Taxation

Ukrainian taxes, levies and general tax principles are established in the Law “On the Tax System of Ukraine.” According to this law, all taxes or levies are either as national or local. As a basic legal principle, taxes or levies, their rates, tax collection procedures and tax incentives may be established only by law.
National taxes such as Corporate Income Tax (CIT), Value-Added Tax (VAT), Personal Income Tax (PIT), Customs Duties, and Excise Taxes account for the largest portion of budget revenues. Local authorities may also collect revenues through a number of local taxes, such as Advertising Tax, Community Development Tax, Hotel Tax, Parking Tax, Recreation Tax, and other taxes.
Ukraine’s tax system has changed radically since the time when the country became independent. A major overhaul of the tax system was undertaken in 2001, with the main aim of increasing Budget revenues, mostly by reducing the number of tax exemptions and simplifying and streamlining compliance procedures.

Ukraine’s tax system includes these main taxes and mandatory payments:

- Corporate Income Tax (CIT);
- Value-Added Tax (VAT);
- Personal Income Tax (PIT);
- Pension and Social Security Contributions;
- Excise Duty;
- Customs Duty;
- State Duty;
- Land Tax;
- Vehicle Owners’ Tax;
- Payments for Licenses/Patents.

Corporate income tax

Legal entities incorporated and operating under Ukrainian law are normally treated as tax residents and are taxable on their worldwide income. Legal entities incorporated abroad and operating under the laws of another country are normally treated as foreign tax residents or non-residents and are taxable on two sources of income:

• Business income from carrying out trade or commercial activities in Ukraine, and
• Non-business income received from Ukrainian sources.

The tax on companies is known as corporate income tax. Currently, this tax is calculated at a flat rate of 25%.

Separate tax rules apply to agricultural enterprises, operations with securities, and insurance companies.

Value-Added Tax

In accordance with the Ukrainian legislation, Value-Added Tax or VAT is imposed on:
(a) Domestic sales of goods and/or services,
(b) Imported goods or services for use or consumption in Ukraine,
(c) Exported goods or services for use or consumption outside Ukraine.

VAT is levied at a rate of 20% of the taxable amount for domestic sales and imported goods or services. For exported goods or services, the VAT rate is zero. The general rule is that the taxable amount is defined on the basis of the contractual value of the goods or services supplied.

Personal income tax

Individuals who are tax residents of Ukraine are subject to personal income tax on their worldwide income. Non-resident individuals are taxed only on income from Ukrainian sources. The Verkhovna Rada of Ukraine passed a law “On Personal Income Tax” that became effective on January 1, 2004. This law introduced a number of significant amendments to the way individual taxpayers were taxed.

The current tax rate for residents is 15%. Income received by non-residents is subject to tax at double the standard tax rate, that is, 30%, except for interest, royalties, dividends and salaries paid through Ukrainian payroll.

Pension and social security contributions

The social security system in Ukraine covers pensioners, workers and their dependants for work-related accidents, illness, retirement, death and disability benefits, sickness and maternity benefits, medical care, severance pay, and child and family allowances.

Mandatory contributions to Ukrainian social security and pension funds only apply if the salary is paid through the payroll of a Ukrainian entity, which also includes representative offices of foreign legal entities in Ukraine. Voluntary contributions to the State Pension Fund, the Employment Insurance Fund and the Social Security Fund are possible.

Employer contributions
Ukrainian employers are liable to pay social security contributions on behalf of their Ukrainian and foreign national employees at these rates, based on gross remuneration:

• 33.2% to the Pension Fund;
• 1.4 % to the Social Security Fund;
• 1.6% to the Unemployment Insurance Fund;
• 0.2 – 13.8% to the Workers’ Compensation Fund. The tax rate depends on the level of risk of accident for enterprises in certain sectors of the economy.

Employee contributions
For employees of Ukrainian entities, social security contributions are withheld at source from salary payments by the employer and remitted directly to the appropriate authorities.

Ukrainian and foreign national employee contributions based on gross salaries include:

• 2% to the State Pension Fund;
• 0,5 - 1% to the Social Security Fund;
• 0.6 % to the Unemployment Insurance Fund (for Ukrainian national employees only).

Customs duty

Customs duty is payable by importers upon customs clearance of imported goods and applies in accordance with the Customs Tariff. The duty rate depends on the customs classification of the goods and their country of origin.

These import taxes and duties are payable by the importer:

• Import duty in accordance with the Customs Tariff. Currently there are two duty rates: discounted and full. Discounted rates apply to goods originating from countries which have granted Ukraine “Most Favored Nation” trade status. Full duty applies to goods originating from all other countries. The duty rate can be ad valorem, that is, a percentage of the declared customs value (DCV); specific, that is, in monetary units per unit of goods; and combined. There are seasonal, special, anti-dumping and countervailing duties as well;
• Excise duty on certain goods such as cars, alcoholic beverages, tobacco products, beer, petrol and diesel fuel. Excise duty rates are specific;
• VAT at the current rate of 20%. The taxable basis is the contractual value of the goods, which should not be lower than declared customs value, including import duty. Import duty and taxes are payable by the importer in local currency before or upon customs clearance. In certain cases, customs payments must be deposited with customs prior to the goods’ crossing the Ukrainian border.

There are no export duties except on natural gas, livestock, rawhide and certain oilseeds. Exported goods and ancillary services are zero rated for VAT purposes.

Customs clearance of goods involves a customs processing fee, calculated as 0.2% of the DCV, but no more than US $1,000 per customs declaration.

Other taxes

Other principal taxes include land tax, vehicle tax, stamp duty, pollution charges, and royalties for the extraction of oil, natural gas and gas condensate.

In addition, there are 14 different local taxes that may be levied at the discretion of local authorities. The principal local taxes that are applicable to business entities include advertising tax and municipal tax.

In order to check the compliance of an entity’s activities with tax legislation, the tax authorities may carry out scheduled and unscheduled tax audits of business entities. Scheduled audits are supposed to be carried out at most once a year. Non-compliance with tax legislation is subject to fines and late payment interest.
 
Limitation period for tax liabilities is 1,095 days, that is, three years following the last day a tax return was filed.