Personal Income Tax Reporting Changes

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The Law of Ukraine No 4661-VI dated 24 April 2012 "On Amendments to Tax Code of Ukraine and Some Other Laws of Ukraine Regarding Tax Reporting” came into force on 28 April 2012. The law slightly modified the approach to personal income tax reporting. The amendments affected the matters indicated below.

Firstly, the law extended the deadline for submitting an annual tax return on property and income (hereinafter – “Annual Return”) with a view to qualify for a personal income tax rebate (amendments to paras 49.18.4 and 166.1.2 of the Tax Code of Ukraine). The deadline was extended from 1 May of a year following the taxable year to 31 December of this year.

This is where a taxpayer is not required to file the Annual Return by virtue of law, but rather lodges it voluntarily in order to be eligible for a personal income tax rebate. As it is well known, a tax rebate is the reduction of taxable income by the amount of certain expenses permitted by law (such as interest on a residential mortgage loan, the value of medical or educational services) and a tax refund resulting from such a reduction.

Secondly, the modifications concerned the declaration of the income received from several tax agents for the purposes of the application of 17% tax rate. The amendments were made to para 176.1 (“є”) of the Tax Code of Ukraine.

From this time onwards, while determining whether a taxable person receiving the income resulting from his labour relations or his performance of civil contracts from several tax agents, is under the obligation to hand in the Annual Return the annual rather than monthly taxable income is taken into account. While formerly the Annual Return had to be filed if the amount of the taxable income in any month of a year exceeded 10 statutory minimum wages, nowadays, the taxable person is mandated to do so if the yearly amount of the taxable income exceeds 120 statutory minimum wages.

The amendments set forth the recalculation mechanism in relation to the submission of the Annual Return on the above ground. The recalculation mechanism, by itself, is not complicated. The total taxable income declared is reduced by the amount of unified social contribution accrued (withheld) by the tax agents and by the amount of social tax benefits (if any). Of the reduced amount of the total taxable income, 120 statutory minimum wages are taxed at 15 per cent, and the rest is taxed at 17 per cent. The tax charged on the reduced amount of the taxable income decreases by the amount of tax actually accrued (withheld) by the tax agents during the taxable year. The surplus of the tax is payable to the budget within the prescribed term (by 1 August of a year following the taxable year).

In light of the above, the approval of a new appendix to the Annual Return reflecting the results of the aforesaid recalculation is expected soon. Probably it will be the appendix No 8.

New Year Tax Gifts 2012

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Dear readers, take my warmest wishes for upcoming New Year and Christmas!

I wish you happiness, good health, good luck, the fulfillment of the innermost dreams and, of course, the loyalty and understanding of the tax authorities, which is, with no doubt, one of the most desirable things for taxpayers.

The following is the brief outline of the  New Years Gifts waiting for Ukrainian  taxpayers – the major changes to tax legislation coming into force from 1  January 2012:

• Individual tax consultations may be provided by the tax authorities in an electronic form;
• Corporate income tax rate will be 21 per cent (as against current 23 per cent); 
• The minimum value of tangible assets treated as fixed assets will rise from UAH1,000 to UAH2,500;
  
• Expenses incurred in favor of individuals-unified tax payers will be deductible;
• The moratorium put on the application of financial penalties for breaching the rules governing corporate income taxation (effective from Q2 2011 to Q4 2011) will be lifted;
• Securities traders will be automatically considered to be the tax agents of the individuals involved in the trading of investments assets (to date, the tax agent agreement is required);
• A taxpayer will be obliged to register its VAT invoices in the Unified VAT Invoices Register if those are issued for an amount of VAT exceeding UAH10,000;
• A taxpayer will be also obliged to register its VAT invoices in the Unified VAT Invoices Register irrespective of the amount of VAT concerned if those are related to either excisable or imported commodities; 
• The new VAT rules for processing enterprises - producers of dairy and meat products will come in effect;
• The new rules relating to unified tax assessment will become applicable;
• The minimum amount of tax evasion for criminal liability will increase from UAH470,500  to UAH536,500. 

It was also initially planned that beginning from 1 January 2012:

• corporate income tax payers will file their financial statements displaying permanent and temporary tax differences;
• corporate income tax payers will submit their financial statements along with tax returns to the tax authorities;
• tax on real estate other than land will be collected.

Nevertheless, the Ukrainian Parliament showed its humanity and in July 2011 (according to the law No 3609-VI) suspended the introduction of those innovations. The changes related to financial statements will become effective from 1 January 2013 and the real estate tax will be collected from 1 July 2012.

Amendments to the Tax Code of Ukraine (Personal Income Tax)

By Roman Blazhko 

Closing the series of the posts devoted to the amendments made to the Tax Code of Ukraine by the Law No 3609-VI (draft law No 8217), at this stage I would like to focus on those of them related to personal income taxation. Please, bear in mind that in my posts of 29 July 2011, 18 August 2011 and 6 September 2011 I already outlined the amendments brought by this law with regard to the administration of taxes, VAT and corporate income tax, respectively.

Hence, personal income taxation was confronted with the following changes:

- it is clarified that, similarly to salaries, the unified social contribution does not constitute the tax base for the income derived from works (services) performed (rendered) under civil agreements;

- it is specified that a taxpayers is entitled to utilize tax discount only by the end of the year following the reporting year;

- it is determined that in the case a tax agent has accrued the income in favor of a taxpayer, but has not paid it to the taxpayer yet, such a tax agent is still under obligation to remit the personal income tax to the state budget and must do so within the period established by the Tax Code of Ukraine for the monthly reporting period;

- the approach to the recognition of securities traders, including banks, as tax agents was altered. While formerly they were considered tax agents provided that the respective agreement had been entered into with the taxpayer, pursuant to the amendments made they are treated as tax agents irrespective of the conclusion of the mentioned agreement.

- the list of incomes and expenses taken into account while assessing derivatives transaction was set forth.

Amendments to the Tax Code of Ukraine (Corporate Income Tax)

By Roman Blazhko 

Extending the series of the posts devoted to the amendments made to the Tax Code of Ukraine by the Law No 3609-VI (draft law No 8217), I would like to touch upon the most noticeable of them (at least in my opinion) related to corporate income taxation. Please, bear in mind that in my posts of 29 July 2011 and 18 August 2011 I already outlined the amendments brought by this law with regard to the administration of taxes and VAT.

Hence, corporate income taxation was subjected to the following changes:

- It is cleared up that if the primary document does not specify the useful life of intangible assets, the useful life of the intangible assets is said to be 10 years.

- The problem on the non-deductibility of the expenses related to the acquisition of initially offered securities appears to be solved. Such expenses are recognized in the reporting period when the respective securities are sold by the taxpayer.

- The problem on the non-deductibility of the expenses related to the sale of goods advance payment for which was received before the effective date of Title III ("Corporate Income Tax") of the Tax Code of Ukraine and was included into the gross income under the “first event” rule (see in detail my post of 3 June 2011). The amendments enable to recognize those expenses on the day of the delivery of the goods, as well as to adjust income/expenses once the advance is returned to the buyer.

- The period during which taxpayers are immune from liability for corporate income tax violations was prolonged. The corporate income taxpayers can not be penalized not only over 2 and 3 quarters of 2011, but also over 4 quarter of this year.

Amendments to the Tax Code of Ukraine (VAT)

By Roman Blazhko 

In my post dated 29 July 2011 I already mentioned the amendments introduced by the law of 7 July No 3609-VI (the draft law No 8217) to the Tax Code of Ukraine touching upon the administration of taxes. Below, I am delighted to call your attention to the most significant, at least to my thinking, amendments brought by this law in respect of VAT:

1. The grounds for the voluntary registration of a VAT payer are broadened. An entity is eligible for the voluntary VAT registration if either its share capital or book value of assets (fixed assets, intangible assets and inventory) exceeds UAH 300 thousand.

2. The criteria for automatic VAT refund were varied. The volume of zero-rated transactions of the taxpayer seeking automatic VAT refund in its total volume of supplies was lowered from 50 to 40 per cent. It is also determined that while defining the discrepancies between the taxpayer’s input VAT and its counterparties’ output VAT three preceding reporting periods (one quarter) are taken into account.

3. The procedure for the issuance of VAT invoices was slightly modified. A VAT payer is obliged to specify in the VAT invoice the product code under the customs tariff if the goods supplied are either excisable or have been previously imported into Ukraine. A VAT payer is now permitted to register its VAT invoices in the Unified register of VAT invoices within 20 calendar days following the day of their issuance.

Please note that the law No 3609-VI has been in effect since 6 August 2011.

Draft Law No 8217 signed by the President of Ukraine

By Roman Blazhko

In my posts of 22 and 29 July 2011 I already referred to the draft law No 8217 considerably amending the Tax Code of Ukraine.

On 1 August 2011 the draft law was signed by the President of Ukraine. Generally, the law will be in effect as from the day following the day of its official publication; however, a bulk of its provisions will be effective since 1 January 2012.

Amendments to the Tax Code of Ukraine (Administration of taxes)

In the post dated 22 July 2011 I mentioned the draft law No 8217 (enacted by the Parliament of Ukraine but not signed by the President yet) considerably amending the Tax Code of Ukraine. Here, you can find the information on the chief novelties introduced by the aforesaid draft law in respect of the administration of taxes:

- Improvement in the regulation of tax consultations given by the tax authorities: (i) individual tax consultation must be awarded within 30 calendar days; (b) the possibility to obtain tax consultation in an electronic form; (с) the revival of general tax clarifications (consultations) as a basis for the release of a taxpayer from the responsibility for the breach of tax laws;

- Broadening the grounds on which the information from taxpayers can be required by the tax authorities based on a written request. The draft law lays down the following additional grounds: (a) unreliability of data constrained in tax returns; (b) the receipt by the tax authorities of a complaint against a taxpayer pertaining to its incompliance with VAT invoicing rules; (с) the conduction of cross tax audit;

- Clarifying the grounds on which a taxpayer can bar the tax authorities from exercising its documentary tax audit. According to the draft law, a taxpayer is not only entitled to disallow the tax authorities to proceed with the field documentary tax audit if the tax authorities fail to deliver to such a taxpayer an assignment to carry out the tax audit, but also if they fail to deliver to the taxpayer an order on the appointment of the tax audit and identity cards of the tax officials specified in the said assignment.

- Making clear that in the course of their tax audits big taxpayers  are obliged to submit  in an  electronic form to the tax authorities not all available to them source documents, company accounts, and financial reporting documents,  but only those originally executed in an electronic form;

- Eliminating the tax fines for the overstatement of the negative balance of corporate profit tax and removing the special 75 per cent tax fine for three or more violations of tax laws committed within 1095 days.

As you can see, most of the novelties brought by the draft law No 8217, of course, except for those relating to widening the grounds to demand information from taxpayers, seems to be beneficial for business.

Amendments to the Tax Code of Ukraine

The Verkhovna Rada (Ukrainian parliament) enacted the Law on the amendments to the Tax Code of Ukraine on 7 July 2011 (the draft law No 8217).

The law sets out to introduce a bulk of amendments to the Tax Code of Ukraine as well as to other laws of Ukraine. The amendments are made to improve certain provisions of the Tax Code and touch upon such issues as administration of taxes, corporate profit tax, personal income tax, VAT to name but a few.

As at the date of the publication of this post, the law has not been signed by the President of Ukraine yet.