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Ukraine: Ukrainian government embarks on a tax offensive trying to boost collections

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Vladimir Kotenko


Iryna Kalyta

The Ukrainian government announced preparation for a series of tax reforms, including a dramatic decrease of the number of taxes and an overhaul of the major taxes. In the meantime, temporary measures are introduced to boost tax collections:

Ukraine introduces a temporary 1.5% military levy on payroll

From August 2014 to January 1 2015, a temporary military levy of 1.5% will be imposed on salaries of employees, remuneration under civil agreements and income of individuals from prizes and lottery wins. This levy is expected to work as an extra payroll tax.

Resource taxes and excise tax rates increased

From August 2014 to January 1 2015, production royalties will reach up to:

  • 55% for natural gas (previously 15%-28%)

  • 45% for oil and condensate (previously 18%-42%)

  • 8% for iron ore (previously 5%);

Ukraine has also decided to increase tobacco excises by 5% starting September 2014, as well as to apply excise tax to alternative fuels and food products containing more than 8.5% of ethyl alcohol.

Abolition of certain tax incentives

Effective August 3 2014, a number of tax incentives have been abolished, including:

  • Corporate income tax exemptions for the hotel industry;

  • Corporate income tax exemptions for producers of electric energy from renewable sources;

  • 10% corporate income tax rate for transactions with securities and derivatives; and

  • Privileged VAT regime for companies engaged in timber procurement, deforestation, and production of industrial and fuel wood.

VAT administration overhaul expected to be effective January 2015

The parliament passed a government-induced law overhauling the VAT administration system. VAT changes are supposed to take effect in January 2015, but more changes are expected, as the proposed rules raise concerns among the business community.

  • VAT accounts, a system of electronic administration of VAT, are supposed to be implemented. The main stated purpose of this system is to counter tax evasion based on the use of fictitious companies. However, the viability of this system raises concerns, as a similar system works only in Azerbaijan. Bulgaria also attempted to implement such system, but abolished it shortly thereafter.

  • VAT refund eligibility conditions will become more stringent. The range of companies eligible to VAT refund is expected to decrease significantly.

  • Threshold for mandatory registration as a VAT payer is increased from UAH 300,000 to UAH 1 million ($80,000).

  • The rules for calculating VAT change slightly, as a minimum tax basis is introduced for loss-making supplies of goods and services.

  • VAT reporting and issuance of VAT invoices to customers should be done exclusively in the electronic form. All VAT invoices and adjustments will have to be registered in a special state register.

Vladimir Kotenko (Vladimir.Kotenko@ua.ey.com), Iryna Kalyta (Iryna.Kalyta@ua.ey.com)

EY

Tel: +380 44 490 3000

Fax: +380 44 490 3030

Website: www.ey.com/ua

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