Legislative measures in order to stabilize and improve current economic situation
The National Bank of Ukraine, the Cabinet of Ministers of Ukraine, Parliament of Ukraine and local city councils apply a number of measures, especially in the fields of currency regulation and taxation, in order to improve the financial and economic situation of the country after the political crisis in 2014 and current military actions against Russian army forces in the Eastern part of Ukraine. At the same time new President and Government elaborate a number of changes to tax legislation in order to facilitate tax administration and improve economic situation.
As a result Ukraine improved its place in Worldwide Doing Business rating for the last 4 years on 36 (!) points, having 76 position in 2018 and making significant improvement (during the last 2 years) in the spheres of: Dealing with Construction Permits; Protecting Minority Investors; Paying Taxes;
Enforcing Contracts. In the World Bank’s tax payment index (part of Doing Business Ranking 2018) Ukraine holds 43-rd position among 190 countries. The main improvements include introduction of the automated on-line system of VAT administration and automatic VAT refund, significant decrease of the obligatory social insurance payments, introduction of the efficient tax anti-avoidance rules, moving more tax payments online which makes transactions more transparent. Ukraine has one of the lowest numbers of tax payments, however, it still takes significant time to pay taxes in Ukraine (according to the Doing Business Ranking 2018).
Corporate income tax (CIT)
As of January 1, 2018, the basic CIT rate is 18%. The reduced rates of 0% or 3% apply to qualified insurance activities.
In 2017-2021 0% CIT rate applies to the following taxpayer:
whose annual income does not exceed UAH 3 mln., salary of its each employee is not lower than two minimum wages. Such rate applies to: companies registered after January 1, 2017, the average number of employees of which ranged from 5 to 20 people.
Taxation of individuals
Personal Income Tax (PIT)
The basic PIT rate is 18%. Dividends received by individuals:
on shares and/or investment certificates, paid by joint investment institutions; on shares and/or corporate rights, accrued by non-residents; on shares and/or corporate rights, accrued by residents – non-payers of CIT – are taxed at the rate of 9% (previously – 18%).
Unified Social Contribution (USC)
USC is a consolidated insurance fee and is paid to the system of compulsory state social insurance.
The employer calculates the USC on the basis of payroll fund. USC rate is 22%; for disabled workers the rate is 8.41%. The USC accrued by the employer is deductible for CIT purposes. Employees are relieved from paying this contribution. The base for the USC is capped at fifteen minimum monthly
salaries and equals to UAH 55,845 (approx. USD 2 000) from January 1, 2018 to December 31, 2018.
Minimum obligatory amount of USC per month is UAH 819.
USC is not payable on the wages of foreign citizens who work in the representative offices of foreign companies located in Ukraine.
If a Ukrainian company meets the following criteria (starting from January 1, 2017):
- has annual income from all activities (on the basis of financial accounting) that exceeds UAH 150 million for the reporting tax year; and
- has annual volume of business transactions with identified counterparty in the amount exceeding UAH 10 million
- it is required to comply with TP regulations.
Besides, since 1 January 2018 the following transactions qualify as controlled transactions for TP purposes:
- with related non-residents;
- with a non-resident, who is registered / a tax resident of a low tax jurisdiction and Crimea / special types of legal entities (regardless of relation with the Ukrainian company) (there are two lists effective as of January 1, 2018: list of low-tax jurisdictions and list of special types of legal entities);
- with non-resident commissioner, regardless of relation with the Ukrainian company;
- with related non-resident if between them a / several unrelated persons are interposed that do not perform significant functions/assume significant risks;
- between non-resident and its permanent establishment registered in Ukraine.
The transactions between non-resident and its permanent establishment in Ukraine qualify as controlled transactions if their volume exceeds UAH 10 million per year.
TP regulations apply to corporate income tax only.
The List of Low Tax Jurisdictions
As of the beginning of 2018 the Cabinet of Ministers of Ukraine significantly extended the List of Low Tax Jurisdictions. If a non-resident company – counterparty of a Ukrainian company – is registered in the country/territory that is included in the list – the transactions with such nonresident
shall qualify as controlled transaction (provided that the thresholds mentioned above are met, regardless of relation between a non-resident and Ukrainian company).
If a transaction does not qualify as controlled transaction (when thresholds are not exceeded) a Ukrainian company shall adjust its financial result by 30% of the value of goods / works/ services purchased from such a supplier from low-tax jurisdiction or substantiate that the cost is at arms’ length.
As of January 1, 2018 the list included 85 countries (22 jurisdictions were added as compared with 2017). Georgia, Dominican Republic, Republic of Estonia, Islamic Republic of Iran, Republic of Cuba, Republic of Latvia, Lebanese Republic, Republic of Mauritius, Republic of Malta, Kingdom
of Morocco, Principality of Monaco, United Arab Emirates, Puerto Rico, Republic of Singapore, Hungary and some others are in the list. However, on January 31, 2018 the Cabinet of Ministers of Ukraine excluded Estonia, Georgia, Hungary, Latvia and Malta from in the list; the act became
valid on March 8, 2018. Thus, from January, 1 till March, 7 (including) the latter mentioned countries were present in the list.
The List of Special Types of Legal Entities
In July 2017 the Cabinet of Ministers of Ukraine approved the List of Special Types of Legal Entities that do not pay CIT or are fiscally transparent entities. If a non-resident company – counterparty of a Ukrainian company – was established in a special legal form that is mentioned in the
list – the transactions with such non-resident could qualify as controlled transaction (provided that the thresholds mentioned above are met, regardless of relation between a non-resident and Ukrainian company). If a transaction does not qualify as controlled transaction (when thresholds are
not exceeded) a Ukrainian company shall adjust its financial result by 30% of the value of goods / works / services purchased from such a supplier from the List of Special Types of Legal Entities or substantiate that the cost is at arms’ length.
As of January 1, 2018 the list includes, inter alia, Australia (GP, LP), Austria (OHG, OEG, KG, KEG, GesnbR), the United Kingdom (LP, LLP), Israel (GP, LP), Canada (GP, LP, EPC), Malta (Partnership en commandite, Partnership en nom collectif), Germany (GbR, KGaA, KG, OHG), USA (States of Delaware, California, Nevada, New Jersey, New York, Texas, Florida – GP, LLP, LLC), France (S.N.C., S.C.S., G.I.E., Societe civile, Societe
en Participation, Fonds Commun de Placement a Risques).
Taras Polianskyi, Nexia DK