Financial Catastrophe Act: Changes in Area of Tax ~ U-Tax Blog

Monday, April 7, 2014

Financial Catastrophe Act: Changes in Area of Tax

1 April 2014 is the effective date of the Law of Ukraine «On Prevention of Financial Catastrophe and Creating Preconditions for Economic Growth in Ukraine». Please see below a brief account of main amendments brought by this law in the area of tax.
  1. PIT*
- The taxation of deposits (to the extent to which the annual interest exceeds 17 living wages**);
- The taxation of pensions (to the extent to which a monthly pension exceeds UAH 10,000);
- The introduction of a new progressive tax system:
Yearly taxable band in living wages
1. 15% Less than 204
2. 20%
3. 25%
More than 396
A tax agent (payer of income) withholds 15% tax on passive income at source. The rest of the tax is payable by the taxpayer himself upon the submission of the annual tax return.
  1. Corporate income tax
- The 18% rate becomes permanent. The transitions to the 17% rate in 2015 and the 16% rate in 2016 are abolished.
  1. VAT
- The rate of 20 % becomes permanent. The transition to the 17% rate in 2015 is abolished;
- The introduction of the reduced rate of 7% for pharmaceuticals and medical products (not taxable in the past). As a result of the inaccuracies of the law, there is a risk of the importation of pharmaceuticals and medical products being subject to 20%, not 7% rate;
- Reducing the tax-free threshold from 300 to 150 euros for the import of goods transferred via international mail;
- Limitation till 1 October, 2014 for (i) first-tier intermediaries (buying cereal crops directly from the manufacturers) and (ii) manufactures cultivating leased land in their right to cash refund related to the exportation of cereal crops (by virtue of a tax exemption covering certain transactions).
  1. Pension duty***
- The levying of pension duty on currency purchases made either in cash and non-cash form by both individuals and legal entities. The duty rate will be 0.5% of the amount of the transaction. The duty is supposed to be calculated and withheld by banks conducting relevant transactions.
  1. Other
- Increasing the rates of excise duty on alcoholic beverages, beer, tobacco products, vehicles, etc.;
- Increasing the rates of land tax for the land plots in respect of which governmental (normative monetary) evaluation has not been carried out;
- Extending the application of real estate tax by changing the basis of assessment from the living area of dwelling to its total area;
- Increasing the rates of radio frequency use charge and subsoil use charge.

The majority of the aforementioned amendments has been already in effect since 1 April 2014. The amendments related to PIT taxation will come into force on 1 July 2014.

* - personal income tax;
** - as of January 1, 2014, a living wage for an able-bodied person amounts to UAH 1,218;
*** - duty on state mandatory pension insurance.

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