Tax and Legal updates

Below, you will learn about:

• Criteria for determining companies that are important for the economy or public needs are published;
• A number of decisions adopted by the National Bank of Ukraine;
• Simplification of the identification of a person in the process of obtaining qualified electronic signatures and other trust services;
• The Law of Ukraine on automatic exchange of information on financial accounts was adopted;
• Increase of the minimum terms for keeping primary documents by taxpayers;
• The Law of Ukraine introducing electronic residency of Ukraine (e-residency) came into force;
• Adoption of the new Law of Ukraine On Collective Bargaining Agreements and Contracts;
• Update of the application forms for state registration of legal entities, individual entrepreneurs and public organizations;
• Simplification of the Ukrainian bankruptcy legislation;
• Approval of the updated forms of the tax invoice, value added tax declaration and the clarifying calculation of tax obligations on value added tax;
• Reduce of the amount of fines for violation of the terms for registration of tax invoices and adjustment calculations;
• A new term for documentary tax audits of value added tax budgetary refunds has been introduced;
• Update of the procedure for taxation and reporting on business trip expenses.

Criteria for determining companies that are important for the economy or public needs are published

Resolution of the Cabinet of Ministers of Ukraine dated January 27, 2023, No. 76, introduced criteria for determining companies that are critically important for the economy and ensure the vital activity of the population. Such companies have the right to apply to the relevant ministries or other authorities to reserve their conscripted employees from being called up for military service during mobilization.

One of the criteria for determining a company as critical important for the economy and ensure the vital activity of the population is a decision by the relevant ministry or other authority to determine that it is important to the economy or public needs.

Accordingly, the ministries and authorities, in particular the Ministry of Economy, the Ministry of Finance of Ukraine, the Ministry of Agrarian Policy and Food of Ukraine, the Ministry of Health of Ukraine, and the Ministry of Strategic Industries of Ukraine), drafted and approved the requirements that companies should meet to be determined as important for the economy or public needs. 

For example, the Ministry of Economy determines companies as important for the economy if they meet at least one of the listed criteria:

• providing support and accompanying investment projects;
• implementation of state policy, the formation of which is responsible of the Ministry of Economy;
• receiving financial state support in the form of grants;
• performing works and providing services for the Ministry of Economy on the basis of contracts;
• being in the sphere of management of the Ministry of Economy and fulfillment of state orders;
• carrying out activities in the spheres in which the Ministry of Economy is responsible for policy development and/or implementation, and providing employees with an average salary not lower than the average salary in the country multiplied by a coefficient of 1.5;
• carrying out activities in the spheres in which the Ministry of Economy is responsible for policy development and/or implementation in three or more regions of Ukraine;
• providing production or provision of services that meet the needs of other companies operating in the spheres in which the Ministry of Economy is responsible for policy development and/or implementation, and the termination of meeting such needs will lead to a complete shutdown of the mentioned companies.   

Mazars team analyzed the matter of reservations for conscripted employees in more detail in the previous Ukrainian legal updates.   

• the reference rate was kept at 25% per annum. The next meeting of the Board of the National Bank of Ukraine on the reference rate is scheduled for April 27, 2023;
• the international standard ISO 20022 has been introduced in Ukraine's payment infrastructure. In this regard, from April 01, 2023, the new generation electronic payment system SEP-4.0 began to operate, providing banks with the opportunity to conduct interbank payment transactions in hryvnia around the clock, including on weekends and holidays;
• banks are obliged to identify and document information about the connections of clients and their counterparties with the russian federation, as well as citizens and residents of the russian federation. According to the National Bank of Ukraine, this will increase the transparency of bank clients and prevent the covert presence of the russian federation in the Ukrainian market. At the same time, for bank clients, this means an increase in requirements, including documentary requirements, for obtaining various banking services or conducting banking transactions.

According to the amendments introduced by the Cabinet of Ministers of Ukraine, starting from March 30, 2023, individuals and legal entities, including representatives of foreign legal entities, will not need to visit the relevant authorized entities to obtain qualified electronic signatures and other trust services. Identification and verification of identity can be done online.

This simplification will be valid regardless of the martial law in Ukraine.

On March 20, 2023, the Parliament of Ukraine adopted the Law of Ukraine, the main purpose of which is to implement the Common Standard on Reporting and Due Diligence for Financial Account Information developed by the OECD (CRS Standard). The implementation of the CRS Standard into the national legislation of Ukraine is a mandatory condition for Ukraine's accession to the international system of information exchange under the Multilateral Competent Authority Agreement on the Automatic Exchange of Financial Account Information (Multilateral CRS Agreement), which Ukraine, represented by the State Tax Service of Ukraine, joined in August 2022.

In particular, the main provisions of the adopted Law of Ukraine establish:

• functions and rights of supervisory authorities to ensure that the information required for exchange is received in accordance with the CRS Standard;
• requirements for financial agents to apply the CRS Standard in the process of performing due diligence on financial accounts and to submit to the State Tax Service of Ukraine information on financial accounts of those account holders who are tax residents of other jurisdictions – partners in the information exchange;
• requirements for the minimum term of keeping documents and the procedure for providing such documents to the supervisory authority;
• the procedure for obtaining information for tax purposes by the supervisory authority in accordance with the CRS Standard and upon request from the competent authority of a foreign jurisdiction on the basis of an international agreement;
• an effective mechanism for controlling compliance with the requirements of the CRS Standard by financial agents.

Starting from July 01, 2023, the Law of Ukraine requires reporting financial institutions of Ukraine to apply due diligence measures to financial accounts to determine whether the accounts are subject to automatic exchange (whether the financial accounts are reportable). The CRS Standard contains separate due diligence rules for financial accounts opened before and after July 01, 2023. Thus, according to the time of opening, financial accounts are divided into “new accounts” and “existing accounts”. Depending on this, separate due diligence rules and terms for completing this due diligence are established.

The adoption of this Law of Ukraine will ensure the proper fulfillment by Ukraine of its international obligations on the exchange of information for tax purposes, increase the transparency and reliability of Ukraine as a partner state in the exchange of information, and will help prevent tax evasion and increase compliance with tax legislation of Ukraine.

The minimum terms for keeping primary documents for Ukrainian taxpayers have been increased. From now on, they are as follows:

• 2555 days (about 7 years) – for documents and information required for tax control in accordance with articles 39 and 39-2 of the Tax Code of Ukraine (transfer pricing and controlled foreign companies);
• 1825 days (about 5 years) – for primary documents, accounting registers, financial statements, other documents related to the calculation and payment of taxes and fees, the maintenance of which is provided for by legislation of Ukraine, which are prepared by subjects specified in paragraph 133.1 of article 133 of the Tax Code of Ukraine (resident corporate income tax payers), subparagraph 133.2.2 of paragraph 133.2 of article 133 of the Tax Code of Ukraine (non-residents operating through permanent representative offices) and paragraph 133.4 of article 133 of the Tax Code of Ukraine (non-profit legal entities), as well as legal entities that have chosen the simplified taxation system, except for documents for which a longer retention period applies;  
• 1095 days (about 3 years) – for other documents that are not subject to the above requirements;
• 1095 days (about 3 years) – for documents related to compliance with the requirements of other legislation of Ukraine, control over compliance with which is vested in regulatory authorities, including licensing (permitting) documents.

Electronic residency of Ukraine (e-residency) is a fundamentally new model for Ukraine, which allows foreigners (for example, an IT specialists) to conduct their business activities through Ukraine fully online, including:

• officially register as entrepreneurs in Ukraine through the relevant state web portal;
• fully manage their business activities remotely;
• sign any documents created in the process of their business activities with an electronic signature;
• open and manage bank accounts in Ukrainian banks remotely;
• pay taxes in Ukraine through the bank where the e-resident has bank accounts, as well as have preferential tax conditions (5% of income and 15% of the amount of excess income over the limit of 1167 times the Ukrainian minimum wage established by the legislation of Ukraine (as of April 2023 – UAH 7,818,900.00 or about EUR 190,000.00).

The requirements for e-residents are minimal. Thus, e-residents may be foreigners who have reached the age of 18, are not tax residents of Ukraine and have registered as Ukrainian entrepreneurs on the relevant state web portal. E-residents may provide services, produce and/or sell goods exclusively to non-residents of Ukraine.

The specific list of states whose citizens will be able to obtain e-residency in Ukraine will be published by the Ministry of Digital Transformation of Ukraine in the near future. However, in any case, e-residents will not be able to be citizens of Ukraine, foreigners permanently residing in Ukraine, stateless persons, foreigners with income in Ukraine (except for passive income, such as dividends, interest, royalties), as well as citizens of the russian federation and states included in the FATF's “gray” or “black” list (in particular, citizens of the Islamic Republic of Iran, the Democratic People's Republic of Korea, the Republic of the Union of Myanmar, the Republic of Panama, the Republic of Albania, the Republic of the Philippines, the Republic of Turkey, etc.).

In fact, e-residents of Ukraine are able to conduct their business activities outside their home jurisdictions and pay less taxes than they would have paid as entrepreneurs in their home countries. However, e-residency does not equate to a temporary or permanent residence permit in Ukraine and does not provide an e-resident with most of the benefits that he or she could receive when establishing a legal entity in Ukraine.

Although the relevant Law of Ukraine introducing the e-residency has already entered into force, the Ukrainian government is still finalizing both the bylaws and the relevant web portals necessary for the full launch of the e-residency.

This specified Law of Ukraine is aimed at improving the legal regulation of labour relations and bringing it to the European level. It is fully consistent with the provisions of the European Social Charter and a number of European Union directives.

The new Law of Ukraine On Collective Bargaining Agreements and Contracts not only expands the composition of the parties to collective negotiations and collective bargaining agreements and contracts, defines new rights for the parties (both employees and employers), but also provides for the long-demanded possibility of suspending and terminating certain provisions of collective bargaining agreements and contracts by consent of the parties and in the event of force majeure.

On March 29, 2023, the Ministry of Justice of Ukraine adopted Order No. 1158/5, according to which the application forms in the mentioned spheres were updated and will come into force on May 1, 2023. The relevant forms of application may be found on the official website of the Ministry of Justice of Ukraine at the link.

Submission of applications for state registration of legal entities, individual entrepreneurs and public organizations in accordance with the forms approved by the mentioned Order in part of the choice of the simplified taxation system and/or voluntary registration as a value added tax payer and/or entry into the Register of non-profit institutions and organizations during the state registration of changes to the information about a legal entity, individual entrepreneur or public organization contained in the Unified State Register by filling in the relevant pages of the applications will be carried out from the date of publication of the relevant announcement on the official website of the Ministry of Justice of Ukraine.

In order to ensure more efficient application of the bankruptcy legislation of Ukraine, the Parliament of Ukraine adopted a Law of Ukraine, which, in particular, provides that by default, bankruptcy claims will be considered by the courts in simplified claim proceedings without inviting the parties.  

On April 01, 2023, the Order of the Ministry of Finance of Ukraine dated December 28, 2022, No. 463, came into force, which approved the updated forms of the tax invoice, value added tax declaration and the clarifying calculation of tax obligations on value added tax. The relevant forms of documents may be found in the annexes to the relevant Order at the link.

Accordingly, from April 01, 2023, the registration of tax invoices and adjustment calculations for quantitative and value indicators to tax invoices shall be carried out in accordance with the updated forms. This also applies to tax invoices and adjustment calculations for quantitative and value indicators to such invoices that were prepared before April 01, 2023, but were not registered.

In turn, the value added tax declaration and the clarifying calculation of tax obligations on value added tax in connection with the correction of self-detected errors will have to be submitted in the updated forms from May 01, 2023.

For the period of martial law, amendments to the Tax Code of Ukraine reduced the amount of fines for violation of the terms for registration of tax invoices and adjustment calculations.

 Currently, the relevant fines are set at the following amounts:

• up to 15 calendar days – 2 percent of the amount of value added tax specified in such tax invoices/adjustment calculations (previously 10 percent);
• from 16 to 30 calendar days – 5 percent of such amount of value added tax (previously 20 percent);
• from 31 to 60 calendar days – 10 percent of such amount of value added tax (previously 30 percent);
• from 61 to 365 calendar days – 15 percent of such amount of value added tax (previously 40 percent);
• for 366 calendar days or more – 25 percent of such amount of value added tax (previously 50 percent).

Following the amendments to the Tax Code of Ukraine on February 7, 2023, the term for documentary tax audits of value added tax budgetary refunds in the amount of more than UAH 100,000.00 on the grounds under subparagraph 78.1.8 of paragraph 78.1 of article 78 of the Tax Code of Ukraine from March 20, 2023, will be up to 30 calendar days after the expiration of the term for conducting an cameral tax audit of the relevant declaration or clarifying calculation.

On April 01, 2023, amendments to the Tax Code of Ukraine came into force, which set out an updated procedure for taxation of the amount of overspent funds or electronic money received by a taxpayer for a business trip or on a report that was not returned within the prescribed period.

These amendments establish new requirements for the recognition and documentation of the actual number of days spent on a business trip, confirmation of the amounts of actual business trip expenses or performance of certain civil law actions, in particular, made by payment instruments, including a corporate payment instrument or a personal payment instrument, or their details, as well as for reporting on the use of funds or electronic money issued for a business trip or on a report.

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