Featured Galleries USUBC COLLECTION OF OVER 160 UKRAINE HISTORIC NEWS PHOTOGRAPHS HOLODOMOR: THROUGH THE EYES OF UKRAINIAN ARTISTS - COLLECTION OF POSTERS AND PAINTINGS USUBC COLLECTION OF HISTORIC PHOTOGRAPHS ABOUT LIFE AND CAREER OF IGOR SIKORSKY PHOTOGRAPHS - INVENTOR OF THE HELICOPTER Ten USUBC Historic Full Page Ads in the Kyiv Post
DRAFT TAX CODE OF UKRAINE - PRINCIPLE CHANGES
The draft Tax Code does not introduce much in the way of the hoped for tax reform, and, in fact, contains numerous new provisions which suggest a negative impact on the business environment in Ukraine.
KPMG Newsflash, Kyiv, Ukraine, Friday, June 25, 2010
DRAFT TAX CODE OF UKRAINE - PRINCIPLE CHANGES
The draft Tax Code does not introduce much in the way of the hoped for tax reform, and, in fact, contains numerous new provisions which suggest a negative impact on
the business environment in Ukraine.
KPMG Newsflash, Kyiv, Ukraine, Friday, June 25, 2010
KYIV - On 17 June 2010 the Parliament of Ukraine passed at first reading the draft Tax Code of Ukraine. While the exact timing for the ultimate enactment of a new Tax Code remains unclear, it is understood that the intention is for a new Tax Code to be effective from 1 January 2011.
A benefit of the Tax Code is that it is a single document that supersedes and consolidates a number of separate tax laws and regulations that are currently in force. However, it appears that, in its current form, the draft Tax Code does not introduce much in the way of the hoped for tax reform, and, in fact, contains numerous new provisions which suggest a negative impact on the business environment in Ukraine.
Accordingly, the business community is actively seeking improvements to the draft Tax Code, and it is possible that significant changes may still be forthcoming.
At this stage, the principal changes in the draft Tax Code include the following.
Corporate Profit Tax
● The general corporate income tax rate is contemplated to be reduced to 20% in 2011, and then the tax reduction will continue by 1% annually until the tax rate reaches 17% in 2014. However, the additional regional and local corporate income tax rates of 2% and 3%, respectively, may be enacted.
● Subject to certain exceptions, the accrual principal is prescribed for recognizing revenues and expenses for tax purposes;
● In contrast to the existing practice, the Tax Code includes a detailed list of expenses that are deductible for tax purposes, and then lists expenses, the deductibility of which is limited or denied. Royalties payable to all individuals, non-residents of Ukraine and/or Ukrainian legal entities that are tax exempt or subject to special tax regimes are not deductible for tax purposes.
Also, deductibility of interest payable to a non-resident shareholder that owns or manages at least 20% of the taxpayer’s share capital (or payable to persons related to such foreign shareholder), is limited to the lesser of the loaned amount or the foreign shareholder's share of equity as computed using the UNAS at the beginning of each quarter. The wording of the Tax Code also suggests that the denied interest deduction may be taxed at 15% ;
● Business losses can tentatively be carried forward indefinitely;
● All depreciable fixed assets are pooled in 16 groups and are deemed to have a minimum period of useful economic life ranging from 2 years (e.g., computers) to 20 years (buildings). The straight-line method is prescribed for all but two groups of depreciable fixed assets. The latter two groups are subject to the accelerated, undepreciated balance method.
● All intangible assets are pooled in 6 groups and amortized throughout the period of right validity using the straight-line method.
● Revenues accrued or received by Ukrainian companies from foreign persons resident in foreign jurisdictions with preferred-tax regimes shall be multiplied by 1.15. Expenses paid or payable to foreign persons resident in such foreign jurisdictions remain limited to 85%. For purposes of the Tax
Code, a jurisdiction with a preferred-tax regime means a foreign country (or a region thereof) that:
- has the corporate income tax rate that is less than 50% of the Ukrainian corporate income tax rate, or
- has special rules on keeping confidential financial or corporate information on the beneficial owners of property or revenues, or
- does not share the information referred to above with the Ukrainian tax authorities;
- if a Ukrainian company owns, directly or indirectly, more than 10% of the votes or share capital in a foreign affiliate that is registered or located in a foreign jurisdiction with a preferred tax regime, the Ukrainian company shall recognize the relevant portion of the foreign income earned by the foreign affiliate. The underlying foreign taxes paid by the foreign affiliate are not factored in computing the Ukrainian tax liabilities;
● There are still no tax rules that would address the corporate income tax implications of corporate reorganizations for the predecessor and successor
companies. It is thus not clear whether (and to what extent) loss carry-forwards and other tax attributes can be transferred from the predecessor to the
Value – Added Tax (VAT)
● The standard VAT rate is contemplated to be reduced to 19%, 18% and 17% starting from 1 January 2012, 1 January 2013, and 1 January 2014,
respectively. However, according to the Draft Tax Code, the 17% rate is to be applied only in the period from 1 January 2014 to 31 December 2014;
● The supply of totality of assets is no longer deemed to be an exempt transaction. Instead of this, mergers (and other types of reorganizations) are indicated as exempt from VAT;
● The right of a taxpayer to record VAT credit is limited to a three month period following the date of a VAT invoice;
● Notwithstanding that the main reporting remains unchanged, the period for payment of VAT is shortened to 5 working days.
Personal Income Tax - Taxation of Foreign Individuals
● Ukrainian tax residency is based on two criteria – Ukrainian citizenship and/or presence in Ukraine for more than 183 days in a current and/or previous
● The Draft Tax Code does not specifically provide for the requirement for a foreign individual to obtain a tax residency certificate, but indicates that the procedure for confirmation of tax residency status is established by the Cabinet of Ministers of Ukraine;
● Ukrainian tax resident individuals are taxed at a 15% tax rate with respect to their worldwide income, tax non-residents – at a 30% tax rate with respect to employment income for the work in Ukraine, and at a 15% rate with respect to interest income, royalties and dividends paid by Ukrainian companies.
● Employment remuneration paid to a foreign individual by a Ukrainian company is taxed at the 30% tax rate until the month when the individual obtains a tax residency certificate. The tax overpaid due to application of 30% tax rate as indicated above is to be credited against future tax liabilities of the individual. The amount of the tax overpaid should be confirmed with the tax authorities based on the tax return to be submitted by the individual.
Administration of Taxes – Appeal of Assessment of Additional Tax Liabilities as a Result of a Tax Authorities’ Audit
● The wording of the relevant provisions of the draft Tax Code on this issue is confusing. They could be interpreted, however, as requiring that the tax
liabilities which are assessed by the tax authorities as a result of their audit and disputed by the tax payer (by either administrative or court appeal), must
be guaranteed by the tax payer providing a tax pledge or a warranty issued by a bank.
Special Tax Approaches
● The Tax Code preserves the simplified taxation system for certain categories of taxpayers. Specifically, the following taxpayers (except for
taxpayers in certain directly prescribed types of commercial activities, such as gambling, production of excise products, advertising, legal activities, etc)
may apply for the unified tax regime:
(i) individual entrepreneurs who, within the four sequential tax periods (quarters), received profit of no more than UAH 700,000 and have employed no more than 10 employees
(ii) legal entities which, within the four sequential tax periods (quarters), received profit of no more than UAH 2,700,000 and have employed
no more than 50 employees
● As per the Tax Code, the unified tax rates shall be as follows:
(i) for individual entrepreneurs – in the range of UAH 20 – 200 per month as approved on an annual basis by the local authorities
(ii) for legal entities – 6%
● The Tax Code also provides for «tax holidays» until 31 December 2015 for the following categories of tax payers who qualify for the unified tax regime:
(i) individual entrepreneurs involved into rendering consumer services (the list of which should be adopted by the Cabinet of Ministers), whose profit within the four sequential tax periods (quarters) does not exceed UAH 300,000
(ii) legal entities whose profit within the four sequential tax periods (quarters) does not exceed UAH 100,000
We will provide more information about the above items and other developments as the draft Tax Code continues through the legislative process. Should you have any questions with respect to the above information, we are available to assist, and would welcome being contacted.
CONTACTS: Rob Shantz; Partner, Tax and Legal; Tel. +38(044) 490 55 07; Fax. +38(044) 492 82 98; RShantz@kpmg.ua; Sergey Popov, Partner, Tax and Legal; Tel. +38(044) 490 55 07; Fax. +38(044) 492 96 81; SPopov@kpmg.ua; KPMG in Ukraine: Kyiv, 11 Mykhailivska St.; 01001, Kyiv, Ukraine;
Tel. +38(044) 490 5507; Fax. +38(044) 490 5508; e-mail: email@example.com; Donetsk, 2a Pushkina blvd, 83001, Donetsk, Ukraine; Tel. +38 (062) 341 4680
Fax. +38 (062) 341 4681; e-mail: firstname.lastname@example.org
NOTE: KPMG Ukraine is a member of the U.S.-Ukraine Business Council (USUBC), Wash, D.C., www.usubc.org.