Tax and Legal news (15.05.24)

Below, you will learn about:

• The National Bank of Ukraine has eased currency control restrictions; 
• Delayed fines for failure to submit CFC reporting to the end of martial law;
• Amendments to the regulation on the form and content of the ownership structure;
• The extension of mobilization deferrals and amendment of the procedure for booking military liable. 
        

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The National Bank of Ukraine has eased currency control restrictions 

On May 03, 2024, a resolution of the Board of the National Bank of Ukraine came into force, which introduced numerous currency easing measures to improve business activity.

Key aspects:

• all currency restrictions for the import of works and services have been abolished, which allows businesses to purchase and transfer foreign currency abroad for operations to import works and services. In this regard, the resolution of the Cabinet of Ministers of Ukraine “On Certain Issues of Ensuring Imports” No. 153 dated February 24, 2022 was abolished;
• businesses are now allowed to repatriate dividends on corporate rights or shares abroad accrued based on the results of activity for the period starting from January 01, 2024. This easing does not apply to the payment of dividends at the account of retained earnings for previous periods (until January 01, 2024) or reserve capital;
• funds transfers under leasing/rental agreements may be executed without additional restrictions on the subject of leasing/rental, as well as the date of the agreement;
• representative offices of international card payment systems and foreign airlines are allowed to purchase and transfer foreign currency abroad to the account of a non-resident legal entity whose interests they represent in Ukraine within the monthly limit of the equivalent of EUR 5 million;
• purchase of foreign currency by residents for the purpose of servicing and repayment of external loans was simplified (the funds for which are received in foreign currency from abroad after June 20, 2023, to the accounts of borrowers in Ukrainian banks);
• allowed interest payments on external loans, which, in accordance with the loan agreement, are payable from February 24, 2022.

^{Source: Resolution of the Board of the National Bank of Ukraine “On Amendments to the Resolution of the Board of the National Bank of Ukraine No. 18 dated February 24, 2022” No. 56 dated May 03, 2024.}

Delayed fines for failure to submit CFC reporting to the end of martial law

The Parliament promptly voted in favour of the draft law 10168-2 dated November 06, 2023, which approved important amendments to the tax legislation on controlled foreign companies (the – “CFC”).

Key aspects:

Temporarily, from January 01, 2022, and during the period of martial law in Ukraine and six months after the month in which this state will be terminated or cancelled:

• the taxpayer and its officials are not subject to administrative and criminal liability for violation of the legislation governing the CFC rules;
• information and/or documents received by the CFC controller:
  • considered as information with limited access that cannot be requested and/or transferred to law enforcement agencies upon their request or within the procedures provided for by the Criminal Procedure Code of Ukraine;
  • cannot be considered evidence in criminal proceedings within the meaning of Article 84 of the Criminal Procedure Code of Ukraine. 
• the countdown of the statute of limitations (7 years for CFC) for determining the tax liability related to the information contained in the CFC Reports starts from the date of submission of such a report to the supervisory authority;
• the taxpayers are not subject to fines for such CFC violations:
  • failure to submit or late submission of the CFC Report;
  • does not reflect in the Report on Controlled Transactions, information on existing CFC and/or does not reflect the following information on the existing CFC:
    • the amount of revenue from the sale reported by CFC;
    • the amount of profit from operating activities and profit before taxation of the CFC in accordance with the financial reporting of the CFC;
    • calculation of the adjusted profit of the CFC;
    • the amount of adjusted profit included in the total taxable income of the CFC controller;
    • information on the grounds for exemption from taxation of the CFC's profit;
    • the amount of dividends received by a CFC directly or indirectly through a chain of controlled legal entities from Ukrainian legal entities;
    • the amount of the CFC's profit actually paid to the CFC controller;
    • the list of operations of CFC with non-residents: related parties, those included in the lists of low tax jurisdictions^[1] or tax-free organizational and legal forms^[2];
    • number of CFC employees as of the end of the reporting year.
  • failure to submit within the prescribed timeframe a notice of acquisition of a share in a CFC, or on the commencement of actual control over the CFC, or on the alienation of a share in the CFC, or on the termination of actual control over the CFC.

It is important to note that fines continue to be applied during the duration of martial law for the failure to submit or incomplete submission of TP documentation by the CFC controller, and other copies of primary documents on CFC at the request of the supervisory authority.

Recall, that this provides for a fine of 3% of the amount of CFC income, in respect of which TP documentation and/or copies of primary documents were not submitted, but not more than 1000 living wages for an able-bodied person as of January 01 of the reporting year.

These amendments will be introduced to paragraph 72 of subsection 10 of section XX of the Tax Code of Ukraine.

^{Source: The Law of Ukraine dated February 06, 2024 No. 3562-IX (blob:https://itd.rada.gov.ua/3cb87e35-29db-4c9f-a92c-f20eb501930c). Will enter into force on the first day of the month following the month of its publication. At the time of preparation of the materials, the Law was not published.}

Amendments to the regulation on the form and content of the ownership structure

The Ministry of Finance of Ukraine amended the Regulation on the Form and Content of the Ownership Structure by approving a new version.

Key aspects:

• amended form of ownership structure for legal entities and the determination of the possibility of submitting the ownership structure to the Unified State Register in electronic form;
• approved clear requirements for information on persons to be submitted as part of the ownership structure and the format of their reflection;
• established a number of requirements for the schematic representation of the ownership structure, in particular, the requirements for the color of text and graphic elements, the property relations in the schematic image using arrows, etc;
• introduced the procedure for filling in the ownership structure in case of presence in the chain of control or ownership of a joint-stock entity, mutual investment fund, corporate investment fund, non-state pension fund;
• added a number of definitions, including chain of control/ownership and participation in it, key participant and criteria for determining key participants, public company, level of control/ownership, etc.

The Order will come into force 90 days after the date of termination or withdrawal of martial law in Ukraine. Also, it is established that within 6 months from the date of entry into force of this order, if a registered legal entity discovers incompleteness, inaccuracies or errors in the information previously submitted to the state registrar on the ultimate beneficial owner and ownership structure of the legal entity, such person again submits corrected information.

^{Source: Order of the Ministry of Finance of Ukraine “On Amendments to the Order of the Ministry of Finance of Ukraine dated March 19, 2021 No. 163” dated April 02, 2024 No. 161.}

The extension of mobilization deferrals and amendment of the procedure for booking military liable 

On May 07, 2024, the Cabinet of Ministers of Ukraine decided to extend for one month the period of deferral from conscription for military service during mobilization granted to military liable by the relevant decisions of the Ministry of Economy of Ukraine, which had not expired on the day of the decision.

On May 10, 2024, a resolution came into force amending the Procedure for booking military liable on the list of military liable during martial law. From now on, the lists of reservists will be approved by the Ministry of Defense of Ukraine, not the General Staff of the Armed Forces of Ukraine. The resolution does not provide for any other significant amendments. As before, booking is made by the decision of the Ministry of Economy of Ukraine.

^{Sources: Resolution of the Cabinet of Ministers of Ukraine “On Extension of Deferrals from Military Service during Mobilization” of May 07, 2024 No. 516; Resolution of the Cabinet of Ministers of Ukraine “On Amendments to the Resolution of the Cabinet of Ministers of Ukraine dated January 27, 2023 No. 76” dated May 08, 2024 No. 520.}

^{[1] The list of states (territories) that meet the criteria established by subparagraph 39.2.1.2 of subparagraph 39.2.1 of paragraph 39.2 of Article 39 of the Tax Code of Ukraine, approved in the annex to the Resolution of the Cabinet of Ministers of Ukraine No. 1045 dated December 27, 2017.
[2] The list of organizational and legal forms of non-residents that do not pay income tax (corporate tax), including tax on income received outside the state of registration of such non-residents, and/or are not tax residents of the state in which they are registered as legal entities, is approved in the annex to the Resolution of the Cabinet of Ministers of Ukraine No. 480 dated July 04, 2017.}