Friday, August 12, 2016

Major Tax Amendments 2016

The following is a brief overview of the amendments to tax legislation effective from the beginning of 2016.

Corporate Income Tax

- Returning to the quarterly taxable period is made. The annual taxable period is now only possible for certain agricultural producers and taxpayers whose previous year revenue did not exceed UAH 20 mln.

- Monthly advance payments are abolished. The tax is to be remitted after filing relevant tax returns. However, there is still one advance payment to be discharged in 2016. In particular, by the end of the fourth quarter the taxpayer will have to remit an advance payment amounting to 2/9 of its tax liabilities calculated for the three quarters of 2016 (one can see some analogy here to a 11 month taxable period existing a few years ago).

Personal Income Tax

- A flat rate of 18% replaces the progressive rate of 15/20% being previously in existence;

- The procedure for remitting advance payments by individual entrepreneurs subject to the general system of taxation is changed. The basis for their calculation is now the preceding quarter, rather than the preceding year. Moreover, an advance payment is no more needed for the fourth quarter.

Single social contribution (SSC)

- 3.6% SSC imposed on employees is abolished.

- The rate of SSC levied on employers is significantly reduced from 36.76 - 49.7% to 22%.

- The maximum amount of income chargeable to SSC increases from 17 to 25 living wages (UAH 36 250 as of August 2016).


- The absence of a taxable person at his registered office does not make up a ground for his involuntary VAT deregistration anymore.

- The rules on the determination of the tax base for self-produced goods/services are changed. While in past it had to be not lower than their cost, at present it must not be below the applicable usual (market) prices.

- The rules on taxing the sale of mortgaged and pledged property by banks and other financial institutions are clarified. In regardless of whether such property is acquired from taxable or non-taxable persons, it is taxed under the "margin" scheme. What is taxed is the surplus between the selling price of the property and the value at which the property has been earlier received by a bank or another financial institution into their ownership in consequence of the enforcement of the debt.

- A fine for mistakes made in VAT invoices is introduced (previously there was only a fine for the delayed registration of VAT invoices).

- A VAT exemption for the exportation of the majority of grain and industrial crops is removed. The latter made impossible VAT refund on such transactions in the past thereby lowering prices at which export trading companies were buying grain and industrial crops from domestic players.

- VAT refund mechanism is changed to a large extent. While formerly there were two VAT refund procedures, general and automatic (accelerated), for now there is only one refund procedure in place. Under the new rules, VAT refund is provided based on the results of a desk audit. Documentary audits are also possible, but only in two cases expressly provided for in the Tax Code of Ukraine. In particular, documentary audits are possible with regard to:

1) The amounts of VAT refund previously unconfirmed by documentary checks for taxable periods prior to 1 July 2015 (the beginning of the full-mode operation of the system of blocked VAT-accounts) and

2) The amounts of VAT refund arising from prior to 1 January 2016 purchases of goods/services from taxable persons subject to the special VAT treatment of agricultural producers.

The new system provides for the simultaneous existence of two public registers of VAT refund applications (the registers are available on the website of the State Fiscal Service of Ukraine at

Under the amended rules, VAT refund is to be given in the chronological order according to the time at which the VAT refund application has been entered into one of the registers. The most "mysterious" component of the new system is the introduction of two, rather than one, registers of VAT refund applications. This is without specifying any priority for getting the requested VAT refund out of the either particular register.

The first register accommodates VAT refund applications of taxable persons being compliant with certain criteria set out by the Tax Code of Ukraine. The criteria are outwardly very similar to those formerly envisaged for automatic VAT refund. The second register accommodates all other VAT refund applications, i.e. those coming from taxable persons who do not meet the said criteria.

- A clear 15 day time-limit is established for conducting, based on the complaint of the purchaser, the documentary unscheduled audit of the supplier failing to register its VAT invoice or making a mistake in its mandatory details.

- A rule is introduced whereby minor errors in the wording of VAT invoices do not comprise anymore an obstacle for the purchaser to enjoy its input VAT deduction.

- Significant restrictions are introduced for the beneficiaries of the special regime of VAT taxation for agricultural manufactures (indirect subsidy). The beneficiaries are no more able to keep all the due VAT (surplus of output VAT over input VAT), instead of remitting it to the tax revenues. At present, they are only allowed to keep the following parts of the due VAT:

1) 15% - for operations with grain and industrial crops;

2) 80% - for livestock operations;

3) 50% - for other operations.

Unified tax

- The maximum allowed revenue for the third group of taxpayers is lowered from UAH 20 mln to UAH 5 mln.

- The tax rate for the third group of taxpayers is raised from 2% to 3% (for those who pay extra VAT) and from 4% to 5% (for those who are VAT-registered persons).

- For the fourth group taxpayers (agricultural producers), the requirement regarding the proper execution of the lease/ownership rights to the land is abolished.

- Tax rates for the fourth group of taxpayers (agricultural producers) are raised.


- The procedure for the settlement of tax liabilities against the overpaid tax is improved. Main changes relate to the introduction of an automatic settlement (no application is required on the part of the taxpayer) which is now available for settlements conducted within the scope of the same tax, as well as the possibility to use claimed VAT refund for settling against other taxes liabilities.


- An electronic system of administration of excise tax levied on fuel sales is introduced (from 1 March 2016 the system works in a test mode and from 1 April 2016 it works in a full mode).

- An additional tax on real estate in the annual amount of UAH 25,000 is introduced for owners of apartments with floor space over ​​300 square meters and houses with floor space over 500 square meters.

- The scope of transport tax is modified. This now includes cars not older than 5 years not depending on their engine capacity, but depending on their market value. In particular, car whose market value is more than 750 times the minimum statutory salary (about UAH 1 mln as of 2016) are chargeable to transport tax.