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TaxationAs of Jan. 1, 2011, the new Tax Code came into force and substantially changed Ukraine’s tax system.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 form the largest share of Budget revenues. Local authorities also collect revenues through a number of local taxes, such as Real Estate Tax, Levies for conducting certain types of business, Parking Tax, Recreation Tax, and other taxes. The new Code has changed the number and range of state and local taxes and levies, introducing 23 new taxes and levies, including 19 national and 5 local ones. 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 23%. The CIT will be gradually reduced: 1) To 21% from Jan. 1, 2012 through Dec. 31, 2012. 2) To 19% from Jan. 1, 2013 though Dec. 31, 2013. 3) A flat 16% as of Jan. 1, 2014. For a 10-year period starting Jan. 1, 2011, the Code provides an exemption from CIT to income from: a) hotel services in all categories from three- to five-star hotels; b) light industry enterprises, except those working on a tolling basis; c) sales of electricity produced from renewable energy sources; d) shipbuilding and aircraft construction; e) the manufacture of farm machinery. For the period Apr. 1, 2011 through Jan. 1, 2016, the applicable rate of corporate income tax shall be 0% for companies that meet one of these three criteria: a) they were established after Jan. 1, 2011; b) they are active companies that, during the previous of three consecutive years (or during all previous periods, if they have been established less than three years), declared annual income in an amount not exceeding UAH three million and the average number of employees during this period was not over 20; c) they are companies registered as single tax payers in accordance with the legislation for the period prior to the coming into force of the Code and whose volume of revenues from sales of products, goods or services for the previous calendar year was under UAH 1 million and the average number of employees under 50. This rule has a number of exceptions, however. A company cannot enjoy a zero rate CIT if it carries on business activities in: a) entertainment (lotteries, billiards, bowling, board games, children's video games, and so on); b) manufacturing, wholesale, import or export of excisable goods; c) manufacturing, wholesale and retail sale of oils and lubricants; d) mining, production and manufacturing of precious metals and stones; e) financial services; f) currency exchange services; g) mining and sale of mineral resources that are of national importance; h) real estate operations; i) postal and communication services; j) bidding (auctioning) of products of art, collectors’ items or antiques; k) providing services in television and radio broadcast, as defined by the Law of Ukraine “On Television and Radio”; l) security services; m) foreign economic activity; n) manufacturing or processing on a tolling basis; o) wholesale trade and brokering wholesale trade; p) production and distribution of power, gas and water; q) legal, accounting, engineering and granting services for entrepreneurs. There are also exemptions for publishers, publishing organizations, and film and animation producers. 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 until Dec. 31, 2013. As of Jan. 1, 2014, the VAT will be reduced to 17%. 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 Tax Code also introduced a number of significant amendments to the way individual taxpayers are taxed. The law sets a differential tax rate based on the size of income, at 15% and 17%. This tax rate does not depend on the tax status of the individual. The profit of non-residents is taxable at tax rates established for residents of Ukraine. 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. As of Jan. 1, 2011, all social security contributions are consolidated into a Unified Social Tax under the Law of Ukraine “On the collection and accounting of a unified contribution to the mandatory state social insurance.” The tax rate depends on the level of risk of accident for enterprises in specific sectors and varies from 36.76% to 49.7%. 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). The Unified Social Tax paid by employees is similar to the UST paid by their employers and set at a rate of 3.6% for both domestic and foreign employees. 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 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. |
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