Kyiv Tax Newsletter, Dentons Ukraine
Dentons, Kyiv, Ukraine,
Mon, Jan 16, 2017
Subsistence minimum and minimum wage
On 21 December 2016 the Parliament of Ukraine adopted the Law “On the State Budget of Ukraine for 2017” No.1801-VIII (hereinafter, "the Law on State Budget"). The Law on State Budget introduces the new subsistence minimum and minimum wage that came into force on 1 January 2017:
- the minimal subsistence minimum is established at the level: 1 January 2017 – UAH 1,544; 1 May 2017 – UAH 1,624; 1 December 2017 – UAH 1,700 and
- the subsistence minimum for able-bodied person: 1 January 2017 - UAH1,600, from May 1 – UAH 1,684, 1 December 2017 - UAH 1,762;
- the minimum wage is established at the level: 1 January 2017 – UAH 3,200; in hourly amounts: UAH 19,34.
Amendments to the Tax Code
On 21 December 2016 the Parliament adopted Law No. 1797-VIII "On Amendments to the Tax Code in Relation to Improvement of the Investment Environment in Ukraine" (hereinafter, "the Law on Amendments to Tax Code"). The Law on Amendments to Tax Code introduces following novelties with respect to corporate profit tax (including withholding tax), value added tax and other taxes. The amendments came into force on 1 January 2017. The key amendments are as follows.
- Certain definitions are added, i.e. big taxpayers, investment income, electronic cabinet, passive income, etc.
- The amendments require creation of taxpayers’ online accounts before 2018, the novelty is aimed at keeping track on taxpayers’ tax position in a real-time mode and maintain correspondence with the tax authorities.
- The amendments establish the priority of general tax consultations issued by the Ministry of Finance over individual tax consultations issued by the tax authorities to taxpayers.
- The function to conduct tax audits is transferred from local tax offices to regional offices.
- Tax amendments introduce liability of tax authorities for issuing unlawful decisions, etc.
- The financial threshold for controlled transactions increased: the amount of annual income of the taxpayer should exceed UAH 150 million; the volume of business transactions with each counterparty should exceed UAH 10 million annually.
- The criteria of controlled transactions are expanded:
- foreign economic operations on the sale/purchase of goods/services through foreign person commissioner/agent (non-related);
- operations with foreign persons, that are not payers of corporate (profit) tax, or exempt from it and/or are not tax residents of the state where they are registered as legal entities. The list of legal forms of foreign persons is to be defined by the Cabinet of Ministers of Ukraine (hereinafter – CMU), etc.
- Other amendments relate to: the information that could be used for defining the cost effectiveness range for controlled transactions; rules for the application of the particular method; rules for grouping controlled transactions for the purpose of confirmation of the arm’s length with one counterparty based on chosen grouping principle; expanding the list of supporting transfer pricing documentation: i.e. information on structures of the related parties, including information on subsidiaries; description of the transaction; copies of the contracts, etc.
- Amendments relate to responsibility for violations of the transfer pricing legislation:
- failure to submit the report on the controlled transactions – 300 subsistence minimum established for a working person;
- failure to include the transaction into the report on the controlled transactions – 1% of the amount of undeclared transactions, but not more than – 300 subsistence minimum;
- failure to submit transfer pricing documentation – 3% of the amount of controlled transactions, but not more than 200 times the subsistence minimum for all transactions;
- late submission of the report on controlled transactions – 1 subsistence minimum for each calendar day of late submission, but not more than 300 subsistence minimum;
- failure to submit the report on controlled transactions/adjusted report and/or transfer pricing documentation after the expiration of the 30 calendar days after the term for penalty payment – 5 subsistence minimum for each calendar day;
- late submission of the transfer pricing documentation – 2 subsistence minimum for each calendar day of late submission, but not more than 200 subsistence minimum;
- late declaration of the controlled transactions in the report on controlled transactions (in the case of the adjusted report submission) – 1 subsistence minimum for each calendar day of late declaring of transaction in the submitted Report, but not more than 300 subsistence minimum, etc.
Corporate profit tax
- Amendments expand the criteria for taxation of non-profit organizations and amend rules for taxation of producers of agricultural products, insurance companies
- Certain amendments relate to tax reporting of securities
- Amendments relate to: the rules on depreciation of nonproduction fixed assets; increase/decrease of financial result in operations on bad debt provisions; thin capitalization rules (i.e. tax adjustment should apply only to transactions with related foreign persons).
- Amendments relate to certain deduction restrictions:
- The financial result should be adjusted at the difference between the contract prices and the arm's length price as a result of tax (reporting) year.
- The financial result should be adjusted by 30 percent if goods (works, services) are purchased from: (i) non-profit organizations (with certain limitations), foreign persons registered in the states included into the list of the Cabinet of Ministers for transfer pricing purposes (unless operations are not controlled, or, even, if controlled, performed at arm’s length).
- The financial result should be adjusted at the amount of royalty exceeding 4 percent from previous year’s financial result, unless royalty is paid under transactions that are not controlled, and performed at arm’s length.
- Amendments relate to exemption from withholding tax on: interest or discount income from government and municipal bonds and other debt securities; interest paid to creditors, foreign persons under loans financed through debt securities listed on the stock exchanges; a reduced 5 percent rate should apply to interest on loans from qualified creditors, etc.
Personal income tax
- Amendments expand the definition of fringe benefits (released debt under mortgaged loan issued to individual); exempts income from state securities, and some other types of income.
- Amendments establish 18 percent personal income tax (PIT) rate for passive income earned by individuals (with certain exceptions), 9 percent for dividends paid by foreign persons (and non-payers of CIT), etc.
- Amendments exempt from PIT travel allowances within the limit of EUR80 for business travel abroad.
- Amendments require that legal entity, foreign person, private entrepreneur or other person acting as an agent for an individual for the disposition of movable property should act as tax agent liable for reporting tax authorities about individual’s income and tax liabilities, etc.
Value added tax
- Amendments establish that Ministry of Finance would be the authorized body for administering register of VAT taxpayers.
- Amendments allow that adjustments to VAT invoices issued before 1 February 2015 as well as some other adjustments are subject to registration in the Uniform Register of Tax Invoices.
- Amendments specifically exempt from VAT operations on assignment of claims and transfer of title to the object of financial leasing.
- Introduced amendments allow the purchaser to report VAT based on tax invoice and adjustments to tax invoice issued by the seller within 365 days (before the adjustments could be registered within 180) as of the date of issuance of tax invoice/adjustment.
- Amendments allow transferring unutilized input VAT, confirmed by tax authorities to tax books of legal successor as a result of reorganization.
- Amendments establish that refund of overpaid VAT should be made based on the data of the state public register of VAT refund.
- The form of tax invoice should be amended with the UKTZED code and reference to VAT benefit, in case the transaction is not subject to VAT.
- The tax return registered in the Uniform register of tax invoices after 1 January 2017 should serve as sufficient ground for the purchaser to report input VAT.
- Changes in rules of electronic tax invoice issuing and registration.
- Amendments abolish special VAT regime for producers of agricultural products from 1 January 2017. The agricultural producers should register VAT invoices before the 15 January 2017.
- Amendments establish tax holidays for qualified small businesses with annual income not exceeding UAH 3 million until 31 December 2021, etc.
On 20 December 2016 the Parliament adopted the Law No. 1791-VIII "On Amendments to the Tax Code in Relation to Securing Budget Revenues" (hereinafter, "the Law on Securing Budget Revenues"). In addition to amendments established by the Law on Amendments to Tax Code, certain amendments related excise duty, rent payment, ecological tax were introduced by the Law on Securing Budget Revenues.
- Amendments increase excise duty rates in 2017 on alcohol, alcoholic beverages, tobacco products and certain types of fuel. Certain amendments affect administration of excise tax, etc.
- Amendments abolish excise duty on retail sale of fuel.
- Amendments increase rent payment rates in 2017 on subsoil use, water use, radiofrequency resource use, etc.
- The new amendments, inter alia, change the rates of royalty payments for oil production in the following way:
- for oil produced by private or state enterprises from wells up to 5 km – 29% for any enterprise;
- for oil produced by private enterprises from wells more than 5 km – 14%, etc.