UKRAINE: SALANS TAX NEWSLETTER JUNE 2010

Salans law firm, Kyiv, Ukraine, Wed, June 30, 2010

KYIV - Salans law firm Tax Newsletter June 2010. In this issue: 1. Law on the 2010 State Budget; 2. Amendments to Tax Laws and 3.Refunds of VAT paid on Services Provided by Non-residents

1.  Law on the 2010 State Budget
On 27 April 2010, the Ukrainian Parliament passed the law “On the Ukrainian State Budget for 2010” (the “Law”) which, in particular, contains the following provisions:

1.  From 1 July 2010 the obligatory state pension duty rate on the purchase of non-cash foreign currency will not be applicable.
2.  In 2010 joint stock companies must pay dividends in the amount of at least 30% of net profit in the reporting year.
3.  VAT refunds to VAT payers who claimed their refund before 1 May 2010, if established by inspections and not refunded at the date when the Law becomes effective, must be held in government domestic bonds. The terms of issuing such bonds are set by Resolution No. 368 of the Cabinet of Ministers of Ukraine, dated 12 May 2010, including:

(i)     The nominal value of one VAT bond is UAH 1000;
(ii)    The term of VAT bonds is 5 years;
(iii)  The interest on VAT bonds will be 5.5% per annum; and
(iv)   Redemption of VAT bonds shall take place every 6 months by redemption of principal of 10% of the VAT bonds’ nominal value.

4.  The land tax rate under the Ukrainian law “On Land Tax” will be multiplied by 3.2 for areas where a monetary valuation of land has not yet been made.

5.  Tax authorities will dispute the decisions of all courts which find against the State until a judgment is made by the Ukrainian Supreme Court.

6.  In 2010 the minimum wage for living and the monthly minimum salary are set at one level, namely: from 1 January – UAH 869, from 1 April – UAH 884, from 1 July – UAH 888, from 1 October – UAH 907 and from 1 December – UAH 922.
2.  Amendments to Tax Laws
On 20 May 2010, the Ukrainian Parliament passed the law “On Amending Certain Legislative Acts of Ukraine”, which, in particular, contains the following provisions:

1.  Moratorium on Sales on Commodity Exchanges. A moratorium on the sale on a commodity exchange of individually identifiable goods, if not sold as a consignment of goods, widely used goods (including vehicles) and capital assets. This amendment has been made with a view to eliminating the possible understatement of prices (and tax liabilities) when goods are sold on a commodity exchange.

2.  Terms for Tax Audits. The terms of tax audits have been increased, in particular:
(1) the term for a scheduled outdoor tax audit has increased to 30 working days (previously 20) and the term for a scheduled outdoor tax audit in respect of small businesses - to 20 working days (previously 10);
(2) the term for an unscheduled outdoor tax audit has increased to 15 working days (previously 10) and for an unscheduled outdoor tax audit in respect of small businesses - to 10 working days (previously 5);
(3) the term for a scheduled outdoor tax audit may be prolonged for up to 15 working days (previously 10) and the term for a scheduled outdoor tax audit in respect of small businesses may be prolonged for up to 10 working days (previously 5); and (4) the term for an unscheduled outdoor tax audit may be prolonged for up to 10 working days (previously 5). Scheduled or unscheduled tax audits may be suspended for up to 30 working days by order of the tax authorities.

3.  Grounds for Tax Audits. The tax authorities can conduct an unscheduled tax audit without prior notice to the taxpayer if the tax police receive information that such taxpayer or his employee is avoiding taxation while accruing (paying or receiving) salary, other taxable payments and compensation, including as a result of not entering into an employment agreement.

4.  VAT on Gas Imports. VAT exemption for activities related to the import of natural gas into Ukraine under foreign economic contracts.
5.  VAT Reporting. VAT payers must submit to the tax authorities electronic copies of their registers of issued and received tax invoices.

6.  VAT Refund. The remaining negative VAT result after a VAT refund has been declared must be included in the tax credit for the following tax period only as to the amount of VAT paid to suppliers of goods (or services) by the taxpayer or import VAT and must be included in the calculation of the VAT refund for the following reporting period. 

The remaining negative VAT result for which no settlements have been made with suppliers will be reflected separately in the VAT return for the purposes of calculating the amount of VAT refund in future tax periods. The remaining negative VAT difference after a VAT refund will be separately reflected in the VAT return and will be treated as a tax credit from the first reporting period of 2011.

7.  Cancellation of VAT Registration. An entry in the single state register for legal entities and individual entrepreneurs confirming the absence of a legal entity or individual at its place of registration will justify the cancellation of VAT registration. This provision creates a considerable risk for VAT payers having both factual and legal addresses.

8.  Insurance Reserves. The amount of insurance reserves which may be treated as a tax deductable expense for a financial institution can be no more than 20% for commercial banks (for the period until 1 January 2011 – 40%, for the period from 1 January 2011 to 1 January 2012 – 30%) and 10% for non-banking financial institutions.

9.  Accounting and Financial Reporting. A taxpayer, except for banks and financial institutions, whose income for the previous year is more than UAH 100 million must keep account of temporary and constant tax differences and file a financial report with the tax authorities.
10.  Carry-Forward of Tax Losses. Only 20% of corporate profit tax losses existing on 1 January 2010 can be carried forward and used in 2010.

11.  Taxation of Income from Credit Operations. Income from bank credit operations accrued from 1 January 2009, but not received on 1 January 2010, must be treated as taxable income for the bank at the date of its actual receipt.  This rule does not apply if income from credit operations accrued for the period from 1 January 2009 to 1 January 2010 was treated as taxable income by a bank during 2009.

12.  Excise Duty. Excise duty on certain categories of goods (including gasoline, spirits, alcohol and tobacco) has been raised.
3.      Refunds of VAT paid on Services Provided by Non-residents
On 15 April 2010, the State Tax Administration of Ukraine issued Letter No. 7466/7/16-1517-04 on refunds of VAT paid on services provided by non-residents on the customs territory of Ukraine. According to the letter, VAT paid on services provided by non-residents will not be refunded due to the fact that tax accounting for services from non-residents on the customs territory of Ukraine does not provide for a separate VAT payment to the budget.
 
CONTACT: For further information regarding taxation in Ukraine, please contact: Igor Davydenko, Partner, E: idavidenko@salans.com; Sergiy Melnyk, Associate, E: smelnyk@salans.com; Salans Kyiv, 49-A, Volodymyrska Street, 2nd Floor, 01034 Kyiv, Ukraine, T: +380 44 494 4774; F: +380 44 494 1991
E: kyiv@salans.com

NOTE: Salans is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C., www.usubc.org.