Tax news update - February-March 2021

Obligatory registration of non-residents having a registered Representative Office

Non-residents who have a registered Representative Office (including non-commercial) or conduct business activities resulting in permanent establishment in Ukraine, should be registered with the tax authorities, regardless of nature of their activities in Ukraine.

According to the recent updates the registration should be finalized by 19.05.2021. Non-registration may result in penalties (UAH 100k) and further forced registration by tax authorities, as well as tax audits of non-residents.

Relevant for: all non-residents having Representative Office or permanent establishment in Ukraine.

Strengthening support and protection of investors in Ukraine

The new law on the state support of significant investment projects came into force with respective amendments being introduced into the Tax Code of Ukraine. Key points are the following:

• state support to Ukrainian and foreign investors with a total investment from EUR 20 million;
• total amount of state support is capped at 30% of the investment amount;
• investment projects will be granted the following incentives: tax benefits, access to certain infrastructure objects, pre-emptive right to use state land plots, guarantees under a direct agreement with the government of Ukraine,
• only for enterprises operating in specified industries: processing, transport, education, science and technology (R&D), health care, art, culture, sport, tourism and recreation, etc.

Relevant for: all national and foreign investors of industries mentioned above.

Recommencement of tax audits and updated list of scheduled audits

Tax authorities are allowed to start and/or recommence certain types of tax audits of companies, including, in particular, the following:

• audits launched before 18.03.2020 and not completed;
• scheduled audits (the list of taxpayers was updated on 26.02.2021);
• unscheduled audits including, inter alia, certain types of documentary audits, transfer pricing audits, cases when tax authorities became aware of possible law violations by taxpayer.

Relevant for: entities listed for scheduled audits, companies having VAT credit from purchase transactions with risky contactors (identified by the Temporary Investigation Commission of the Verkhovna Rada), companies engaged into export and import transactions.

14% VAT rate on the supply of agricultural goods from 01.03.2021

A reduced (from 20% to 14%) VAT rate was introduced for import and domestic supply. This innovation is intended to provide national agrarians with additional benefit and discourage use of tax optimization schemes. The new rate applies to the following types of agricultural goods:

• animal products: cattle, pigs, sheep (except for import of purebred breeding animals, breeding genetic resources by farmers that are exempt from VAT), whole milk;
• plant products: wheat and a mixture of wheat and rye, rye, barley, oats, corn, soybeans, flax seeds, canola, rape, sunflower, seeds and fruits of other oilseeds (crushed, uncrushed), sugar beets.

There are special rules for transitional period.

Relevant for: taxpayers of agricultural sector.

Creation of the Bureau of Economic Security

The Bureau is a central body of executive power coordinated by the Cabinet of Ministers, and responsible for combating economic crimes. The main function is not enforcement, but analytical work, i.e. analysis of the beneficiaries of financial transactions and spotting cases of law violation. Once the Bureau becomes operational, the Security Service will abdicate functions of investigating crimes related to corruption and organized crime in the field of management and economy.

Relevant for: large businesses.

DRAFT LAW STAGE

VAT on digital services

Following the global trend on introduction of digital taxes, Ukraine is considering amendment of its Tax Code with new rules forcing large transnational companies such as Apple, Google, Booking, Facebook, Microsoft, Netflix, etc. pay VAT in Ukraine. The current draft includes the following key provisions:

• abolition of 20% tax which is now withheld by Ukrainian companies at their expense, when they pay to non-residents for production and distribution of advertisements;
• instead, a VAT will be imposed on non-residents which provide digital services with place of delivery in Ukraine. It is planned to create a legal basis for imposing VAT on foreign digital companies by defining rules for digital services providers, introducing new definitions and provisions, etc.

Relevant for: large digital business and those using their services.

Prospective changes in labour relations

The draft law suggests reducing undeclared employment in Ukraine and strengthening protection of employees. In particular, it states that labour relations can be recognized, regardless of contract, if relations between the parties have at least three out of seven signs of employment. These signs are briefly outlined below:

1. “deemed employee” works according to a specific qualification, on behalf of and under control of “deemed employer”;
2. the labour process is permanent and does not require “deemed employee” to achieve a specific result in a certain period;
3. “deemed employee” works at a specific place as agreed with the “deemed employer”, in compliance with the rules of internal labour regulation;
4. “deemed employer” provides “deemed employee” with labour facilities, such as workplace, equipment, tools, materials, etc.;
5. “deemed employer” makes regular payments to “deemed employee”, either in cash or in kind;
6. “deemed employer” establishes certain duration of working hours;
7. “deemed employer” reimburses travel and other expenses related to work done by “deemed employee”.

In addition to the list, there may be other signs depending on each specific case.

Relevant for: companies engaging private entrepreneurs (for instance, software developers and other freelancers).

Project on tax amnesty for individuals

The presidential project provides for a one-time (from 01.07. 2021 to 01.07. 2022) voluntary declaration of assets privately owned by Ukrainian citizens. On 30 March 2021, the Verkhovna Rada adopted in the first reading one of four presidential drafts on tax amnesty.

The draft law is aimed at assets obtained from income without payment of taxes and fees, and/or income not declared in violation of tax and currency legislation before 01.01.2021.

Relevant for: high-profile individuals.