News in tax legislation & currency control in Ukraine

Change of the Currency Control Rules

The National Bank of Ukraine (hereinafter – the “NBU”) issued two resolutions which amended the currency control rules. 
In particular, from September 23, 2014, the NBU introduced a mandatory sale of 75% (instead of 100%) of foreign currency receipts for legal entities. This rule is effective until November 21, 2014.1

Also, the NBU established a cap in the amount of UAH 3,000 for the sale of foreign currency cash to one person within one day. This restriction is non-applicable to the purchase of foreign currency by resident individuals solely for the purpose of loan payment to the banks.

In addition, the NBU prohibited some payments abroad, as follows:

1. Settlements “on import operations in case if no importation of goods into Ukraine took place”. This restriction should not apply to the payments for travel, transportation, communication services and in some other cases from October 4, 2014. Wording of the above mentioned provisions requires improvement. In practice banks can refuse to remit funds abroad under service and license contracts.
2. Settlements for goods, which were imported into Ukraine more than 180 days ago. This restriction does not apply to agricultural producers from October 4, 2014.
3. Remittance to foreign investors of the following funds:
   • funds obtained from the sale of securities issued by Ukrainian entities outside the stock exchange;
   • funds obtained from the sale of corporate rights other than shares;
   • dividends (except for dividends on securities traded on the stock exchange);
4. Payments based on the NBU’s individual licenses (except for some specific cases).

The above mentioned restrictions on the sale of foreign currency cash and payments abroad are valid until December 2, 2014.

The Draft Law on the Tax Reform

The Cabinet of Ministers of Ukraine (the “CMU”) submitted for the parliament’s consideration the draft law, which provides for a large-scale tax reform.2  

According to the explanatory note to this draft, the number of taxes and duties should be reduced from 22 to nine, and the main taxes should be reformed as follows.

Corporate profits tax

• Taxable profits should be calculated as financial profits before tax (reported in the Profits and Loss Statement) adjusted by a number of specified items.
• 32 limitations on tax deduction should be cancelled. For example, consulting, marketing and advertising expenses incurred in favor of non-residents should be deducted without any limitation.

Personal income tax

• During the period from January 1, 2015 to October 31, 2015, all resident individuals should file one-time tax returns regarding their assets, as well as income and assets that were not taxed or reported previously in violation of the tax legislation or foreign exchange regulations of Ukraine. In the latter case, such individuals should enjoy tax amnesty.

Excise tax

• Electricity should become an excisable product while the duty on the electricity and heat tariff should be cancelled. 
• Alcoholic beverages, tobacco products and fuel should be excisable in case of their retail sales. The tax rate of not more than 5% of sales should be set by local authorities. 
• The tax rates for gasoline, diesel fuel, and liquefied gas should be increased while the environmental tax should be cancelled.
• A single rate for filter and non-filter cigarettes should be established.
• An electronic filing of the return on maximum retail prices for cigarettes should be introduced.

Other taxes and duties

• All special tax regimes (for example, single tax, fixed agricultural tax, etc.) should be consolidated into one tax regime – a single tax. The number of groups of single tax payers should be reduced to four (at present, there are six groups). Therefore, the fixed agricultural tax should be cancelled, and agricultural producers should pay a single tax.
• Minimum non-taxable area should be abolished for the purpose of the real estate tax assessment. Also, commercial real estate (such as premises of enterprises, warehouses, hotels, restaurants, tourist bases, shopping centers, etc.) should become taxable.
• The land tax and the real estate tax should be consolidated into one. 
• The military tax should be paid until January 1, 2016 (rather than January 1, 2015).
• The rate of the Pension Fund charge on purchase of foreign currency should be increased from 0.5% to 2%.

Land Tax

The State Fiscal Service of Ukraine (hereinafter – the “SFSU”) explained that payers of the fixed agricultural tax are not required to pay the land tax for the land plots used for agricultural production. Such entities pay rental fees for the plots of state and communal property used under the rental agreements.3 

Military Tax

The SFSU explained that the sick pay and dismissal allowance to an employee are subject to the military tax.4   

Draft Procedure for the Electronic Administration of VAT

The CMU has worked out the draft order on the electronic administration of VAT.5   

According to the draft, the SFSU should assign an individual tax number to a taxpayer and send the taxpayers’ data to the bank (PJSC “Settlement center on servicing the financial markets contracts”). Based on this data the bank should open the taxpayers’ accounts in the VAT electronic administration system. Taxpayers should have access to the information about their bank accounts movements.

Download the Tax Alert / 21 October 2014 below

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1The Resolution of the NBU No. 591 dd. 22.09. 2014 “On Amendments to Some Legislative Acts of the National Bank of Ukraine", the Resolution of the NBU No. 626 dd.03.10. 2014 “On Amendments to the NBU Board Resolution No. 540 dd.29.08.2014”

2The Draft Law No. 5079 dd.15.09. 2014 “On Amendments to the Tax Code of Ukraine and the Laws of Ukraine (regarding the tax reform)”

3The Explanation of the SFSU dd.02.10.2014 

4The Explanation of the SFSU dd. 18.09.2014; the Letter of the SFSU No. 3640/6/99-99-17-03-03-15 dd. 18.09.2014

5The Draft Resolution of the CMU “On Approval of the Electronic Administration of VAT”