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SALANS NEWS TAXATION MARCH 2010
In this issue:

  1. New Tax Clarification on Taxation of Non-Residents
  2. Tax Incentives for the Aircraft Construction Industry
  3. Types of Depreciation of Fixed Assets
  4. Bonus Depreciation for the Alternative Fuel Industry
  5. New Tax Clarification on the Compensation of Withholding! Tax Paid on Interest to Non-Resident Creditors
  6. New Pension Fund Duty Rate for Buying Foreign Currency
  7. New Tax Clarification on the Taxation of Commissioners (Agents) that are Single Tax Payers
  8. New Tax Clarification on Tax Agents' Functions with Respect to Individual Entrepreneurs
  9. Special VAT Regime for Agricultural Enterprises
  1. New Tax Clarification on Taxation of Non- Residents

On 23 December 2009, the State Tax Administration of Ukraine ('STAU') issued explanatory letter No. 28593/7/17-0717 on the taxation of non­residents' income. In particular, the letter states that:

  • All income of non-residents (including salary) is subject to 30% tax, except for dividends, interest and royalties.

  • If a non-resident qualifies for Ukrainian residential status, this must be proved by obtaining a certificate from the tax authorities. In particular, this is required when a non-resident has a permanent residence permit or is registered as an entrepreneur in Ukraine.

  • A non-resident acquires Ukrainian tax resident status after the issuance of the certificate; all his income (in particular, salary) is then subject to 15% tax. After acquiring Ukrainian residential status, non­residents must file a tax declaration in Ukraine and pay personal income tax ('PIT') on their worldwide income.

  • Non-residents registered as entrepreneurs cannot qualify for the simplified tax regime (single tax) in Ukraine unless they acquire Ukrainian residential status.

  • Immovable property situated in Ukraine and owned by a non-resident can only be leased out by such non-resident through a resident legal entity, which must act as the tax agent in respect of lease payments.

Currently the STAU is planning to amend letter No. 28593/7/17-0717 dated 23 December 2009 to regulate a number of ambiguous issues.

It should be noted that the STAU in letter No. 2718/7/17-0717 dated 11 February 2010 confirmed that taxpayers who acted under the STAU's General Clarification letter No. 50 dated 29 January 2004 (and applied 15% PIT to non-residents' salaries) will not bear any responsibility for the period before this clarification was cancelled.

  1. Tax Incentives for the Aircraft Construction Industry

On 20 January 2010, the Ukrainian Parliament passed the law "On the Aircraft Construction Industry in Ukraine". In particular, the law provides the following incentives for the aircraft construction industry, until 1 January 2016:

  • VAT exemption for the following transactions of aircraft construction businesses: (1) the import of goods which are used for aircraft construction purposes, except for excisable goods, if such goods are exempt from import duties; and (2) the Ukrainian domestic supplies of the results of scientific, research and construction works for the purposes of the aircraft construction industry.

  • Aircraft construction businesses may apply a bonus depreciation rate to certain categories of new assets in the amount of 50% of book value of assets in the 3rd group and 100% - in the 4th group, at the end of the first reporting period in which such assets are put into use.

  • Aircraft construction businesses can recognize as taxable income the proceeds of sales of goods, works or services relating to the development, production, re-equipment, repair, modification of air equipment and engines, and relating to the conduct of scientific research and construction works related to aircraft construction in the reporting period when the factual supply of such goods, works or services took place, but can claim tax deductible expenses only upon the actual receipt of goods, works, or services from suppliers.

  • Exemption from import duties for certain categories of goods which are imported into Ukraine by aircraft production businesses (for example, engines and radio equipment for civil aviation); and

  • Exemption from land tax for land plots owned by aircraft construction businesses which are used for the production of finished products.
  1. Types of Depreciation of Fixed Assets

On 20 January 2010, the Ukrainian Parliament passed the law "On Amending Certain Legislative Acts of Ukraine regarding State Support of the Aircraft Construction Industry in Ukraine", which introduced certain changes to the Ukrainian law "On Corporate Profit Tax" regarding the depreciation of fixed assets. The law introduces the following types of depreciation: normal, bonus and accelerated. Normal depreciation of fixed assets is governed by general rules. Bonus depreciation works by treating the part of expenses attributable to the acquisition (or construction) of a fixed asset as deductible expenses and further depreciation is governed by the general rules. Accelerated depreciation applies at a double rate (except for in the case of assets in the 4tn group).

  1. Bonus Depreciation for the Alternative Fuel Industry

On 20 January 2010, the Ukrainian Parliament passed the law "On Amending Certain Legislative Acts of Ukraine regarding State Support of the Aircraft Construction Industry in Ukraine", under which producers of alternative fuels, until 1 January 2019, can apply a bonus depreciation rate to new equipment which runs on alternative fuels and new equipment for the production of alternative fuels upon completion of the first reporting period in which such equipment was put into operation, namely: (1) 50% of the book value of assets in the 3rd group; and (2) 100% of the book value of assets in the 4th group.

  1. New Tax Clarification on the Compensation of Withholding Tax Paid on Interest to Non- Resident Creditors

On 18 November 2009, the STAU issued letter No. 14086/5/22-5016, in which it states that it considers the grossing-up of interest payable to a non­resident creditor to be illegal.

To support its position, the STAU refers to art. 18.2 of the Ukrainian law "On Corporate Profit Tax", according to which contracts with non-residents should not include tax provisions under which Ukrainian legal entities paying sums to non-residents must pay withholding tax for those non-residents.

  1. New Pension Fund Duty Rate for Buying Foreign Currency

On 31 December 2009, the Pension Fund of Ukraine issued letter No. 24746/03-02 regarding obligatory state pension duty rate on the purchase of non-cash foreign currency. The Pension Fund believes that since the rate of 0.2% was set for 2009, in 2010 the applicable rate must be 0.5%, as it was before 2009.

  1. New Tax Clarification on the Taxation of Commissioners (Agents) that are Single Tax Payers

On 18 December 2009, the STAU issued letter No. 15700/5/15-0116 about the application of a single taxation regime for funds received by legal entities - single tax payers which perform commission brokerage or agency services. The STAU has changed its previous position in this respect and its new position provides for the inclusion of only the commissioner's (agent's) remuneration received from the above activities as taxable income.

  1. New Tax Clarification on Tax Agents' Functions with Respect to Individual Entrepreneurs

On 23 November 2009, the STAU issued letter No. 12004/6/17-0716 on the taxation of individual entrepreneurs' income paid to them by legal entities. The STAU has changed its previous position in this respect and now believes that a copy of the certificate of state registration (irrespective of the system of taxation being applied) is the required document for a tax agent not to be obliged to withhold personal income tax paid to individual entrepreneurs. At the same time, the tax agent must notify the tax authority using form No. 1-DF upon payment of personal income tax.

Please be reminded that previously the STAU considered it obligatory for the tax agent to receive copies of a single tax payer's certificate and documents confirming the payment of tax.

  1. Special VAT Regime for Agricultural Enterprises

On 22 December 2009, the Ukrainian Parliament passed the law "On Amending Certain Laws of Ukraine to Support the Agro-Industrial Sector during the Financial Crisis". The law, in particular, restores the privileged VAT regime for agricultural enterprises, from 31 December 2009. The VAT that must be paid to the budget by agricultural processing enterprises from sales of milk and dairy products, meat and meat products, must be fully utilized for donations to agricultural producers for the milk and meat sold by them to agricultural processing enterprises.

This newsletter does not constitute legal advice with respect to any matter or set of facts and may not be relied upon for such purposes. Readers are advised to seek appropriate legal advice before entering into any transaction, making any determination or taking any action related to matters discussed herein. No part of this newsletter may be copied or quoted without the prior written consent of Salans.

LINK EN: http://www.usubc.org/reports/Salans_Tax_Newsletter_ March_2010_Eng.pdf
LINK UA: http://www.usubc.org/reports/Salans_Tax_Newsletter_ March_2010_Ukr.pdf