New taxation rules for agribusiness in Ukraine

CMS Cameron McKenna, 
Kyiv, Ukraine, Tue, March 31, 2015

On 1 January 2015 Law No. 71-VIII “On Amendments to the Tax Code of Ukraineand Certain Legislative Acts of Ukraine on Tax Reform” (the “Law”) entered intoforce. The Law makes various changes; most notably it substantially changes thetaxation rules in the sphere of agribusiness in Ukraine.

Firstly, the Law has kept the special value added tax (“VAT”) regime foragriculture (this means that VAT is accumulated in special accounts).

Under the Law, the fixed agricultural tax regime has been transformed bymeans of introducing a separate (4th) group of single taxpayers – agriculturalmanufacturers. Agricultural manufacturers are eligible to apply for a singletax if they meet both the following two requirements:

 i.       the shareof the company’s income from agricultural production (i.e., sale of thecompany’s cultivated and processed products) to the total share of its incomeequals or exceeds 75 per cent; and

ii.       theseagriproducts were cultivated on land which such agricultural manufacturers ownor lease, and the ownership title and leases has been duly registered.

Thus, under the amended Law, the registration of land leases on whichagricultural manufacturers produce 75% of their agriproducts is obligatory ifthose agricultural manufacturers are to be eligible to apply for the singletax.

The tax rates calculated as percent of the target-ratio based monetaryvaluation per hectare of agricultural land and were increased threefold asfollows:

·          0.45 for arable land, hayfields and pastures (except forarable land, hayfields and pastures located in mountainous areas and marshywoodland areas, and arable land, hayfields and pasture, as owned byagricultural producers that specialise in producing (growing) and processingcrop products in greenhouses);

·          0.27 for arable land, hayfields and pastures located inmountainous areas and marshy woodland areas;

·          0.27 for perennial plantations (except for perennialplantations located in mountainous areas and marshy woodland areas);

·          0.09 for perennial plantations located in mountainousareas and marshy woodland areas;

·          1.35 for lands of water fund (lands of water fund includeland occupied by: rivers, lakes, reservoirs and other water objects, swamps;coastal protection strips along the rivers; hydraulic water facilities andother channels, as well as land allocated for the easement for them).

Until 31 December 2017 the supplies of grain crops (wheat, rye, barley,oats, maize, rice, sorghum, buckwheat, and millet) and industrial crops (seedsof rape and seeds of sunflower) will be exempt from VAT, except for (i) anagricultural manufacturer’s first supply of these crops, and (ii) the supply ofthese crops by a business entity that has bought the crops directly in theagricultural manufacturers in the territory of Ukraine. Thus, agriculturalproducers and first intermediaries will supply products subject to VAT.

Under theLaw the export of grain and industrial crops will be exempt from VAT.

This innovation has provoked sharp discussions. In particular, participantsin the Ukrainian grain market are concerned about applying such provisions andpredict that they will have a negative effect on agribusiness and generally onthe investment climate in Ukraine.

Law: Law No. 71-VIII “On Amendments to the Tax Code of Ukraine and CertainLegislative Acts of Ukraine on Tax Reform”

Authors:

Daniel Bilak,Managing Partner, Daniel.Bilak@cms-cmck.com

OlexanderMartinenko, Senior Partner, Olexander.Martinenko@cms-cmck.com