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Information Brochure
© HWC, Kyiv, 2015
Outsourcing Services
Accounting & Tax
2Brochure_OS_Accounting&Tax.pptx
CONTENT
1. SPECIFICS OF THE UKRAINIAN MARKET 3
2. ACCOUNTING IN UKRAINE 4
3. MAIN TAXES IN UKRAINE 5
4. START-UP COST 6
5. INTERNATIONAL PAYMENTS 6
6. PAYMENTS IN FOREIGN CURRENCY 7
7. CORPORATE PROFIT TAX (CPT) 7
8. VALUE ADDED TAX (VAT) 9
9. PERSONAL INCOME TAX (PIT) 11
10. UNIFIED SOCIAL SECURITY CONTRIBUTION (USSC) 12
11. MILITARY TAX 13
12. SIMPLIFIED TAXATION SYSTEM (SINGLE TAX) 14
13. CASH PAYMENTS 16
14. FOREIGN CURRENCY TRANSACTIONS 17
15. LICENSING 18
16. TRANSFER PRICING 19
17. PERSONNEL ADMINISTRATION 20
18. OPTIONS TO FINANCE UKRAINIAN SUBSIDIARIES 22
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1. SPECIFICS OF THE UKRAINIAN MARKET
Making business in Ukraine is embedded into a quite unique market situation. On
the one hand the country is associating itself towards the European Union by
initializing reforms and rejuvenating its authorities. This atmosphere of change
promises massive chances to capture a remunerative market. On the other hand
the country conducts its heritage of the former Soviet Union including laws and
regulations, specific local accounting standards, a variety of different authorities
directly impacting the business world by a high level of bureaucracy and corruption.
Excellent personal relationships and the creation of trust are essential to establish a
successful joint venture or market presence.
HWC is combining local expertise with Western European business manner and acts
as the interface between you and this complex environment. Adapting your
business to the Ukrainian market, consulting on business relevant decisions and
supporting with business services is our core competence.
Making your business work – is what we do!
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With effect from January 1, 2000, Ukraine implemented the National Accounting
Standards (NAS), which are primarily based on the International Financial
Reporting Standards (IFRS);
Since January 1, 2012, all taxpayers in Ukraine are allowed to use IFRS for
financial reporting;
Regardless of NAS or IFRS being in use, a taxpayer has to complete a significant
number of different accounting and reporting forms required by the local law;
Financial statements (incl. balance sheet, income statement, cash flow
statement, statement of changes in equity and notes to the financial
statements) are to be prepared in local currency and must be filed for a calendar
year and relevant interim reporting periods (quarters);
Taxpayers are not able to use their own “charts of accounts” and have to adapt
them in line with the essential “Chart of Accounts”, directly required by the
Ukrainian law. As a result, the number of accounting entries to be made is about
twice as much as in comparison with the requirements to the foreign entities in
comparable situations;
Certain obligatory principles have to be applied by any local taxpayer when
preparing its “accounting policy”. The Ukrainian government adopted the list of
items are to be regulated by the “accounting policy”;
“Customs declaration” (for import/export of goods) and “Act of acceptance” (for
other cases) are essential for tax and accounting. “Invoice” is rather formal than
essential document. “Credit note” is not required at all;
Basic accounting principles are:
Accounting is based on historical cost which is subject to inflation
adjustments;
Accounting directives are aimed at uniformity and continuity across
businesses;
Design of the accounting forms is regulated by NAS;
Form of a transaction prevails over its substance for the accounting;
In particular NAS implement and develop accounting rules.
2. ACCOUNTING IN UKRAINE
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Corporate Profit Tax (CPT)
Basic Rate - 18%;
Cap – n/a;
Reporting period – calendar year.
Value Added Tax (VAT)
Cap - n/a;
Basic Rates - 0%; 7% and 20%;
Reporting period - calendar month.
Personal Income Tax (PIT)
Cap - up to 10 times the minimum salary per month
(UAH 12,180 for Jan–Aug 2015 and UAH 13,780 for Sept-Dec 2015);
Basic Rates - 15% up to 10 times the minimum salary; 20% applies to
the amounts paid on top of 10 times the minimum salary;
Reporting period - calendar quarter.
Unified Social Security Contribution (USSC);
Cap – up to 17 sustenance minimums per month
(UAH 20,706 for Jan–Aug 2015 and UAH 23,426 for Sept- Dec 2015;
Basic Rates: - employee - 3,6% (payroll), 2,4% (civil law agreements);
- employer - 36,76% - 49,7% depending on the level of industrial risk;
Reporting period - calendar month.
Military Tax
Cap – Gross salary (including any benefits);
Basic Rates: employee - 1,5%;
Reporting period - calendar quarter.
Excise Taxes
Excise tax applies to the exhaustive list of the goods imported to or
produced in Ukraine, including: ethyl alcohol, alcoholic beverages,
tobacco and tobacco products, cars, car bodies, motorbikes, electricity,
liquefied gas, petrol, diesel fuel, and certain other oil products used for
wholesale supply of electric power;
The rates of the excise tax can be “ad valorem” (a percentage of the
value of the goods), “specific” (in monetary units per unit of goods), or
“combined”. The rates of the excise tax are subject to permanent
changes and must be checked for each particular case separately.
3. MAIN TAXES IN UKRAINE
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During the start-up any founder/shareholder of a NewCo, as a rule, have to
incur certain expenses (e.g. registration fees, notary fees, payments to lawyers,
etc.) before completing of a NewCo’s registration and opening its bank
accounts;
The National Accounting Standards, which are the essential ground to form the
taxable base for the CPT in 2015, directly presume possibility to deduct for the
CPT purpose the expenses required by the Ukrainian law for the registration
(e.g. the registration fees, duties, etc.);
Deductibility for the CPT purposes of the “additional” expenses paid before
state registration and/or not from a NewCo’s bank accounts (e.g. payments for
the office equipment, furniture, stationary, etc.) is questionable, and, as a rule,
unaccepted by the local fiscal authorities;
In order to prevent non-deductable expenses, a founder/shareholder should
pay the “additional” expenses, after the registration completed and from the
registered NewCo’s bank account.
5. INTERNATIONAL PAYMENTS
Ukraine has a moderately well-developed network of effective double taxation
treaties. The rules incorporated in DTTs ratified by Ukraine prevail over the
same ones contained in the Ukrainian domestic tax legislation.
To be eligible for the reduced tax rates prescribed by the DTT, inter alia, the
beneficial ownership test needs to be passed. Under Ukrainian law the
beneficial owner of the income is a person who has the right to receive the
relevant Ukrainian-source income, and is not an agent, nominee or
intermediary (conduit). In addition, the certificate of residence of a foreign
recipient in the relevant jurisdiction is a must.
4. START-UP COST
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Settlements between residents and nonresidents of Ukraine in trade and service
transactions are allowed in both hard and local (UAH) currencies.
Settlements under export/import of goods, works or services contracts must be
made within the period not exceeding 90 calendar days. Otherwise a penalty
(0,3% of the overdue debt) will apply for each day of the delay. The 90-day
period may be extended only based on an individual permission granted by the
relevant Ukrainian state authorities;
Offset of the debt between a resident and a non-resident is not allowed in 2015.
This is due to the fact that an offset results in violation of the 90-day rule (i.e. no
funds actually transferred to the bank account of a Ukrainian exporter);
75% of foreign currency proceeds received by residents under cross-border
agreements must be sold on the Ukrainian inter-bank foreign exchange market.
The foreign currency must be sold not later than the next business day after the
relevant proceeds have been credited to the bank account;
If Ukrainian entity intends to pay to its foreign counterpart for services, or use of
the intellectual property rights in excess of EUR 25,000 (or its equivalent in
another foreign currency), such Ukrainian entity shall obtain a price valuation
statement from the State Information and Analytical Center for Monitoring of
External Commodity Markets. Otherwise, the bank will disallow the transfer;
6. PAYMENTS IN FOREIGN CURRENCY
7. CORPORATE PROFIT TAX (CPT)
Since 2015, in particular the annual financial result (profit or loss from ordinary
activities before taxation) declared by a taxpayer in its financial reporting
(prepared in line with NAS or IFRS) and adjusted by several gains/losses directly
presumed by the Tax Code, is to be taken, as the basis for the CPT calculation;
A Taxpayer, whose annual income (net VAT) from any activities does not exceed
UAH 20 mln. may not apply, at its own discretion, any adjustments, except the
losses carried forward from the previous periods;
If it is the case, then the taxpayer will not be able to apply the adjustments
during all subsequent reporting periods (years), until its annual income (net
VAT) exceeds the threshold of UAH 20 mln.;
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A Taxpayer, whose annual income (net VAT) from any activities exceed UAH 20
mln., shall apply the adjustments required/granted by the Tax Code. The
adjustments are mainly relevant to the transfer pricing rules, accruals of
reserves, depreciation of noncurrent assets, etc.;
CPT return shall be electronically filed with the local fiscal (tax) authorities by the
1st June of the year following the reporting one; CPT liabilities shall be paid
during 10 (ten) days following the deadline presumed for filing of the CPT return;
Certain business may qualify for a different tax regime, including agricultural,
insurance and certain other businesses specified in the Tax Code.
Advanced CPT payments
Advanced CPT payments are mandatory for the taxpayers, whose annual income
(net VAT) from any activities exceeds UAH 20 mln.;
Advanced CPT payments are due monthly (without filing any CPT declaration) in
the amount of at least 1/12 of the CPT liabilities accrued for the previous
reporting (tax) year, less the CPT liabilities paid out with regard to the dividends;
Accruals and payments of the CPT on dividends are subject to separate
regulations. The CPT and Withholding Tax on dividends are separate taxes;
The twelve-month period for advance payments is determined from June of the
current reporting (tax) year to May of the next reporting (tax) year;
Being registered during a year a taxpayer shall file annual CPT return for such
year and shall pay CPT (if any) for the period from the date of registration till the
end of the year;
Tax payers, whose annual income (net VAT) does not exceed UAH 20 mln. are not
liable for the advanced CPT payments.
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As of 1 January 2015, there are three VAT rates: 20%, 7%, and 0%;
The rate of 20% applies to almost all transactions subject to VAT except specific
transactions subject to 7% (medicines, medical goods and equipment incl. for
trial) and 0% (export of goods, international transport and tolling services);
Provision of services to a non-resident is not considered to be zero-rated. Such
services are subject to 20% VAT or considered to be outside the scope of VAT
(with no right to claim input VAT), depending on “the place of supply”, as
determined by the Tax Code;
VAT registration is obligatory for a taxpayer, whose volume of VAT-able
operations exceeds UAH 1 mln. during the preceding 12 months; Voluntary
registration allowed as well, even for those taxpayers, which have no VAT-able
operations (e.g. VAT registration during the initial registration as a taxpayer);
Even the registered VAT payer is not allowed to credit input VAT in excess of paid
output VAT;
Registration of a non-resident company as a VAT payer is not possible. Not being
registered as VAT payer, a non-resident cannot claim a VAT refund of input VAT
sourced from Ukraine;
The “first event” rule applies to input and output VAT. Under the “first event”
rule, the liability to pay output VAT as well as the right to credit input VAT arises
either at the moment of receiving services/ goods (signing of the acts of
acceptance) or when paying money for the services/ goods, depending on which
event happens first;
VAT declaration is to be filed in electronic form with the local tax authorities
monthly, by the 20th day of the month following the reporting one. Relevant tax
liabilities (if any) are to be paid during 10 days following the reporting deadline.
Taxpayer, who applies paying Simple Tax at the rate 4 % may perform its activities
without registration as VAT payer (pls. see below).
8. VALUE ADDED TAX
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Electronic VAT administration
In Ukraine the Electronic VAT administration came into force in January 2015;
A separate VAT bank account is required for the electronic VAT administration;
All VAT invoices and corrections shall be registered in the “Register of the Tax
Invoices” (the - Register) during 15 calendar days following the date of issuing.
Registration delay results in fines up to 50% of the respective VAT. All VAT
invoices shall be issued in electronic form. No paper copies are required for the
accounting;
VAT liabilities shall be paid from the separate VAT account. If the volume of the
funds on the VAT account is lower than the VAT liabilities to be paid, a tax payer
has to transfer a sufficient amount from its operational bank account to the VAT
bank account to compensate the lack of the funds;
For the purposes of input VAT adjustments (pro-rata or self-assessed VAT
liabilities) a consolidated VAT invoice should be issued by the end of the
respective month;
A registered VAT invoice can be included into input VAT within 365 days after
issuing.
VAT recovery and refunds
Generally, VAT incurred by a registered entity on the purchase and/ or
importation of goods and services used for the purpose of its own business
(except for VAT incurred in relation to exempt supply) may be recovered by way
of a credit against output VAT. If the VAT credit exceeds VAT output, a VAT refund
is available in the form of a cash payment;
An automatic VAT refund procedure is available for the eligible taxpayers. In
practice, obtaining a VAT refund by other taxpayers is difficult.
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Individuals - tax residents are subject to PIT in Ukraine, regardless of whether
they are citizens of Ukraine or not. Tax residence, as a rule, is regulated by the
Double Tax Treaties concluded between Ukraine and a country of residence of
the individual non-resident. Individuals - tax residents are to be taxed on their
worldwide income;
There are two standard rates of PIT in Ukraine, i.e. 15% and 20%;
Rate 15% applies to the salaries and payments under the civil law agreements in
the amount up to 10 times the minimum salary (UAH 12,180 for January –
November 2015 and UAH 13,780 for December 2015); Rate 20% applies to the
amounts paid on top of the 10 times the minimum salary;
In general, PIT shall be withheld at the payment sources and shall be paid out by
the employer prior to or simultaneously with the relevant taxable payments (e.g.
salary, payments under the civil law agreements, etc);
In general, the employees (incl. non-residents working in Ukraine), who have the
wage as one source of income, are not liable to file PIT declaration; Reports on
personal income tax (Form – “1DF”) of these employees shall be filed by an
employer on a quarterly basis, and must include information regarding each of
the employees as to the income received and PIT withheld;
Income from foreign sources or income from Ukrainian sources, which was not
taxed at the sources, is subject to taxation in Ukraine. The tax liabilities are to be
calculated based on the data declared in the annual PIT return;
Annual PIT return is to be filed with the local tax authorities by the 1st May of the
calendar year following the reporting one. The self-assessed tax is to be paid in
local currency (UAH) by the 1st August of the calendar year following the
reporting one;
International agreements signed by Ukraine (i.e. Double Taxation Treaties)
prevail over domestic legislation. Therefore, the lower tax rates or even tax
exemption can be applied based on the international agreements.
9. PERSONAL INCOME TAX (PIT)
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Remunerations, allowances and other similar payments to employees (regardless
of being locals or foreigners) through payroll are subject to the Unified Social
Security Contribution (the “USSC”). The USSC is to be paid by both employer and
employee.
Foreigners, who work in the representative offices of foreign companies, are not
liable for the USSC;
The USSC covers the payments to the:
Pension Fund;
Social Security Fund;
Unemployment Benefit Fund;
Accident Insurance Fund
The taxable base for the USSC is capped for both employer and employee by 17
sustenance minimums (i.e. UAH 20,706 for January – August 2015 and UAH
23,426 for September - December 2015).
The employee’s contribution constitutes 3.6% of gross income (subject to the cap
(see above)). The USSC due by the employee is withheld and payable by the
employer at the time when the relevant income (wage) paid;
The employer’s contribution ranges from 36.76% - 49.7% of the gross income,
which in its turn, is subject to the cap (see above)), depending on the level of the
classification of industrial risk applied by the employer. The USSC due by the
employer is payable at the time when the relevant income is paid to the
employees or other recipients;
The monthly employer’s USSC per individual cannot be less than the contribution
calculated based on the minimum wage (i.e. from UAH 1,218 for January –
August 2015 and UAH 1,378 for September - December 2015). This does not
apply to remuneration under the civil law agreements.
The USSC report is to be electronically filed with the fiscal authorities by the 20th
day of the month, following the reporting one. If an employer applies any social
benefits, they should be reported quarterly by the 20th calendar day of the
month following relevant quarter.
10. UNIFIED SOCIAL SECURITY CONTRIBUTION
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Penalties for the USSC violations include:
failure to pay/untimely pay of USSC – 20% of the underpaid/overdue amounts;
additional accruals of USSC by fiscal authorities result in penalties amounting to
10% of the accrued amount for each omitted reporting period, however, not
more than 50% of the accruals;
failure to file, untimely filing or filing of the USSC report in a form other than the
required one, are result in the fine amounting to UAH 170 (10 nontaxable
minimum) for the first violation, and UAH 1,020 (60 nontaxable minimum) for the
repeated violation during the same year.
11. MILITARY TAX
The Military Tax effective from 3 August 2014 and would apply until the reform
of the Ukrainian Military Forces is completed. The completion should be
confirmed by respective decision of the Parliament of Ukraine;
Starting from 1 January 2015 the tax base for the military tax is the same as for
PIT. This means that income, which was not subject to Military Tax in 2014 (i.e.
passive income, foreign source income, lease payments, etc.), is now taxable;
Tax at the rate 1,5% is to be paid by employees only;
Administration of the Military tax is similar to the PIT administration.
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12. SIMPLIFIED TAXATION SYSTEM (SINGLE TAX)
Upon the entry into force of the Law of Ukraine No.71 on January 1, 2015 the
number of single tax payers’ groups has been reduced from 6 to 4;
Simplified Taxation System grants payment of CPT at the rates 2% or 4%,
possibility to avoid registration as VAT payer and is regulated by the Tax Code
of Ukraine;
In general, the conditions to apply the System and relevant advantages and
disadvantages are briefly provided in the table below.
Individuals (private entrepreneurs) and Legal entities
Group 1 Group 2 Group 3 Group 4
Taxpayers Private
entrepreneurs (PEs)
PEs and legal
entities
PEs and legal
entities
Agricultural producers
(legal entities and
individual farmers)
Max. income per
year
UAH 300k UAH 1.5 mln UAH 20 mln The main criterion-
income from the sale
of their own
agricultural products
constitutes not less
than 75% of the total
gross revenue of the
previous tax
(reporting) year
Max. number
employees
Nil 10 employees No limit No limit
Major activities Trading in markets
Specified consumer
services
Services
(including
consumer) to
payers of Unified
tax and/or
individuals
Manufacturing/
Production
Sale of goods
Restaurants
Any activity
(unless
specifically
excluded)
Sale of agricultural
products produced
and processed (other
than specifically
excluded)
Tax rates up to 10% of min
salary per month
up to 20% of min
salary per month
2% of turnover
(if VAT
registration
made)
4% of turnover,
if no VAT
registration
The amount of tax due
depends on the size of
the agricultural land
plot owned or rented
by the agricultural
producers. The tax
rates vary from 0.45%
to 3%, apply to the
normative monetary
value of one hectare
of agricultural land,
and depend on the
type of such land.
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Taxpayers from the 3rd Group cannot be registered as VAT payer from the very
beginning. Firstly registration as 4% tax payer is required. Nevertheless, re-
registration is not complicated and can be performed from the beginning of
any calendar quarter, provided relevant statement submitted to the tax
authorities at least 15 days prior to the beginning of the relevant calendar
quarter;
Taxpayers that adopt the Simplified Taxation System must maintain their
accounting records in line with the specific procedures adopted for such tax
payers and presumed by the Tax Code.
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Payments in cash (salary, compensations, etc.) require special supporting
documentation (cash receipts, cash disbursement vouchers, etc.) and must be
recorded in a standardized cashbook. To compensate for any expenses incurred
by an employee for a company’s business, a so-called “advance report”, using a
standardized form, must be completed;
To keep cash in office (petty cash), a company has to set a “cash limit”. For this
purpose, a company has to use a specific algorithm required by the National
Bank of Ukraine. The “cash limit”, in general, depends on the average number of
cash transactions per month and on the nature of the company’s business. In
that case of a start-up business, the “cash limit” is set based on the presumed
number of cash transactions and may be revised after three months based on
actual number of the cash transactions;
Cash exceeding the “cash limit” that is withdrawn by a company from the bank
for specific payments (e.g. advance for business trips) has to be returned to the
bank if not paid to a recipient within 3 days;
Exceeding the cash limit, if identified by the tax authorities in a company’s office,
results in significant fines for the company (up to quintuple amount of the
excess);
The limits for cash payments in Ukraine are set at:
UAH 10,000 - cash payments between companies during one working day;
UAH 150,000 – cash payments between individuals and companies during
one working day for goods (labor, services);
Payments between individuals amounting to UAH 150,000 under the sale and
purchase agreements are to be endorsed by a notary;
The National Bank of Ukraine (NBU) plans to narrow the use of cash by reducing
the upper limit of cash payments between individuals by three times, to UAH
50,000.
13. CASH PAYMENTS
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Historically Ukraine had strict and administratively burdensome currency control
rules. Nevertheless, during 2014/2015 the excessive state regulation in this area
was significantly increased. This is mostly to avoid potential default of Ukraine.
The broad ranges of administrative instruments to govern the Ukrainian currency
market were adopted by the Ukrainian government.
As a result the following currency control restrictions continue to apply in August
2015:
75% mandatory sale of all foreign currency proceeds;
Limitations on purchase of hard currency by individuals (UAH 3,000 per day);
A ban on the following transactions in foreign currency:
Payments under import and export transactions exceeding 90 calendar days;
Early repayment of loans, as well as the conclusion of supplements on the
reduction of payment terms;
Offset of mutual claims under foreign trade agreements;
Remittance of funds to foreign investors due to:
• proceeds from the sale of corporate rights (except shares);
• the sale of Ukrainian securities outside the stock exchange (except state
bonds);
• payment of dividends (except from securities traded on the stock
exchange).
The threshold for service payments to non-residents, which require price
expertise of the Foreign Markets Monitoring Centre constitutes EUR 25,000 per
year;
Ukrainian residents (except for individuals) cannot purchase foreign currency if
they have more than USD 10,000 on their current and deposit accounts in all
banks;
A ban on the remittance of funds to foreign investors due to:
Payment of dividends under securities traded on the stock exchange;
Decrease of the charter capital or exit of foreign investors from legal entities;
A ban on the transfer of UAH from investment accounts for the purchase of state
bonds.
14. FOREIGN CURRENCY TRANSACTIONS
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In Ukraine, certain types of business activities may be carried out only upon
obtaining a license from the relevant state authorities;
Since July 2015 about 30 types of activities are subject to licensing in Ukraine.
The main of them are: banking and financial services; professional stock market
activity; certain types of constructions; certain types of cross-border business
activity; business activity in the sphere of intellectual property; manufacturing
and sale of ethanol, cognac and fruit spirits, alcohol beverages and tobacco;
production and sale of ethanol, cognac and fruit spirits, alcohol beverages and
tobacco; production and sale of pharmaceuticals; business activities in
telecommunications, TV and radio broadcasting; cargo, passenger and baggage
transportation; medical and veterinarian practice; transportation of oil and
petroleum products via long-distance pipelines; transportation of natural, oil-
well gas and methane via pipelines and their distribution; sale of biomass liquid
fuel and biogas, etc.;
License can be obtained both in hard copy and in electronic form. The
documents for license can be submitted personally, by post or electronically;
Licenses are issued for an indefinite period of validity unless a limited term is
prescribed for a particular type of license. Generally, the term of the license
should not be less than 5 years. For a license a one-time fee shall be paid. Re-
issuing of a license shall be done free of charge.
15. LICENSING
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The new transfer pricing rules for the Ukrainian companies came into effect on
September 1, 2013 and are subject to permanent changes.
Transfer pricing rules involve price control over the following transactions:
with related non-resident companies;
with unrelated non-resident agents;
with companies from the “low-tax” jurisdictions; and
with companies from the jurisdictions, which have no agreements with
Ukraine “On the information exchange”.
Since July 2015, the threshold for controlled transactions constitutes UAH 5 mln.
with one counterparty (provided the total annual revenue of the taxpayer
exceeds UAH 50 mln.);
The "arm's-length” principle is the basic rule for the transfer pricing regulations,
and presumes that the prices in the controlling transactions must comply with
the prices in the comparable uncontrolled transactions between independent
counterparties (“fair market price”);
In general, a taxpayer must prove compliance of its prices in the controlled
transactions with the fair market prices by filing the annual report on the
controlled transactions, as well as by provision of supporting documentation
upon the request from fiscal authorities. The proving must performed based on
the method(s), described in the amended Tax Code.
Supporting documentation above include: factors affecting the prices;
information about the functions, assets and economic risks of the
counterparties to the controlled transactions; economic analysis (including
analysis of the range of the fair market prices or comparable profitability);
reason to use the method(s) chosen to confirm that the price in the controlled
transactions equals to the fair market price, etc.
In case of non-compliance of the controlled prices with the fair market prices,
the adjustment of the controlled prices and corresponding recalculation of tax
liabilities are required.
Penalties for non-provision (late provision) of the report on controlled
transactions constitute 300 minimum wages, which is UAH 1,218 for January –
November 2015 and UAH 1,378 for December 2015. Non-inclusion of controlled
transactions into the TP report results in penalties of 1% of the amount of the
undeclared controlled transactions but should not exceed 300 times the
minimum wage.
16. TRANSFER PRICING
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The main legislative act regulating employment relations in Ukraine is the Labour
Code of Ukraine (“Labour Code”). The Labour Code is inherited from the Soviet
era and has not undergone any major revisions since its adoption in 1971;
Employment can be formalized through a labour agreement or an employment
contract in written form. Employment can also be formalized with a standard
“order”, signed by a company’s director;
An employer has the right to establish a probationary period (up to 6 months) for
a newly-hired employee. For unskilled and low skilled employees, the duration of
the probationary period may not exceed one month;
Payroll and labor essentials
Salaries should be paid at least twice a month. The gap between installments
should not exceed 16 days, and the salary must be paid within 7 calendar days
after the end of the period to which it is attributable;
In general, working time is limited to 40 hours per week with a five-day working
week. In certain cases an employer may introduce a six-day working week.
Overtime may be introduced in exceptional cases and must be paid at double
rates;
Annual vacation is 24 calendar days. The weekends during a vacation are
counted as vacation days;
Additional social vacations are granted to couple categories, including but not
limited to:
women having two or more children under the age of 15;
women having a disabled or an adopted child;
single parents; etc.
Vacation allowances are calculated based on the average salary during the
previous twelve months. Each employee must be granted vacation of 24 calendar
days. The main part of the annual vacation should be not less than 14 days.
Unused vacation days can be carried forward; however, with certain limitations;
17. PERSONNEL ADMINISTRATION
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Being on sick leave an employee has to be paid in the amount of: 60-100% of
average salary of such employee depending on the length of service: 5 years or
less - 60%; 5-8 years - 80%; more than 8 years - 100%).
Sick leave allowances are calculated based on the average salary during the
previous six months;
Protection from termination during the first four months of uninterrupted sick
leave, is granted by the labour law;
The system of sick leave in Ukraine requires an employee to submit a medical
certificate only after his/ her recovery, i.e., on the first working day after an
employee’s recovery;
Sick leave compensation is covered by the Ukrainian State Social Security Fund,
except for the first 5 (five) days of each period of an employee’s sickness, which
paid for by the employer. Paid maternity leave is up to 70 calendar days before
and up to 56 calendar days after the childbirth.
Disabled individuals
In accordance with Ukrainian legislation companies with more than eight
employees are required to employ a minimum number of disabled people – 4%
of their total headcount (for the companies with 8 to 25 employees this quota is
one disabled person).
If an employer does not meet the quota, it is required to make a one-time
payment per year to the Fund for the Social Protection of Disabled People which
is equivalent to the company’s one employee’s annual average salary (50% for
companies with 8 to 15 employees) for each position that is not occupied by a
disabled person.
Work permit
A foreign national can be hired in Ukraine following receipt of a work permit
issued by the State Employment Centre of Ukraine. A convincing statement of
reasons for a foreigner (as opposed to a Ukrainian national) to be employed with
a Ukrainian company is mandatory. It usually takes up to a calendar month to
receive a work permit;
Work permits are usually granted for a period of one year, but can be prolonged
for another year on an annual basis. A foreigner who is employed without a
proper work permit can be immediately deported at the expense of his/ her
employer.
22Brochure_OS_Accounting&Tax.pptx
The situation may exist where foreign founders/ shareholders (regardless of
being individuals or legal entities) need to finance their Ukrainian companies
(subsidiaries). In general certain options exist for financing in the legal way,
namely:
Increase of the statutory fund.
Advantages:
full legitimacy;
minimum tax risk (in case of the investments in monetary form);
guarantee of repatriation of the investments and all profits associated with
them; no individual currency license required.
Disadvantages:
necessity to prepare obligatory package of the supporting documents;
changing of the statute of a recipient and further registration of the changes
with the state authorities;
the funds must be transferred after the registration. In the opposite case tax
authorities treat the funds rather as non-returnable financial assistance than
as increase of the statutory fund;
Refundable financial aid
Advantages:
refundable financial aid obtained from the founder/ shareholder (including
a non-resident) does not trigger any tax implications for its recipient within
365 days following the date of its receipt.
Disadvantages:
necessity to prepare obligatory package of the supporting documents;
obligatory registration with the National Bank of Ukraine before receipt by a
Ukrainian borrower;
ban to refund before the date directly presumed for the refund by the
relevant agreement, due to the limitations for operations in foreign currency
implemented by the National Bank of Ukraine in 2014 and prolonged for
2015.
In general the 3rd popular option is provision of the loan. If it is the case, then all
advantages and disadvantages provided above regarding the refundable
financial aid are relevant to the provision of the loan by the founder/
shareholder (including a non-resident).
18. OPTIONS TO FINANCE UKRAINIAN SUBSIDIARIES
Making your business work –
is what we do!
HWC LLC
Ukraine
Kyiv 04205
Obolon Residences
Obolonskyi Ave 26
+380 44 451-5154
office@hwc.com.ua
www.hwc.com.ua

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HWC competence brochure - Tax & Accounting in Ukraine

  • 1. Information Brochure © HWC, Kyiv, 2015 Outsourcing Services Accounting & Tax
  • 2. 2Brochure_OS_Accounting&Tax.pptx CONTENT 1. SPECIFICS OF THE UKRAINIAN MARKET 3 2. ACCOUNTING IN UKRAINE 4 3. MAIN TAXES IN UKRAINE 5 4. START-UP COST 6 5. INTERNATIONAL PAYMENTS 6 6. PAYMENTS IN FOREIGN CURRENCY 7 7. CORPORATE PROFIT TAX (CPT) 7 8. VALUE ADDED TAX (VAT) 9 9. PERSONAL INCOME TAX (PIT) 11 10. UNIFIED SOCIAL SECURITY CONTRIBUTION (USSC) 12 11. MILITARY TAX 13 12. SIMPLIFIED TAXATION SYSTEM (SINGLE TAX) 14 13. CASH PAYMENTS 16 14. FOREIGN CURRENCY TRANSACTIONS 17 15. LICENSING 18 16. TRANSFER PRICING 19 17. PERSONNEL ADMINISTRATION 20 18. OPTIONS TO FINANCE UKRAINIAN SUBSIDIARIES 22
  • 3. 3Brochure_OS_Accounting&Tax.pptx 1. SPECIFICS OF THE UKRAINIAN MARKET Making business in Ukraine is embedded into a quite unique market situation. On the one hand the country is associating itself towards the European Union by initializing reforms and rejuvenating its authorities. This atmosphere of change promises massive chances to capture a remunerative market. On the other hand the country conducts its heritage of the former Soviet Union including laws and regulations, specific local accounting standards, a variety of different authorities directly impacting the business world by a high level of bureaucracy and corruption. Excellent personal relationships and the creation of trust are essential to establish a successful joint venture or market presence. HWC is combining local expertise with Western European business manner and acts as the interface between you and this complex environment. Adapting your business to the Ukrainian market, consulting on business relevant decisions and supporting with business services is our core competence. Making your business work – is what we do!
  • 4. 4Brochure_OS_Accounting&Tax.pptx With effect from January 1, 2000, Ukraine implemented the National Accounting Standards (NAS), which are primarily based on the International Financial Reporting Standards (IFRS); Since January 1, 2012, all taxpayers in Ukraine are allowed to use IFRS for financial reporting; Regardless of NAS or IFRS being in use, a taxpayer has to complete a significant number of different accounting and reporting forms required by the local law; Financial statements (incl. balance sheet, income statement, cash flow statement, statement of changes in equity and notes to the financial statements) are to be prepared in local currency and must be filed for a calendar year and relevant interim reporting periods (quarters); Taxpayers are not able to use their own “charts of accounts” and have to adapt them in line with the essential “Chart of Accounts”, directly required by the Ukrainian law. As a result, the number of accounting entries to be made is about twice as much as in comparison with the requirements to the foreign entities in comparable situations; Certain obligatory principles have to be applied by any local taxpayer when preparing its “accounting policy”. The Ukrainian government adopted the list of items are to be regulated by the “accounting policy”; “Customs declaration” (for import/export of goods) and “Act of acceptance” (for other cases) are essential for tax and accounting. “Invoice” is rather formal than essential document. “Credit note” is not required at all; Basic accounting principles are: Accounting is based on historical cost which is subject to inflation adjustments; Accounting directives are aimed at uniformity and continuity across businesses; Design of the accounting forms is regulated by NAS; Form of a transaction prevails over its substance for the accounting; In particular NAS implement and develop accounting rules. 2. ACCOUNTING IN UKRAINE
  • 5. 5Brochure_OS_Accounting&Tax.pptx Corporate Profit Tax (CPT) Basic Rate - 18%; Cap – n/a; Reporting period – calendar year. Value Added Tax (VAT) Cap - n/a; Basic Rates - 0%; 7% and 20%; Reporting period - calendar month. Personal Income Tax (PIT) Cap - up to 10 times the minimum salary per month (UAH 12,180 for Jan–Aug 2015 and UAH 13,780 for Sept-Dec 2015); Basic Rates - 15% up to 10 times the minimum salary; 20% applies to the amounts paid on top of 10 times the minimum salary; Reporting period - calendar quarter. Unified Social Security Contribution (USSC); Cap – up to 17 sustenance minimums per month (UAH 20,706 for Jan–Aug 2015 and UAH 23,426 for Sept- Dec 2015; Basic Rates: - employee - 3,6% (payroll), 2,4% (civil law agreements); - employer - 36,76% - 49,7% depending on the level of industrial risk; Reporting period - calendar month. Military Tax Cap – Gross salary (including any benefits); Basic Rates: employee - 1,5%; Reporting period - calendar quarter. Excise Taxes Excise tax applies to the exhaustive list of the goods imported to or produced in Ukraine, including: ethyl alcohol, alcoholic beverages, tobacco and tobacco products, cars, car bodies, motorbikes, electricity, liquefied gas, petrol, diesel fuel, and certain other oil products used for wholesale supply of electric power; The rates of the excise tax can be “ad valorem” (a percentage of the value of the goods), “specific” (in monetary units per unit of goods), or “combined”. The rates of the excise tax are subject to permanent changes and must be checked for each particular case separately. 3. MAIN TAXES IN UKRAINE
  • 6. 6Brochure_OS_Accounting&Tax.pptx During the start-up any founder/shareholder of a NewCo, as a rule, have to incur certain expenses (e.g. registration fees, notary fees, payments to lawyers, etc.) before completing of a NewCo’s registration and opening its bank accounts; The National Accounting Standards, which are the essential ground to form the taxable base for the CPT in 2015, directly presume possibility to deduct for the CPT purpose the expenses required by the Ukrainian law for the registration (e.g. the registration fees, duties, etc.); Deductibility for the CPT purposes of the “additional” expenses paid before state registration and/or not from a NewCo’s bank accounts (e.g. payments for the office equipment, furniture, stationary, etc.) is questionable, and, as a rule, unaccepted by the local fiscal authorities; In order to prevent non-deductable expenses, a founder/shareholder should pay the “additional” expenses, after the registration completed and from the registered NewCo’s bank account. 5. INTERNATIONAL PAYMENTS Ukraine has a moderately well-developed network of effective double taxation treaties. The rules incorporated in DTTs ratified by Ukraine prevail over the same ones contained in the Ukrainian domestic tax legislation. To be eligible for the reduced tax rates prescribed by the DTT, inter alia, the beneficial ownership test needs to be passed. Under Ukrainian law the beneficial owner of the income is a person who has the right to receive the relevant Ukrainian-source income, and is not an agent, nominee or intermediary (conduit). In addition, the certificate of residence of a foreign recipient in the relevant jurisdiction is a must. 4. START-UP COST
  • 7. 7Brochure_OS_Accounting&Tax.pptx Settlements between residents and nonresidents of Ukraine in trade and service transactions are allowed in both hard and local (UAH) currencies. Settlements under export/import of goods, works or services contracts must be made within the period not exceeding 90 calendar days. Otherwise a penalty (0,3% of the overdue debt) will apply for each day of the delay. The 90-day period may be extended only based on an individual permission granted by the relevant Ukrainian state authorities; Offset of the debt between a resident and a non-resident is not allowed in 2015. This is due to the fact that an offset results in violation of the 90-day rule (i.e. no funds actually transferred to the bank account of a Ukrainian exporter); 75% of foreign currency proceeds received by residents under cross-border agreements must be sold on the Ukrainian inter-bank foreign exchange market. The foreign currency must be sold not later than the next business day after the relevant proceeds have been credited to the bank account; If Ukrainian entity intends to pay to its foreign counterpart for services, or use of the intellectual property rights in excess of EUR 25,000 (or its equivalent in another foreign currency), such Ukrainian entity shall obtain a price valuation statement from the State Information and Analytical Center for Monitoring of External Commodity Markets. Otherwise, the bank will disallow the transfer; 6. PAYMENTS IN FOREIGN CURRENCY 7. CORPORATE PROFIT TAX (CPT) Since 2015, in particular the annual financial result (profit or loss from ordinary activities before taxation) declared by a taxpayer in its financial reporting (prepared in line with NAS or IFRS) and adjusted by several gains/losses directly presumed by the Tax Code, is to be taken, as the basis for the CPT calculation; A Taxpayer, whose annual income (net VAT) from any activities does not exceed UAH 20 mln. may not apply, at its own discretion, any adjustments, except the losses carried forward from the previous periods; If it is the case, then the taxpayer will not be able to apply the adjustments during all subsequent reporting periods (years), until its annual income (net VAT) exceeds the threshold of UAH 20 mln.;
  • 8. 8Brochure_OS_Accounting&Tax.pptx A Taxpayer, whose annual income (net VAT) from any activities exceed UAH 20 mln., shall apply the adjustments required/granted by the Tax Code. The adjustments are mainly relevant to the transfer pricing rules, accruals of reserves, depreciation of noncurrent assets, etc.; CPT return shall be electronically filed with the local fiscal (tax) authorities by the 1st June of the year following the reporting one; CPT liabilities shall be paid during 10 (ten) days following the deadline presumed for filing of the CPT return; Certain business may qualify for a different tax regime, including agricultural, insurance and certain other businesses specified in the Tax Code. Advanced CPT payments Advanced CPT payments are mandatory for the taxpayers, whose annual income (net VAT) from any activities exceeds UAH 20 mln.; Advanced CPT payments are due monthly (without filing any CPT declaration) in the amount of at least 1/12 of the CPT liabilities accrued for the previous reporting (tax) year, less the CPT liabilities paid out with regard to the dividends; Accruals and payments of the CPT on dividends are subject to separate regulations. The CPT and Withholding Tax on dividends are separate taxes; The twelve-month period for advance payments is determined from June of the current reporting (tax) year to May of the next reporting (tax) year; Being registered during a year a taxpayer shall file annual CPT return for such year and shall pay CPT (if any) for the period from the date of registration till the end of the year; Tax payers, whose annual income (net VAT) does not exceed UAH 20 mln. are not liable for the advanced CPT payments.
  • 9. 9Brochure_OS_Accounting&Tax.pptx As of 1 January 2015, there are three VAT rates: 20%, 7%, and 0%; The rate of 20% applies to almost all transactions subject to VAT except specific transactions subject to 7% (medicines, medical goods and equipment incl. for trial) and 0% (export of goods, international transport and tolling services); Provision of services to a non-resident is not considered to be zero-rated. Such services are subject to 20% VAT or considered to be outside the scope of VAT (with no right to claim input VAT), depending on “the place of supply”, as determined by the Tax Code; VAT registration is obligatory for a taxpayer, whose volume of VAT-able operations exceeds UAH 1 mln. during the preceding 12 months; Voluntary registration allowed as well, even for those taxpayers, which have no VAT-able operations (e.g. VAT registration during the initial registration as a taxpayer); Even the registered VAT payer is not allowed to credit input VAT in excess of paid output VAT; Registration of a non-resident company as a VAT payer is not possible. Not being registered as VAT payer, a non-resident cannot claim a VAT refund of input VAT sourced from Ukraine; The “first event” rule applies to input and output VAT. Under the “first event” rule, the liability to pay output VAT as well as the right to credit input VAT arises either at the moment of receiving services/ goods (signing of the acts of acceptance) or when paying money for the services/ goods, depending on which event happens first; VAT declaration is to be filed in electronic form with the local tax authorities monthly, by the 20th day of the month following the reporting one. Relevant tax liabilities (if any) are to be paid during 10 days following the reporting deadline. Taxpayer, who applies paying Simple Tax at the rate 4 % may perform its activities without registration as VAT payer (pls. see below). 8. VALUE ADDED TAX
  • 10. 10Brochure_OS_Accounting&Tax.pptx Electronic VAT administration In Ukraine the Electronic VAT administration came into force in January 2015; A separate VAT bank account is required for the electronic VAT administration; All VAT invoices and corrections shall be registered in the “Register of the Tax Invoices” (the - Register) during 15 calendar days following the date of issuing. Registration delay results in fines up to 50% of the respective VAT. All VAT invoices shall be issued in electronic form. No paper copies are required for the accounting; VAT liabilities shall be paid from the separate VAT account. If the volume of the funds on the VAT account is lower than the VAT liabilities to be paid, a tax payer has to transfer a sufficient amount from its operational bank account to the VAT bank account to compensate the lack of the funds; For the purposes of input VAT adjustments (pro-rata or self-assessed VAT liabilities) a consolidated VAT invoice should be issued by the end of the respective month; A registered VAT invoice can be included into input VAT within 365 days after issuing. VAT recovery and refunds Generally, VAT incurred by a registered entity on the purchase and/ or importation of goods and services used for the purpose of its own business (except for VAT incurred in relation to exempt supply) may be recovered by way of a credit against output VAT. If the VAT credit exceeds VAT output, a VAT refund is available in the form of a cash payment; An automatic VAT refund procedure is available for the eligible taxpayers. In practice, obtaining a VAT refund by other taxpayers is difficult.
  • 11. 11Brochure_OS_Accounting&Tax.pptx Individuals - tax residents are subject to PIT in Ukraine, regardless of whether they are citizens of Ukraine or not. Tax residence, as a rule, is regulated by the Double Tax Treaties concluded between Ukraine and a country of residence of the individual non-resident. Individuals - tax residents are to be taxed on their worldwide income; There are two standard rates of PIT in Ukraine, i.e. 15% and 20%; Rate 15% applies to the salaries and payments under the civil law agreements in the amount up to 10 times the minimum salary (UAH 12,180 for January – November 2015 and UAH 13,780 for December 2015); Rate 20% applies to the amounts paid on top of the 10 times the minimum salary; In general, PIT shall be withheld at the payment sources and shall be paid out by the employer prior to or simultaneously with the relevant taxable payments (e.g. salary, payments under the civil law agreements, etc); In general, the employees (incl. non-residents working in Ukraine), who have the wage as one source of income, are not liable to file PIT declaration; Reports on personal income tax (Form – “1DF”) of these employees shall be filed by an employer on a quarterly basis, and must include information regarding each of the employees as to the income received and PIT withheld; Income from foreign sources or income from Ukrainian sources, which was not taxed at the sources, is subject to taxation in Ukraine. The tax liabilities are to be calculated based on the data declared in the annual PIT return; Annual PIT return is to be filed with the local tax authorities by the 1st May of the calendar year following the reporting one. The self-assessed tax is to be paid in local currency (UAH) by the 1st August of the calendar year following the reporting one; International agreements signed by Ukraine (i.e. Double Taxation Treaties) prevail over domestic legislation. Therefore, the lower tax rates or even tax exemption can be applied based on the international agreements. 9. PERSONAL INCOME TAX (PIT)
  • 12. 12Brochure_OS_Accounting&Tax.pptx Remunerations, allowances and other similar payments to employees (regardless of being locals or foreigners) through payroll are subject to the Unified Social Security Contribution (the “USSC”). The USSC is to be paid by both employer and employee. Foreigners, who work in the representative offices of foreign companies, are not liable for the USSC; The USSC covers the payments to the: Pension Fund; Social Security Fund; Unemployment Benefit Fund; Accident Insurance Fund The taxable base for the USSC is capped for both employer and employee by 17 sustenance minimums (i.e. UAH 20,706 for January – August 2015 and UAH 23,426 for September - December 2015). The employee’s contribution constitutes 3.6% of gross income (subject to the cap (see above)). The USSC due by the employee is withheld and payable by the employer at the time when the relevant income (wage) paid; The employer’s contribution ranges from 36.76% - 49.7% of the gross income, which in its turn, is subject to the cap (see above)), depending on the level of the classification of industrial risk applied by the employer. The USSC due by the employer is payable at the time when the relevant income is paid to the employees or other recipients; The monthly employer’s USSC per individual cannot be less than the contribution calculated based on the minimum wage (i.e. from UAH 1,218 for January – August 2015 and UAH 1,378 for September - December 2015). This does not apply to remuneration under the civil law agreements. The USSC report is to be electronically filed with the fiscal authorities by the 20th day of the month, following the reporting one. If an employer applies any social benefits, they should be reported quarterly by the 20th calendar day of the month following relevant quarter. 10. UNIFIED SOCIAL SECURITY CONTRIBUTION
  • 13. 13Brochure_OS_Accounting&Tax.pptx Penalties for the USSC violations include: failure to pay/untimely pay of USSC – 20% of the underpaid/overdue amounts; additional accruals of USSC by fiscal authorities result in penalties amounting to 10% of the accrued amount for each omitted reporting period, however, not more than 50% of the accruals; failure to file, untimely filing or filing of the USSC report in a form other than the required one, are result in the fine amounting to UAH 170 (10 nontaxable minimum) for the first violation, and UAH 1,020 (60 nontaxable minimum) for the repeated violation during the same year. 11. MILITARY TAX The Military Tax effective from 3 August 2014 and would apply until the reform of the Ukrainian Military Forces is completed. The completion should be confirmed by respective decision of the Parliament of Ukraine; Starting from 1 January 2015 the tax base for the military tax is the same as for PIT. This means that income, which was not subject to Military Tax in 2014 (i.e. passive income, foreign source income, lease payments, etc.), is now taxable; Tax at the rate 1,5% is to be paid by employees only; Administration of the Military tax is similar to the PIT administration.
  • 14. 14Brochure_OS_Accounting&Tax.pptx 12. SIMPLIFIED TAXATION SYSTEM (SINGLE TAX) Upon the entry into force of the Law of Ukraine No.71 on January 1, 2015 the number of single tax payers’ groups has been reduced from 6 to 4; Simplified Taxation System grants payment of CPT at the rates 2% or 4%, possibility to avoid registration as VAT payer and is regulated by the Tax Code of Ukraine; In general, the conditions to apply the System and relevant advantages and disadvantages are briefly provided in the table below. Individuals (private entrepreneurs) and Legal entities Group 1 Group 2 Group 3 Group 4 Taxpayers Private entrepreneurs (PEs) PEs and legal entities PEs and legal entities Agricultural producers (legal entities and individual farmers) Max. income per year UAH 300k UAH 1.5 mln UAH 20 mln The main criterion- income from the sale of their own agricultural products constitutes not less than 75% of the total gross revenue of the previous tax (reporting) year Max. number employees Nil 10 employees No limit No limit Major activities Trading in markets Specified consumer services Services (including consumer) to payers of Unified tax and/or individuals Manufacturing/ Production Sale of goods Restaurants Any activity (unless specifically excluded) Sale of agricultural products produced and processed (other than specifically excluded) Tax rates up to 10% of min salary per month up to 20% of min salary per month 2% of turnover (if VAT registration made) 4% of turnover, if no VAT registration The amount of tax due depends on the size of the agricultural land plot owned or rented by the agricultural producers. The tax rates vary from 0.45% to 3%, apply to the normative monetary value of one hectare of agricultural land, and depend on the type of such land.
  • 15. 15Brochure_OS_Accounting&Tax.pptx Taxpayers from the 3rd Group cannot be registered as VAT payer from the very beginning. Firstly registration as 4% tax payer is required. Nevertheless, re- registration is not complicated and can be performed from the beginning of any calendar quarter, provided relevant statement submitted to the tax authorities at least 15 days prior to the beginning of the relevant calendar quarter; Taxpayers that adopt the Simplified Taxation System must maintain their accounting records in line with the specific procedures adopted for such tax payers and presumed by the Tax Code.
  • 16. 16Brochure_OS_Accounting&Tax.pptx Payments in cash (salary, compensations, etc.) require special supporting documentation (cash receipts, cash disbursement vouchers, etc.) and must be recorded in a standardized cashbook. To compensate for any expenses incurred by an employee for a company’s business, a so-called “advance report”, using a standardized form, must be completed; To keep cash in office (petty cash), a company has to set a “cash limit”. For this purpose, a company has to use a specific algorithm required by the National Bank of Ukraine. The “cash limit”, in general, depends on the average number of cash transactions per month and on the nature of the company’s business. In that case of a start-up business, the “cash limit” is set based on the presumed number of cash transactions and may be revised after three months based on actual number of the cash transactions; Cash exceeding the “cash limit” that is withdrawn by a company from the bank for specific payments (e.g. advance for business trips) has to be returned to the bank if not paid to a recipient within 3 days; Exceeding the cash limit, if identified by the tax authorities in a company’s office, results in significant fines for the company (up to quintuple amount of the excess); The limits for cash payments in Ukraine are set at: UAH 10,000 - cash payments between companies during one working day; UAH 150,000 – cash payments between individuals and companies during one working day for goods (labor, services); Payments between individuals amounting to UAH 150,000 under the sale and purchase agreements are to be endorsed by a notary; The National Bank of Ukraine (NBU) plans to narrow the use of cash by reducing the upper limit of cash payments between individuals by three times, to UAH 50,000. 13. CASH PAYMENTS
  • 17. 17Brochure_OS_Accounting&Tax.pptx Historically Ukraine had strict and administratively burdensome currency control rules. Nevertheless, during 2014/2015 the excessive state regulation in this area was significantly increased. This is mostly to avoid potential default of Ukraine. The broad ranges of administrative instruments to govern the Ukrainian currency market were adopted by the Ukrainian government. As a result the following currency control restrictions continue to apply in August 2015: 75% mandatory sale of all foreign currency proceeds; Limitations on purchase of hard currency by individuals (UAH 3,000 per day); A ban on the following transactions in foreign currency: Payments under import and export transactions exceeding 90 calendar days; Early repayment of loans, as well as the conclusion of supplements on the reduction of payment terms; Offset of mutual claims under foreign trade agreements; Remittance of funds to foreign investors due to: • proceeds from the sale of corporate rights (except shares); • the sale of Ukrainian securities outside the stock exchange (except state bonds); • payment of dividends (except from securities traded on the stock exchange). The threshold for service payments to non-residents, which require price expertise of the Foreign Markets Monitoring Centre constitutes EUR 25,000 per year; Ukrainian residents (except for individuals) cannot purchase foreign currency if they have more than USD 10,000 on their current and deposit accounts in all banks; A ban on the remittance of funds to foreign investors due to: Payment of dividends under securities traded on the stock exchange; Decrease of the charter capital or exit of foreign investors from legal entities; A ban on the transfer of UAH from investment accounts for the purchase of state bonds. 14. FOREIGN CURRENCY TRANSACTIONS
  • 18. 18Brochure_OS_Accounting&Tax.pptx In Ukraine, certain types of business activities may be carried out only upon obtaining a license from the relevant state authorities; Since July 2015 about 30 types of activities are subject to licensing in Ukraine. The main of them are: banking and financial services; professional stock market activity; certain types of constructions; certain types of cross-border business activity; business activity in the sphere of intellectual property; manufacturing and sale of ethanol, cognac and fruit spirits, alcohol beverages and tobacco; production and sale of ethanol, cognac and fruit spirits, alcohol beverages and tobacco; production and sale of pharmaceuticals; business activities in telecommunications, TV and radio broadcasting; cargo, passenger and baggage transportation; medical and veterinarian practice; transportation of oil and petroleum products via long-distance pipelines; transportation of natural, oil- well gas and methane via pipelines and their distribution; sale of biomass liquid fuel and biogas, etc.; License can be obtained both in hard copy and in electronic form. The documents for license can be submitted personally, by post or electronically; Licenses are issued for an indefinite period of validity unless a limited term is prescribed for a particular type of license. Generally, the term of the license should not be less than 5 years. For a license a one-time fee shall be paid. Re- issuing of a license shall be done free of charge. 15. LICENSING
  • 19. 19Brochure_OS_Accounting&Tax.pptx The new transfer pricing rules for the Ukrainian companies came into effect on September 1, 2013 and are subject to permanent changes. Transfer pricing rules involve price control over the following transactions: with related non-resident companies; with unrelated non-resident agents; with companies from the “low-tax” jurisdictions; and with companies from the jurisdictions, which have no agreements with Ukraine “On the information exchange”. Since July 2015, the threshold for controlled transactions constitutes UAH 5 mln. with one counterparty (provided the total annual revenue of the taxpayer exceeds UAH 50 mln.); The "arm's-length” principle is the basic rule for the transfer pricing regulations, and presumes that the prices in the controlling transactions must comply with the prices in the comparable uncontrolled transactions between independent counterparties (“fair market price”); In general, a taxpayer must prove compliance of its prices in the controlled transactions with the fair market prices by filing the annual report on the controlled transactions, as well as by provision of supporting documentation upon the request from fiscal authorities. The proving must performed based on the method(s), described in the amended Tax Code. Supporting documentation above include: factors affecting the prices; information about the functions, assets and economic risks of the counterparties to the controlled transactions; economic analysis (including analysis of the range of the fair market prices or comparable profitability); reason to use the method(s) chosen to confirm that the price in the controlled transactions equals to the fair market price, etc. In case of non-compliance of the controlled prices with the fair market prices, the adjustment of the controlled prices and corresponding recalculation of tax liabilities are required. Penalties for non-provision (late provision) of the report on controlled transactions constitute 300 minimum wages, which is UAH 1,218 for January – November 2015 and UAH 1,378 for December 2015. Non-inclusion of controlled transactions into the TP report results in penalties of 1% of the amount of the undeclared controlled transactions but should not exceed 300 times the minimum wage. 16. TRANSFER PRICING
  • 20. 20Brochure_OS_Accounting&Tax.pptx The main legislative act regulating employment relations in Ukraine is the Labour Code of Ukraine (“Labour Code”). The Labour Code is inherited from the Soviet era and has not undergone any major revisions since its adoption in 1971; Employment can be formalized through a labour agreement or an employment contract in written form. Employment can also be formalized with a standard “order”, signed by a company’s director; An employer has the right to establish a probationary period (up to 6 months) for a newly-hired employee. For unskilled and low skilled employees, the duration of the probationary period may not exceed one month; Payroll and labor essentials Salaries should be paid at least twice a month. The gap between installments should not exceed 16 days, and the salary must be paid within 7 calendar days after the end of the period to which it is attributable; In general, working time is limited to 40 hours per week with a five-day working week. In certain cases an employer may introduce a six-day working week. Overtime may be introduced in exceptional cases and must be paid at double rates; Annual vacation is 24 calendar days. The weekends during a vacation are counted as vacation days; Additional social vacations are granted to couple categories, including but not limited to: women having two or more children under the age of 15; women having a disabled or an adopted child; single parents; etc. Vacation allowances are calculated based on the average salary during the previous twelve months. Each employee must be granted vacation of 24 calendar days. The main part of the annual vacation should be not less than 14 days. Unused vacation days can be carried forward; however, with certain limitations; 17. PERSONNEL ADMINISTRATION
  • 21. 21Brochure_OS_Accounting&Tax.pptx Being on sick leave an employee has to be paid in the amount of: 60-100% of average salary of such employee depending on the length of service: 5 years or less - 60%; 5-8 years - 80%; more than 8 years - 100%). Sick leave allowances are calculated based on the average salary during the previous six months; Protection from termination during the first four months of uninterrupted sick leave, is granted by the labour law; The system of sick leave in Ukraine requires an employee to submit a medical certificate only after his/ her recovery, i.e., on the first working day after an employee’s recovery; Sick leave compensation is covered by the Ukrainian State Social Security Fund, except for the first 5 (five) days of each period of an employee’s sickness, which paid for by the employer. Paid maternity leave is up to 70 calendar days before and up to 56 calendar days after the childbirth. Disabled individuals In accordance with Ukrainian legislation companies with more than eight employees are required to employ a minimum number of disabled people – 4% of their total headcount (for the companies with 8 to 25 employees this quota is one disabled person). If an employer does not meet the quota, it is required to make a one-time payment per year to the Fund for the Social Protection of Disabled People which is equivalent to the company’s one employee’s annual average salary (50% for companies with 8 to 15 employees) for each position that is not occupied by a disabled person. Work permit A foreign national can be hired in Ukraine following receipt of a work permit issued by the State Employment Centre of Ukraine. A convincing statement of reasons for a foreigner (as opposed to a Ukrainian national) to be employed with a Ukrainian company is mandatory. It usually takes up to a calendar month to receive a work permit; Work permits are usually granted for a period of one year, but can be prolonged for another year on an annual basis. A foreigner who is employed without a proper work permit can be immediately deported at the expense of his/ her employer.
  • 22. 22Brochure_OS_Accounting&Tax.pptx The situation may exist where foreign founders/ shareholders (regardless of being individuals or legal entities) need to finance their Ukrainian companies (subsidiaries). In general certain options exist for financing in the legal way, namely: Increase of the statutory fund. Advantages: full legitimacy; minimum tax risk (in case of the investments in monetary form); guarantee of repatriation of the investments and all profits associated with them; no individual currency license required. Disadvantages: necessity to prepare obligatory package of the supporting documents; changing of the statute of a recipient and further registration of the changes with the state authorities; the funds must be transferred after the registration. In the opposite case tax authorities treat the funds rather as non-returnable financial assistance than as increase of the statutory fund; Refundable financial aid Advantages: refundable financial aid obtained from the founder/ shareholder (including a non-resident) does not trigger any tax implications for its recipient within 365 days following the date of its receipt. Disadvantages: necessity to prepare obligatory package of the supporting documents; obligatory registration with the National Bank of Ukraine before receipt by a Ukrainian borrower; ban to refund before the date directly presumed for the refund by the relevant agreement, due to the limitations for operations in foreign currency implemented by the National Bank of Ukraine in 2014 and prolonged for 2015. In general the 3rd popular option is provision of the loan. If it is the case, then all advantages and disadvantages provided above regarding the refundable financial aid are relevant to the provision of the loan by the founder/ shareholder (including a non-resident). 18. OPTIONS TO FINANCE UKRAINIAN SUBSIDIARIES
  • 23. Making your business work – is what we do! HWC LLC Ukraine Kyiv 04205 Obolon Residences Obolonskyi Ave 26 +380 44 451-5154 office@hwc.com.ua www.hwc.com.ua