Taxation in Ukraine 2011

8/4/2019 Taxation in Ukraine 2011

http://slidepdf.com/reader/full/taxation-in-ukraine-2011 1/48

3 march 2011

Tax & Legal

Taxation in Ukraine



Introduction 3

Regulatory enviroment 5

System o taxation 12

Tax administration 14

Corporate income tax (CIT) 16

Value-added tax 24

Excise tax 29

Taxation o cross-border transactions 30

Special tax regimes 32

Personal income tax (PIT) 38

Unied Social Security Contributions 41

Duties or the use o natural resources 42

Other taxes 44

Contacts at Deloitte CIS 45

Table of contents


http://slidepdf.com/reader/full/taxation-in-ukraine-2011 3/48Taxation in Ukraine 3

Introduction

Ukraine today represents one o the most exciting

emerging markets or international businesses.

A population o 45 million people oers high

consumption potential, while the country’s vast

resources and cheap labor create avorable conditions

or setting up production acilities. In addition, Ukraine

has established a reputation as a major exporter

o grain, machinery and rolled-metal products.

Ukraine’s growth rates in the pre-crisis period attracted

the attention o investors rom across the globe. Despite

the crisis having aected both Ukrainians’ purchasing

power and Ukrainian businesses, demand is still evident,

even i, in light o the current economic situation,

it is put on hold until the economy stabilizes. Euro 2012,

an event, or which Ukraine is preparing proactively,

will enhance the nation’s tourism potential, while also

improving the quality o its transport inrastructure.

The weakening o the hryvna during the crisis

had a benecial eect on the competitiveness

o the products o domestic manuacturers on overseas

markets. The importation and exportation o goods

accounts or the vast majority o avorable economic

gures coming out o Ukraine. The country’s main

import partners are Russia, Germany and Turkmenistan,

while its main export partners are Russia, Germany,

Turkey, Italy and the US. The nation’s main imports are

energy, machinery, equipment and chemicals, while

its main exports are errous and nonerrous metals,

uel and petroleum products, chemicals, machinery

and transport equipment, and ood products.

Several actors have restrained the infow

o investments into Ukraine until now. Like

any growing transitional economy, there are

a number o ongoing problems, including structural

and political issues (mainly related to overcoming

the global and local nancial crises), along with issues

related to the privatization (or re-privatization)

o enterprises and a lack o clear guidance on taxation

issues. Other actors include inconsistency with regard

to the most crucial economic decisions (such

as privatization processes, the regulatory approval

system and legislation), the shortcomings o the judicial

system, the instability o the national currency and weak

liquidity in the stock market.

The eect the nancial crisis had on the durability

o the Ukrainian economy and Ukrainian companies

cannot be understated. In 2009 alone, Ukraine’s

GDP dropped by 15% – at the time the biggest

economic decline on record – and only loans

rom various nancial organizations helped the

national economy survive, while the banking system

managed to escape widespread crashes. As a result,

Ukraine is second only ater Romania with regard

to the size o the national debt owed to the IMF

(USD 14.12 billion*). The entire Ukrainian national

debt has more than doubled over the last three

years, and now amounts to USD 36 billion. Today,

business is making up or time lost during the crisis;

however, it may take several years beore it reaches

pre-crisis levels.



One o the major problems o the Ukrainian business

climate is the hostile corporation tax legislation

that used to be a major reason or the suspension

o investment projects or a reusal by international

companies to enter the Ukrainian market. The adoption

o the Tax Code that, or the rst time since

independence, brings together Ukrainian tax legislation

in its entirety, was last year’s major event. The Code

adjusts both rates and benets, as well as the process

o tax imposition. At the same time, adoption

o the Code will hopeully help resolve one o the main

problems companies operating in Ukraine encounter,

i.e. the issue o timely VAT recovery. Time will tell how

the document actually works in practice.

The act that the document was adopted during

stabilization o the economy also raises hopes.

Companies have started recovering ground in the wake

o the crisis – industrial production volumes have

increased by over 10%, expert operations grew by nearly

30%, and investment volumes have also increased

(the volume o private investments into Ukraine

over the past year exceeded USD 4.5 billion). The

labor market has seen a slight improvement and the

currency has stabilized. Manuacturing, transportation

and telecommunications have all managed to adapt

to the new realities, and are recovering their positions.

However, it is the agricultural sector that has

demonstrated the most dynamic growth, with a couple

o agro companies even having listed their shares

on western stock exchanges.

Yet, despite all the good news, the current economicrecovery remains quite shaky. Much will now depend

on how Ukraine copes with the transitional stage

ollowing the introduction o its new tax legislation.

We will need to see how the rules and regulations

o the Tax Code work in practice, whether

representatives o the international business

community have aith in the rule o law in Ukraine,

and whether new developments are consistent and see

the widespread adoption o regulatory documents.

We hope that the ollowing overview o taxes

and related legislation will be helpul to you. Please

note that the inormation included in this publication

is not exhaustive, and is based on the laws o Ukraine

as o 1 January 2011.



Regulatory enviroment

Investment in Ukraine

General rules governing investment activities

in Ukraine

This guide will start by outlining the provisions

o Ukrainian legislation that concern investment activities

in Ukraine. In particular, we provide the denition

o the term “oreign investment” and describe the types

o oreign investment that may be made in Ukraine,

as well as detailing the ormal procedure or the

registration o oreign investments. This guide will also

outline the general privileges and state guarantees

available to companies that receive oreign investment.

Defnition o a oreign investment, types

o investments and methods o investing

Ukrainian legislation denes the term “oreign

investment” as a direct contribution by a oreign

investor to an investment target, with the aim

o receiving income or “having a social eect” (e.g.

non-prot organizations). A company in receipt

o oreign investment is any company or organization,

established in accordance with Ukrainian legislation

in any organizational or legal orm, with 10% or more

o its authorized share capital made up o oreign

investments.

The law also provides or investors to make several types

o investments in Ukrainian companies, which include,

but are not limited to, investments in the orm o oreign

or local currency, movable and immovable property and

related proprietary rights, shares, bonds, other securities

and corporate rights expressed in oreign currency.

Foreign investors usually choose one o the ollowingoptions when entering the Ukrainian market:

•Acquisition o shares in an existing company owned

•by Ukrainian legal entities and/or individuals

•Acquisition o shares in a company that is already

wholly-owned by oreign investors

•Establishment o a representative oce or another orm

o separate subdivision o a oreign legal entity

State registration o oreign investments

In most cases, Ukrainian legislation requires that

oreign investors make investments through investment

accounts, opened with authorized Ukrainian banks. It is

important to note that oreign currency contributed into

Ukraine as an investment must be converted into local

currency.

I the share o a non-resident in the authorized share

capital o a Ukrainian company exceeds 10%, the

company may obtain the status o a “company with

oreign investments”, provided that it completes the

appropriate ormalities with regard to registration.

Foreign investors are entitled to certain privileges

and guarantees, which are granted to companies

with oreign investments under Ukrainian legislation,

provided that any oreign investment contributed

to their authorized share capital is registered with the

state administrations and the tax authorities.



Types o businesses

Ukrainian legislation provides or a number o dierent

orms o legal entity or carrying out business activities,

which we have summarized in table 1 above.

The most common orms o doing business in Ukraine

or oreign companies are:

•Legal entities (primarily limited liability, open/public and

closed/private joint-stock companies)

•Joint ventures (especially in the oil and gas exploration

sector)

•

Representative oce (common or oreign companiesthat are only looking to perorm marketing, promotional

and other auxiliary activities).

Foreign investors who plan to carry out active business

operations may choose to establish a legal entity

in Ukraine, instead o merely a representation.

I a oreign investor chooses to do business in Ukraine in

a orm other than a legal entity, it is important

to determine whether that oreign company’s presence

in Ukraine would lead to the creation o a permanent

establishment (hereinater, “PE”) under Ukrainian tax and

oreign currency legislation. For an additional discussion

o PEs, please reer to the “Taxation o non-resident

entities” section o this guide.

Representative ofces

A representative oce o a oreign business in Ukraine

is not a legal entity, but rather an “extension” o its

parent company.

A representative oce may either represent its oreign

parent company in the market and carry out various

auxiliary activities, or carry out business (commercial)

activities that may give rise to a taxable permanent

establishment.

It is also possible to perorm certain types o businessactivities in Ukraine without establishing a representative

oce or any other ormal presence in the country.

Examples o this would include one-time contracts,

or joint production agreements with Ukrainian partners.

Representative oces that do not carry out business

activities and simply unction as the representation

o a legal entity (‘non-commercial representative oces’)

are only required to register with the Ministry o the

Economy o Ukraine (hereinater, the “MEU”). However,

in practice, non-commercial representative oces also

do register with the tax authorities and social security

unds. Unlike non-commercial representative oces,

Permanent Establishments (‘commercial representative

oces’) are required to register with the local tax

authorities and social security unds. Due to some

ambiguity in the legislation, Permanent Establishments

are usually registered with the MEU as well.

Popularity Type o business Primary characteristics/requirements

1 Limited liability company Charter required, limited liability, capital divided into

units, may be established by one person

2 Open/public or closed/private joint-

stock company1

Charter required, limited liability, issues shares, may be

established by one person

3 General partnership Unlimited personal liabili ty, partnership agreement only,at least two partners (very rarely used in practice)

4 Limited partnership Limited liability partners and at least one general partner

(unlimited liability), at least two partners (very rarely

used in practice)

5 Company with additional liability Personal liability limited by oundation documents,

charter, may be established by one person (very rarely

used in practice)

6 National and local state enterprise Owned by local and state governmental bodies

7 Sole proprietorship, private enterprise,

amily enterprise, other entitiesSingle owner and single employee; single owner and

multiple employees; multiple related owners

Table 1

1 For additional inormation

on joint-stock companies,

please reer to the Types o

legal entities section o this

guide.



Registration procedure

Representative oces are legally obliged to register with

the MEU, while they may also choose to register with

the tax authorities.

1. The MEU

The registration process or representative oces

involves the ollowing steps:

1. Filing a set o registration documents, as required by

law, and paying a state registration ee (USD 2,500)

2. Examination o the documents by the MEU (within 60

working days)

3. Approval or rejection o registration (may be appealed

in court)

4. Upon approval, inclusion into the Unied Register o

Representative Oces and issuance o a Registration

Certicate

5. I a representative oce constitutes a taxable PE, then

it is obliged to register with the tax authorities (i this

has not already been done) and Ministry o Statistics o

Ukraine within 10 days

6. Approval o the design o an ocial company seal

and opening o company bank accounts

Upon completion o the above ormalities, a registered

entity has the right to apply to:

•the respective departments o the Ministry o Internal

Aairs to obtain visas or and register the passports o

its employees;

•trac police oces, to register vehicles owned by the

representative oce.

2. State tax authoritiesThe procedure or registering a representative oce

with the state tax authorities is as ollows:

1. A PE must le the required documents with the tax

authorities in the region/district, in which it is located.

2. Within ve days o submitting the documents, a tax

ocer will examine them or compliance with legal

requirements, and make a decision on whether to

approve or reject the registration.

3. Within 20 days o a positive decision, the tax

authorities will issue a tax registration number to the PE

and include it in the Unied State Register o Enterprises

and Organizations.

4. The tax authorities issue a Certicate o Registration

or a corporate income tax payer.

5. Ater registration with the state tax authorities, the PE

will also be required to register with the social security

unds, open a bank account, and obtain an ocial seal.

Types o legal entities

The two most common types o legal entities envisaged

under Ukrainian law are limited liability companies and

joint-stock companies. The latter may be open/public or

closed/private.

The main legislative acts regulating the activities o

these types o legal entities are the Civil and Commercial

Codes o Ukraine and the Laws o Ukraine “On Business

Entities” and “On Joint-Stock Companies.”

The new Law o Ukraine “On Joint-Stock Companies”

was adopted on 17 September 2008, and came into

eect on 30 April 2009. This law introduced new

terminology, such as the use o the terms public and

private to describe joint-stock companies, instead o

open and closed. According to the law, open and closed

joint-stock companies should be reregistered as public

and private joint-stock companies within two years o

this law coming into orce (i.e. by 30 April 2011).

The main legislative requirements or joint-stock

companies remained intact. However, the law also

introduced a number o procedural issues and

mechanisms to protect shareholders. Moreover,

according to the law, when establishing a public joint-

stock company, a private joint-stock company should

rst be established, which is then reorganized into a

public joint-stock company by way o a public shareissue.

A Ukraine-based company or partnership is considered

to be a legal entity upon its state registration. Ukrainian

businesses are established and operate on the basis

o their constituent (oundation) document, i.e. their

Charter. A constituent document should contain the

specic inormation required by law or each type o

business.

It should be noted that a Ukrainian entity (either a

limited liability company or a joint-stock company) may

not be solely owned by a ounder that has only one

participant (shareholder). Furthermore, an entity cannot

be a sole participant in more than one Ukrainian LLC.



Generally speaking, Ukrainian legislation does not

contain any restrictions or limitations on the level

o oreign investments or shared membership by a

oreign investor in a Ukrainian business. However, there

are some restrictions on oreign ownership in certain

highly regulated businesses (e.g. insurance companies,

publishing companies, television, etc.). Some o the

restrictions that should be taken into consideration prior

to investing in Ukraine relate to ownership structure and

land use.

Open/public joint-stock companies (Vydkryte/

Publichne Aktsionerne Tovarystvo)

The main dierence between open/public joint-stock

companies and closed/private joint-stock companies

is that the shares o closed/private joint-stock companies

are distributed exclusively among the ounders, while

the shares o open/public joint-stock companies are

oered or public subscription or may be sold publicly

on the stock market.

An open/public joint-stock company (hereinater,

“PJSC”) may have an unlimited number o shareholders.

Subject to elaborate disclosure requirements, PJSCs

are the only orm o legal entity whose shares may

be openly traded and, thus, are similar to “public”

companies in the usual sense.

The minimum authorized share capital or these

companies is set at 1,250 minimum monthly wages (as

at 1 January 2011, the minimum monthly wage was

xed at UAH 9412).

Closed/private joint-stock companies (Zakryte/

Pryvatne Aktsionerne Tovarystvo)

The most common type o joint-stock company is a

closed/private joint-stock company (hereinater, “PrJSC”).

According to the eective legislation, an owner

o shares in a PrJSC is limited in terms o transerring

their shares to a third party, unless consent has been

obtained rom the PrJSC’s other shareholders.

PrJSCs are one o the most popular corporate vehicles

or oreign investors in Ukraine, along with limited

liability companies. The main eatures o these

companies are as ollows:

•Shareholders are not liable or the obligations o the

company, and bear the risk o losses only to the extent

o the value o their shares (limited liability).

•PrJSCs may be involved in any type o activity, provided

that the activity in question is not directly prohibited

•by law.

•The minimum authorized share capital o a PrJSC

is determined the same way as or an PJSC.2

•The requency o shareholders’ meetings is established

by the Charter, but must be at least once a year.Among

other things, the shareholders’ meeting

is responsible or electing a Supervisory Board

to represent shareholders’ interests, or controlling the

activities o the Board o Directors (or Director), and or

electing the Board o Directors (or Director) (or only the

election o a Supervisory Board or private JSCs)

•The company is established or an indenite period,

unless otherwise stipulated by the charter.

•The day-to-day management unctions o a PrJSC

are perormed by the entity's Board o Directors (or

Director). There are no legislative limitations on the

number o members o the Board o Directors.

•The ounders have to pay at least 50 percent o the

value o the authorized share capital, in order or the

company to be allowed to perorm activities other than

those linked to its oundation. According to the Law

o Ukraine “On Joint-Stock Companies,” shareholders

may use cash unds, property, property and

non-property rights, securities (except promissory notes

or any debt securities issued by the PrJSC) as a means

o paying or their share in the authorized share capital

o a PrJSC.

•An Audit Committee controls the activities o the Board

o Directors.

•

I there are more than 50 shareholders in a PrJSC(10 shareholders in a private JSC), establishment o a

Supervisory Board is mandatory.

•Distribution o the net (ater-tax) prots o a PrJSC

between its shareholders is normally done on a pro

rata basis, according to the company’s shareholding

structure.

•JSC may issue common and preerred shares. Unlike

common shares, there may be various classes

o preerred shares that grant dierent rights to their

owners. All common shares issued by JSC have equal

voting and distribution rights.

•Unlike shares (participation) in the LLC, shares in JSC,

as securities, may be eectively pledged.

2 Resulting in a minimum

authorized share capital or

PJSCs o UAH 1,176,250

(approximately USD 148,000);

however, rom 1 April 2011,

the minimum monthly wage

will be increased to UAH 960,

rom 1 October, to UAH 985,

and rom 1 December 2011,

to UAH 1,004, resulting in a

minimum authorized share

capital or PJSCs o UAH

1,200,000 (approximately

USD 151,000) rom 1 April

2011, UAH 1,231,250

(approximately USD

155,000) rom 1 October

2011 and UAH 1,255,000

(approximately USD 158,000)

rom 1 December 2011.



Limited liability companies (Tovarystvo z

Obmezhenoyu Vidpovidalnistyu)

Along with PrJSCs, limited liability companies

(hereinater, “LLCs”) are one o the most popular orms

o doing business in Ukraine. As with PrJSCs, the shares

o an LLC cannot be transerred without the consent

o the other shareholders. At the same time, the

nancial and reporting requirements or an LLC are less

burdensome than or a PrJSC.

The main eatures o an LLC are as ollows:

•Participants in an LLC have limited liability, which

does not exceed their contribution to the company’s

authorized share capital.

•The ounders o an LLC have to pay at least 50 percent

o the company’s declared authorized share capital

prior to its state registration. Contributions to an LLC’s

authorized share capital can be made in cash, property,

securities, property, or other alienable rights, which have

a monetary valuation.

•The highest management authority o an LLC is its

General Meeting o Participants. The requency

o meetings o the participants should be stipulated

by an LLC’s Charter. At the same time, the e ective

legislation stipulates that meetings o the participants

should be held at least twice a year. Additional meetings

may be held when required. Responsibility or the

day-to-day activities o an LLC rests with its General

Director/Director.

•Shareholders are obliged to pay the ull value

o their shares within one year o the company’s state

registration.

•Distribution o the net (ater-tax) prots o an LLC

among its participants is normally done on a pro rata

basis, according to the stake o each participant in the

company.

•The minimum authorized share capital or an LLC equals

one monthly minimum wage.3

Special regulation regarding the acquisition o plots

o land

Ukrainian law provides regulations aimed at protecting

land (which is considered to be the property o the

Ukrainian people, in accordance with the Ukrainian

Constitution) and its designated usage. First o all,

the current Moratorium on the Sale o Agricultural

Land prohibits the sale o any agricultural land until

the enorcement o the Law o Ukraine “On the State

Land Cadastre” and the Law o Ukraine “On the Land

Market,” but no earlier than 1 January 2012. Secondly,

according to Ukrainian legislation, Ukrainian legal

entities are entitled to purchase any plot o land situated

in Ukraine (that is or sale), except under the conditions

described below.

•In inhabited areas, i the plot o land in question

is purchased along with any associated real estate

assets, or i the land is purchased with a view to the

construction o real estate assets that will be used in the

course o business activities

•Outside o inhabited areas, i the plot o land is

purchased along with any associated real estate assets

Meanwhile, oreign legal entities (including entities

established in Ukraine with 100% oreign capital) are

only entitled to purchase non-agricultural land.



Currency control

Currency control regulations

The hryvnia (UAH), the Ukrainian currency, has limited

convertibility. Residents and non-residents may hold

hard currency and UAH accounts with authorized banks,

and may import and exchange currency in accordance

with the procedures established by the National Bank

o Ukraine (NBU). However, currency operations that

take place in Ukraine all under state currency control

regulations, a key eature o which is the concept o

residency.

For the purposes o currency regulations and control

requirements, a resident o Ukraine is dened as the

ollowing:

•Any person, including oreign citizens, permanently

residing in Ukraine

•Legal entities, representative oces or other structural

subdivisions thereo, located and perorming business

activities on Ukrainian territory

•Ukrainian diplomatic, consulate, trade and other ocial

governmental institutions abroad that enjoy diplomatic

privileges and immunity

•Representative oces or other structural subdivisions

o Ukrainian companies and organizations abroad,

i these subdivisions perorm representative unctions

only and are not engaged in business activities

Any other person or structural subdivision that is not

a resident o Ukraine is treated as non-resident or

exchange control purposes. Stricter currency restrictions

are imposed on residents than on non-residents.

In particular, oreign currency control regulates theollowing relations:

•In general, only local currency may be used in business

transactions between residents.

•The means o payment between residents and

non-residents involved in international transactions, in

connection with trade and investment activities,

is generally taken to be oreign currency.

•Foreign currency proceeds received by a company rom

its oreign clients must be credited to a local bank

account within 180 days o the export date o the

services or goods in question. Failure to comply with

this provision will result in the Ukrainian company being

liable to pay a penalty o 0.3% o the non-received

proceeds or each day o the delay.

•Goods must be imported into Ukraine within 180 days

o prepayments being made by a Ukrainian company

to its suppliers. Failure to comply with this provision will

result in the Ukrainian company being liable to pay

a penalty o 0.3% o the non-received proceeds or each

day o the delay.

Certain other transactions involving local and oreign

currency are subject to licensing by the National Bank

o Ukraine (e.g. settlements made in oreign currency

on Ukrainian territory). Ukrainian residents are also

required to obtain an individual license to make

investments abroad. Investing abroad includes

purchasing securities issued by oreign entities, opening

an account with a oreign bank and issuing or taking

out oreign-currency loans. I one party to a currency

transaction has obtained the required license, the other

party is also treated as having acquired it.

These licenses are issued or a limited period, and with

a limited amount o oreign currency specied. The

procedure or obtaining an individual license is quite

onerous, and requires a specic set o documents to be

submitted to the NBU or approval. Normally, a license

can be obtained within 4-6 weeks o ling the required

set o documents with the NBU, unless the NBU nds

sucient grounds to reject the application.

The NBU establishes the exchange rates o UAH to other

currencies on a daily basis.



Labor issues

Migration regime or oreign individuals

Depending upon the purpose o a oreign citizen’s visit

to Ukraine, they may normally apply or the ollowing

types o visas:

B-type (business) visa is issued to expatriates visiting

Ukraine or short-term business purposes, as well as

to personnel o Ukrainian representative oces

o oreign companies. In rare cases, B-type visas are

issued to expatriates’ amily members who travel

to Ukraine with them.

IM-1 (immigration) visa is issued to expatriates who

have a working assignment in Ukraine, and is only

issued on the basis o an already obtained Ukrainian

work permit.

P-type (private) visa is issued to oreigners coming

to Ukraine or personal reasons, as well as to amily

members o expatriates entering Ukraine on the basis

o either a B- or a P-visa.

M-type (media) visa is issued to media representatives

coming to Ukraine to perorm media activities.

Generally, citizens o the EU, USA, Japan and Canada do

not require a visa to enter Ukraine, i they stay no longer

than 90 days within a 180-day period.

Since 2009, control over Ukrainian immigration rules has

increased signicantly. As a result, a stay o longer than

90 days in an 180-day period requires the individual

to complete registration procedures at a special body

o the Ukrainian Ministry o Internal Aairs called

UGIRFO (Immigration Authorities).

Any company or representative oce wishing to invite

and employ oreign individuals should be registered withthe Immigration Authorities. Following the company/

representative oce’s registration, its oreign employees

may register themselves individually or immigration

purposes:

•Temporary registration o a oreign individual – This

type o registration is required or the personnel

o representative oces* and members o oreign

individuals' amilies. It is issued or B- and P-type

visas, or a period o three to six months. In general,

temporary registration allows individuals to stay

•in Ukraine or a term o more than 90 days within

a 180-day period.

•Foreign individuals employed by local legal entities

on the basis o a Ukrainian work permit need to obtain

a Temporary Residency Permit, which is issued or the

duration o the respective work permit, on the basis

o an IM-1 visa. Ater obtaining a Temporary Residency

Permit, the holder o an IM-1 single-entry visa will

require no visa to travel reely in and out o Ukraine.

•Permanent Residency Permits are issued in special

circumstances, mainly in cases o permanent

immigration to Ukraine.

Foreign citizens working in the representative oces o

oreign companies in Ukraine must also apply or

an Ocial Card, issued by the MEU or three years, with

the possibility o extension.

The above provisions are still subject to urther

developments. An active dialog is between the business

community and the Ukrainian government on this issue

is still in progress.



System of taxation

Tax System

The list o Ukrainian taxes, levies, and general tax

principles is established by the TCU. In accordance

with the Code, all taxes and levies are classied as either

state or local. State taxes are payable to state budgets,

while local taxes are payable to local municipalities (city,

regional or specic district councils, respectively).

As a basic legal principle, taxes and levies, as well

as all rates, tax collection procedures and incentives,

may only be established in accordance with the TCU

and any amendments to it.

The Tax Code provides or the ollowing major taxes

and duties (mandatory payments):

•Corporate income tax (CIT)

•Fixed agricultural tax (FAT, applicable to agricultural

producers only, as an alternative to CIT and certain other

taxes and duties)

•Value-added tax (VAT)

•Personal income tax (PIT)

•Excise duties

•Customs duties

•State duties

•Land tax

•Property tax

•Payments or licenses/patents

•Other taxes and duties (including local taxes and duties,

such as community development tax, parking duties,

recreation duties, etc.)

In addition to the duties outlined in the Tax Code,

Ukrainian taxpayers are required to remit mandatoryUnied Social Security Contributions.

Control over compliance with tax legislation is exercised

by the tax authorities, based on the provisions

o the TCU. Control over compliance with legislation

on Unied Social Security Contributions is exercised

by the Ukrainian Pension Fund, on the basis o the Law

“On collecting and accounting or Unied Social Security

Contributions to Compulsory State Social Insurance.”

General principles

Ukraine adheres to the European (continental) legal

system. The Ukrainian parliament (the Verkhovna

Rada) is the only authority that has the right

to establish laws. There is no court precedent

doctrine in Ukraine and, thereore, court

decisions may be regarded as recommendations

and reerences only.

As required by the Ukrainian Constitution, any

taxes or levies envisaged under the Ukrainian tax

system, including sanctions or tax violations, may

only be established as a result o legislation enacted

by the Verkhovna Rada. The Verkhovna Rada may

not delegate its constitutional powers to establish a tax

system, taxes or levies, or sanctions or tax violations,

to the government or any other authority.

In accordance with the Constitution, all laws,

and tax laws in particular, only come into eect ater

being published in accordance with due procedure

(i.e. ater having been approved in a third reading

by the Verkhovna Rada and signed by the President).

Tax laws that amend the tax regime come into eect

rom 1 January o the year ollowing that, in which they

were adopted, provided that this occurred beore 1 June.

However, this rule is oten violated. Furthermore, newly

adopted tax laws have no retrospective eect, unless

they increase benets or taxpayers and their application

to previous tax periods is clearly stipulated.

In December 2010, the Tax Code o Ukraine (the “TCU”

or the “Code”) was adopted and ocially published.The TCU comes into eect on 1 January 2011, although

some o its provisions will come into eect at a later date

(the most important o these being Section III, which

deals with corporate income tax and comes into eect

on 1 April 2011). The Code makes essential changes

to the existing Ukrainian tax rules, introducing a number

o concepts common in other jurisdictions (e.g. benecial

ownership, substance over orm) to various degrees.

In addition to codiying existing tax principles, the TCU

introduces a new property tax, which has not been levied

beore in Ukraine. For more details, please reer to the

inormation below.



However, please note that court decisions are oten

required to resolve such disputes.

Benefcial owner concept

The TCU introduces the concept o a benecial owner

o Ukrainian-sourced income. For a non-resident

to qualiy as the benecial (actual) owner (recipient)

o Ukrainian-sourced income (dividends, interest,

royalties, ees, etc.), they should be entitled to receive

the income in question.

A legal entity or individual who acts

in the capacity o an agent or nominee/nominee

owner, or who is recognized as an intermediary,

may not be regarded as the benecial owner

o income, even i they are entitled to receive

the income in question.

Most tax returns are led on a quarterly or monthly

basis, either in person, by mail (at least 10 days

prior to the ling deadline), or electronically

(electronic ling is compulsory or large

and medium-sized taxpayers).

Like the legislation it replaces, the TCU states

that any disputed provisions o tax legislation

should be interpreted in avor o the taxpayer.

I any provision o the TCU or related regulatory

acts, or provisions o other laws or regulatory acts,

contain an ambiguous/conficting interpretation

o the taxpayer’s or the tax authorities’ rights

and obligations, which could result in a decision

in the taxpayer’s or the tax authorities’ avor,

respectively, any decision is to be made in avor

o the taxpayer.



Tax administration

Tax rulings

Tax advice/rulings may be provided by tax authorities

upon an individual request rom a taxpayer. This advice

will set out the tax authorities’ opinion on the way

a tax law should apply in that particular taxpayer’s case,

and in relation to a specic regime or circumstance only.

Thus, no tax advice rom the authorities should be cited

or relied upon as a precedent.

A tax ruling saeguards the taxpayer rom

the application o nes and penalties in cases where

tax authorities have wrongly interpreted provisions

o the Tax Code. However, it does not saeguard

the taxpayer rom tax liabilities.

The taxpayer may challenge the tax advice provided

in court, where a decision in avor o the taxpayer would

serve as grounds or the tax authorities to change their

conclusion and reissue the tax ruling.

Penalties and late-payment interestThe penalties or violations related to the accrual,

withholding and payment o taxes depend

on the requency, with which the violations occurred

over a period o 1,095 consecutive days (statute

o limitations or tax purposes), as ollows:

•25% – or the rst violation

•50% – or the second violation

•75% – or the third and any subsequent violation

The same nes (25%, 50%, and 75%) apply in cases

o overstatement o VAT receivables, VAT reundable

or net tax losses, during the abovementioned 1,095-dayperiod (i.e. nes may be imposed even in cases where

no tax liabilities are accrued)

The nes or the correction o sel-identied errors

are as ollows:

•3%, i an error rom a previous period is corrected

by ling an amended tax return (ling an amended

tax return constitutes grounds or the tax authorities

to perorm an unscheduled eld tax audit)

•5%, i an error rom a previous period is corrected

by amending the tax return or the current period

The nes or the violation o tax payment deadlines

are as ollows:

•10%, i tax is overdue or less than 30 days

•20%, i tax is overdue or 30 days or more

During administrative appeal proceedings,

the obligation to substantiate decisions o the tax

authorities lies with the tax authorities themselves,

and not with the taxpayer.

Taxpayers have the right to challenge decisions

by the tax authorities to accrue tax liabilities

and impose penalties up to the highest level o the tax

authorities and/or the courts. When an appeal is made

to the highest level tax authorities, there is no obligation

to pay penalties, while an appeal to a court will result

in the settlement o any penalties. When a court

decision is issued in avor o the taxpayer, penalties paid

by a taxpayer will be regarded as a tax overpayment

and returned to the taxpayer’s bank account or settled

against its existing tax liabilities.

Late payment interest (hereinater, “LPI”) is applied

or the period, during which the taxpayer challenges

the tax authorities’ decision in court or to higher tax

authorities. Upon a decision in avor o the taxpayer,

the accrued LPI is cancelled.

Fines or violations during the transition period

(1 January to 30 June 2011) will not exceed

UAH 1 per violation. Meanwhile, CIT-related violations

in the period 1 April 2011 to 30 September 2011

will not be subject to nes.



Tax audits

The durations o the most common types o tax audits

are outlined in the table 1 below:

Types o tax audit:

•Desk audits

•Regular audits (scheduled or unscheduled; eld

and in-house)

•Factual audit (at the location where the taxpayer

actually perorms their business activities; may be carried

out without providing the taxpayer with prior notice)

The requency o scheduled regular audits depends

on the level o risk o the company’s activities

(as o 1 January 2011, the TCU provided no risk

assessment criteria):

•High – once per calendar year

•Medium – once every 2 calendar years

•Low – once every 3 calendar years

In accordance with the eective Ukrainian legislation,the statute o limitations or tax purposes in Ukraine

is three years (1,095 days), starting rom the deadline

or submission o the respective tax return, or a later

date, on which the tax return was actually submitted.

In general, periods that have been audited

by the tax authorities are considered “closed”, and may

not be reopened or urther tax audits in the uture

(unless criminal proceedings are instigated against

a tax ocer who conducted the tax audit o the entity,

or against an ocial o that entity).

The statute o limitation period does not apply

to tax periods, or which a tax return was not led

or deliberate tax evasion was committed, as proved

beore a court.

Tax liens

Tax liens are applicable when:

•the taxpayer ails to pay the sel-assessed amount o tax

liabilities stated in their tax return within the timerames

specied in the TCU, starting rom the day that ollows

the specied deadline; and

•when the taxpayer ails to pay the tax liability assessed

by the tax authorities within the timerames specied

in the TCU, starting rom the day the tax debt arises.

Tax liens may be applied to any property that is owned

by the taxpayer (is under the taxpayer’s economicmanagement or operating control), on the day

when the tax lien becomes applicable, and where

the book value o the property in question corresponds

to the amount o tax owed by the taxpayer, as well

as to other property that the taxpayer will acquire

the title to in the uture.

The seizure o property should be conrmed by a court

decision within 96 hours, while unds should only

be collected rom the tax payer’s bank account

on the basis o a court decision.

Type o tax audit Large taxpayers Small taxpayers Other taxpayers

Scheduled 30 business days,with a possible extension

o a urther 15 business days

10 business days,with a possible extension


20 business days,with a possible extension


Unscheduled 15 business days,

with a possible extension


5 business days,



10 business days,



Factual 10 calendar days, with a possible extension o a urther 5 calendar days

Table 1



The tax year or CIT is a calendar year, while CIT

reporting periods are a calendar quarter, hal year, rst

three quarters and calendar year. Taxpayers must submit

tax returns or each reporting period and make quarterly

tax payments. Quarterly tax returns must be submitted

within 40 days o the last calendar day o each reporting

period (i.e. 10 May, 9 August, 9 November, 9 February).

Quarterly tax payments should be made within 50 days

o the end o a reporting period.

I the ling deadline date alls on a holiday

or a weekend, it is automatically moved to the ollowing

business (i.e., banking) day.

Taxable income

Resident entities are taxed on the worldwide income

they receive or accrue within the reporting period.

The amount o taxable income is determined

by subtracting the costs o sales and other allowed

deductible expenses rom taxable income. Depreciation

charges are included into deductible expenses.

Gross taxable income

Gross taxable income is dened as any income, rom

domestic or oreign sources, that is received or accrued by

the taxpayer in the course o conducting any activity. This

income may be in monetary, tangible or intangible orm.

Specifcally included income – The ollowing items

are specically included into taxable income (please note

that this list is not exhaustive):

•Sales or exchanges o goods and services

•

Income o banking institutions, insurers and othernancial services providers; currency sales, and sales

o securities and debt instruments

•Property and services provided ree o charge,

non-reundable nancing (except or nancing provided

to non-prot organizations), and reundable nancing

received during the reporting period rom non-CIT

payers, which is not repaid by the end o that period

•Dividends rom non-resident companies (except

or dividends received rom non-resident entities

controlled by taxpayers who are not located in oshore

jurisdictions)

•Interest income and royalties

•Any contractual nes and penalties incurred

•Foreign exchange gains, estimated according

to National Accounting Standards

Please note that all o the tax rules described

in this section are applicable rom 1 April 2011.

Tax jurisd iction

Legal entities incorporated and operating in accordance

with the provisions o Ukrainian legislation are normally

treated as tax residents, and are taxable on their

worldwide income.

Legal entities incorporated abroad and operating

according to the laws o another country are normally

treated as oreign tax residents (non-residents),

and are taxable on two sources o income:

•Business income – received in the course o carrying

out trade or business activities in Ukraine

•Other non-business income rom Ukrainian sources

The tax that companies pay is known as corporate

income tax (CIT). Currently, this tax is calculated

at a fat rate o 25%. The most recent changes

to Ukrainian tax legislation envisage a gradual reduction

in CIT rates, as ollows:

•23% rom 1 April 2011 until 31 December 2011

•21% rom 1 January 2012 until 31 December 2012

•19% rom 1 January 2013 until 31 December 2013

•16% rom 1 January 2014 onwards

Lower rates apply to certain types o businesses

(e.g., insurance, agriculture, etc.)

Taxation o resident entities

Tax accounting rules

According to domestic tax accounting rules,taxable items are normally recognized on the basis

o the accrual method. In accordance with this method,

taxable income is generally recognized in the reporting

period, in which it was accrued.

In general, deductible expenses are recognized when

they are incurred (i.e. upon receipt o goods or services),

regardless o the period o payment. However, certain

types o taxable income are recognized on a cash basis.

This includes nes and nancial assistance received

rom non-residents (unless nancial assistance

is provided by the company’s shareholders and returned

within 365 days).

Corporate income tax (CIT)



Specifcally excluded income – The ollowing items

are specically excluded rom gross taxable income

(please note that this list is not exhaustive):

•Advances and prepayments

•VAT accrued by the taxpayer on goods/services

it has sold

•Dividends received rom resident companies

•Cash or in-kind contributions to an entity or partnership,

in exchange or an equity interest therein, irrespective

o whether or not the investor acquires a controlling

interest ollowing this contribution

•Cash or property received, upon the complete

liquidation o a company or partnership, as long

as the value o the cash or property received does not

exceed the initial acquisition cost o the shares held

in the liquidated entity

•Share premiums received

Tax cost o sales and other deductible expenses

The Tax Code provides or gross taxable income

to be reduced by the tax cost o sales and other

deductible expenses to calculate taxable income.

Specifcally included expenses – The ollowing items

are specically included into deductible expenses (please

note that this list is not exhaustive):

•Operating expenses, including:

– Tax cost o goods (work and services) obtained

by/provided to a taxpayer or subsequent use

in business activities (direct material costs, direct labor

costs, depreciation and maintenance o productive

xed and intangible assets, cost o acquired services

related to business activities, and other direct costs) – Banking expenses (i.e., interest expenses, commission

ees, orex losses, etc)

– Fixed manuacturing overhead costs

– Administrative costs (any expenses related to “startup,

management and carrying out business activities,”

administration salaries, rental costs, depreciation

and maintenance o business premises)

– Marketing and advertising expenses

– Other operating costs, including taxes and obligatory

payments accrued during the reporting period (except

or CIT, input VAT and certain other taxes), and oreign

exchange losses

•Financial expenses, including interest on loans,

nancially leased items and debt securities

Generally non-deductible expenses – Deduction

o the ollowing expense items is specically

prohibited by the Tax Code (please note that this list

is not exhaustive):

•Any expense not related to business activities

•Advances and prepayments paid out

•CIT payments and VAT on purchased goods and services

•Penalties and nes paid out

•Dividend payments

•Expenses associated with purchasing goods/services

rom private entrepreneurs that use the Unied Tax

System (except or those providing IT services)

•Losses resulting rom exchanging or selling goods

and services to related parties at below air market value

Expenses, or which deductibility is limited

Deductibility o interest expenses

Any interest expenses incurred by a taxpayer

in the course o carrying out business activities

are generally deductible. However, interest deductibility

limitations do apply to resident taxpayers in the

ollowing circumstances:

•The taxpayer is an entity with 50% or more

o its statutory capital owned or managed, directly

or indirectly, by a non-resident.

•The loan is provided by the non-resident entity

in question, or by a related party o the non-resident.

In this case, the deduction o interest expenses is limited

to the amount o interest income plus 50% o taxable

income excluding interest income. Excess interest

expenses can be carried orward without limitation

and deducted in subsequent tax periods, subjectto the same limitations.

Oshore restrictions

As an anti-avoidance measure, Ukraine has established

restrictions on the deductibility o expenses incurred

by resident taxpayers as a consideration or goods

or services received rom or provided by non-resident

entities located in oshore jurisdictions.

This restriction applies to expenses incurred

in the course o making payments to non-residents

with oshore status, or settlements made through such

non-resident/their bank accounts. I a payment is made

to a resident o an oshore jurisdiction, then only 85%

o the expenses incurred are deductible or depreciable/

amortizable.



•Expenses related to purchases o consulting, marketing

and advertising services rom non-residents (except

or purchases rom PEs o non-residents) are deductible

up to 4% o prior year sales revenue. The Code imposes

a total ban on the deduction o expenses related

to purchases o the above services rom oshore

non-residents.

•Expenses related to purchases o goods and services

rom private entrepreneurs who are individual tax payers

(except or sotware development and certain other

similar services) are non-deductible.

Depreciation and amortization allowance

Expenses associated with the acquisition, construction

and/or improvement (in excess o 10% o the total book

value at the beginning o the tax year) o capital assets

or business purposes may not be deducted immediately.

Instead, these expenses should be capitalized and

depreciated or amortized over a xed period.

Generally speaking, depreciation allowances

are permitted or all capital assets, including both xed

and intangible property, except or land, goodwill, xed

assets under conservation and non-business-related

capital assets.

Fixed assets

Fixed assets are dened by the Tax Code as tangible

assets (including mineral resources) intended or

use in a taxpayer’s business activities or a period

exceeding one year or operating cycle, and with a cost

exceeding UAH 1,000 or 2011 (approximately USD 125

as o 1 January 2011), and UAH 2,500 (approximatelyUSD 314 as o 1 January 2011) rom 1 January 2012.

According to the Tax Code, xed assets are divided into

16 groups according to their minimum useul lie or tax

depreciation purposes.

The ocial list o oshore countries is published

by the Verkhovna Rada, and is updated periodically.

The ocial list o oshore jurisdictions was last updated

on 1 February 2006 and currently includes the ollowing

jurisdictions:

Other restrictions and limitations

The Tax Code establishes limitation on the deduction

o the ollowing expenses:

•Royalties paid to non-residents up to 4% o prior

year sales revenue (royalties are not deductible i paid

to non-resident companies that are located in oshore

jurisdictions, or are not benecial owners o royaltypayments; moreover, outbound royalty payments

or IP rights that were initially registered in Ukraine

and later sold abroad may not be deducted)

•Engineering services up to 5% o the customs value

o the imported equipment (non-deductible where

the non-resident in question has oshore status or is not

the benecial owner o the income rom the respective

services)

•Alderney (UK)

•Andorra

•Anguilla

•Antigua and Barbuda

•Aruba

•Bahamas

•Bahrain

•Barbados

•Belize

•Bermuda

•British Virgin Islands

•Cayman Islands

•Cook Islands

•Dominica

•Dutch Antilles

•Gibraltar

•Grenada

•Guernsey (UK)

•Isle o Man (UK)

•Jersey (UK)

•Liberia

•Marshall Islands

•Monaco

•Montserrat

•Nauru

•Niue

•Puerto Rico

•Republic o Maldives

•Samoa

•Seychelles

•St. Lucia

•St. Vincent and

Grenadines

•St. Kitts-Nevis

•Turks and Caicos Islands

•Vanuatu

•Virgin Islands (USA)



Groups Fixed assets included in this group Minimum useul lie, years

Group 1 Plots o land -

Group 2 Capital expenditure on land improvements unrelated to

construction

15

Group 3 Buildings 20

Facilities 15

Transmission devices 10

Group 4 Machinery and equipment 5

Computers and other automatic data processing equipment;

related inormation read-out and printing equipment; related

computer programs (except or payments or programs

that are classied as royalties and/or programs treated

as intangible assets); other inormation systems; switch

boxes, routers, modules and modems; uninterrupted power

supplies and means connecting them to telecommunications

networks; telephones (including satellite phones),

microphones and portable radio transmitters worthover UAH 2,500

2

Group 5 Motor vehicles 5

Group 6 Instruments, devices, urniture 4

Group 7 Animals 6

Group 8 Perennial plants 10

Group 9 Other xed assets 12

Group 10 Library unds -

Group 11 Low-cost non-current tangible assets -

Group 12 Temporary acilities 5

Group 13 Natural resources -Group 14 Reusable containers 6

Group 15 Rented assets 5

Group 16 Long-term biological assets 7

The Tax Code stipulates certain rules and limitations

on which methods may be applied to particular

groups o assets.

Depreciation is accrued on a monthly basis.

The quarterly amount o depreciation is dened

or the purposes o the CIT return as the sum

o the depreciation amounts or each month

in the respective quarter.

Tax accounting

For tax purposes, xed assets are depreciated during

their useul lives using one o the ollowing ve

methods:

•Straight line method

•Reducing balance method

•Accelerated reducing balance method (applicable

to Groups 4 and 5 only)

•Cumulative method

•Units o production method

Table 2



Each xed asset is accounted or separately

and depreciated over its useul lie, as dened

in the taxpayer’s tax policy, but which should not

exceed the maximum useul lie period indicated

in the Tax Code. The tax depreciation method used

should correspond with the taxpayer’s UAS (Ukrainian

Accounting Standards) policy.

The CIT section o the Tax Code comes into eect

on 1 April 2011. This means that all taxpayers will have

to conduct an audit o their xed assets as at 1 April,

in order to assess the book value o their assets. This will

then be regarded as the opening tax book value or tax

depreciation purposes.

Should the total book value o the xed assets

as at 1 April 2011 be less than the total tax base

or xed assets, the dierence should be recognizedseparately as a depreciable asset in its own right, which

will be depreciated using the straight line method

over the ollowing three years. Financial accounting

write-ups made during 2010 should not be taken into

account when comparing the tax base to the book value

on 1 April 2011.

Ukrainian tax legislation also allows taxpayers

to increase the book value o xed assets (indexation),

provided that the annual infation rate or the respective

calendar year exceeds 10%. Indexation is calculated,

as below, as the product o the book value o xed

assets at the end o the calendar year in question and

the amount, by which the infation rate exceeds 10%:

ITBV = TBV + TBV * (II – 10%)

where:

ITBV – Indexed tax book value

TBV – Tax book value prior to indexation

II – Annual infation rate calculated by the Ukrainian

State Statistics Committee

Since the book value is the basis or calculating uture

depreciation charges, indexation allows taxpayers

to increase the amount o its uture tax depreciation

without incurring any expenses.

Intangible assets

According to the Tax Code, intangible assets

are divided into six groups. Each intangible asset should

be accounted or separately and amortized using

one o the abovementioned methods over its useul

lie, taking into consideration the minimum useul

lie established by the Tax Code.

Operations involving land and capital improvements

Separate accounting must be maintained or

transactions involving land. Expenses associated

with purchasing land cannot be deducted or amortized.

Any prots rom uture sales o land should be included

into taxable income. However, losses incurred upon

the sale o land may not be included.

Taxation o dividends

Dividends paid by Ukrainian companies are subject

to Advanced Corporation Tax (ACT), which is calculated

based on the statutory tax rate. The tax is accrued

on top o dividend payments and is paid rom the unds

o the distributing company. ACT is due prior to or upon

the payment o dividends.

Groups Fixed assets included in this group Minimum useul lie, years

Group 1 Rights to use natural resources According to the entitling document

Group 2 Rights to use property According to the entitling document

Group 3 Rights to use commercial branding

(trademarks, etc.)

According to the entitling document

Group 4 Industrial property rights According to the entitling document,

but no less than 5 years

Group 5 Copyrights and related rights According to the entitling document,

but no less than 2 years

Group 6 Other intangible assets According to the entitling document

Table 3



Ukrainian companies may use ACT they have paid

to reduce their CIT liabilities or uture periods.

I the taxpayer does not have sucient CIT liabilities

or a period, then this ACT credit may be carried

orward indenitely.

ACT does not apply to dividends paid

by the ollowing entities:

•Ukrainian holding companies whose income mostly

(more than 90%) consists o dividends received

rom other Ukrainian legal entities

•Insurance companies and investment unds

•Agricultural companies registered as FAT payers

Tax loss carry orward

Under the general rule, taxpayers’ tax losses

may be carried orward without any limitations

on term or amount, and should be reported in CIT

returns or subsequent periods as a separate item

o deductible expenses.

Consolidated corporate income tax

A taxpayer may apply to pay consolidated CIT,

provided that:

•it has branches located in other Ukrainian regions; and

•it applied to pay consolidated CIT prior to 1 July

o the year preceding the year, with regard to which

it wishes to pay the tax.

In this case, the CIT payable by each branch is then

determined as a raction o the total CIT payable,

based on the share o each branch in the total amount

o expenses incurred by the taxpayer. Each branch shouldthen pay CIT separately to their local tax authorities.

The CIT liability o a consolidated CIT payer is calculated

in accordance with the general rules, ollowing

deduction o the CIT paid by the branches.

Taxation o non-resident entities

Sources o income

Non-resident entities are subject to taxation

on two types o income in Ukraine:

I. Business income (i.e., active income) derived

rom carrying out business in Ukraine

II. Non-business income (i.e., passive income) received

rom Ukrainian sources

Taxation o both business and non-business income

may be subject to the provisions o international double

tax treaties. Thereore, preerential tax treatment

or provisions may be available or non-resident taxpayers

under the appropriate double tax treaties signed

between Ukraine and their respective jurisdictions.

Taxation o business income

Business income o non-residents, obtained via a PE situated

in Ukraine, is taxed in a similar way to income earned

by regular corporate taxpayers in Ukraine.

The term “permanent establishment” in domestic tax

legislation is similar to the denition o a PE stated

in Article 5 o the OECD Model Tax Convention

on Income & Capital.

Thereore, a non-resident’s income that is attributable

to Ukraine via the activities or assets o its PE is subject

to taxation in Ukraine on a net basis, at the general

tax rate.

Permanent establishments (PEs)

The denition o a PE contained in Ukrainian legislation

is very similar to that provided by the OECD Model

Treaty. A PE o a non-resident is dened as a xed place

o business, through which the non-resident carries

out all or part o its business activities. The term PE

includes headquarters, branches, oces, actories,

workshops, mines, oil or gas wells, quarries and any

other places where natural resources are extracted.

Activities carried out by a non-resident companyin Ukraine with the purpose o providing assistance

or preparatory services with regard to that non-resident

company’s activities (e.g., conservation, demonstrations,

delivery, data gathering, etc.) do not lead to the creation

o a PE.

The net income attributable to a PE is calculated using

one o the three methods below. These methods

are applied in the order, in which they are listed below

(i.e., i the rst method cannot be applied, the second

should be used, etc.).



Calculation o attributable income

Direct method

This method should be used when a non-resident

entity maintains a separate prot and loss statement

with respect to the PE’s activities. Allowable

expenses are deducted rom gross taxable income

and the dierence is reported as taxable income.

These expenses are deductible, regardless o whether

they were incurred inside or outside o Ukraine,

provided that they are supported by the appropriate

source documents.

Split balance sheet method

This method is used or non-resident companies

with activities in multiple countries that do not have

readily available gross taxable income gures that

may be allocated to their operations in Ukraine.

It uses the Ukrainian share o the resident’s worldwide

gross taxable income, deductible expenses, number

o employees, and book value o its assets to determine

taxable income.

This method involves signicant practical issues

and is almost never used in practice.

Indirect method

The indirect method is used or PEs, or which

the amount o attributable income cannot be practically

determined using the direct method, and which cannot

provide the inormation required to use the split balance

sheet method.

In order to calculate attributable taxable income,

a 30% prot margin is applied to the gross taxable

income attributable to the PE.

Taxation o non-business income

Non-business income rom Ukrainian sources

is normally subject to withholding tax, provided that

it is not attributable to a non-resident’s PE in Ukraine.

Taxes should be withheld by a resident taxpayer prior

to or upon payment o income to a non-resident.

Ukrainian-sourced income

The ollowing types o a Ukrainian-sourced income

are subject to withholding tax:

•Interest income – interest on debt obligations issued

to a resident entity

•Dividend income – dividends rom a resident entity

•Royalty income – royalties received rom a resident

entity

•Rental income – rental/lease income received

rom a resident entity

•Income rom immovable property – income rom

the sale o immovable property located in Ukraine

•Insurance income – premiums or insuring or reinsuring

against risks in Ukraine or the risks to resident entities

operating abroad

•Winnings – income rom lotteries (except or the state

lottery), casinos and other gambling activities, as well

as income rom the operations o gambling businesses

•Commissions, brokerage or agent ees – income

received rom residents or PEs o non-residents

or services provided by a non-resident

(or its PE) in Ukraine

•Other types o income – reight, engineering services,

prots rom trading in securities, donations, and so on

Withholding tax rates

The withholding tax rates provided in Table 3 normally

apply (unless more avorable rates are provided

or by a relevant double tax treaty). In order to benet

rom any applicable treaty relie, a non-resident should

provide the Ukrainian taxpayer with a residency

certicate issued annually by the tax authorities o their

country o residence. The amount withheld shouldbe remitted to the government when the income is paid

to the non-resident.

Non-business-related income may be paid

to non-residents rom Ukrainian sources, provided

that it is not attributable to a non-resident’s

PE in Ukraine.



Income rom Ukrainian sources Withholding tax rate

Dividends 15%

Interest 15%

Royalties 15%

Income rom international reight transportation 6%

Interest income rom certain state securities 0%

Other Ukrainian-sourced income 15%

A special tax is levied on insurance and advertising

income payable rom Ukraine to non-residents.

This tax should be accrued on top o the

Income rom Ukrainian sources Tax rate

Insurance income 0%/4%/12%

Income rom advertising services 20%

payment (i.e., the gross amount) at the ollowing

rates, and is non-recoverable or the taxpayer

(see Table 5 below).

Table 4

Table 5



Taxable transactions

In accordance with Ukrainian legislation, value-added

tax (VAT) is imposed on the ollowing:

•Supplies o goods and services within the customs

territory o Ukraine

•Imports o goods and auxiliary services into the customs

territory o Ukraine under the import or re-import

customs regimes

•Exports o goods and auxiliary services rom the customs

territory o Ukraine under the export or re-export

customs regimes

For tax purposes, supplies o goods and auxiliary services

to/rom duty-ree shops, customs storehouses or special

customs zones constitute the exportation/importation

o these goods and services.

•Supplies o services involving the international

transportation o passengers and luggage by rail, road,

sea, river and air transport

VAT is currently levied at a rate o 20% o the taxable

value o domestic supplies, imported goods and

auxiliary services. The VAT rate will be reduced to 17%

rom 1 January 2014. The VAT rate on exported goods

and supplementary services is 0%.

For VAT purposes, supplementary services are dened

as services that are included in the customs value

o exported and imported goods.

Ukrainian VAT legislation regarding the taxation

o services applies the concept o “place o supply.”

In general, services rendered within the customsterritory o Ukraine are taxed at the general VAT rate,

regardless o whether they are rendered to residents

or non-residents. However, there are certain exceptions

to this rule, which are examined in more detail

in Section 4 below.

According to the Tax Code, the taxable base or

VAT is dened as the contractual value o the goods

or services supplied, but no less than the air market

value o these goods or services. Previously, a 20%

deviation rom the market price was possible; however,

this provision was abolished on 1 January 2011.

From 1 January 2013, new transer pricing regulations

will come into eect to ensure air price estimation.

Exempt transactions

Transactions specifcally exempt rom VAT

(Tax Code, Art.197)

Certain transactions are exempt rom VAT. Below

is an extensive, but not exhaustive list o exempt

transactions:

•Supplies/imports o medical or medical-related products,

provided that these products are registered in Ukraine

as medical products in accordance with the list approved

annually by the Verkhovna Rada beore 1 September

•Supplies o domestically produced baby ood products,

in accordance with the lists o oodstus adopted

by the Verkhovna Rada

•Supplies o domestically published periodicals

and books, students’ notebooks and textbooks, study

books and supplementary study materials

•The provision o educational services by institutions

with special permission/a license to provide such services

•Supplies o special-purpose goods or disabled

individuals

•The provision o pensions and monetary assistance

to the general population within the ramework

o approved social programs

•The provision o healthcare services by licensed

institutions

•Public transportation services (except taxis)

within an inhabited area

•Religious organization services and supplies

(with the exception o excisable goods)

•Transers o land, except or plots o land under

buildings, the cost o which is included in the cost

o buildings

•

The privatization o state and municipal property•Supplies o apartments (housing stock) on a secondary

market

•Charitable contributions to qualiying non-prot

organizations

•Research and development activities perormed

at the expense o the State Budget o Ukraine

and carried out by an individual who receives unding

directly rom the State Treasury

Transactions not subject to VAT (Tax Code, Art. 196)

According to the Tax Code, certain transactions

are not subject to VAT. These include the ollowing:

•The issuance o securities by enterprises, the National

Bank o Ukraine, the Ministry o Finance o Ukraine,

and local authorities

Value-added tax



quantities, it is obliged to pay VAT during the customs

clearance process, without the need to register

as a VAT payer.

In addition to taxable entities, VAT law denes

the concept o a tax agent (individual responsible

or accruing and withholding VAT) and states that when

non-residents provide services that qualiy as taxable

supplies in Ukraine, VAT should be accrued and remitted

to the government by the Ukrainian customer.

Tax base

Domestic supplies

As a general rule, the tax base or VAT is dened

as the contractual value o goods/services, including

customs duties, excise and other mandatory taxes/

payments, but may not be lower than the air market

prices or the goods/services in question.

In certain cases, there are special rules or determining

the tax base, in particular:

•In the event o non-cash settlements and ree-o-charge

supplies, the taxable base is the air market price.

•The contractual value o goods imported

into the customs territory o Ukraine is considered

the tax base, but may not be less than the

declared customs value, determined in accordance

with the Custom Code o Ukraine (including excise tax

and import duties, but exempt o VAT, which is included

in the price o goods).

•For nancial lease purposes, the VAT base is determined

on a contractual basis, but may not be less than

the purchase price o the object o the nancial lease.•I a taxpayer is involved in the trading o used goods

that have been purchased rom entities that do not

pay VAT, the tax base is dened as the taxpayer’s

commission ees.

Place o supply

Place o supply o goods

According to the Tax Code, the place o supply o goods

is their actual location at the moment o supply, except

in the ollowing cases:

•For goods that are transported, the place o supply

is their location at the beginning o their journey.

•For goods that are assembled or installed

by the supplier, place o supply is the place where

assembly or installation takes place.

Place o supply o services

•Insurance services provided by institutions specially

licensed to provide such services, including social

and pension insurance, and intermediary services

•Currency exchange (both national and oreign currency),

bank metals, banknotes, and coins

•Circulation o lottery tickets and monetary prizes/

winnings

•Transers o property under an operating lease

by a resident lessor to a lessee, and the return

o the leased property by the lessee to the lessor

•Transers o property or use as storage or their return,

as well as under mortgage

•Cash payments o salaries, pensions and subsidies

•Payments o dividends and royalties in cash

or in the orm o securities

•The provision o commission/brokerage and dealer

services in connection with the sale or management

o securities

•Payments o arbitration duties and the reimbursement

o other expenses in relation to arbitration court rulings

•Agent and reight services rendered to a marine

commercial feet by shipping agents

•The reorganization o legal entities

•The provision o consulting, engineering, legal,

accounting and audit services, as well as services related

to the development, delivery and testing o sotware,

and similar services

Taxpayers

I entities meet certain criteria, they may be subject

to mandatory registration as VAT payers. One such

criterion is the volume o taxable supplies o goods/

services during the previous 12-month period,with the taxable threshold set at UAH 300,000

(approximately USD 37,500). I an entity’s volume

o taxable supplies in this period was less than

UAH 300,000, but no less than 50% o the total sales

were made to VAT payers, then it can opt to register

voluntarily.

The abovementioned requirement to register

or Ukrainian VAT purposes applies to both resident

and non-resident entities. Although the Tax Code does

not stipulate a special procedure or non-resident

entities to register or Ukrainian VAT purposes, the only

easible way o registering a non-resident as a VAT payer

in Ukraine is via a representative oce and/or permanent

establishment o the non-resident in Ukraine.

I an entity imports goods to Ukraine in taxable



The general rule states that the place o supply

o services is dened as a place o the supplier’s

registration. However, the Tax Code establishes specic

rules or dening the place o supply o certain types

o services, in particular:

•Services related to movable property –where the services

are actually provided

•Services rendered by real estate agents – the location

o the real estate

•Cultural, sports, educational, scientic services –

the place where the services are rendered

VAT Law also stipulates that the ollowing services

are deemed as being supplied where the buyer

is registered and, thereore, are not subject to Ukrainian

VAT when rendered to non-residents:

•Transer or assignment o copyrights, patents, licenses,

and related rights, including trade marks

•Provision o advertising and other promotional services

•Provision o services by parties related to the supplier

to benet another entity

•Provision o agency services on behal o another entity

in its own name or in the name o such other entity

•Telecommunications services, including: transer and

extension services; the transmission o signals, words,

images and sounds, or any type o inormation via cable,

satellite, cell, electronic, optical or other electronic

communications systems; provision o a right to transer,

extend or accept; and provision o access to global

networks.

•Provision o reight orwarding services

•Leasing o movable property (including banking saes)

VAT administration

Remittance

VAT on domestic supplies o goods and services

is administered by the tax authorities, while VAT

on the importation o goods is administered

by the customs authorities.

Any taxable person should assess the amount

o VAT to be remitted to the government by reducing

(“crediting”) their output VAT (VAT accrued/collected

on taxable supplies) with input VAT (VAT payable

on purchased goods and services, including import VAT).

VAT on imported goods is payable by the importer,

in cash, at the customs border. Taxable entities

are responsible or paying import VAT.

Input VAT

In general, any input VAT paid or incurred by a taxable

entity may be set o against output VAT liabilities,

provided that the input VAT in question was incurred

in relation to the ollowing:

•Purchasing or producing goods/services with a view

to their use in taxable operations in the course

o a taxpayer’s business activities

•Purchasing xed assets with a view to their use

in taxable operations in the course o a taxpayer’s

business activities.

The tax treatment o VAT included into the price

o goods/services depends on the status o a

company’s supplies. In general, when a company’s

supplies qualiy or exemption, the incurred VAT is not

included into input VAT, but is instead regarded as a

deductible/depreciable expense, depending on the type

o expenses.

When a company’s supplies qualiy as taxable

(at the 20% or 0% tax rate), the VAT incurred is included

into input VAT and is oset against the company’s

output VAT.

I produced and/or acquired goods (work or services)

are only partially used in taxable transactions, input VAT

may include the amount o VAT that relates to taxable

transactions in a reporting period. The input VAT that

may be creditable in a given year is computed basedon the ratio o prior year VAT-able sales over prior year

total sales. The coecient, thus calculated, is applicable

throughout a calendar year. At the end o the year,

the coecient is re-calculated, based on the actual

volume o VAT-able and non-VAT-able supplies. Input

VAT on xed assets is recalculated at the end o every

12-, 24- and 36-month period.

In general, VAT credit is determined based

on the contractual value o goods/services, which may

not be higher than their air market value.

Ukrainian tax legislation states that input VAT will only



Under the general rule provided or by the Tax Code,

the amount o VAT payable to the government

or subject to reund is determined as the dierence

between the amounts o output and input VAT

or a tax reporting period.

I input VAT exceeds output VAT, the dierence may

be used to oset VAT debt accumulated in previous

tax periods. I the taxpayer does not have any VAT

debt, the dierence is included into input VAT

or the ollowing reporting period. I the taxpayer’s

input VAT exceeds output VAT in this period as well,

the dierence (VAT receivable) can be claimed or

reund rom the government. However, any VAT

reund is limited to the VAT actually paid to suppliers

and the State Treasury o Ukraine, and paid on services

imported (i operations involving non-residents take

place on Ukrainian territory) in previous tax periods.

The remaining portion o VAT receivable is carried

orward to the next reporting period. Alternatively,

the taxpayer could opt to oset all o part o the VAT

receivable against its uture VAT liabilities.

A taxpayer intending to claim a qualiying VAT reund

must ollow a number o procedures. Chiefy, it must

have the VAT reund conrmed by the tax authorities

via a VAT audit.

According to Ukrainian legislation, certain categories

o taxpayers are not entitled to obtain a VAT reund

rom the government. This aects the ollowing types

o taxpayers:•Entities that have been registered as VAT payers

or a period o less than 12 months prior to the month,

or which a VAT reund is claimed (as an exception

to this rule, a VAT reund may be claimed with respect

to xed assets)

•Entities, whose revenue rom VAT-able transactions

or the preceding 12 months is lower than the reported

VAT reund (this does not apply to input VAT related

to the purchase or construction o xed assets)

Since 1 January 2011, regulation o VAT reunds has

be recognized i it is conrmed by an appropriately

issued VAT invoice. VAT invoices must be issued

by the supplier at the moment a VAT liability arises.

I a VAT invoice is unavailable, the purchaser may not

recognize input VAT with respect to such transaction

(which does not eliminate the supplier’s obligation

to report VAT liability with respect to such transaction).

VAT invoices received ollowing a delay may be included

into input VAT within 365 days o their issue date,

except in cases o the transer o ownership to pledged

property, under which the right to recognize input

VAT is retained until the date the property is disposed o.

Following the introduction o the Tax Code

VAT invoices o more than UAH 1 million

(rom 1 January 2011) and more than UAH 10,000 (rom

1 January 2012) must now be registered in the Unied

State Register. I an incoming VAT invoice is not included

in the register, a taxpayer will not be entitled to a credit

o the respective VAT input. Moreover, any discrepancy

between the data contained in the VAT invoice

and the Unied State Register constitutes grounds

or an unscheduled tax audit o both the seller

and the purchaser.

For import transactions, a customs declaration is used

as supporting documentation, instead o a VAT invoice.

Reverse-charging VAT on services provided

by non-residents

I a non-resident renders services to a resident

taxpayer, this supply is subject to VAT at a rateo 20%. Provided that there is no permanent

establishment o the non-resident in Ukraine,

the Ukrainian taxpayer is liable or accruing and

paying the respective VAT liabilities using the reverse-

charge mechanism, whereby the taxpayer must

sel-assess VAT on the value o the services provided

by the non-resident. One unique eature o reverse-

charging in Ukraine is that input VAT is recognized

by the taxpayer in the reporting period ollowing that

in which it reported the respective output VAT, thus

creating a cash fow gap.

VAT reunds



increased with the introduction o an automatic VAT

reund. An entity is entitled to claim an automatic

VAT reund i it meets all o the criteria stipulated

by the Tax Code.

Although the provisions o Ukrainian legislation

concerning VAT reunds have always been relatively

straightorward, the reality has been quite dierent.

Over the last couple o years, claiming and actually

receiving VAT reunds rom the state budget has become

a serious problem or taxpayers. In practice, it has been

almost impossible to obtain a VAT reund in Ukraine,

irrespective o the existing procedure.

In light o this, and in order to better regulate the issue

o VAT reunds, the state is now obliged to pay interest

at a rate o 120% o the eective discount rate

o the National Bank o Ukraine or the late payment

o reunds.

Tax accounting rulesFor VAT accounting purposes, the so-called “rst

event” rule is normally used. According to this rule,

output and input VAT on domestic sales are assessed

in the reporting period, in which goods/services

are supplied or payment is received.

In general, the tax period or VAT purposes is a calendar

month. Thereore, entities liable to pay VAT must submit

tax returns and remit VAT on a monthly basis.

Special VAT regime or agricultural producers

According to the eective tax legislation, agriculturalproducers may apply a special tax regime, according

to which the VAT liabilities collected by agricultural

companies are not payable to the budget, but may

be used or special business purposes.

Application o this regime is voluntary, and in order

to qualiy to apply it, an agricultural company must ulll

the ollowing requirements:

•The company must be a producer (or production

and re-processing company, combined as a single

entity). Companies that carry out re-processing activities

alone pay VAT in accordance with the general rules

and may no longer enjoy this VAT benet.

•The company’s revenue rom sales o its own agricultural

products or the previous tax year must account

or no less than 75% o its general sales revenue.

Since agricultural companies that qualiy or this

regime retain VAT output or investment purposes,

they, generally, do not qualiy or VAT reund. The only

exception rom this rule is export sales – VAT related

to export sales may be reunded.



Excise tax

Tobacco

An excise tax is imposed on tobacco items classied

under Harmonized System numbers 2,402 (cigars,

cheroots and cigarettes), 2,403 (other processed

tobacco and tobacco substitutes, tobacco extracts

and essences). The excise tax on tobacco products

is levied at either various fat rates in UAH per 1,000

items or per kilogram, or as a percentage o sales

turnover.

Motor uels

An excise tax is imposed on certain motor uels

classied under Harmonized System number

2,710 (diesel, gasoline, aviation and jet engine uels).

The excise tax or motor uels is levied at various rates

in EUR per 1,000kg.

Motor vehicles

Excise tax is imposed on motor vehicles classied

under Harmonized System numbers 8,703 (cars

and other passenger vehicles), 8,711 (motorcycles),

8,716 (trailers and semi-trailers) and 8,707

(passenger carts/attachments or motor transport

vehicles). The excise tax on motor vehicles is levied

at various rates, normally in EUR per item or per

cm3 o the vehicle’s engine capacity (or trailers

and semi-trailers weighing more than 3,500 kg,

the tax is levied per vehicle).

General rules

An excise tax is imposed on taxable i tems produced

in, or imported into, Ukraine. In addition, excise tax

at a rate o 0% is imposed on export sales.

When excisable goods are imported, excise duties

are due during customs clearance o the goods.

Excise tax is imposed on alcohol and tobacco products,

motor uels, motor vehicles, beer and jewelry.

For domestically produced items, excise duties

are normally imposed when a taxable item is sold;

or imported items, it is imposed prior to the product

entering Ukraine.

Upon implementation o the Tax Code , increased excise

tax rates came into eect.

Taxable goods

Alcohol

An excise tax is imposed on all alcoholic items classied

under Harmonized System numbers 2,203 (malt beer),

2,204 (wine rom resh grapes), 2,205 (vermouth

and other favored wines), 2,206 (other ermented

beverages), 2,207 and 2,208 (non-denatured ethyl

alcohol, spirits and liqueurs). The excise tax on alcoholic

products is levied at various rates in UAH per liter,

or per liter o 100% spirits.



Customs duties

Taxable goods/tax rates

Customs duties are imposed on most goods imported

into and certain goods exported rom Ukraine. Customs

duties are normally levied on the customs value

o taxable goods, in accordance with the Harmonized

Customs Code o Ukraine.

For customs clearance purposes, imported and exported

goods are classied into 97 groups, according

to the Ukrainian Nomenclature o Foreign Economic

Activities (hereinater, the “Ukrainian Harmonized

Systems”).

The Ukrainian Harmonized Systems are based

on the 2002 version o the International

Harmonized System.

The applicable customs duty rates are based

on the ten-digit classication code given to goods under

the Ukrainian Harmonized Systems.

Customs duties are usually an “ad valorem” rate,

i.e. a percentage o the customs value o the imported

goods. However, in rare cases, goods are subject

to a specic duty, which can be based on the value

per item, kilogram, or liter, while others may be subject

to a compound duty (a combination o both ad valorem

and specic rates). Customs duties are normally levied

at rates o up to 45%, but most rates all between

0% and 20%.

Since 16 May 2008, when Ukraine joined the WorldTrade Organization (WTO), the applicable import

customs duty rates on goods originating rom

WTO member states were lowered in comparison

to the general rates applied to goods rom non-WTO

member states. At the same time, Ukraine has signed

ree trade agreements (hereinater, “FTAs”) with the CIS

countries and Macedonia. Goods originating rom states

covered by an FTA may benet rom duty exemption

upon their import into Ukraine, excluding certain goods

listed as exceptions.

A oreign investor’s contribution to the share capital

o Ukrainian oreign investment companies in the orm

o goods may be exempt rom customs duties, provided

that the goods in question will not be alienated

or three years ater contribution.

Pursuant to the Energy Law, eective since

1 January 2008, imports o certain goods are ully

exempt rom customs duties. These goods include:

•equipment that uses non-traditional and renewable

sources o energy;

•energy-saving equipment and materials;

•devices or measuring, monitoring and managing

uel and energy resources;

•equipment and materials used in the production

o alternative uels (energy-saving equipment); and

•components used in the production o the

abovementioned equipment (energy-saving tools).

The benet is only available only i the goods are used

by taxpayers in the course o their own production

activities and i no identical goods are produced

in Ukraine.

The import procedures, as well as the list and quantities

o energy-saving equipment and energy-saving

tools, are to be established by the Ukrainian Cabinet

o Ministers. This exemption is provided or three years

ollowing enorcement o the Energy Law.

Below, we have provided a description o the existing

rules or determining the customs value.

Procedure or determining the customs value

Provisions o the Customs Code

The Customs Code introduces the concept

o and six methods or determining customs value,

which are taken rom Article VII o the General

Agreement on Taris & Trade.

The customs value o imported goods is generally

dened as the value actually paid or payable

Taxation o cross-bordertransactions



Most-avored nations

Ukraine has ormed special custom unions and signed

most-avored-nation treaties with a number o countries.

I imported goods originate rom one o these countries,

or rom a WTO member country, then preerential

customs duties rates are applied to these goods.

In addition to WTO members, the ollowing countries

have most-avored-nation status:

Customs ees

According to Ukrainian customs law, customs ees

are collected or carrying out customs clearance

procedures on goods, with extra ees payable

or customs clearance procedures carried out outside

o regular oce hours and at locations other than

the premises o the customs authorities (in a customs

control zone located at the premises o an enterprise

that is storing the goods). The clearance ees (EUR

per hour) are as ollows:

•EUR 20 – during regular working hours

•EUR 40 – during overtime, at night and at weekends

•EUR 50 – on public holidays

These customs ee rates were established

by Decree No. 93 o the Verkhovna Rada,o 18 January 2003.

or the imported goods, calculated in accordance

with the provisions o Customs Code o Ukraine.

The transaction value method is the preerred

method or establishing the customs value o

imported goods, and is based on the price actually

paid or payable or the imported goods. However,

a number o conditions must be ullled in order

to use the transaction value method and, i it is not

possible to use this method to assess the customs value,

the price paid or payable or the imported goods may

be subject to adjustment, which can result in an increase

in the amount o customs duties payable.

Where the price paid or payable cannot be used

as a basis to assess the customs value, the ollowing

alternative methods may be used to determine

the customs value:

•Value o identical goods method – uses the transaction

value o identical goods sold or export to Ukraine

•Value o similar goods method – uses the transaction

value o similar goods sold or export to Ukraine

•Deductive value method – uses the sale price in Ukraine

o imported, identical or similar goods. This price

must be adjusted or costs and expenses incurred

in the course o the transportation, customs clearance

and sale o the goods in Ukraine

•Computed value method – based on production,

general expenses, other costs and prots related

to the imported goods

•Reserved value method – determined using

a combination o all the above methods and other

relevant inormation, where this does not confictwith existing legislation

•Algeria

•Azerbaijan

•Bosnia & Herzegovina

•Belarus

•Iran

•Kazakhstan

•Libya

•Lebanon

•North Korea

•Russian Federation

•Serbia

•South Korea

•Syria

•Taiwan

•Turkmenistan

•Uzbekistan



Tax benefts

The Tax Code provides the ollowing benets:

•Small entities may be entitled to apply special

tax regimes, such as unied tax (USD 2.5-25 per

month or individual entrepreneurs and 6% (with

VAT registration) or 10% (without VAT registration)

o total revenue)).

•Tax exemption is available or 80% o income earned

by a corporation rom the sale within the customs

territory o Ukraine o energy-saving equipment

and materials a company has produced itsel,

as specied by the Verkhovna Rada.

•Tax exemption is available or 50% o the income

derived rom the implementation o energy-saving

and energy-ecient projects by companies included

in the State Register o Enterprises, Institutions

and Organizations Engaged in Implementing

Energy-Saving and Energy Eciency Projects.

Tax holidays

Small enterprises that meet certain criteria

(e.g. an annual income less than or equal

to UAH 3,000,000/USD 375,000, and an average salary

paid to sta o no less than two minimum salaries,

as established by the eective legislation) will be entitled

to a 0% CIT rate rom 1 April 2011 until 1 January 2016.

Unifed tax system

Until special regulations governing the taxation o small

businesses are introduced into the Tax Code, the existing

unied tax regime, established by the Presidential Decree

“On a Simplied Taxation System or Small Businesses”

remains in eect.

The taxation o private entrepreneurs is governed

by the Decree o Verkhovna Rada “On the Income

Taxation o Citizens,” in accordance with which private

entrepreneurs who employ up to 10 people and have

an annual revenue not exceeding UAH 500,000 (approx.

USD 63,000) may opt to apply the unied tax regime.

The maximum rate or unied tax is UAH 200 (approx.

USD 25) per month. The actual tax rate applied

depends on the type o activities carried out. Decisions

on the right to apply the unied tax system are taken

by local tax authorities based on the type o business

activities carried out.

Private entrepreneurs that use the simplied tax regime

are exempt rom paying the ollowing taxes:

•Personal income tax (PIT)

•VAT

•Unied Social Security Contributions

•Land tax (i land is used directly or business purposes)

Personal income rom sources other than business

activities is subject to PIT as the income o an individual

– not a private entrepreneur. Due to recent changes

in the by-laws governing contributions to the Pension

Fund, business structures involving private entrepreneurs

should be reviewed thoroughly prior to implementation.

Payments (other than those or IT services) to unied

taxpayers will not be deductible or companies.

However, as the CIT rate declines and approaches

the PIT rate, the tax eect o the rate arbitration

resulting rom making payments to unied taxpayers

will gradually diminish until it is ully eliminated in 2014.

Taxation o agricultural companies in UkraineUkrainian tax legislation allows agricultural producers

to choose between special tax regimes and the general

system o taxation.

Agricultural companies should meet certain criteria

to qualiy or the benets provided by special tax

regimes.

CIT

Subject to general CIT rules described in the “CIT”

section, agricultural entities may benet rom

the ollowing:•Possibility to decrease the amount o CIT payable

by the amount o land tax paid

•A year as a reporting period

Agricultural producers may opt into this special regime,

provided that at least 50% o their annual income

is made up o revenue rom the sale o agricultural

products.

Fixed Agricultural Tax (FAT)

In order to be registered as a FAT payer, an agricultural

producer must comply with the ollowing conditions:

•The company must be incorporated as an “agricultural

enterprise,” in any legal orm allowed by the law,

and must be engaged in the production/cultivation,

processing, and distribution o agricultural products.

Special tax regimes



•Q3 – 50%

•Q4 – 30%

Payments must be made on a monthly basis, within

30 days o the end o the reporting month, with each

monthly payment to equal one third o the total payable

or the respective quarter.

VAT

The agricultural producers can take advantage

o a special VAT regime until 1 January 2018. In order

to be entitled to use this regime, agricultural companies

must report revenue rom the last 12 calendar months’

sales o agricultural products they have produced

amounting to at least 75% o their total sales revenue.

According to the rules governing the special VAT regime,

VAT collected rom agricultural producers is not payableto the government, but should instead be retained

by these companies and transerred to special

bank accounts. These unds may only then be used

or the development o agricultural production.

As a temporary measure, until 1 January 2015,

reprocessing companies that sell re-processed milk

and meat products must transer the respective VAT

(which would otherwise be payable to the government)

to a special governmental und. Subsidies will then

be paid rom this und to the producers who sold their

milk and meat products to the reprocessing companies

in question.

Generally, no VAT reunds are allowed under the

special VAT regime, except or net input VAT generated

by export sales.

•A company’s taxable income rom sales o agricultural

products it produced should make up at least 75%

o its total gross income or the previous tax period

(e.g. a year).

•FAT payers are exempt rom the ollowing taxes

and duties:

•Corporate income tax

•Land tax (except or land tax payable on plots o land

that are not used in agricultural production)

•Trade patent ees

•Water usage tax

I a FAT payer’s income rom agricultural products

it produced makes up less than 75% o its annual

gross income, the company can no longer qualiy

or FAT payer status, and must register as a CIT payer

in accordance with the general rules, starting rom

the next tax year. Transition rom one tax systemto another (CIT payer to FAT payer, and vice versa)

within a reporting year is prohibited.

The amount o FAT payable to the government

is calculated based on the total area o land

and its value. All land taken into account should

be used or agricultural production purposes and should

be either owned or rented by the taxpayer. The eective

FAT rates are presented in Table 6.

The deadline or the submission o FAT reporting

is 1 February o a reporting year that ends

on 31 December (i.e., the report is submitted in advance).

FAT payments should be made regularly over the course

o a year, with the ollowing quarterly allocation:

•Q1 – 10%

•Q2 – 10%

Types o plots o land owned or used by the taxpayer FAT rate, % per value o hectare

Plough lands, haying lands and pastures 0.15

Plough lands, haying lands and pastures in mountainous regions 0.09

Plots o land subject to a perennial planting regime 0.09

Plots o land subject to a perennial planting regime, locatedin mountainous regions0.03

Underwater plots o land used or fshery purposes 0.45

Plough lands, haying lands and pastures, owned or rented

by agricultural producers, which are set up to grow plants or crops

(including vegetables) indoors3

1

Table 6

3 Where more than 66%

o income is generated

rom the sales o plants/crops

grown on indoor soil



Taxation o banking institutions in Ukraine


Defnition o taxable income

Taxable income (or “gross income”) is dened

as any income, rom any source, earned/accrued

by the taxpayer in the course o carrying out any

activity. Taxable income may be in either monetary,

tangible or intangible orm. With regard to banking

activities, the ollowing items are usually included

into taxable income:

•Interest and commission income

•Income rom trading in securities

•Release o loan loss provisions

•Prots rom sales o oreign currency

•Factoring income

•Income rom sales o collaterals

•Dividends received rom non-residents (except

or dividends rom oreign subsidiaries and associates

controlled by a taxpayer that is not a resident

o a tax haven)

•Foreign exchange gains arising as a result o the

revaluation/settlement o oreign currency, as well

as rom receivables and payables denominated

in oreign currency

Interest and commission income

The Tax Code provides or commission/interest income

to be recognized on an accrual basis, pursuant

to the rules envisaged by Ukrainian Accounting

Standards (UAS).

I the borrower is late in paying interest, the lender has

the right to use the mechanism or settling doubtul/ bad debts. I a taxpayer is subject to this mechanism,

the accrual o gross income is suspended in relation

to the delinquent loans until they are settled or written

o. When bad debt settlement procedures are not

initiated, interest income accrued on bad debts

will increase taxable income, irrespective whether

or not the accrual o interest has been suspended

in nancial accounting.

Transactions involving securities

Transactions with securities are taxed based

on the pooling principle, according to which taxable

results rom transactions involving dierent types

o securities (e.g. shares, bonds, promissory notes,

derivatives, etc.) are accounted or separately.

At the same time, the taxpayer should not trace

the taxable result or each ind ividual security, inasmuch

as the taxable prot/loss is determined or each basket

o securities o the same type.

Thereore, the costs o securities should be reported

as expenses within each basket or the period,

in which the securities are purchased, while revenues

rom the sale o securities are reported as income

in the period, in which they are sold. I positive,

the balance at the end o each quarter is taxable at 25%

CIT. I it is negative, it is not immediately deductible,

but may be carried orward to subsequent periods,

when it can be used to oset income rom the sale

o the relevant type o securities.

In addition to the above, the Tax Code provides

or income/expenses rom transactions involving

securities to be recognized on a cash-or-accrual basis

(the so-called “rst event rule”) as ollows:

•Income is recognized when the cash is received or when

securities are transerred, whichever occurs earlier.

•Expenses are reported when the cash is paid out

or when securities are received, whichever occurs earlier.

There is no time limit on the carry-orward o losses

rom transactions involving securities.

Defnition o deductible expenses

Any business-related expenses are deductible rom

taxable income, unless such a deduction is specically

restricted or prohibited by the Tax Code. In the

banking industry, deductible expenses normally include

the ollowing items:•Interest and commission expenses

•Loan loss provisions

•Payments to the Deposit Guarantee Fund

•Foreign exchange losses arising as a result

o the revaluation/settlement o oreign currency,

as well as rom receivables and payables denominated

in oreign currency

•Operating expenses related to carrying out banking

activities (e.g., leasing premises, IT costs, support

or electronic payment systems, etc.)

Loan loss provisions

Banks are allowed to establish deductible loan loss

provisions up to 20% (30% in 2011) o the gross

book value o the loan portolio extended by issued

guarantees.



Value-added tax (VAT)

The majority o banking operations are not subject

to VAT (except or cash and debt collection services).

Meanwhile, sales o collateral are normally subject

to VAT, unless the bank repossessed the collateralin question rom non-VAT payers.

In general, Ukrainian banks are not entitled to obtain

VAT credit in relation to purchases o goods/services,

even those purchased with a view to use in their

business activities.

The provisions made to set up loans, guarantees, nostro

accounts, securities and other asset transactions may

be deducted rom taxable income, along with accrued

interest and commissions – both standard and

non-standard. Loan loss provisions or o-balance-sheet items (except or issued guarantees)

are expressly prohibited.



Taxation o insurance companies in Ukraine


In general, insurance companies are taxable

on their prots rom all types o business activities

(i.e., the dierence between their income

and expenses).

Insurance companies that do not provide lie insurance

are taxable at the ollowing rates:

•From 1 April 2011 to 31 March 2012, a rate o 3%

will apply to insurance income earned; the regular

CIT rate o 23% will apply to non-insurance prots

until 31 December 2011, with a reduction to 21%

in Q1 2012.

•From 1 April 2012 to 31 December 2012, a rate

o 21% will apply to prots earned rom both insurance

and non-insurance activities.

•19% in 2013

•16% rom 1 January 2014

Lie insurance companies are taxable at the 0% CIT rate

on long-term lie insurance contracts. Meanwhile, their

non-insurance prots are subject to the regular CIT rates

as stipulated above.

With respect to insurance activities, the Tax Code

stipulates, inter alia, the ollowing items o taxable

income:

•Gross written premiums (less ceded premiums)

•Releases o insurance reserves (less reinsurance share)

•Investment income rom the placement o lie insurance

reserves

•

Interest income on banking planned/advance depositpremiums

•Forex gains on insurance reserves and reserve

placements (non-lie-insurance only)

•Reinsurance bonuses receivable, ronting income

•Claims recovered rom policyholders or third parties

• Prots rom trading in securities

In accordance with the Tax Code, inter alia,

the ollowing items are specically included into

insurance expenses:

•Increases in insurance reserves (less reinsurance share)

•Gross claims incurred (less claims recovered rom

reinsurers)

•Policy acquisition costs

•Services purchased rom third parties (medical

assistance, actuarial services, licensing costs, orensic

services, claim adjustment services, legal services,

advertising and promotional services, etc.)

•Payroll expenses or personnel involved in insurance

activities

•Reinsurance bonuses payable, ronting expenses

•Forex losses on insurance reserves and reserve

placements (non-lie insurance only)

•Interest expenses on banking planned/advance deposit

premiums

When paying insurance/reinsurance premiums/

compensation to non-residents, the payer will accrue

and pay additional tax at its own expense, as ollows:

•0% or obligatory types o insurance or non-residents

and within the ramework o international “Green Card”

agreements

•0% or insurance/reinsurance o risks by an insurance

company with a high nancial reliability rating (including

agency activities by reinsurance brokers)

•4% or the insurance o risks arising outside o Ukraine

•12% in other cases



According to current legislation, only the interest

element o a lease payment is subject to CIT

on an accruals basis. Where leased property is returned

to the lessor, this return will be treated as a return

o this property or CIT purposes.

Transers o property under a nance lease are subject

to 20% VAT at the moment o transer. The lessee will

become eligible or the respective amount o input VAT

at the moment o transer as well.

For nancial lease purposes, the VAT base is determined

on a contractual basis, but should not be less than

the purchase price o the object o the nancial lease.

The interest portion o a nancial lease installment

is exempt rom VAT.

Taxation o leasing companies in Ukraine

Operating lease

Transerring property under an operating lease

will not generally result in CIT consequences,

either or the lessor or or the lessee. The property

in question is not included into the xed assets

o the lessee and remains among the xed assets

o the lessor. Meanwhile, the lessor continues to receive

tax depreciation or property transerred under

an operating lease.

The operating lease ee is included into the lessor’s

taxable income, and represents a valid CIT deduction

or the lessee. According to current legislation,

the lease ee is subject to VAT at a rate o 20%, whereas

the transer o property under an operating lease

is not subject to VAT.

Financial lease

The Tax Code denes nancial lease as a business

transaction between individuals/legal entities,

whereby property dened as a xed asset,

in accordance with the Tax Code, is purchased

or produced by a lessor and subsequently transerred

to a lessee, along with any risks and benets associated

with the right to use and possess such property.

The Tax Code envisages specic criteria

or the qualication o a lease transaction as a nancial

lease. Notwithstanding these criteria, the parties may

elect to treat any lease transaction as an operating lease

or tax purposes.

From a CIT perspective, the transer o property undera nance lease will be treated as the sale o the property

in question at the moment o transer. Thereore,

the leased property should be included into the xed

assets o the lessee ollowing the transer, or CIT

purposes. Land cannot be subject to nance lease.



Tax base or individuals

The PIT base or Ukrainian and oreign nationals, as well

as stateless persons, depends on their tax residency

status. Ukrainian tax residents are subject to PIT on their

worldwide income, whereas non-residents are only

subject to taxation on the Ukrainian-sourced portion

o their income.

Tax residency

The newly adopted Tax Code establishes the ollowing

rules or determining the tax status o an individual:

•An individual is considered to be a tax resident

o Ukraine i he/she has a permanent home in Ukraine

(“domicile test”).

•I an individual has a permanent home in more than one

country, he/she is considered a tax resident in the country,

with which he/she has the closest personal and economic

ties (“center o vital interests test”).

•I it is impossible to determine the country o residence

using either the domicile or center o vital interests test,

the individual in question is considered to be a Ukrainian

tax resident i he/she is present in Ukraine or at least

183 days, cumulatively, during a particular reporting

year, including the days o arrival and departure

(a calendar year is a reporting year or PIT purposes).

•I tax residency cannot be determined based

on the 183-day test, the individual in question

is considered a Ukrainian tax resident i he/she has

Ukrainian citizenship.

The Tax Code also provides or a sel-recognition

procedure, according to which an individual can

voluntarily elect to be a Ukrainian tax resident.

While it is important that domestic laws provide tax

residency rules, these provisions may be overruled

by the respective provisions o relevant double

tax treaties (hereinater, “DTTs”). Please note that

the domestic rules used to dene tax status are, in many

ways, similar to those suggested by the Model OECD

Tax Convention.

Tax rates

The ollowing PIT rates are generally applied:

•15% – on the worldwide income o tax residents

and the Ukrainian-sourced income o non-residents

up to the monthly threshold o 10 minimum wages

(UAH 941 – appr. USD 110, as at 1 January 2011)

•17% – on the worldwide income o tax residents

and the Ukrainian-sourced income o non-residents

above the monthly threshold o 10 minimum wages

•30% – on income rom winnings and prizes

•10% – on the incomes o certain types o employees

(e.g. miners)

•0% – on inheritance rom immediate relatives4, income

rom the rst sale o qualiying residential property

and plots o land not exceeding the limit or ree

land transers (provided that the property has been

in ownership or more than 3 years)

•1% – on proceeds rom the rst sale during a calendar

year o a vehicle

•5% – or tax residents on: income rom the sale

o commercial property; income rom the second

and any urther sale o residential property

within one reporting year; income rom the sale

o movable property by its owner, other than

the rst sale o a vehicle; income rom the sale o plots

o land over o the maximum area or ree land

transers; on dividends issued by a resident issuer;

and on inheritance paid to non-relatives

•15%/17% – or tax non-residents on:

income rom the sale o commercial property;

income rom the second and any urther sale

o residential property within one reporting

year; income rom the sale o movable property

by its owner other than the rst sale o a vehicle;

income rom the sale o plots o land over the

maximum area or ree land transers; on dividends

issued by a resident issuer; and on inheritance

paid to non-relatives.

Tax residents

Taxable income

Residents are taxed on their worldwide income,

i.e. on income received rom both domestic and oreign

sources. Income is taxed, irrespective o whether

it is received in-cash or in-kind. In the event that

an individual receives benets in-kind, the amount

o taxable income is determined on the basis

o the air market value o the property, services or other

benets received.

The ollowing benets, received by an individual, are

specically exempted rom inclusion in the tax base:

•Income received in the orm o interest on investments

in securities issued by the Ministry o Finance o Ukraine

Personal income tax (PIT)

4 Depending

on occupational risk



•Alimony received rom residents, as dened

by a respective court ruling, or in accordance

with the Family Code o Ukraine

•Interest income on deposits with qualiying Ukrainian

banks and non-banking nancial institutions, as well

as income rom savings certicates (this exemption

is available until 31 December 2012)

•Shares received rom the capitalization o retained

earnings, provided that the allocation ratio o shares

between shareholders remains unchanged

•Compensation o apartment and car rental costs

or certain categories o employees

•Amounts received rom employers or certain types

o medical treatment and services

•The income o a private entrepreneur who has opted

into the simplied system o taxation

•Insurance payments under agreements other than lie

insurance or non-state retirement insurance agreements,

in accordance with the conditions prescribed by law

ExemptionsThe Tax Code also provides a list o deductible items

that are specically included into an individual’s taxable

income. These include, among other things, gits,

insurance contributions and premiums, rental income

and ringe benets. Contributions to unqualied pension

plans made on behal o a taxpayer by another person/

an employer will also be included into an individual’s

taxable income.

The Tax Code permits the ollowing deductions

rom taxable income:

•

Interest on mortgages•Contributions to registered charities

•Qualied education expenses or the taxpayer and his/

her immediate amily

•Insurance expenses, within the limits dened

by the Tax Code

•Certain specic allowances

A special annex to the tax return should be submitted,

in order to apply or these deductions.

Taxation o real estate

Income received rom the sale o real estate

is not taxable i the property in question is sold

only once during a calendar year, regardless

o the area o the property. Revenue earned rom

the sale o a house, apartment, part o an apartment,

room or cottage (including the plot o land, on which

it is located) is:

•not subject to tax i sold only once during a calendar

year, and i the property has been owned or more

than 3 years; or

•subject to 5% tax, which is levied on the amount

received or a second sale o the property within

a reporting year.

Taxation o oreign individuals who are Ukrainian

tax residents

Foreign individuals, who are considered Ukrainian tax

residents, are taxed in the same manner, and according

to the same rules, as Ukrainian nationals.

Foreign individuals working in Ukraine are required

to obtain a work permit rom the Ukrainian Employment

Center. The only exceptions to this rule are employees

o representative oces, who are required to obtain

a Service Card rom the MEU.

Work permits are issued or one year and can

be renewed or the same period. The law states

that, prior to the start o employment, the Ukrainian

employer should apply or a work permit and provide

the relevant set o documents. A special Employment

Center committee will examine the documents

and decide whether or not to issue a work permit

at a meeting that takes place once every two weeks.

I the committee reuses to issue the employee a workpermit or specic reasons, the employer is entitled

to re-submit the documents once the reasons or the

reusal have been addressed.

Strict penalties may apply in cases where a oreign

individual is working in Ukraine without a work permit.

For example, an employer could be subject to ne

o UAH 18,820 (appr. USD 2,350), or the equivalent

o 20 minimum wages, a gure which is subject

to change during a calendar year. The company could

also be deprived o the right to employ oreigners.

A oreign individual who works without a valid

work permit could be subject to deportation at their



employer’s expense, with no right to enter Ukraine

or up to six years ollowing the date o deportation.

However, please note that this type o liability is rarely

used in practice.

A oreign individual working in Ukraine should also

be registered with the state immigration authorities

and be in possession o an IM-I visa (please see below

or urther details).

Non-resident individuals

The Tax Code states that non-residents are taxed

on their Ukrainian-sourced income only. Non-resident

tax rates and procedures are the same as or residents,

except or the taxation o certain transactions.

In general, a 15%/17% rate applies.

Employment/salary income, including that received

rom the Ukrainian employer, is taxed at the same

rates, and according to the same rules, that apply to

residents.

It is no longer necessary to obtain a special tax

residency certicate, issued by the tax authorities, in

order to apply the same rates to Ukrainian salary paid

to oreign assignees.

State registration o taxpayers

Individuals who qualiy as Ukrainian taxpayers should

be registered with the State Tax Administration

o Ukraine.

Registration is conrmed by obtaining a personal taxID number, which is used or the ollowing activities:

incorporation o a legal entity in Ukraine, opening and

operating a bank account, submission o a personal

tax return, payment o PIT, claiming tax credit, and

entering into civil agreements that provide or the

payment o tax/state duties.

Tax agents

In general, Ukrainian employers (companies, other legal

entities and representative oces o oreign companies)

are considered tax agents with regard to the income

they pay to individuals. As such, tax agents are

responsible or withholding PIT and Unied Social

Security Contributions rom the income they pay to their

employees, and to remit this tax to the government

when paying income (in accordance with the PAYE

principle).

I income is paid in-kind, the tax agent is required

to remit the relevant tax to the government on the rst

banking day ollowing payment/provision o the income

to the individual.

The payment o PIT is the responsibility o the tax

agent. Tax agents are required to remit the tax

to the government in a timely manner, in order to avoid

nancial penalties, which can be signicant (up to 75%).

Reporting requirements

Tax agents are generally obliged to le personal income tax

reports to the tax authorities on a quarterly and monthly

basis. At the same time, in order to claim a tax credit with

regard to certain expenses incurred during a calendar year,

individual taxpayers need to le a tax return.

In certain cases, an individual is required to submit

a tax return, such as when they receive taxable income

rom sources other than a tax agent (e.g. oreign

income), or rom two or more tax agents, where

the individual in question’s total monthly incomeexceeds the threshold o 10 monthly average salaries,

and also when claiming a tax credit. PIT returns should

be led with the Ukrainian tax authorities on an annual

basis, by 1 May o the year ollowing the reporting

year. The respective tax (i any) must then be paid

by 1 August o the same year.



Principles

The new Law o Ukraine “On collecting and

accounting or Unied Social Security Contributions

to Compulsory State Social Insurance” came

into eect on 1 January 2011. The law provides

or the consolidation o all social insurance unctions

within the Pension Fund o Ukraine and or the payment

o a Unied Social Security Contribution (hereinater,

“USSC”) using a single payment order.

The maximum base or the single contribution base

is set at teen times the average monthly cost

o living, and currently (as at 1 January 2011) stands

at UAH 14,115.

The eective legislation sets the amount o the

USSC as a percentage o the accrual base between

the minimum amount o the USSC payment

and the abovementioned maximum accrual base,

depending on the category o payer.

The minimum USSC amount is calculated

as the minimum wage, multiplied by the USSC

amount established by the Law or the respective

category o payers. For example, as o 1 January 2011,

i the 34.7% accrual base rate is applied, the minimum

amount o the USSC is UAH 326.53.

I the income is drawn rom dierent sources

(e.g. principal and secondary employment), the USSC

will be accrued on the total income o the insured

individual within the set limits.

Unifed Social Security Contributions

Table 7

TypeUnifed Social Security Contribution rate

Employer’s contribution Employee’s contribution

Enterprises and PEs using a hired labor orce

(labor contracts )36.76-49.7%5 3.6%

Employers paying remuneration under civil law

contracts 34.7% 2.6%

PEs registered as taxpayers under the simplifed

tax system34.7%

Individuals engaged in independent

proessional activities34.7%

5 Depending

on occupational risk



Types o duties

The Ukrainian tax system imposes a number o duties

on the use o natural resources. They include:

•Rental duties or oil, natural gas and gas condensate

produced in Ukraine

•Duties or subsoil usage

•A surcharge on the basic taris or the use

o electrical and heat energy, apart rom the electrical

energy produced by qualiied cogeneration acilities

•A surcharge on the basic taris or the use o electrical

and heat energy (applies to all consumers, corporate,

individual, state owned and private).

•Duties or the special use o water resources

•Duties or the special use o orest resources

•Duties or the development o viniculture, gardening

and hop growing

Rental duties or oil, natural gas and gas

condensate produced in Ukraine

Rental duties apply to entities that extract

hydrocarbon resources on the basis o special

permits. Rental duty rates depend on the volumes

o natural gas, oil and gas condensate extracted

in relation to the depth (i.e., above or below 5,000

meters) o the subsoil plots, rom which these

resources are mined.

The Tax Code signiicantly increases the rental

duty rates on natural gas (by 250% and 460%,

depending on depth). The rental duties or oil

and gas condensate have increased by 40%.

Rental payments should be paid on a monthly basis.

Duties or subsoil usage

The ollowing duties are imposed or subsoil usage:

•Duties or the extraction o mineral resources

•Duties or subsoil usage other than or the extraction

o mineral resources

Business entities using subsoil or the extraction

o mineral resources (including extraction o mineral

resources during geological surveys), on the basis

o special permits, must pay subsoil usage duties.

For tax purposes, duty payers should maintain

separate (rom other types o activities) inancial

and tax accounting o incomes and expenses

or extracting each type o mineral resource

or each type o subsoil, or which a special

permit is provided.

The duty rate depends on the type o resource

extracted and the volume o mineral resources extracted

during a reporting period. Duties should be paid

on a quarterly basis.

Business entities that are not engaged in extraction but

use the subsoil or the ollowing purposes are subject

to subsoil usage duty:

•Storage o natural gas, oil, gaseous and other liquid

hydrocarbons

•Materials used in the production and storage o wine

products

•Growing o mushrooms, vegetables, fowers and other

plants

•Storage o oodstus, industrial and other products,

substances and materials

•Other business activities not connected

with the extraction o mineral resources

The rate o duties payable depends on the area

o the subsoil plot and the types o activities carried out

in relation to the subsoil. These duties should be paid


In an attempt to bring the law into line with European

practices, the duty or geological exploration work was

abolished upon enactment o the Tax Code and included

into the subsoil usage duty. As a result, the duty rates

have increased since 1 January 2011.

Surcharge on the basic tari or electrical and

thermal energy, apart rom electrical energy

produced by qualifed cogeneration acilitiesThis surcharge applies to wholesale suppliers o electrical

and thermal energy, and producers o electrical energy

that sell it outside o the wholesale energy market

on the basis o a special license. The surcharge is

levied at a rate o 3% o the value (exempt o VAT)

o the electrical energy generated by the taxpayer,

and should be paid on a monthly basis.

Surcharge on the basic natural gas tari or

consumers o all orms o ownership

This surcharge applies to business entities that use

water obtained rom primary water sources (primary

water users) and/or rom primary or other water users

(secondary water users) or use in the hydraulic power,

water transportation and shing industries. The rate

is determined according to the actual volume o water

used by the consumer.

Duties or the useo natural resources



In cases where used water came rom sources other

than a primary source, the surcharge is calculated

on the ollowing basis:

•Producers o hydraulic power – the actual volume

o water that fowed through pipelines during

the production o electrical power

•Operators o water transport – based on the tonnage

per day or cargo and passenger-seat per day

or passengers

•For sheries – the actual volume o water required

to replenish water sources in the course o sh cultivation

The surcharge should be paid on a quarterly basis.

Duties or the special use o woodland resources

•The duty is imposed on the wood stored by business

entities engaged in the special usage o woodland

resources on the basis o a special permit or under

a long-term agreement or temporary use o the orest.

The duty should be paid on a quarterly basis.

Duties or the development o viniculture, gardening

and hop growing

This duty is imposed on alcoholic beverages, sold

by entities through wholesale and retail chains, or public

catering networks. Producers o alcoholic beverages

must pay the duty i they sell these products directly

to consumers. Where producers supply a wholesale

or retail chain, they do not pay the duty.

The duty is levied at a rate o 1% o total sales

turnover or alcoholic beverages and should be paid


According to the Tax Code, the duty is eective

until 1 January 2015, and is regulated by the Law

“On the Development o Viniculture, Gardening

and Hop Growing.”



Land tax

Land tax is imposed on owners and users o land.

The amount o tax payable depends on the use

(e.g. armland) and location o the land.

For inhabited land, i there is a value estimate attached

to the land, then the land tax payable is calculated

as 1% o that estimate. Otherwise, the amount o land

tax payable ranges rom UAH 0.24 per square meter

in towns with populations o less than 3,000 people,

to UAH 3.36 per square meter in cities with over

1 million people. For regional centers, zone coecients

o 1.2 to 3 apply.

Agricultural land is taxed at a rate o 0.03-0.1%

o the estimated value.

The land lease rate cannot be less than three times

the land tax rate (with a ew exceptions).

Land tax and land lease payments are due on a monthly

basis, within 30 calendar days o the end o a reporting

month.

Duties or the initial registration o a vehicle

The Tax Code stipulates that legal entities and individuals

should pay duties or the initial registration o vehicles

in Ukraine. The amount o duties payable depends

on the engine capacity o the vehicle in question,

ranging rom UAH 3-60 per 100 cubic centimeters.

Duties must be paid prior to the registration o a vehicle.

Legal entities should le copies o conrmatorydocuments with the tax authorities within 10 days

o registering a vehicle.

Local taxes

Ukraine imposes a number o taxes at the local level,

including property tax, duties on certain business

activities, parking duties, unied tax, and tourist

duties. In general, local taxes and duties do not have

a signicant impact on a taxpayer’s tax position.

Property tax

Property tax will be due rom 1 January 2012, and will

be imposed on owners o residential property – both

individuals and legal entities – including non-residents.

Property tax rates will be established by local authorities

(councils), and may not exceed:

•1% o the minimum monthly salary, as o 1 January

o the reporting (tax) year, or each square meter

o an apartment with a residential area not exceeding

240 square meters and a house with a residential area

not exceeding 500 square meters; or

•2.7% o the minimum monthly salary, as o 1 January

o the reporting (tax) year, or each square meter

o an apartment with a residential area exceeding

240 square meters and a house with a residential area

exceeding 500 square meters.

Taxpayers may reduce the property tax base

by the ollowing amount once per reporting (tax) period:

•For an apartment – 120 square meters

•For a house – 250 square meters

A taxpayer may apply these tax reductions

to any registered property it owns.

Legal entities should independently calculate and pay

property tax on a quarterly basis. Individuals’ property

tax liabilities will be calculated by the tax authorities

and will be due on annual basis.

Other taxes



Contacts at Deloitte CIS

Kyiv, Ukraine

Prime Business Center

48-50A Zhylyanska St.

Kyiv, 01033

Ukraine

Tel: + 380 (44) 490 90 00

Fax: + 380 (44) 490 90 01

[email protected]

www. deloitte.ua

Grigory Pavlotsky

Partner in charge, Tax and Legal Services West region,

Head o M&A Group

[email protected]

Yevgen Zanoza

Partner, Tax and Legal Services, Head o Tax support

or audit and Tax compliance Groups

[email protected]

Andriy Servetnyk

Partner, Tax and Legal Services, Head o the International

Tax and Legal groups, in charge o Tax and Legal

Services in Belarus

[email protected]

Viktoria Chornovol

Partner, Tax and Legal Services, Head o the Corporate

Tax group, Global employee solutions, in charge

o Tax and Legal services in Georgia

[email protected]



Almaty, Kazakhstan

Tel: +7 (727) 258 13 40

Fax: +7 (727) 258 13 41

[email protected]

www.deloitte.kz

Vladimir Kononenko

Partner, Tax & Legal Services

[email protected]

Astana, Kazakhstan

Tel: +7 (727) 258 04 80

Fax: +7 (727) 258 03 90

www.deloitte.kz

Vladimir Kononenko


[email protected]

Minsk, Belarus

Tel: +375 (17) 200 03 53

Fax: +375 (17) 200 04 14

Viktar Strachuk

Senior Manager, Tax & Legal

Services

[email protected]

Tbilisi, Georgia

Tel: +995 (32) 24 45 66

Fax: +995 (32) 24 45 69

[email protected]

Giorgi Tavartkiladze

Senior Manager, Tax & Legal

Services

[email protected]

Atyrau, Kazakhstan

Tel: +7 (7122) 58 62 40/42

Fax: +7 (7122) 58 62 41

www.deloitte.kz

Russell Maynard


[email protected]

Baku, Azerbaijan

Tel: +994 (12) 598 29 70

Fax: +994 (12) 598 29 75

Nuran Kerimov


[email protected]

Bishkek, Kyrgyzstan

Tel: +996 (312) 60 09 99

Fax: +996 (312) 60 09 90

Yulia Abdumanapova

Manager, Tax & Legal Services

[email protected]

Tashkent, Uzbekistan

Tel: +998 (71) 120 44 45/46

Fax: +998 (71) 120 44 47

Batyr Kazybekov

Senior Consultant, Tax & Legal

Services

[email protected]

Moscow, Russia

5 Lesnaya Street

Moscow, 125047

Russia

Tel: +7 (495) 787 06 00

Fax: +7 (495) 787 06 01

[email protected]

www.deloitte.ru

Gennady Kamyshnikov

CIS Managing Partner

[email protected]

Alexei Zelenkov

Partner

Tax & Legal Leader, Russia

[email protected]

St. Petersburg, Russia

Tel: +7 (812) 703 71 06

Fax: +7 (812) 703 71 07

[email protected]

www.deloitte.ru

Yury Zachek


[email protected]





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Documents

Taxation in Ukraine 2011