Recent changes to tax legislation

Ukraine introduced a tax reform to assist the Ukrainian business during the war.  A tax reform consists of several laws and tax bills that are expected to come into effect soon:

• Law No. 2120-IX “On amendments to the Tax Code of Ukraine and other laws for the period of martial law” dated 15 March 2022;
• Law No. 2142-IX “On amendments to the Tax Code of Ukraine and other laws to improve the laws for the period of martial law” dated 24 March 2022;
• A Bill No. 7234 “On amendments to the Tax Code of Ukraine and other laws in relation to administration of certain taxes during martial law and state of emergency” dated 30 March 2022 (passed by the Parliament and submitted for signature of the President of Ukraine;
• A Bill No. 7232 “On amendments to the Tax Code of Ukraine on taxation of businesses having economic connections with the aggressor state” dated 30 March 2022 (passed by the Parliament in the first hearing).

The key tax changes having impact on many businesses include the following:

Reduction of tax burden 

1. Introduction of 2% turnover tax instead of CIT and VAT

 Businesses may switch to a simplified tax system and pay 2% unified tax instead of corporate income tax and value added tax. This option is available irrespective of the volume of sales and number of employees.

This option applies not to all businesses. Specifically, it is not available to gambling business, importers of motor vehicles, currency exchange business, producers, exporters and sellers of excisable goods, mineral resources businesses, financial institutions, branches of non-unified taxpayers and non-residents. At the same time, businesses operating in retail trade of excisable goods (e.g. supermarkets selling tobacco and alcohol) and extraction of ground and surface water to provide the services of centralized water supplies may switch to 2% turnover tax.  

2. Reduction of excise tax and VAT on fuel

Excise tax for gas, diesel, purified gas and butane was reduced to 0%. VAT on supplies of these types of fuel has been reduced down to 7%.

3. Cancellation of import taxes for goods and motor vehicles

Individuals are relieved from customs duty, excise tax and VAT upon imports of motor   vehicles.

Customs duty does not apply to imports of goods, except for alcohol and tobacco products.

Unified taxpayers of 1^st-3^rd groups (except for payers of 3% tax + VAT) are relieved from customs duty and VAT upon imports of goods.             

Neither of the above exemptions applies to goods or motor vehicles imported from the aggressor state or temporarily occupied territory of Ukraine.

4. Additional tax reliefs

The taxpayers are relieved from certain taxes on the territories where the military actions have taken place, as well as on the territories that are temporarily occupied by Russian military troops. Specifically, the relief is granted for the following taxes:

• Ecology tax for the period from 1 January 2022 to 31 December of the year in which the martial law is cancelled
• Minimum tax obligation for owners of land for 2022 and 2023
• Land tax and land lease fee for the period from 1 March 2022 to 31 December of the year following the year in which the martial law is cancelled
• Real estate tax in relation to residential real estate for 2021 and 2022
• Real estate tax for non-residential real estate for the period from 1 March 2022 to 31 December of the year in which the martial law is cancelled

The list of the territories where the tax reliefs are available shall be determined by the Cabinet of Ministers of Ukraine.

Relief from tax liability  

1. Relief from fines and penalty for non–timely payment of taxes

 The taxpayers unable to pay taxes due to the introduction of martial law shall be relieved from liability for failure to pay taxes. The relief shall apply during the period of martial law and 6 months following cancellation thereof.

Fines and penalties for failure to accrue and pay unified social contribution shall not apply during the martial law and 3 months following cancellation thereof.

2. Relief from tax liabilities in case of loss of documentation

The taxpayers may submit a notification on loss or impossibility to collect primary documents due to military actions. The tax authorities shall accept tax returns prepared based on such documents. The tax authorities will be restricted to perform tax audits for periods of lost documents.

However, if the tax authorities are able to prove that the loss of documents is not related to military actions, the taxpayer’s actions shall be qualified as tax evasion with relevant liability.

3. Tax audits moratorium

There is a moratorium for tax audits for the period of martial law, except for desktop tax audits for the purposes of VAT refund, as well as actual tax audits in the points of sales.

Documentary tax audits in relation to the unified social contribution are restricted during the period of martial law and 3 months following cancellation thereof.

Expected tax changes

Ukrainian Parliament passed a tax bill envisaging for 1.5 times increase of taxes for businesses that have economic ties with the aggressor state. The bill has passed the first hearing only and is currently being refined for vote in the second hearing.

The bill proposes to increase the corporate income tax, ecology tax, rent fee and property tax by 1.5 for legal entities having economic ties with russia.

The increased tax rates will apply to the companies:

• owned directly or ultimately owned by a resident of russia
• receiving revenues from russia
• being a member of a group of companies, a member of which receives revenues from russia or economically supports russia.

The increased tax rates will not apply if business activity of a company has social, humanitarian or economic value for Ukraine. The criteria for such value shall be determined by the Cabinet of Ministers of Ukraine.