reject the application.
The NBU establishes the exchange rates o UAH to other
currencies on a daily basis.
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Labor issues
Migration regime or oreign individuals
Depending upon the purpose o a oreign citizen’s visit
to Ukraine, they may normally apply or the ollowing
types o visas:
B-type (business) visa is issued to expatriates visiting
Ukraine or short-term business purposes, as well as
to personnel o Ukrainian representative oces
o oreign companies. In rare cases, B-type visas are
issued to expatriates’ amily members who travel
to Ukraine with them.
IM-1 (immigration) visa is issued to expatriates who
have a working assignment in Ukraine, and is only
issued on the basis o an already obtained Ukrainian
work permit.
P-type (private) visa is issued to oreigners coming
to Ukraine or personal reasons, as well as to amily
members o expatriates entering Ukraine on the basis
o either a B- or a P-visa.
M-type (media) visa is issued to media representatives
coming to Ukraine to perorm media activities.
Generally, citizens o the EU, USA, Japan and Canada do
not require a visa to enter Ukraine, i they stay no longer
than 90 days within a 180-day period.
Since 2009, control over Ukrainian immigration rules has
increased signicantly. As a result, a stay o longer than
90 days in an 180-day period requires the individual
to complete registration procedures at a special body
o the Ukrainian Ministry o Internal Aairs called
UGIRFO (Immigration Authorities).
Any company or representative oce wishing to invite
and employ oreign individuals should be registered withthe Immigration Authorities. Following the company/
representative oce’s registration, its oreign employees
may register themselves individually or immigration
purposes:
•Temporary registration o a oreign individual – This
type o registration is required or the personnel
o representative oces* and members o oreign
individuals' amilies. It is issued or B- and P-type
visas, or a period o three to six months. In general,
temporary registration allows individuals to stay
•in Ukraine or a term o more than 90 days within
a 180-day period.
•Foreign individuals employed by local legal entities
on the basis o a Ukrainian work permit need to obtain
a Temporary Residency Permit, which is issued or the
duration o the respective work permit, on the basis
o an IM-1 visa. Ater obtaining a Temporary Residency
Permit, the holder o an IM-1 single-entry visa will
require no visa to travel reely in and out o Ukraine.
•Permanent Residency Permits are issued in special
circumstances, mainly in cases o permanent
immigration to Ukraine.
Foreign citizens working in the representative oces o
oreign companies in Ukraine must also apply or
an Ocial Card, issued by the MEU or three years, with
the possibility o extension.
The above provisions are still subject to urther
developments. An active dialog is between the business
community and the Ukrainian government on this issue
is still in progress.
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System of taxation
Tax System
The list o Ukrainian taxes, levies, and general tax
principles is established by the TCU. In accordance
with the Code, all taxes and levies are classied as either
state or local. State taxes are payable to state budgets,
while local taxes are payable to local municipalities (city,
regional or specic district councils, respectively).
As a basic legal principle, taxes and levies, as well
as all rates, tax collection procedures and incentives,
may only be established in accordance with the TCU
and any amendments to it.
The Tax Code provides or the ollowing major taxes
and duties (mandatory payments):
•Corporate income tax (CIT)
•Fixed agricultural tax (FAT, applicable to agricultural
producers only, as an alternative to CIT and certain other
taxes and duties)
•Value-added tax (VAT)
•Personal income tax (PIT)
•Excise duties
•Customs duties
•State duties
•Land tax
•Property tax
•Payments or licenses/patents
•Other taxes and duties (including local taxes and duties,
such as community development tax, parking duties,
recreation duties, etc.)
In addition to the duties outlined in the Tax Code,
Ukrainian taxpayers are required to remit mandatoryUnied Social Security Contributions.
Control over compliance with tax legislation is exercised
by the tax authorities, based on the provisions
o the TCU. Control over compliance with legislation
on Unied Social Security Contributions is exercised
by the Ukrainian Pension Fund, on the basis o the Law
“On collecting and accounting or Unied Social Security
Contributions to Compulsory State Social Insurance.”
General principles
Ukraine adheres to the European (continental) legal
system. The Ukrainian parliament (the Verkhovna
Rada) is the only authority that has the right
to establish laws. There is no court precedent
doctrine in Ukraine and, thereore, court
decisions may be regarded as recommendations
and reerences only.
As required by the Ukrainian Constitution, any
taxes or levies envisaged under the Ukrainian tax
system, including sanctions or tax violations, may
only be established as a result o legislation enacted
by the Verkhovna Rada. The Verkhovna Rada may
not delegate its constitutional powers to establish a tax
system, taxes or levies, or sanctions or tax violations,
to the government or any other authority.
In accordance with the Constitution, all laws,
and tax laws in particular, only come into eect ater
being published in accordance with due procedure
(i.e. ater having been approved in a third reading
by the Verkhovna Rada and signed by the President).
Tax laws that amend the tax regime come into eect
rom 1 January o the year ollowing that, in which they
were adopted, provided that this occurred beore 1 June.
However, this rule is oten violated. Furthermore, newly
adopted tax laws have no retrospective eect, unless
they increase benets or taxpayers and their application
to previous tax periods is clearly stipulated.
In December 2010, the Tax Code o Ukraine (the “TCU”
or the “Code”) was adopted and ocially published.The TCU comes into eect on 1 January 2011, although
some o its provisions will come into eect at a later date
(the most important o these being Section III, which
deals with corporate income tax and comes into eect
on 1 April 2011). The Code makes essential changes
to the existing Ukrainian tax rules, introducing a number
o concepts common in other jurisdictions (e.g. benecial
ownership, substance over orm) to various degrees.
In addition to codiying existing tax principles, the TCU
introduces a new property tax, which has not been levied
beore in Ukraine. For more details, please reer to the
inormation below.
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However, please note that court decisions are oten
required to resolve such disputes.
Benefcial owner concept
The TCU introduces the concept o a benecial owner
o Ukrainian-sourced income. For a non-resident
to qualiy as the benecial (actual) owner (recipient)
o Ukrainian-sourced income (dividends, interest,
royalties, ees, etc.), they should be entitled to receive
the income in question.
A legal entity or individual who acts
in the capacity o an agent or nominee/nominee
owner, or who is recognized as an intermediary,
may not be regarded as the benecial owner
o income, even i they are entitled to receive
the income in question.
Most tax returns are led on a quarterly or monthly
basis, either in person, by mail (at least 10 days
prior to the ling deadline), or electronically
(electronic ling is compulsory or large
and medium-sized taxpayers).
Like the legislation it replaces, the TCU states
that any disputed provisions o tax legislation
should be interpreted in avor o the taxpayer.
I any provision o the TCU or related regulatory
acts, or provisions o other laws or regulatory acts,
contain an ambiguous/conficting interpretation
o the taxpayer’s or the tax authorities’ rights
and obligations, which could result in a decision
in the taxpayer’s or the tax authorities’ avor,
respectively, any decision is to be made in avor
o the taxpayer.
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Tax administration
Tax rulings
Tax advice/rulings may be provided by tax authorities
upon an individual request rom a taxpayer. This advice
will set out the tax authorities’ opinion on the way
a tax law should apply in that particular taxpayer’s case,
and in relation to a specic regime or circumstance only.
Thus, no tax advice rom the authorities should be cited
or relied upon as a precedent.
A tax ruling saeguards the taxpayer rom
the application o nes and penalties in cases where
tax authorities have wrongly interpreted provisions
o the Tax Code. However, it does not saeguard
the taxpayer rom tax liabilities.
The taxpayer may challenge the tax advice provided
in court, where a decision in avor o the taxpayer would
serve as grounds or the tax authorities to change their
conclusion and reissue the tax ruling.
Penalties and late-payment interestThe penalties or violations related to the accrual,
withholding and payment o taxes depend
on the requency, with which the violations occurred
over a period o 1,095 consecutive days (statute
o limitations or tax purposes), as ollows:
•25% – or the rst violation
•50% – or the second violation
•75% – or the third and any subsequent violation
The same nes (25%, 50%, and 75%) apply in cases
o overstatement o VAT receivables, VAT reundable
or net tax losses, during the abovementioned 1,095-dayperiod (i.e. nes may be imposed even in cases where
no tax liabilities are accrued)
The nes or the correction o sel-identied errors
are as ollows:
•3%, i an error rom a previous period is corrected
by ling an amended tax return (ling an amended
tax return constitutes grounds or the tax authorities
to perorm an unscheduled eld tax audit)
•5%, i an error rom a previous period is corrected
by amending the tax return or the current period
The nes or the violation o tax payment deadlines
are as ollows:
•10%, i tax is overdue or less than 30 days
•20%, i tax is overdue or 30 days or more
During administrative appeal proceedings,
the obligation to substantiate decisions o the tax
authorities lies with the tax authorities themselves,
and not with the taxpayer.
Taxpayers have the right to challenge decisions
by the tax authorities to accrue tax liabilities
and impose penalties up to the highest level o the tax
authorities and/or the courts. When an appeal is made
to the highest level tax authorities, there is no obligation
to pay penalties, while an appeal to a court will result
in the settlement o any penalties. When a court
decision is issued in avor o the taxpayer, penalties paid
by a taxpayer will be regarded as a tax overpayment
and returned to the taxpayer’s bank account or settled
against its existing tax liabilities.
Late payment interest (hereinater, “LPI”) is applied
or the period, during which the taxpayer challenges
the tax authorities’ decision in court or to higher tax
authorities. Upon a decision in avor o the taxpayer,
the accrued LPI is cancelled.
Fines or violations during the transition period
(1 January to 30 June 2011) will not exceed
UAH 1 per violation. Meanwhile, CIT-related violations
in the period 1 April 2011 to 30 September 2011
will not be subject to nes.
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Tax audits
The durations o the most common types o tax audits
are outlined in the table 1 below:
Types o tax audit:
•Desk audits
•Regular audits (scheduled or unscheduled; eld
and in-house)
•Factual audit (at the location where the taxpayer
actually perorms their business activities; may be carried
out without providing the taxpayer with prior notice)
The requency o scheduled regular audits depends
on the level o risk o the company’s activities
(as o 1 January 2011, the TCU provided no risk
assessment criteria):
•High – once per calendar year
•Medium – once every 2 calendar years
•Low – once every 3 calendar years
In accordance with the eective Ukrainian legislation,the statute o limitations or tax purposes in Ukraine
is three years (1,095 days), starting rom the deadline
or submission o the respective tax return, or a later
date, on which the tax return was actually submitted.
In general, periods that have been audited
by the tax authorities are considered “closed”, and may
not be reopened or urther tax audits in the uture
(unless criminal proceedings are instigated against
a tax ocer who conducted the tax audit o the entity,
or against an ocial o that entity).
The statute o limitation period does not apply
to tax periods, or which a tax return was not led
or deliberate tax evasion was committed, as proved
beore a court.
Tax liens
Tax liens are applicable when:
•the taxpayer ails to pay the sel-assessed amount o tax
liabilities stated in their tax return within the timerames
specied in the TCU, starting rom the day that ollows
the specied deadline; and
•when the taxpayer ails to pay the tax liability assessed
by the tax authorities within the timerames specied
in the TCU, starting rom the day the tax debt arises.
Tax liens may be applied to any property that is owned
by the taxpayer (is under the taxpayer’s economicmanagement or operating control), on the day
when the tax lien becomes applicable, and where
the book value o the property in question corresponds
to the amount o tax owed by the taxpayer, as well
as to other property that the taxpayer will acquire
the title to in the uture.
The seizure o property should be conrmed by a court
decision within 96 hours, while unds should only
be collected rom the tax payer’s bank account
on the basis o a court decision.
Type o tax audit Large taxpayers Small taxpayers Other taxpayers
Scheduled 30 business days,with a possible extension
o a urther 15 business days
10 business days,with a possible extension
o a urther 5 business days
20 business days,with a possible extension
o a urther 10 business days
Unscheduled 15 business days,
with a possible extension
o a urther 10 business days
5 business days,
with a possible extension
o a urther 2 business days
10 business days,
with a possible extension
o a urther 5 business days
Factual 10 calendar days, with a possible extension o a urther 5 calendar days
Table 1
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The tax year or CIT is a calendar year, while CIT
reporting periods are a calendar quarter, hal year, rst
three quarters and calendar year. Taxpayers must submit
tax returns or each reporting period and make quarterly
tax payments. Quarterly tax returns must be submitted
within 40 days o the last calendar day o each reporting
period (i.e. 10 May, 9 August, 9 November, 9 February).
Quarterly tax payments should be made within 50 days
o the end o a reporting period.
I the ling deadline date alls on a holiday
or a weekend, it is automatically moved to the ollowing
business (i.e., banking) day.
Taxable income
Resident entities are taxed on the worldwide income
they receive or accrue within the reporting period.
The amount o taxable income is determined
by subtracting the costs o sales and other allowed
deductible expenses rom taxable income. Depreciation
charges are included into deductible expenses.
Gross taxable income
Gross taxable income is dened as any income, rom
domestic or oreign sources, that is received or accrued by
the taxpayer in the course o conducting any activity. This
income may be in monetary, tangible or intangible orm.
Specifcally included income – The ollowing items
are specically included into taxable income (please note
that this list is not exhaustive):
•Sales or exchanges o goods and services
•
Income o banking institutions, insurers and othernancial services providers; currency sales, and sales
o securities and debt instruments
•Property and services provided ree o charge,
non-reundable nancing (except or nancing provided
to non-prot organizations), and reundable nancing
received during the reporting period rom non-CIT
payers, which is not repaid by the end o that period
•Dividends rom non-resident companies (except
or dividends received rom non-resident entities
controlled by taxpayers who are not located in oshore
jurisdictions)
•Interest income and royalties
•Any contractual nes and penalties incurred
•Foreign exchange gains, estimated according
to National Accounting Standards
Please note that all o the tax rules described
in this section are applicable rom 1 April 2011.
Tax jurisd iction
Legal entities incorporated and operating in accordance
with the provisions o Ukrainian legislation are normally
treated as tax residents, and are taxable on their
worldwide income.
Legal entities incorporated abroad and operating
according to the laws o another country are normally
treated as oreign tax residents (non-residents),
and are taxable on two sources o income:
•Business income – received in the course o carrying
out trade or business activities in Ukraine
•Other non-business income rom Ukrainian sources
The tax that companies pay is known as corporate
income tax (CIT). Currently, this tax is calculated
at a fat rate o 25%. The most recent changes
to Ukrainian tax legislation envisage a gradual reduction
in CIT rates, as ollows:
•23% rom 1 April 2011 until 31 December 2011
•21% rom 1 January 2012 until 31 December 2012
•19% rom 1 January 2013 until 31 December 2013
•16% rom 1 January 2014 onwards
Lower rates apply to certain types o businesses
(e.g., insurance, agriculture, etc.)
Taxation o resident entities
Tax accounting rules
According to domestic tax accounting rules,taxable items are normally recognized on the basis
o the accrual method. In accordance with this method,
taxable income is generally recognized in the reporting
period, in which it was accrued.
In general, deductible expenses are recognized when
they are incurred (i.e. upon receipt o goods or services),
regardless o the period o payment. However, certain
types o taxable income are recognized on a cash basis.
This includes nes and nancial assistance received
rom non-residents (unless nancial assistance
is provided by the company’s shareholders and returned
within 365 days).
Corporate income tax (CIT)
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Specifcally excluded income – The ollowing items
are specically excluded rom gross taxable income
(please note that this list is not exhaustive):
•Advances and prepayments
•VAT accrued by the taxpayer on goods/services
it has sold
•Dividends received rom resident companies
•Cash or in-kind contributions to an entity or partnership,
in exchange or an equity interest therein, irrespective
o whether or not the investor acquires a controlling
interest ollowing this contribution
•Cash or property received, upon the complete
liquidation o a company or partnership, as long
as the value o the cash or property received does not
exceed the initial acquisition cost o the shares held
in the liquidated entity
•Share premiums received
Tax cost o sales and other deductible expenses
The Tax Code provides or gross taxable income
to be reduced by the tax cost o sales and other
deductible expenses to calculate taxable income.
Specifcally included expenses – The ollowing items
are specically included into deductible expenses (please
note that this list is not exhaustive):
•Operating expenses, including:
– Tax cost o goods (work and services) obtained
by/provided to a taxpayer or subsequent use
in business activities (direct material costs, direct labor
costs, depreciation and maintenance o productive
xed and intangible assets, cost o acquired services
related to business activities, and other direct costs) – Banking expenses (i.e., interest expenses, commission
ees, orex losses, etc)
– Fixed manuacturing overhead costs
– Administrative costs (any expenses related to “startup,
management and carrying out business activities,”
administration salaries, rental costs, depreciation
and maintenance o business premises)
– Marketing and advertising expenses
– Other operating costs, including taxes and obligatory
payments accrued during the reporting period (except
or CIT, input VAT and certain other taxes), and oreign
exchange losses
•Financial expenses, including interest on loans,
nancially leased items and debt securities
Generally non-deductible expenses – Deduction
o the ollowing expense items is specically
prohibited by the Tax Code (please note that this list
is not exhaustive):
•Any expense not related to business activities
•Advances and prepayments paid out
•CIT payments and VAT on purchased goods and services
•Penalties and nes paid out
•Dividend payments
•Expenses associated with purchasing goods/services
rom private entrepreneurs that use the Unied Tax
System (except or those providing IT services)
•Losses resulting rom exchanging or selling goods
and services to related parties at below air market value
Expenses, or which deductibility is limited
Deductibility o interest expenses
Any interest expenses incurred by a taxpayer
in the course o carrying out business activities
are generally deductible. However, interest deductibility
limitations do apply to resident taxpayers in the
ollowing circumstances:
•The taxpayer is an entity with 50% or more
o its statutory capital owned or managed, directly
or indirectly, by a non-resident.
•The loan is provided by the non-resident entity
in question, or by a related party o the non-resident.
In this case, the deduction o interest expenses is limited
to the amount o interest income plus 50% o taxable
income excluding interest income. Excess interest
expenses can be carried orward without limitation
and deducted in subsequent tax periods, subjectto the same limitations.
Oshore restrictions
As an anti-avoidance measure, Ukraine has established
restrictions on the deductibility o expenses incurred
by resident taxpayers as a consideration or goods
or services received rom or provided by non-resident
entities located in oshore jurisdictions.
This restriction applies to expenses incurred
in the course o making payments to non-residents
with oshore status, or settlements made through such
non-resident/their bank accounts. I a payment is made
to a resident o an oshore jurisdiction, then only 85%
o the expenses incurred are deductible or depreciable/
amortizable.
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•Expenses related to purchases o consulting, marketing
and advertising services rom non-residents (except
or purchases rom PEs o non-residents) are deductible
up to 4% o prior year sales revenue. The Code imposes
a total ban on the deduction o expenses related
to purchases o the above services rom oshore
non-residents.
•Expenses related to purchases o goods and services
rom private entrepreneurs who are individual tax payers
(except or sotware development and certain other
similar services) are non-deductible.
Depreciation and amortization allowance
Expenses associated with the acquisition, construction
and/or improvement (in excess o 10% o the total book
value at the beginning o the tax year) o capital assets
or business purposes may not be deducted immediately.
Instead, these expenses should be capitalized and
depreciated or amortized over a xed period.
Generally speaking, depreciation allowances
are permitted or all capital assets, including both xed
and intangible property, except or land, goodwill, xed
assets under conservation and non-business-related
capital assets.
Fixed assets
Fixed assets are dened by the Tax Code as tangible
assets (including mineral resources) intended or
use in a taxpayer’s business activities or a period
exceeding one year or operating cycle, and with a cost
exceeding UAH 1,000 or 2011 (approximately USD 125
as o 1 January 2011), and UAH 2,500 (approximatelyUSD 314 as o 1 January 2011) rom 1 January 2012.
According to the Tax Code, xed assets are divided into
16 groups according to their minimum useul lie or tax
depreciation purposes.
The ocial list o oshore countries is published
by the Verkhovna Rada, and is updated periodically.
The ocial list o oshore jurisdictions was last updated
on 1 February 2006 and currently includes the ollowing
jurisdictions:
Other restrictions and limitations
The Tax Code establishes limitation on the deduction
o the ollowing expenses:
•Royalties paid to non-residents up to 4% o prior
year sales revenue (royalties are not deductible i paid
to non-resident companies that are located in oshore
jurisdictions, or are not benecial owners o royaltypayments; moreover, outbound royalty payments
or IP rights that were initially registered in Ukraine
and later sold abroad may not be deducted)
•Engineering services up to 5% o the customs value
o the imported equipment (non-deductible where
the non-resident in question has oshore status or is not
the benecial owner o the income rom the respective
services)
•Alderney (UK)
•Andorra
•Anguilla
•Antigua and Barbuda
•Aruba
•Bahamas
•Bahrain
•Barbados
•Belize
•Bermuda
•British Virgin Islands
•Cayman Islands
•Cook Islands
•Dominica
•Dutch Antilles
•Gibraltar
•Grenada
•Guernsey (UK)
•Isle o Man (UK)
•Jersey (UK)
•Liberia
•Marshall Islands
•Monaco
•Montserrat
•Nauru
•Niue
•Puerto Rico
•Republic o Maldives
•Samoa
•Seychelles
•St. Lucia
•St. Vincent and
Grenadines
•St. Kitts-Nevis
•Turks and Caicos Islands
•Vanuatu
•Virgin Islands (USA)
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Groups Fixed assets included in this group Minimum useul lie, years
Group 1 Plots o land -
Group 2 Capital expenditure on land improvements unrelated to
construction
15
Group 3 Buildings 20
Facilities 15
Transmission devices 10
Group 4 Machinery and equipment 5
Computers and other automatic data processing equipment;
related inormation read-out and printing equipment; related
computer programs (except or payments or programs
that are classied as royalties and/or programs treated
as intangible assets); other inormation systems; switch
boxes, routers, modules and modems; uninterrupted power
supplies and means connecting them to telecommunications
networks; telephones (including satellite phones),
microphones and portable radio transmitters worthover UAH 2,500
2
Group 5 Motor vehicles 5
Group 6 Instruments, devices, urniture 4
Group 7 Animals 6
Group 8 Perennial plants 10
Group 9 Other xed assets 12
Group 10 Library unds -
Group 11 Low-cost non-current tangible assets -
Group 12 Temporary acilities 5
Group 13 Natural resources -Group 14 Reusable containers 6
Group 15 Rented assets 5
Group 16 Long-term biological assets 7
The Tax Code stipulates certain rules and limitations
on which methods may be applied to particular
groups o assets.
Depreciation is accrued on a monthly basis.
The quarterly amount o depreciation is dened
or the purposes o the CIT return as the sum
o the depreciation amounts or each month
in the respective quarter.
Tax accounting
For tax purposes, xed assets are depreciated during
their useul lives using one o the ollowing ve
methods:
•Straight line method
•Reducing balance method
•Accelerated reducing balance method (applicable
to Groups 4 and 5 only)
•Cumulative method
•Units o production method
Table 2
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Each xed asset is accounted or separately
and depreciated over its useul lie, as dened
in the taxpayer’s tax policy, but which should not
exceed the maximum useul lie period indicated
in the Tax Code. The tax depreciation method used
should correspond with the taxpayer’s UAS (Ukrainian
Accounting Standards) policy.
The CIT section o the Tax Code comes into eect
on 1 April 2011. This means that all taxpayers will have
to conduct an audit o their xed assets as at 1 April,
in order to assess the book value o their assets. This will
then be regarded as the opening tax book value or tax
depreciation purposes.
Should the total book value o the xed assets
as at 1 April 2011 be less than the total tax base
or xed assets, the dierence should be recognizedseparately as a depreciable asset in its own right, which
will be depreciated using the straight line method
over the ollowing three years. Financial accounting
write-ups made during 2010 should not be taken into
account when comparing the tax base to the book value
on 1 April 2011.
Ukrainian tax legislation also allows taxpayers
to increase the book value o xed assets (indexation),
provided that the annual infation rate or the respective
calendar year exceeds 10%. Indexation is calculated,
as below, as the product o the book value o xed
assets at the end o the calendar year in question and
the amount, by which the infation rate exceeds 10%:
ITBV = TBV + TBV * (II – 10%)
where:
ITBV – Indexed tax book value
TBV – Tax book value prior to indexation
II – Annual infation rate calculated by the Ukrainian
State Statistics Committee
Since the book value is the basis or calculating uture
depreciation charges, indexation allows taxpayers
to increase the amount o its uture tax depreciation
without incurring any expenses.
Intangible assets
According to the Tax Code, intangible assets
are divided into six groups. Each intangible asset should
be accounted or separately and amortized using
one o the abovementioned methods over its useul
lie, taking into consideration the minimum useul
lie established by the Tax Code.
Operations involving land and capital improvements
Separate accounting must be maintained or
transactions involving land. Expenses associated
with purchasing land cannot be deducted or amortized.
Any prots rom uture sales o land should be included
into taxable income. However, losses incurred upon
the sale o land may not be included.
Taxation o dividends
Dividends paid by Ukrainian companies are subject
to Advanced Corporation Tax (ACT), which is calculated
based on the statutory tax rate. The tax is accrued
on top o dividend payments and is paid rom the unds
o the distributing company. ACT is due prior to or upon
the payment o dividends.
Groups Fixed assets included in this group Minimum useul lie, years
Group 1 Rights to use natural resources According to the entitling document
Group 2 Rights to use property According to the entitling document
Group 3 Rights to use commercial branding
(trademarks, etc.)
According to the entitling document
Group 4 Industrial property rights According to the entitling document,
but no less than 5 years
Group 5 Copyrights and related rights According to the entitling document,
but no less than 2 years
Group 6 Other intangible assets According to the entitling document
Table 3
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Ukrainian companies may use ACT they have paid
to reduce their CIT liabilities or uture periods.
I the taxpayer does not have sucient CIT liabilities
or a period, then this ACT credit may be carried
orward indenitely.
ACT does not apply to dividends paid
by the ollowing entities:
•Ukrainian holding companies whose income mostly
(more than 90%) consists o dividends received
rom other Ukrainian legal entities
•Insurance companies and investment unds
•Agricultural companies registered as FAT payers
Tax loss carry orward
Under the general rule, taxpayers’ tax losses
may be carried orward without any limitations
on term or amount, and should be reported in CIT
returns or subsequent periods as a separate item
o deductible expenses.
Consolidated corporate income tax
A taxpayer may apply to pay consolidated CIT,
provided that:
•it has branches located in other Ukrainian regions; and
•it applied to pay consolidated CIT prior to 1 July
o the year preceding the year, with regard to which
it wishes to pay the tax.
In this case, the CIT payable by each branch is then
determined as a raction o the total CIT payable,
based on the share o each branch in the total amount
o expenses incurred by the taxpayer. Each branch shouldthen pay CIT separately to their local tax authorities.
The CIT liability o a consolidated CIT payer is calculated
in accordance with the general rules, ollowing
deduction o the CIT paid by the branches.
Taxation o non-resident entities
Sources o income
Non-resident entities are subject to taxation
on two types o income in Ukraine:
I. Business income (i.e., active income) derived
rom carrying out business in Ukraine
II. Non-business income (i.e., passive income) received
rom Ukrainian sources
Taxation o both business and non-business income
may be subject to the provisions o international double
tax treaties. Thereore, preerential tax treatment
or provisions may be available or non-resident taxpayers
under the appropriate double tax treaties signed
between Ukraine and their respective jurisdictions.
Taxation o business income
Business income o non-residents, obtained via a PE situated
in Ukraine, is taxed in a similar way to income earned
by regular corporate taxpayers in Ukraine.
The term “permanent establishment” in domestic tax
legislation is similar to the denition o a PE stated
in Article 5 o the OECD Model Tax Convention
on Income & Capital.
Thereore, a non-resident’s income that is attributable
to Ukraine via the activities or assets o its PE is subject
to taxation in Ukraine on a net basis, at the general
tax rate.
Permanent establishments (PEs)
The denition o a PE contained in Ukrainian legislation
is very similar to that provided by the OECD Model
Treaty. A PE o a non-resident is dened as a xed place
o business, through which the non-resident carries
out all or part o its business activities. The term PE
includes headquarters, branches, oces, actories,
workshops, mines, oil or gas wells, quarries and any
other places where natural resources are extracted.
Activities carried out by a non-resident companyin Ukraine with the purpose o providing assistance
or preparatory services with regard to that non-resident
company’s activities (e.g., conservation, demonstrations,
delivery, data gathering, etc.) do not lead to the creation
o a PE.
The net income attributable to a PE is calculated using
one o the three methods below. These methods
are applied in the order, in which they are listed below
(i.e., i the rst method cannot be applied, the second
should be used, etc.).
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Calculation o attributable income
Direct method
This method should be used when a non-resident
entity maintains a separate prot and loss statement
with respect to the PE’s activities. Allowable
expenses are deducted rom gross taxable income
and the dierence is reported as taxable income.
These expenses are deductible, regardless o whether
they were incurred inside or outside o Ukraine,
provided that they are supported by the appropriate
source documents.
Split balance sheet method
This method is used or non-resident companies
with activities in multiple countries that do not have
readily available gross taxable income gures that
may be allocated to their operations in Ukraine.
It uses the Ukrainian share o the resident’s worldwide
gross taxable income, deductible expenses, number
o employees, and book value o its assets to determine
taxable income.
This method involves signicant practical issues
and is almost never used in practice.
Indirect method
The indirect method is used or PEs, or which
the amount o attributable income cannot be practically
determined using the direct method, and which cannot
provide the inormation required to use the split balance
sheet method.
In order to calculate attributable taxable income,
a 30% prot margin is applied to the gross taxable
income attributable to the PE.
Taxation o non-business income
Non-business income rom Ukrainian sources
is normally subject to withholding tax, provided that
it is not attributable to a non-resident’s PE in Ukraine.
Taxes should be withheld by a resident taxpayer prior
to or upon payment o income to a non-resident.
Ukrainian-sourced income
The ollowing types o a Ukrainian-sourced income
are subject to withholding tax:
•Interest income – interest on debt obligations issued
to a resident entity
•Dividend income – dividends rom a resident entity
•Royalty income – royalties received rom a resident
entity
•Rental income – rental/lease income received
rom a resident entity
•Income rom immovable property – income rom
the sale o immovable property located in Ukraine
•Insurance income – premiums or insuring or reinsuring
against risks in Ukraine or the risks to resident entities
operating abroad
•Winnings – income rom lotteries (except or the state
lottery), casinos and other gambling activities, as well
as income rom the operations o gambling businesses
•Commissions, brokerage or agent ees – income
received rom residents or PEs o non-residents
or services provided by a non-resident
(or its PE) in Ukraine
•Other types o income – reight, engineering services,
prots rom trading in securities, donations, and so on
Withholding tax rates
The withholding tax rates provided in Table 3 normally
apply (unless more avorable rates are provided
or by a relevant double tax treaty). In order to benet
rom any applicable treaty relie, a non-resident should
provide the Ukrainian taxpayer with a residency
certicate issued annually by the tax authorities o their
country o residence. The amount withheld shouldbe remitted to the government when the income is paid
to the non-resident.
Non-business-related income may be paid
to non-residents rom Ukrainian sources, provided
that it is not attributable to a non-resident’s
PE in Ukraine.
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Income rom Ukrainian sources Withholding tax rate
Dividends 15%
Interest 15%
Royalties 15%
Income rom international reight transportation 6%
Interest income rom certain state securities 0%
Other Ukrainian-sourced income 15%
A special tax is levied on insurance and advertising
income payable rom Ukraine to non-residents.
This tax should be accrued on top o the
Income rom Ukrainian sources Tax rate
Insurance income 0%/4%/12%
Income rom advertising services 20%
payment (i.e., the gross amount) at the ollowing
rates, and is non-recoverable or the taxpayer
(see Table 5 below).
Table 4
Table 5
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Taxable transactions
In accordance with Ukrainian legislation, value-added
tax (VAT) is imposed on the ollowing:
•Supplies o goods and services within the customs
territory o Ukraine
•Imports o goods and auxiliary services into the customs
territory o Ukraine under the import or re-import
customs regimes
•Exports o goods and auxiliary services rom the customs
territory o Ukraine under the export or re-export
customs regimes
For tax purposes, supplies o goods and auxiliary services
to/rom duty-ree shops, customs storehouses or special
customs zones constitute the exportation/importation
o these goods and services.
•Supplies o services involving the international
transportation o passengers and luggage by rail, road,
sea, river and air transport
VAT is currently levied at a rate o 20% o the taxable
value o domestic supplies, imported goods and
auxiliary services. The VAT rate will be reduced to 17%
rom 1 January 2014. The VAT rate on exported goods
and supplementary services is 0%.
For VAT purposes, supplementary services are dened
as services that are included in the customs value
o exported and imported goods.
Ukrainian VAT legislation regarding the taxation
o services applies the concept o “place o supply.”
In general, services rendered within the customsterritory o Ukraine are taxed at the general VAT rate,
regardless o whether they are rendered to residents
or non-residents. However, there are certain exceptions
to this rule, which are examined in more detail
in Section 4 below.
According to the Tax Code, the taxable base or
VAT is dened as the contractual value o the goods
or services supplied, but no less than the air market
value o these goods or services. Previously, a 20%
deviation rom the market price was possible; however,
this provision was abolished on 1 January 2011.
From 1 January 2013, new transer pricing regulations
will come into eect to ensure air price estimation.
Exempt transactions
Transactions specifcally exempt rom VAT
(Tax Code, Art.197)
Certain transactions are exempt rom VAT. Below
is an extensive, but not exhaustive list o exempt
transactions:
•Supplies/imports o medical or medical-related products,
provided that these products are registered in Ukraine
as medical products in accordance with the list approved
annually by the Verkhovna Rada beore 1 September
•Supplies o domestically produced baby ood products,
in accordance with the lists o oodstus adopted
by the Verkhovna Rada
•Supplies o domestically published periodicals
and books, students’ notebooks and textbooks, study
books and supplementary study materials
•The provision o educational services by institutions
with special permission/a license to provide such services
•Supplies o special-purpose goods or disabled
individuals
•The provision o pensions and monetary assistance
to the general population within the ramework
o approved social programs
•The provision o healthcare services by licensed
institutions
•Public transportation services (except taxis)
within an inhabited area
•Religious organization services and supplies
(with the exception o excisable goods)
•Transers o land, except or plots o land under
buildings, the cost o which is included in the cost
o buildings
•
The privatization o state and municipal property•Supplies o apartments (housing stock) on a secondary
market
•Charitable contributions to qualiying non-prot
organizations
•Research and development activities perormed
at the expense o the State Budget o Ukraine
and carried out by an individual who receives unding
directly rom the State Treasury
Transactions not subject to VAT (Tax Code, Art. 196)
According to the Tax Code, certain transactions
are not subject to VAT. These include the ollowing:
•The issuance o securities by enterprises, the National
Bank o Ukraine, the Ministry o Finance o Ukraine,
and local authorities
Value-added tax
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quantities, it is obliged to pay VAT during the customs
clearance process, without the need to register
as a VAT payer.
In addition to taxable entities, VAT law denes
the concept o a tax agent (individual responsible
or accruing and withholding VAT) and states that when
non-residents provide services that qualiy as taxable
supplies in Ukraine, VAT should be accrued and remitted
to the government by the Ukrainian customer.
Tax base
Domestic supplies
As a general rule, the tax base or VAT is dened
as the contractual value o goods/services, including
customs duties, excise and other mandatory taxes/
payments, but may not be lower than the air market
prices or the goods/services in question.
In certain cases, there are special rules or determining
the tax base, in particular:
•In the event o non-cash settlements and ree-o-charge
supplies, the taxable base is the air market price.
•The contractual value o goods imported
into the customs territory o Ukraine is considered
the tax base, but may not be less than the
declared customs value, determined in accordance
with the Custom Code o Ukraine (including excise tax
and import duties, but exempt o VAT, which is included
in the price o goods).
•For nancial lease purposes, the VAT base is determined
on a contractual basis, but may not be less than
the purchase price o the object o the nancial lease.•I a taxpayer is involved in the trading o used goods
that have been purchased rom entities that do not
pay VAT, the tax base is dened as the taxpayer’s
commission ees.
Place o supply
Place o supply o goods
According to the Tax Code, the place o supply o goods
is their actual location at the moment o supply, except
in the ollowing cases:
•For goods that are transported, the place o supply
is their location at the beginning o their journey.
•For goods that are assembled or installed
by the supplier, place o supply is the place where
assembly or installation takes place.
Place o supply o services
•Insurance services provided by institutions specially
licensed to provide such services, including social
and pension insurance, and intermediary services
•Currency exchange (both national and oreign currency),
bank metals, banknotes, and coins
•Circulation o lottery tickets and monetary prizes/
winnings
•Transers o property under an operating lease
by a resident lessor to a lessee, and the return
o the leased property by the lessee to the lessor
•Transers o property or use as storage or their return,
as well as under mortgage
•Cash payments o salaries, pensions and subsidies
•Payments o dividends and royalties in cash
or in the orm o securities
•The provision o commission/brokerage and dealer
services in connection with the sale or management
o securities
•Payments o arbitration duties and the reimbursement
o other expenses in relation to arbitration court rulings
•Agent and reight services rendered to a marine
commercial feet by shipping agents
•The reorganization o legal entities
•The provision o consulting, engineering, legal,
accounting and audit services, as well as services related
to the development, delivery and testing o sotware,
and similar services
Taxpayers
I entities meet certain criteria, they may be subject
to mandatory registration as VAT payers. One such
criterion is the volume o taxable supplies o goods/
services during the previous 12-month period,with the taxable threshold set at UAH 300,000
(approximately USD 37,500). I an entity’s volume
o taxable supplies in this period was less than
UAH 300,000, but no less than 50% o the total sales
were made to VAT payers, then it can opt to register
voluntarily.
The abovementioned requirement to register
or Ukrainian VAT purposes applies to both resident
and non-resident entities. Although the Tax Code does
not stipulate a special procedure or non-resident
entities to register or Ukrainian VAT purposes, the only
easible way o registering a non-resident as a VAT payer
in Ukraine is via a representative oce and/or permanent
establishment o the non-resident in Ukraine.
I an entity imports goods to Ukraine in taxable
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The general rule states that the place o supply
o services is dened as a place o the supplier’s
registration. However, the Tax Code establishes specic
rules or dening the place o supply o certain types
o services, in particular:
•Services related to movable property –where the services
are actually provided
•Services rendered by real estate agents – the location
o the real estate
•Cultural, sports, educational, scientic services –
the place where the services are rendered
VAT Law also stipulates that the ollowing services
are deemed as being supplied where the buyer
is registered and, thereore, are not subject to Ukrainian
VAT when rendered to non-residents:
•Transer or assignment o copyrights, patents, licenses,
and related rights, including trade marks
•Provision o advertising and other promotional services
•Provision o services by parties related to the supplier
to benet another entity
•Provision o agency services on behal o another entity
in its own name or in the name o such other entity
•Telecommunications services, including: transer and
extension services; the transmission o signals, words,
images and sounds, or any type o inormation via cable,
satellite, cell, electronic, optical or other electronic
communications systems; provision o a right to transer,
extend or accept; and provision o access to global
networks.
•Provision o reight orwarding services
•Leasing o movable property (including banking saes)
VAT administration
Remittance
VAT on domestic supplies o goods and services
is administered by the tax authorities, while VAT
on the importation o goods is administered
by the customs authorities.
Any taxable person should assess the amount
o VAT to be remitted to the government by reducing
(“crediting”) their output VAT (VAT accrued/collected
on taxable supplies) with input VAT (VAT payable
on purchased goods and services, including import VAT).
VAT on imported goods is payable by the importer,
in cash, at the customs border. Taxable entities
are responsible or paying import VAT.
Input VAT
In general, any input VAT paid or incurred by a taxable
entity may be set o against output VAT liabilities,
provided that the input VAT in question was incurred
in relation to the ollowing:
•Purchasing or producing goods/services with a view
to their use in taxable operations in the course
o a taxpayer’s business activities
•Purchasing xed assets with a view to their use
in taxable operations in the course o a taxpayer’s
business activities.
The tax treatment o VAT included into the price
o goods/services depends on the status o a
company’s supplies. In general, when a company’s
supplies qualiy or exemption, the incurred VAT is not
included into input VAT, but is instead regarded as a
deductible/depreciable expense, depending on the type
o expenses.
When a company’s supplies qualiy as taxable
(at the 20% or 0% tax rate), the VAT incurred is included
into input VAT and is oset against the company’s
output VAT.
I produced and/or acquired goods (work or services)
are only partially used in taxable transactions, input VAT
may include the amount o VAT that relates to taxable
transactions in a reporting period. The input VAT that
may be creditable in a given year is computed basedon the ratio o prior year VAT-able sales over prior year
total sales. The coecient, thus calculated, is applicable
throughout a calendar year. At the end o the year,
the coecient is re-calculated, based on the actual
volume o VAT-able and non-VAT-able supplies. Input
VAT on xed assets is recalculated at the end o every
12-, 24- and 36-month period.
In general, VAT credit is determined based
on the contractual value o goods/services, which may
not be higher than their air market value.
Ukrainian tax legislation states that input VAT will only
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Under the general rule provided or by the Tax Code,
the amount o VAT payable to the government
or subject to reund is determined as the dierence
between the amounts o output and input VAT
or a tax reporting period.
I input VAT exceeds output VAT, the dierence may
be used to oset VAT debt accumulated in previous
tax periods. I the taxpayer does not have any VAT
debt, the dierence is included into input VAT
or the ollowing reporting period. I the taxpayer’s
input VAT exceeds output VAT in this period as well,
the dierence (VAT receivable) can be claimed or
reund rom the government. However, any VAT
reund is limited to the VAT actually paid to suppliers
and the State Treasury o Ukraine, and paid on services
imported (i operations involving non-residents take
place on Ukrainian territory) in previous tax periods.
The remaining portion o VAT receivable is carried
orward to the next reporting period. Alternatively,
the taxpayer could opt to oset all o part o the VAT
receivable against its uture VAT liabilities.
A taxpayer intending to claim a qualiying VAT reund
must ollow a number o procedures. Chiefy, it must
have the VAT reund conrmed by the tax authorities
via a VAT audit.
According to Ukrainian legislation, certain categories
o taxpayers are not entitled to obtain a VAT reund
rom the government. This aects the ollowing types
o taxpayers:•Entities that have been registered as VAT payers
or a period o less than 12 months prior to the month,
or which a VAT reund is claimed (as an exception
to this rule, a VAT reund may be claimed with respect
to xed assets)
•Entities, whose revenue rom VAT-able transactions
or the preceding 12 months is lower than the reported
VAT reund (this does not apply to input VAT related
to the purchase or construction o xed assets)
Since 1 January 2011, regulation o VAT reunds has
be recognized i it is conrmed by an appropriately
issued VAT invoice. VAT invoices must be issued
by the supplier at the moment a VAT liability arises.
I a VAT invoice is unavailable, the purchaser may not
recognize input VAT with respect to such transaction
(which does not eliminate the supplier’s obligation
to report VAT liability with respect to such transaction).
VAT invoices received ollowing a delay may be included
into input VAT within 365 days o their issue date,
except in cases o the transer o ownership to pledged
property, under which the right to recognize input
VAT is retained until the date the property is disposed o.
Following the introduction o the Tax Code
VAT invoices o more than UAH 1 million
(rom 1 January 2011) and more than UAH 10,000 (rom
1 January 2012) must now be registered in the Unied
State Register. I an incoming VAT invoice is not included
in the register, a taxpayer will not be entitled to a credit
o the respective VAT input. Moreover, any discrepancy
between the data contained in the VAT invoice
and the Unied State Register constitutes grounds
or an unscheduled tax audit o both the seller
and the purchaser.
For import transactions, a customs declaration is used
as supporting documentation, instead o a VAT invoice.
Reverse-charging VAT on services provided
by non-residents
I a non-resident renders services to a resident
taxpayer, this supply is subject to VAT at a rateo 20%. Provided that there is no permanent
establishment o the non-resident in Ukraine,
the Ukrainian taxpayer is liable or accruing and
paying the respective VAT liabilities using the reverse-
charge mechanism, whereby the taxpayer must
sel-assess VAT on the value o the services provided
by the non-resident. One unique eature o reverse-
charging in Ukraine is that input VAT is recognized
by the taxpayer in the reporting period ollowing that
in which it reported the respective output VAT, thus
creating a cash fow gap.
VAT reunds
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increased with the introduction o an automatic VAT
reund. An entity is entitled to claim an automatic
VAT reund i it meets all o the criteria stipulated
by the Tax Code.
Although the provisions o Ukrainian legislation
concerning VAT reunds have always been relatively
straightorward, the reality has been quite dierent.
Over the last couple o years, claiming and actually
receiving VAT reunds rom the state budget has become
a serious problem or taxpayers. In practice, it has been
almost impossible to obtain a VAT reund in Ukraine,
irrespective o the existing procedure.
In light o this, and in order to better regulate the issue
o VAT reunds, the state is now obliged to pay interest
at a rate o 120% o the eective discount rate
o the National Bank o Ukraine or the late payment
o reunds.
Tax accounting rulesFor VAT accounting purposes, the so-called “rst
event” rule is normally used. According to this rule,
output and input VAT on domestic sales are assessed
in the reporting period, in which goods/services
are supplied or payment is received.
In general, the tax period or VAT purposes is a calendar
month. Thereore, entities liable to pay VAT must submit
tax returns and remit VAT on a monthly basis.
Special VAT regime or agricultural producers
According to the eective tax legislation, agriculturalproducers may apply a special tax regime, according
to which the VAT liabilities collected by agricultural
companies are not payable to the budget, but may
be used or special business purposes.
Application o this regime is voluntary, and in order
to qualiy to apply it, an agricultural company must ulll
the ollowing requirements:
•The company must be a producer (or production
and re-processing company, combined as a single
entity). Companies that carry out re-processing activities
alone pay VAT in accordance with the general rules
and may no longer enjoy this VAT benet.
•The company’s revenue rom sales o its own agricultural
products or the previous tax year must account
or no less than 75% o its general sales revenue.
Since agricultural companies that qualiy or this
regime retain VAT output or investment purposes,
they, generally, do not qualiy or VAT reund. The only
exception rom this rule is export sales – VAT related
to export sales may be reunded.
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Excise tax
Tobacco
An excise tax is imposed on tobacco items classied
under Harmonized System numbers 2,402 (cigars,
cheroots and cigarettes), 2,403 (other processed
tobacco and tobacco substitutes, tobacco extracts
and essences). The excise tax on tobacco products
is levied at either various fat rates in UAH per 1,000
items or per kilogram, or as a percentage o sales
turnover.
Motor uels
An excise tax is imposed on certain motor uels
classied under Harmonized System number
2,710 (diesel, gasoline, aviation and jet engine uels).
The excise tax or motor uels is levied at various rates
in EUR per 1,000kg.
Motor vehicles
Excise tax is imposed on motor vehicles classied
under Harmonized System numbers 8,703 (cars
and other passenger vehicles), 8,711 (motorcycles),
8,716 (trailers and semi-trailers) and 8,707
(passenger carts/attachments or motor transport
vehicles). The excise tax on motor vehicles is levied
at various rates, normally in EUR per item or per
cm3 o the vehicle’s engine capacity (or trailers
and semi-trailers weighing more than 3,500 kg,
the tax is levied per vehicle).
General rules
An excise tax is imposed on taxable i tems produced
in, or imported into, Ukraine. In addition, excise tax
at a rate o 0% is imposed on export sales.
When excisable goods are imported, excise duties
are due during customs clearance o the goods.
Excise tax is imposed on alcohol and tobacco products,
motor uels, motor vehicles, beer and jewelry.
For domestically produced items, excise duties
are normally imposed when a taxable item is sold;
or imported items, it is imposed prior to the product
entering Ukraine.
Upon implementation o the Tax Code , increased excise
tax rates came into eect.
Taxable goods
Alcohol
An excise tax is imposed on all alcoholic items classied
under Harmonized System numbers 2,203 (malt beer),
2,204 (wine rom resh grapes), 2,205 (vermouth
and other favored wines), 2,206 (other ermented
beverages), 2,207 and 2,208 (non-denatured ethyl
alcohol, spirits and liqueurs). The excise tax on alcoholic
products is levied at various rates in UAH per liter,
or per liter o 100% spirits.
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Customs duties
Taxable goods/tax rates
Customs duties are imposed on most goods imported
into and certain goods exported rom Ukraine. Customs
duties are normally levied on the customs value
o taxable goods, in accordance with the Harmonized
Customs Code o Ukraine.
For customs clearance purposes, imported and exported
goods are classied into 97 groups, according
to the Ukrainian Nomenclature o Foreign Economic
Activities (hereinater, the “Ukrainian Harmonized
Systems”).
The Ukrainian Harmonized Systems are based
on the 2002 version o the International
Harmonized System.
The applicable customs duty rates are based
on the ten-digit classication code given to goods under
the Ukrainian Harmonized Systems.
Customs duties are usually an “ad valorem” rate,
i.e. a percentage o the customs value o the imported
goods. However, in rare cases, goods are subject
to a specic duty, which can be based on the value
per item, kilogram, or liter, while others may be subject
to a compound duty (a combination o both ad valorem
and specic rates). Customs duties are normally levied
at rates o up to 45%, but most rates all between
0% and 20%.
Since 16 May 2008, when Ukraine joined the WorldTrade Organization (WTO), the applicable import
customs duty rates on goods originating rom
WTO member states were lowered in comparison
to the general rates applied to goods rom non-WTO
member states. At the same time, Ukraine has signed
ree trade agreements (hereinater, “FTAs”) with the CIS
countries and Macedonia. Goods originating rom states
covered by an FTA may benet rom duty exemption
upon their import into Ukraine, excluding certain goods
listed as exceptions.
A oreign investor’s contribution to the share capital
o Ukrainian oreign investment companies in the orm
o goods may be exempt rom customs duties, provided
that the goods in question will not be alienated
or three years ater contribution.
Pursuant to the Energy Law, eective since
1 January 2008, imports o certain goods are ully
exempt rom customs duties. These goods include:
•equipment that uses non-traditional and renewable
sources o energy;
•energy-saving equipment and materials;
•devices or measuring, monitoring and managing
uel and energy resources;
•equipment and materials used in the production
o alternative uels (energy-saving equipment); and
•components used in the production o the
abovementioned equipment (energy-saving tools).
The benet is only available only i the goods are used
by taxpayers in the course o their own production
activities and i no identical goods are produced
in Ukraine.
The import procedures, as well as the list and quantities
o energy-saving equipment and energy-saving
tools, are to be established by the Ukrainian Cabinet
o Ministers. This exemption is provided or three years
ollowing enorcement o the Energy Law.
Below, we have provided a description o the existing
rules or determining the customs value.
Procedure or determining the customs value
Provisions o the Customs Code
The Customs Code introduces the concept
o and six methods or determining customs value,
which are taken rom Article VII o the General
Agreement on Taris & Trade.
The customs value o imported goods is generally
dened as the value actually paid or payable
Taxation o cross-bordertransactions
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Most-avored nations
Ukraine has ormed special custom unions and signed
most-avored-nation treaties with a number o countries.
I imported goods originate rom one o these countries,
or rom a WTO member country, then preerential
customs duties rates are applied to these goods.
In addition to WTO members, the ollowing countries
have most-avored-nation status:
Customs ees
According to Ukrainian customs law, customs ees
are collected or carrying out customs clearance
procedures on goods, with extra ees payable
or customs clearance procedures carried out outside
o regular oce hours and at locations other than
the premises o the customs authorities (in a customs
control zone located at the premises o an enterprise
that is storing the goods). The clearance ees (EUR
per hour) are as ollows:
•EUR 20 – during regular working hours
•EUR 40 – during overtime, at night and at weekends
•EUR 50 – on public holidays
These customs ee rates were established
by Decree No. 93 o the Verkhovna Rada,o 18 January 2003.
or the imported goods, calculated in accordance
with the provisions o Customs Code o Ukraine.
The transaction value method is the preerred
method or establishing the customs value o
imported goods, and is based on the price actually
paid or payable or the imported goods. However,
a number o conditions must be ullled in order
to use the transaction value method and, i it is not
possible to use this method to assess the customs value,
the price paid or payable or the imported goods may
be subject to adjustment, which can result in an increase
in the amount o customs duties payable.
Where the price paid or payable cannot be used
as a basis to assess the customs value, the ollowing
alternative methods may be used to determine
the customs value:
•Value o identical goods method – uses the transaction
value o identical goods sold or export to Ukraine
•Value o similar goods method – uses the transaction
value o similar goods sold or export to Ukraine
•Deductive value method – uses the sale price in Ukraine
o imported, identical or similar goods. This price
must be adjusted or costs and expenses incurred
in the course o the transportation, customs clearance
and sale o the goods in Ukraine
•Computed value method – based on production,
general expenses, other costs and prots related
to the imported goods
•Reserved value method – determined using
a combination o all the above methods and other
relevant inormation, where this does not confictwith existing legislation
•Algeria
•Azerbaijan
•Bosnia & Herzegovina
•Belarus
•Iran
•Kazakhstan
•Libya
•Lebanon
•North Korea
•Russian Federation
•Serbia
•South Korea
•Syria
•Taiwan
•Turkmenistan
•Uzbekistan
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Tax benefts
The Tax Code provides the ollowing benets:
•Small entities may be entitled to apply special
tax regimes, such as unied tax (USD 2.5-25 per
month or individual entrepreneurs and 6% (with
VAT registration) or 10% (without VAT registration)
o total revenue)).
•Tax exemption is available or 80% o income earned
by a corporation rom the sale within the customs
territory o Ukraine o energy-saving equipment
and materials a company has produced itsel,
as specied by the Verkhovna Rada.
•Tax exemption is available or 50% o the income
derived rom the implementation o energy-saving
and energy-ecient projects by companies included
in the State Register o Enterprises, Institutions
and Organizations Engaged in Implementing
Energy-Saving and Energy Eciency Projects.
Tax holidays
Small enterprises that meet certain criteria
(e.g. an annual income less than or equal
to UAH 3,000,000/USD 375,000, and an average salary
paid to sta o no less than two minimum salaries,
as established by the eective legislation) will be entitled
to a 0% CIT rate rom 1 April 2011 until 1 January 2016.
Unifed tax system
Until special regulations governing the taxation o small
businesses are introduced into the Tax Code, the existing
unied tax regime, established by the Presidential Decree
“On a Simplied Taxation System or Small Businesses”
remains in eect.
The taxation o private entrepreneurs is governed
by the Decree o Verkhovna Rada “On the Income
Taxation o Citizens,” in accordance with which private
entrepreneurs who employ up to 10 people and have
an annual revenue not exceeding UAH 500,000 (approx.
USD 63,000) may opt to apply the unied tax regime.
The maximum rate or unied tax is UAH 200 (approx.
USD 25) per month. The actual tax rate applied
depends on the type o activities carried out. Decisions
on the right to apply the unied tax system are taken
by local tax authorities based on the type o business
activities carried out.
Private entrepreneurs that use the simplied tax regime
are exempt rom paying the ollowing taxes:
•Personal income tax (PIT)
•VAT
•Unied Social Security Contributions
•Land tax (i land is used directly or business purposes)
Personal income rom sources other than business
activities is subject to PIT as the income o an individual
– not a private entrepreneur. Due to recent changes
in the by-laws governing contributions to the Pension
Fund, business structures involving private entrepreneurs
should be reviewed thoroughly prior to implementation.
Payments (other than those or IT services) to unied
taxpayers will not be deductible or companies.
However, as the CIT rate declines and approaches
the PIT rate, the tax eect o the rate arbitration
resulting rom making payments to unied taxpayers
will gradually diminish until it is ully eliminated in 2014.
Taxation o agricultural companies in UkraineUkrainian tax legislation allows agricultural producers
to choose between special tax regimes and the general
system o taxation.
Agricultural companies should meet certain criteria
to qualiy or the benets provided by special tax
regimes.
CIT
Subject to general CIT rules described in the “CIT”
section, agricultural entities may benet rom
the ollowing:•Possibility to decrease the amount o CIT payable
by the amount o land tax paid
•A year as a reporting period
Agricultural producers may opt into this special regime,
provided that at least 50% o their annual income
is made up o revenue rom the sale o agricultural
products.
Fixed Agricultural Tax (FAT)
In order to be registered as a FAT payer, an agricultural
producer must comply with the ollowing conditions:
•The company must be incorporated as an “agricultural
enterprise,” in any legal orm allowed by the law,
and must be engaged in the production/cultivation,
processing, and distribution o agricultural products.
Special tax regimes
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•Q3 – 50%
•Q4 – 30%
Payments must be made on a monthly basis, within
30 days o the end o the reporting month, with each
monthly payment to equal one third o the total payable
or the respective quarter.
VAT
The agricultural producers can take advantage
o a special VAT regime until 1 January 2018. In order
to be entitled to use this regime, agricultural companies
must report revenue rom the last 12 calendar months’
sales o agricultural products they have produced
amounting to at least 75% o their total sales revenue.
According to the rules governing the special VAT regime,
VAT collected rom agricultural producers is not payableto the government, but should instead be retained
by these companies and transerred to special
bank accounts. These unds may only then be used
or the development o agricultural production.
As a temporary measure, until 1 January 2015,
reprocessing companies that sell re-processed milk
and meat products must transer the respective VAT
(which would otherwise be payable to the government)
to a special governmental und. Subsidies will then
be paid rom this und to the producers who sold their
milk and meat products to the reprocessing companies
in question.
Generally, no VAT reunds are allowed under the
special VAT regime, except or net input VAT generated
by export sales.
•A company’s taxable income rom sales o agricultural
products it produced should make up at least 75%
o its total gross income or the previous tax period
(e.g. a year).
•FAT payers are exempt rom the ollowing taxes
and duties:
•Corporate income tax
•Land tax (except or land tax payable on plots o land
that are not used in agricultural production)
•Trade patent ees
•Water usage tax
I a FAT payer’s income rom agricultural products
it produced makes up less than 75% o its annual
gross income, the company can no longer qualiy
or FAT payer status, and must register as a CIT payer
in accordance with the general rules, starting rom
the next tax year. Transition rom one tax systemto another (CIT payer to FAT payer, and vice versa)
within a reporting year is prohibited.
The amount o FAT payable to the government
is calculated based on the total area o land
and its value. All land taken into account should
be used or agricultural production purposes and should
be either owned or rented by the taxpayer. The eective
FAT rates are presented in Table 6.
The deadline or the submission o FAT reporting
is 1 February o a reporting year that ends
on 31 December (i.e., the report is submitted in advance).
FAT payments should be made regularly over the course
o a year, with the ollowing quarterly allocation:
•Q1 – 10%
•Q2 – 10%
Types o plots o land owned or used by the taxpayer FAT rate, % per value o hectare
Plough lands, haying lands and pastures 0.15
Plough lands, haying lands and pastures in mountainous regions 0.09
Plots o land subject to a perennial planting regime 0.09
Plots o land subject to a perennial planting regime, locatedin mountainous regions0.03
Underwater plots o land used or fshery purposes 0.45
Plough lands, haying lands and pastures, owned or rented
by agricultural producers, which are set up to grow plants or crops
(including vegetables) indoors3
1
Table 6
3 Where more than 66%
o income is generated
rom the sales o plants/crops
grown on indoor soil
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Taxation o banking institutions in Ukraine
Corporate income tax (CIT)
Defnition o taxable income
Taxable income (or “gross income”) is dened
as any income, rom any source, earned/accrued
by the taxpayer in the course o carrying out any
activity. Taxable income may be in either monetary,
tangible or intangible orm. With regard to banking
activities, the ollowing items are usually included
into taxable income:
•Interest and commission income
•Income rom trading in securities
•Release o loan loss provisions
•Prots rom sales o oreign currency
•Factoring income
•Income rom sales o collaterals
•Dividends received rom non-residents (except
or dividends rom oreign subsidiaries and associates
controlled by a taxpayer that is not a resident
o a tax haven)
•Foreign exchange gains arising as a result o the
revaluation/settlement o oreign currency, as well
as rom receivables and payables denominated
in oreign currency
Interest and commission income
The Tax Code provides or commission/interest income
to be recognized on an accrual basis, pursuant
to the rules envisaged by Ukrainian Accounting
Standards (UAS).
I the borrower is late in paying interest, the lender has
the right to use the mechanism or settling doubtul/ bad debts. I a taxpayer is subject to this mechanism,
the accrual o gross income is suspended in relation
to the delinquent loans until they are settled or written
o. When bad debt settlement procedures are not
initiated, interest income accrued on bad debts
will increase taxable income, irrespective whether
or not the accrual o interest has been suspended
in nancial accounting.
Transactions involving securities
Transactions with securities are taxed based
on the pooling principle, according to which taxable
results rom transactions involving dierent types
o securities (e.g. shares, bonds, promissory notes,
derivatives, etc.) are accounted or separately.
At the same time, the taxpayer should not trace
the taxable result or each ind ividual security, inasmuch
as the taxable prot/loss is determined or each basket
o securities o the same type.
Thereore, the costs o securities should be reported
as expenses within each basket or the period,
in which the securities are purchased, while revenues
rom the sale o securities are reported as income
in the period, in which they are sold. I positive,
the balance at the end o each quarter is taxable at 25%
CIT. I it is negative, it is not immediately deductible,
but may be carried orward to subsequent periods,
when it can be used to oset income rom the sale
o the relevant type o securities.
In addition to the above, the Tax Code provides
or income/expenses rom transactions involving
securities to be recognized on a cash-or-accrual basis
(the so-called “rst event rule”) as ollows:
•Income is recognized when the cash is received or when
securities are transerred, whichever occurs earlier.
•Expenses are reported when the cash is paid out
or when securities are received, whichever occurs earlier.
There is no time limit on the carry-orward o losses
rom transactions involving securities.
Defnition o deductible expenses
Any business-related expenses are deductible rom
taxable income, unless such a deduction is specically
restricted or prohibited by the Tax Code. In the
banking industry, deductible expenses normally include
the ollowing items:•Interest and commission expenses
•Loan loss provisions
•Payments to the Deposit Guarantee Fund
•Foreign exchange losses arising as a result
o the revaluation/settlement o oreign currency,
as well as rom receivables and payables denominated
in oreign currency
•Operating expenses related to carrying out banking
activities (e.g., leasing premises, IT costs, support
or electronic payment systems, etc.)
Loan loss provisions
Banks are allowed to establish deductible loan loss
provisions up to 20% (30% in 2011) o the gross
book value o the loan portolio extended by issued
guarantees.
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Value-added tax (VAT)
The majority o banking operations are not subject
to VAT (except or cash and debt collection services).
Meanwhile, sales o collateral are normally subject
to VAT, unless the bank repossessed the collateralin question rom non-VAT payers.
In general, Ukrainian banks are not entitled to obtain
VAT credit in relation to purchases o goods/services,
even those purchased with a view to use in their
business activities.
The provisions made to set up loans, guarantees, nostro
accounts, securities and other asset transactions may
be deducted rom taxable income, along with accrued
interest and commissions – both standard and
non-standard. Loan loss provisions or o-balance-sheet items (except or issued guarantees)
are expressly prohibited.
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Taxation o insurance companies in Ukraine
Corporate income tax (CIT)
In general, insurance companies are taxable
on their prots rom all types o business activities
(i.e., the dierence between their income
and expenses).
Insurance companies that do not provide lie insurance
are taxable at the ollowing rates:
•From 1 April 2011 to 31 March 2012, a rate o 3%
will apply to insurance income earned; the regular
CIT rate o 23% will apply to non-insurance prots
until 31 December 2011, with a reduction to 21%
in Q1 2012.
•From 1 April 2012 to 31 December 2012, a rate
o 21% will apply to prots earned rom both insurance
and non-insurance activities.
•19% in 2013
•16% rom 1 January 2014
Lie insurance companies are taxable at the 0% CIT rate
on long-term lie insurance contracts. Meanwhile, their
non-insurance prots are subject to the regular CIT rates
as stipulated above.
With respect to insurance activities, the Tax Code
stipulates, inter alia, the ollowing items o taxable
income:
•Gross written premiums (less ceded premiums)
•Releases o insurance reserves (less reinsurance share)
•Investment income rom the placement o lie insurance
reserves
•
Interest income on banking planned/advance depositpremiums
•Forex gains on insurance reserves and reserve
placements (non-lie-insurance only)
•Reinsurance bonuses receivable, ronting income
•Claims recovered rom policyholders or third parties
• Prots rom trading in securities
In accordance with the Tax Code, inter alia,
the ollowing items are specically included into
insurance expenses:
•Increases in insurance reserves (less reinsurance share)
•Gross claims incurred (less claims recovered rom
reinsurers)
•Policy acquisition costs
•Services purchased rom third parties (medical
assistance, actuarial services, licensing costs, orensic
services, claim adjustment services, legal services,
advertising and promotional services, etc.)
•Payroll expenses or personnel involved in insurance
activities
•Reinsurance bonuses payable, ronting expenses
•Forex losses on insurance reserves and reserve
placements (non-lie insurance only)
•Interest expenses on banking planned/advance deposit
premiums
When paying insurance/reinsurance premiums/
compensation to non-residents, the payer will accrue
and pay additional tax at its own expense, as ollows:
•0% or obligatory types o insurance or non-residents
and within the ramework o international “Green Card”
agreements
•0% or insurance/reinsurance o risks by an insurance
company with a high nancial reliability rating (including
agency activities by reinsurance brokers)
•4% or the insurance o risks arising outside o Ukraine
•12% in other cases
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According to current legislation, only the interest
element o a lease payment is subject to CIT
on an accruals basis. Where leased property is returned
to the lessor, this return will be treated as a return
o this property or CIT purposes.
Transers o property under a nance lease are subject
to 20% VAT at the moment o transer. The lessee will
become eligible or the respective amount o input VAT
at the moment o transer as well.
For nancial lease purposes, the VAT base is determined
on a contractual basis, but should not be less than
the purchase price o the object o the nancial lease.
The interest portion o a nancial lease installment
is exempt rom VAT.
Taxation o leasing companies in Ukraine
Operating lease
Transerring property under an operating lease
will not generally result in CIT consequences,
either or the lessor or or the lessee. The property
in question is not included into the xed assets
o the lessee and remains among the xed assets
o the lessor. Meanwhile, the lessor continues to receive
tax depreciation or property transerred under
an operating lease.
The operating lease ee is included into the lessor’s
taxable income, and represents a valid CIT deduction
or the lessee. According to current legislation,
the lease ee is subject to VAT at a rate o 20%, whereas
the transer o property under an operating lease
is not subject to VAT.
Financial lease
The Tax Code denes nancial lease as a business
transaction between individuals/legal entities,
whereby property dened as a xed asset,
in accordance with the Tax Code, is purchased
or produced by a lessor and subsequently transerred
to a lessee, along with any risks and benets associated
with the right to use and possess such property.
The Tax Code envisages specic criteria
or the qualication o a lease transaction as a nancial
lease. Notwithstanding these criteria, the parties may
elect to treat any lease transaction as an operating lease
or tax purposes.
From a CIT perspective, the transer o property undera nance lease will be treated as the sale o the property
in question at the moment o transer. Thereore,
the leased property should be included into the xed
assets o the lessee ollowing the transer, or CIT
purposes. Land cannot be subject to nance lease.
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Tax base or individuals
The PIT base or Ukrainian and oreign nationals, as well
as stateless persons, depends on their tax residency
status. Ukrainian tax residents are subject to PIT on their
worldwide income, whereas non-residents are only
subject to taxation on the Ukrainian-sourced portion
o their income.
Tax residency
The newly adopted Tax Code establishes the ollowing
rules or determining the tax status o an individual:
•An individual is considered to be a tax resident
o Ukraine i he/she has a permanent home in Ukraine
(“domicile test”).
•I an individual has a permanent home in more than one
country, he/she is considered a tax resident in the country,
with which he/she has the closest personal and economic
ties (“center o vital interests test”).
•I it is impossible to determine the country o residence
using either the domicile or center o vital interests test,
the individual in question is considered to be a Ukrainian
tax resident i he/she is present in Ukraine or at least
183 days, cumulatively, during a particular reporting
year, including the days o arrival and departure
(a calendar year is a reporting year or PIT purposes).
•I tax residency cannot be determined based
on the 183-day test, the individual in question
is considered a Ukrainian tax resident i he/she has
Ukrainian citizenship.
The Tax Code also provides or a sel-recognition
procedure, according to which an individual can
voluntarily elect to be a Ukrainian tax resident.
While it is important that domestic laws provide tax
residency rules, these provisions may be overruled
by the respective provisions o relevant double
tax treaties (hereinater, “DTTs”). Please note that
the domestic rules used to dene tax status are, in many
ways, similar to those suggested by the Model OECD
Tax Convention.
Tax rates
The ollowing PIT rates are generally applied:
•15% – on the worldwide income o tax residents
and the Ukrainian-sourced income o non-residents
up to the monthly threshold o 10 minimum wages
(UAH 941 – appr. USD 110, as at 1 January 2011)
•17% – on the worldwide income o tax residents
and the Ukrainian-sourced income o non-residents
above the monthly threshold o 10 minimum wages
•30% – on income rom winnings and prizes
•10% – on the incomes o certain types o employees
(e.g. miners)
•0% – on inheritance rom immediate relatives4, income
rom the rst sale o qualiying residential property
and plots o land not exceeding the limit or ree
land transers (provided that the property has been
in ownership or more than 3 years)
•1% – on proceeds rom the rst sale during a calendar
year o a vehicle
•5% – or tax residents on: income rom the sale
o commercial property; income rom the second
and any urther sale o residential property
within one reporting year; income rom the sale
o movable property by its owner, other than
the rst sale o a vehicle; income rom the sale o plots
o land over o the maximum area or ree land
transers; on dividends issued by a resident issuer;
and on inheritance paid to non-relatives
•15%/17% – or tax non-residents on:
income rom the sale o commercial property;
income rom the second and any urther sale
o residential property within one reporting
year; income rom the sale o movable property
by its owner other than the rst sale o a vehicle;
income rom the sale o plots o land over the
maximum area or ree land transers; on dividends
issued by a resident issuer; and on inheritance
paid to non-relatives.
Tax residents
Taxable income
Residents are taxed on their worldwide income,
i.e. on income received rom both domestic and oreign
sources. Income is taxed, irrespective o whether
it is received in-cash or in-kind. In the event that
an individual receives benets in-kind, the amount
o taxable income is determined on the basis
o the air market value o the property, services or other
benets received.
The ollowing benets, received by an individual, are
specically exempted rom inclusion in the tax base:
•Income received in the orm o interest on investments
in securities issued by the Ministry o Finance o Ukraine
Personal income tax (PIT)
4 Depending
on occupational risk
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•Alimony received rom residents, as dened
by a respective court ruling, or in accordance
with the Family Code o Ukraine
•Interest income on deposits with qualiying Ukrainian
banks and non-banking nancial institutions, as well
as income rom savings certicates (this exemption
is available until 31 December 2012)
•Shares received rom the capitalization o retained
earnings, provided that the allocation ratio o shares
between shareholders remains unchanged
•Compensation o apartment and car rental costs
or certain categories o employees
•Amounts received rom employers or certain types
o medical treatment and services
•The income o a private entrepreneur who has opted
into the simplied system o taxation
•Insurance payments under agreements other than lie
insurance or non-state retirement insurance agreements,
in accordance with the conditions prescribed by law
ExemptionsThe Tax Code also provides a list o deductible items
that are specically included into an individual’s taxable
income. These include, among other things, gits,
insurance contributions and premiums, rental income
and ringe benets. Contributions to unqualied pension
plans made on behal o a taxpayer by another person/
an employer will also be included into an individual’s
taxable income.
The Tax Code permits the ollowing deductions
rom taxable income:
•
Interest on mortgages•Contributions to registered charities
•Qualied education expenses or the taxpayer and his/
her immediate amily
•Insurance expenses, within the limits dened
by the Tax Code
•Certain specic allowances
A special annex to the tax return should be submitted,
in order to apply or these deductions.
Taxation o real estate
Income received rom the sale o real estate
is not taxable i the property in question is sold
only once during a calendar year, regardless
o the area o the property. Revenue earned rom
the sale o a house, apartment, part o an apartment,
room or cottage (including the plot o land, on which
it is located) is:
•not subject to tax i sold only once during a calendar
year, and i the property has been owned or more
than 3 years; or
•subject to 5% tax, which is levied on the amount
received or a second sale o the property within
a reporting year.
Taxation o oreign individuals who are Ukrainian
tax residents
Foreign individuals, who are considered Ukrainian tax
residents, are taxed in the same manner, and according
to the same rules, as Ukrainian nationals.
Foreign individuals working in Ukraine are required
to obtain a work permit rom the Ukrainian Employment
Center. The only exceptions to this rule are employees
o representative oces, who are required to obtain
a Service Card rom the MEU.
Work permits are issued or one year and can
be renewed or the same period. The law states
that, prior to the start o employment, the Ukrainian
employer should apply or a work permit and provide
the relevant set o documents. A special Employment
Center committee will examine the documents
and decide whether or not to issue a work permit
at a meeting that takes place once every two weeks.
I the committee reuses to issue the employee a workpermit or specic reasons, the employer is entitled
to re-submit the documents once the reasons or the
reusal have been addressed.
Strict penalties may apply in cases where a oreign
individual is working in Ukraine without a work permit.
For example, an employer could be subject to ne
o UAH 18,820 (appr. USD 2,350), or the equivalent
o 20 minimum wages, a gure which is subject
to change during a calendar year. The company could
also be deprived o the right to employ oreigners.
A oreign individual who works without a valid
work permit could be subject to deportation at their
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employer’s expense, with no right to enter Ukraine
or up to six years ollowing the date o deportation.
However, please note that this type o liability is rarely
used in practice.
A oreign individual working in Ukraine should also
be registered with the state immigration authorities
and be in possession o an IM-I visa (please see below
or urther details).
Non-resident individuals
The Tax Code states that non-residents are taxed
on their Ukrainian-sourced income only. Non-resident
tax rates and procedures are the same as or residents,
except or the taxation o certain transactions.
In general, a 15%/17% rate applies.
Employment/salary income, including that received
rom the Ukrainian employer, is taxed at the same
rates, and according to the same rules, that apply to
residents.
It is no longer necessary to obtain a special tax
residency certicate, issued by the tax authorities, in
order to apply the same rates to Ukrainian salary paid
to oreign assignees.
State registration o taxpayers
Individuals who qualiy as Ukrainian taxpayers should
be registered with the State Tax Administration
o Ukraine.
Registration is conrmed by obtaining a personal taxID number, which is used or the ollowing activities:
incorporation o a legal entity in Ukraine, opening and
operating a bank account, submission o a personal
tax return, payment o PIT, claiming tax credit, and
entering into civil agreements that provide or the
payment o tax/state duties.
Tax agents
In general, Ukrainian employers (companies, other legal
entities and representative oces o oreign companies)
are considered tax agents with regard to the income
they pay to individuals. As such, tax agents are
responsible or withholding PIT and Unied Social
Security Contributions rom the income they pay to their
employees, and to remit this tax to the government
when paying income (in accordance with the PAYE
principle).
I income is paid in-kind, the tax agent is required
to remit the relevant tax to the government on the rst
banking day ollowing payment/provision o the income
to the individual.
The payment o PIT is the responsibility o the tax
agent. Tax agents are required to remit the tax
to the government in a timely manner, in order to avoid
nancial penalties, which can be signicant (up to 75%).
Reporting requirements
Tax agents are generally obliged to le personal income tax
reports to the tax authorities on a quarterly and monthly
basis. At the same time, in order to claim a tax credit with
regard to certain expenses incurred during a calendar year,
individual taxpayers need to le a tax return.
In certain cases, an individual is required to submit
a tax return, such as when they receive taxable income
rom sources other than a tax agent (e.g. oreign
income), or rom two or more tax agents, where
the individual in question’s total monthly incomeexceeds the threshold o 10 monthly average salaries,
and also when claiming a tax credit. PIT returns should
be led with the Ukrainian tax authorities on an annual
basis, by 1 May o the year ollowing the reporting
year. The respective tax (i any) must then be paid
by 1 August o the same year.
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Principles
The new Law o Ukraine “On collecting and
accounting or Unied Social Security Contributions
to Compulsory State Social Insurance” came
into eect on 1 January 2011. The law provides
or the consolidation o all social insurance unctions
within the Pension Fund o Ukraine and or the payment
o a Unied Social Security Contribution (hereinater,
“USSC”) using a single payment order.
The maximum base or the single contribution base
is set at teen times the average monthly cost
o living, and currently (as at 1 January 2011) stands
at UAH 14,115.
The eective legislation sets the amount o the
USSC as a percentage o the accrual base between
the minimum amount o the USSC payment
and the abovementioned maximum accrual base,
depending on the category o payer.
The minimum USSC amount is calculated
as the minimum wage, multiplied by the USSC
amount established by the Law or the respective
category o payers. For example, as o 1 January 2011,
i the 34.7% accrual base rate is applied, the minimum
amount o the USSC is UAH 326.53.
I the income is drawn rom dierent sources
(e.g. principal and secondary employment), the USSC
will be accrued on the total income o the insured
individual within the set limits.
Unifed Social Security Contributions
Table 7
TypeUnifed Social Security Contribution rate
Employer’s contribution Employee’s contribution
Enterprises and PEs using a hired labor orce
(labor contracts )36.76-49.7%5 3.6%
Employers paying remuneration under civil law
contracts 34.7% 2.6%
PEs registered as taxpayers under the simplifed
tax system34.7%
Individuals engaged in independent
proessional activities34.7%
5 Depending
on occupational risk
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Types o duties
The Ukrainian tax system imposes a number o duties
on the use o natural resources. They include:
•Rental duties or oil, natural gas and gas condensate
produced in Ukraine
•Duties or subsoil usage
•A surcharge on the basic taris or the use
o electrical and heat energy, apart rom the electrical
energy produced by qualiied cogeneration acilities
•A surcharge on the basic taris or the use o electrical
and heat energy (applies to all consumers, corporate,
individual, state owned and private).
•Duties or the special use o water resources
•Duties or the special use o orest resources
•Duties or the development o viniculture, gardening
and hop growing
Rental duties or oil, natural gas and gas
condensate produced in Ukraine
Rental duties apply to entities that extract
hydrocarbon resources on the basis o special
permits. Rental duty rates depend on the volumes
o natural gas, oil and gas condensate extracted
in relation to the depth (i.e., above or below 5,000
meters) o the subsoil plots, rom which these
resources are mined.
The Tax Code signiicantly increases the rental
duty rates on natural gas (by 250% and 460%,
depending on depth). The rental duties or oil
and gas condensate have increased by 40%.
Rental payments should be paid on a monthly basis.
Duties or subsoil usage
The ollowing duties are imposed or subsoil usage:
•Duties or the extraction o mineral resources
•Duties or subsoil usage other than or the extraction
o mineral resources
Business entities using subsoil or the extraction
o mineral resources (including extraction o mineral
resources during geological surveys), on the basis
o special permits, must pay subsoil usage duties.
For tax purposes, duty payers should maintain
separate (rom other types o activities) inancial
and tax accounting o incomes and expenses
or extracting each type o mineral resource
or each type o subsoil, or which a special
permit is provided.
The duty rate depends on the type o resource
extracted and the volume o mineral resources extracted
during a reporting period. Duties should be paid
on a quarterly basis.
Business entities that are not engaged in extraction but
use the subsoil or the ollowing purposes are subject
to subsoil usage duty:
•Storage o natural gas, oil, gaseous and other liquid
hydrocarbons
•Materials used in the production and storage o wine
products
•Growing o mushrooms, vegetables, fowers and other
plants
•Storage o oodstus, industrial and other products,
substances and materials
•Other business activities not connected
with the extraction o mineral resources
The rate o duties payable depends on the area
o the subsoil plot and the types o activities carried out
in relation to the subsoil. These duties should be paid
on a quarterly basis.
In an attempt to bring the law into line with European
practices, the duty or geological exploration work was
abolished upon enactment o the Tax Code and included
into the subsoil usage duty. As a result, the duty rates
have increased since 1 January 2011.
Surcharge on the basic tari or electrical and
thermal energy, apart rom electrical energy
produced by qualifed cogeneration acilitiesThis surcharge applies to wholesale suppliers o electrical
and thermal energy, and producers o electrical energy
that sell it outside o the wholesale energy market
on the basis o a special license. The surcharge is
levied at a rate o 3% o the value (exempt o VAT)
o the electrical energy generated by the taxpayer,
and should be paid on a monthly basis.
Surcharge on the basic natural gas tari or
consumers o all orms o ownership
This surcharge applies to business entities that use
water obtained rom primary water sources (primary
water users) and/or rom primary or other water users
(secondary water users) or use in the hydraulic power,
water transportation and shing industries. The rate
is determined according to the actual volume o water
used by the consumer.
Duties or the useo natural resources
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In cases where used water came rom sources other
than a primary source, the surcharge is calculated
on the ollowing basis:
•Producers o hydraulic power – the actual volume
o water that fowed through pipelines during
the production o electrical power
•Operators o water transport – based on the tonnage
per day or cargo and passenger-seat per day
or passengers
•For sheries – the actual volume o water required
to replenish water sources in the course o sh cultivation
The surcharge should be paid on a quarterly basis.
Duties or the special use o woodland resources
•The duty is imposed on the wood stored by business
entities engaged in the special usage o woodland
resources on the basis o a special permit or under
a long-term agreement or temporary use o the orest.
The duty should be paid on a quarterly basis.
Duties or the development o viniculture, gardening
and hop growing
This duty is imposed on alcoholic beverages, sold
by entities through wholesale and retail chains, or public
catering networks. Producers o alcoholic beverages
must pay the duty i they sell these products directly
to consumers. Where producers supply a wholesale
or retail chain, they do not pay the duty.
The duty is levied at a rate o 1% o total sales
turnover or alcoholic beverages and should be paid
on a quarterly basis.
According to the Tax Code, the duty is eective
until 1 January 2015, and is regulated by the Law
“On the Development o Viniculture, Gardening
and Hop Growing.”
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Land tax
Land tax is imposed on owners and users o land.
The amount o tax payable depends on the use
(e.g. armland) and location o the land.
For inhabited land, i there is a value estimate attached
to the land, then the land tax payable is calculated
as 1% o that estimate. Otherwise, the amount o land
tax payable ranges rom UAH 0.24 per square meter
in towns with populations o less than 3,000 people,
to UAH 3.36 per square meter in cities with over
1 million people. For regional centers, zone coecients
o 1.2 to 3 apply.
Agricultural land is taxed at a rate o 0.03-0.1%
o the estimated value.
The land lease rate cannot be less than three times
the land tax rate (with a ew exceptions).
Land tax and land lease payments are due on a monthly
basis, within 30 calendar days o the end o a reporting
month.
Duties or the initial registration o a vehicle
The Tax Code stipulates that legal entities and individuals
should pay duties or the initial registration o vehicles
in Ukraine. The amount o duties payable depends
on the engine capacity o the vehicle in question,
ranging rom UAH 3-60 per 100 cubic centimeters.
Duties must be paid prior to the registration o a vehicle.
Legal entities should le copies o conrmatorydocuments with the tax authorities within 10 days
o registering a vehicle.
Local taxes
Ukraine imposes a number o taxes at the local level,
including property tax, duties on certain business
activities, parking duties, unied tax, and tourist
duties. In general, local taxes and duties do not have
a signicant impact on a taxpayer’s tax position.
Property tax
Property tax will be due rom 1 January 2012, and will
be imposed on owners o residential property – both
individuals and legal entities – including non-residents.
Property tax rates will be established by local authorities
(councils), and may not exceed:
•1% o the minimum monthly salary, as o 1 January
o the reporting (tax) year, or each square meter
o an apartment with a residential area not exceeding
240 square meters and a house with a residential area
not exceeding 500 square meters; or
•2.7% o the minimum monthly salary, as o 1 January
o the reporting (tax) year, or each square meter
o an apartment with a residential area exceeding
240 square meters and a house with a residential area
exceeding 500 square meters.
Taxpayers may reduce the property tax base
by the ollowing amount once per reporting (tax) period:
•For an apartment – 120 square meters
•For a house – 250 square meters
A taxpayer may apply these tax reductions
to any registered property it owns.
Legal entities should independently calculate and pay
property tax on a quarterly basis. Individuals’ property
tax liabilities will be calculated by the tax authorities
and will be due on annual basis.
Other taxes
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Contacts at Deloitte CIS
Kyiv, Ukraine
Prime Business Center
48-50A Zhylyanska St.
Kyiv, 01033
Ukraine
Tel: + 380 (44) 490 90 00
Fax: + 380 (44) 490 90 01
www. deloitte.ua
Grigory Pavlotsky
Partner in charge, Tax and Legal Services West region,
Head o M&A Group
Yevgen Zanoza
Partner, Tax and Legal Services, Head o Tax support
or audit and Tax compliance Groups
Andriy Servetnyk
Partner, Tax and Legal Services, Head o the International
Tax and Legal groups, in charge o Tax and Legal
Services in Belarus
Viktoria Chornovol
Partner, Tax and Legal Services, Head o the Corporate
Tax group, Global employee solutions, in charge
o Tax and Legal services in Georgia
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Almaty, Kazakhstan
Tel: +7 (727) 258 13 40
Fax: +7 (727) 258 13 41
www.deloitte.kz
Vladimir Kononenko
Partner, Tax & Legal Services
Astana, Kazakhstan
Tel: +7 (727) 258 04 80
Fax: +7 (727) 258 03 90
www.deloitte.kz
Vladimir Kononenko
Partner, Tax & Legal Services
Minsk, Belarus
Tel: +375 (17) 200 03 53
Fax: +375 (17) 200 04 14
Viktar Strachuk
Senior Manager, Tax & Legal
Services
Tbilisi, Georgia
Tel: +995 (32) 24 45 66
Fax: +995 (32) 24 45 69
Giorgi Tavartkiladze
Senior Manager, Tax & Legal
Services
Atyrau, Kazakhstan
Tel: +7 (7122) 58 62 40/42
Fax: +7 (7122) 58 62 41
www.deloitte.kz
Russell Maynard
Partner, Tax & Legal Services
Baku, Azerbaijan
Tel: +994 (12) 598 29 70
Fax: +994 (12) 598 29 75
Nuran Kerimov
Partner, Tax & Legal Services
Bishkek, Kyrgyzstan
Tel: +996 (312) 60 09 99
Fax: +996 (312) 60 09 90
Yulia Abdumanapova
Manager, Tax & Legal Services
Tashkent, Uzbekistan
Tel: +998 (71) 120 44 45/46
Fax: +998 (71) 120 44 47
Batyr Kazybekov
Senior Consultant, Tax & Legal
Services
Moscow, Russia
5 Lesnaya Street
Moscow, 125047
Russia
Tel: +7 (495) 787 06 00
Fax: +7 (495) 787 06 01
www.deloitte.ru
Gennady Kamyshnikov
CIS Managing Partner
Alexei Zelenkov
Partner
Tax & Legal Leader, Russia
St. Petersburg, Russia
Tel: +7 (812) 703 71 06
Fax: +7 (812) 703 71 07
www.deloitte.ru
Yury Zachek
Partner, Tax & Legal Services
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o Deloitte Touche Tohmatsu Limited and its member rms.
Deloitte provides audit, tax, consulting, and nancial advisory services to public and private clients spanning multiple industries. With a globally
This manual was prepared by the proessional sta o Deloitte Ukraine. It is designed to give potential oreign investors and Ukrainian
businesses a reerence tool or the numerous tax laws, regulatory issues and compliance requirements which they may encounter.
The legislative ramework o Ukraine’s tax system continues to transorm itsel. However, there are instances where unclear statutory language
and explanatory instructions may allow more than one interpretation o the law. As a result, we advise the readers o this manual to coner
with proessional accountants, attorneys and consultants beore taking any ormal action.
The inormation in this manual is not exhaustive. While all reasonable care has been taken in preparation o this book, Deloitte Touche
Tohmatsu accepts no responsibility or any errors it may contain, whether caused by negligence or otherwise, or or any loss, however caused,
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Since then, the Firm has grown to include oces in St. Petersburg, Kyiv, Minsk, Tbilisi, Yuzhno-Sakhalinsk, Baku, Almaty, Astana, Atyrau, Aktau,
Bishkek, Tashkent and Dushanbe. Today, Deloitte CIS has more than 3,000 people specializing in various sectors o the economy, includingenergy and resources, nance, telecommunications and consumer business.
In the CIS, ZAT “Deloitte & Touche USC” is the CIS member rm o Deloitte Touche Tohmatsu, and services are provided by ZAT “Deloitte
& Touche USC” and its subsidiaries. ZAT “Deloitte & Touche USC” is among the nation's leading proessional services rms, providing audit,
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human resources programs, it is dedicated to helping its clients and its people excel. For more inormation, please visit the Ukraine member
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For more inormation, please contact
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