 |
Co-authored
by
Andrii Kuleba
(Junior
Associate of
Lavrynovych & Partners Law Firm)
|
Crimea is
not ours anymore…
The
armed aggression of Russia has led to the annexation of the Autonomous Republic
of Crimea in March 2014.
Finally, in August 2014 the Verkhovna Rada (Parliament) managed to adopt the
Act setting out rules for conducting business in the temporarily occupied
territory of Crimea.
This is
the Act of Ukraine “On the Creation of the Free Economic Zone “Crimea” and Specifics of Conducting Business
in the Temporarily Occupied Territory of Ukraine” (hereinafter – the “Act”).
According
to the Act the whole territory of the Autonomous Republic of Crimea, including
the City of Sevastopol, becomes the free economic zone “Crimea” (hereinafter –
the “FEZ “Crimea”).
The
specific feature of the Act is that it establishes two different regimes of
conducting business in Crimea. First one is actually the FEZ “Crimea” (Chapter
I of the Act). Second one
is the FEZ “Crimea” under temporary
occupation (Chapter II of the Act).
What
follows is a brief review of the tax treatment in respect of the FEZ “Crimea” under temporary occupation:
- Individuals and legal entities residing/located in the territory
of the FEZ “Crimea” are equated to non-residents for the purposes
of taxation (hereinafter – “persons equated to
non-residents”).
- Ukrainian tax registration of persons equated
to non-residents
is cancelled. The FEZ
“Crimea” source income of
such persons is not liable to Ukrainian taxes and duties.
- Persons equated to non-residents may pay Ukrainian
unified social contribution on a voluntary basis.
- FEZ “Crimea” source income of
Ukrainian residents is treated as foreign source taxable income.
- Non-FEZ “Crimea” source income obtained
by persons equated to non-residents
in the territory of Ukraine is subject to Ukrainian withholding tax. Inasmuch
as Ukraine does not recognize the annexation of Crimea, it is quite reasonable
that the double tax treaty between Ukraine and Russia will not apply to this income.
-
Transactions involving persons equated to non-residents (irrespective of whether the
parties to them are related enterprises) are considered to be controlled
transactions for the purposes of transfer pricing rules. Unfortunately, it is
not clear from the Act whether such transactions are recognized as controlled
automatically or only after reaching a value limit of UAH 50 million. At the
moment, the State Fiscal Service of Ukraine sticks to an approach being
favorable for the taxpayers. According to its position such transactions become
controlled only after reaching the aforementioned value criterion (the letter
of 6 November 2014).
- Goods supplied from the territory of FEZ “Crimea” to the other territory of Ukraine fall
under the import regime with the payment of import duty, excise tax and VAT.
However, such goods can be exempt from import duty where they are of Ukrainian
origin confirmed by a certificate issued by Ukrainian chamber of commerce. The
exemption at hand is confined to import duty only and does not apply to VAT and
excise tax.
- Ukrainian goods from the other
territory of Ukraine to be supplied to the FEZ “Crimea” fall under the export regime. According to
the logic of the Tax Code of Ukraine, these goods must attract a zero rate of
VAT. However, pursuant to an oral statement made by the leaders of the State
Fiscal Service of Ukraine at a meeting with the members of the European
Business Association held on 14 November 2014, there are no grounds for the
application of the zero rate to such goods.
- Some tax incentives are made available
to enterprises changing their location from the territory of the FEZ “Crimea” to the other territory of Ukraine.
Such incentives, inter
alia, include: (1) the cancelation of tax debts and the relief from
sanctions for the failure to file tax returns since the beginning of the
temporary occupation;
(2) the exemption from import duty, VAT and excise tax for fixed assets and
stock evacuated from the temporarily occupied territory; (3) possibility
to deduct for the tax purposes an amount of documented expenses with respect to
the evacuation of fixed assets and stock as well as to apply 100% depreciation
charge with regard to the evacuated fixed assets.
Photo from http://alp.org.ua/
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