Tax legislation

Due to COVID-19 spread, Verkhovna Rada of Ukraine adopted two-phase legislative initiatives, which temporarily change taxation system in Ukraine to support business and reduce tax burden on essential goods during the quarantine period and COVID-19 response actions.

Certain actions ensure real relief for business during this difficult period. However, we draw your attention to the fact that taxation and tax administration system remain operational, therefore, we recommend that you scrutinize newly adopted regulations and make decisions that will help you safeguard your business in the long run.

Events:

• Law №530-ІХ dated 17.03.2020 (Draft Bill No. 3219) “On amendments to certain Ukrainian regulations intended to prevent COVID-19 outbreak and spread” (effective from 17.03.2020)
• Law №533-ІХ dated 17.03.2020 (Draft Bill No. 3220) “On amendments to Tax Code of Ukraine and other laws of Ukraine related to support to be provided to taxpayers during the period when actions aimed at preventing COVID-19 outbreak and spread are taken” (effective from 18.03.2020)
• Law №540-IX dated 30.03.2020 (Draft Bill No. 3275) “On amendments to certain Ukrainian regulations intended to ensure additional social and economic guarantees due to COVID-19 spread” (effective from 02.04.2020)

Major amendments to Tax Code of Ukraine  (TCU) and the Law “On collection of and accounting for the unified social contribution” are as follows:

Suspension of tax audits

During the period from 18 March to 31 May 2020:

• Documentary and factual tax audits, including audits related to the unified social contribution (“USC”), are suspended. 2020 scheduled audits to commence during the period are postponed. New dates of tax audits were placed on the STS's official web site.
• Tax audits that already commenced as at 18 March are suspended until 31 May 2020.
• Documentary and factual tax audits related to VAT recovery (p. 78.1.8 of TCU) are not suspended. The VAT refund procedures continue to work as usual.

Please note, that expiry of periods of limitation is also suspended for the same period.

Penalty relief in case of non-compliance with tax legislation

During the period from 1 March to 31 May 2020:

• No penalties for tax noncompliance shall be applied, except for:
  • noncompliance with requirements in accrual, reporting, and payment of VAT, excise tax, rent;
  • noncompliance with legislation on accounting for, production and circulation of ethanol, fuel, tobacco, and alcohol with respect to procedures specified by Law No.540;
  • alienation of property in tax lien without consent of regulatory authorities;  
  • breach of long-term life insurance contracts or non-state pension insurance contracts, including supplementary pension insurance.
• No penalties shall be applied for late reporting and late payment of the USC (as per first-phase amendments, 30 April 2020 was the deadline);
• No noncompliance interest shall be charged for noncompliance with tax legislation. Noncompliance interest accrued but not paid for the period shall be written off.

Land tax and real estate tax

For the reporting month of March 2020:

• No fee for land used in business operations (land tax and lease fee for land owned by state or community) shall be charged or paid. A taxpayer shall have the right to file an adjusted tax return to change tax amount.
• No non-residential real estate, other than land plots, owned by individuals or legal entities shall be subject to real estate tax. A taxpayer shall have the right to file an adjusted tax return to change tax amount.

Lawmakers voided exemption from land fee and real estate tax for April 2020 that was adopted as part of first-phase amendments (Law No.540).

For the reporting month of April 2020, taxes must be paid in full, however, payments may be deferred until 30 June 2020, with no penalty or interest charged.

Changes in tax liabilities must be reflected in adjusted tax returns. Increase in tax liabilities reflected in adjusted tax returns that are filed in accordance with relevant TCU requirements shall not cause penalties or interest. This provision shall apply to cases when a taxpayer already filed an adjusted tax return to decrease tax liabilities for March and April based on Law No. 533, and now must submit a new adjusted tax return.

Unified social contribution

For the period from 1 March to 30 April 2020, self-employed persons, individuals engaged in independent professional activity, and farm holding participants shall be exempted from USC charge and payment.

Pursuant to Law No.540, consideration of claims submitted by USC payers shall be suspended until 31 May 2020 and claim filing term shall be extended to that date.

VAT: medications necessary for COVID-19 prevention that are included in the list approved by the Cabinet of Ministers of Ukraine (CMU)

Period of exemption from customs duties and VAT on goods imported to Ukrainian customs area is extended until the last day of the last month of quarantine period established by the CMU throughout the territory of Ukraine in order to prevent COVID-19 spread in Ukraine.

The list of such goods is approved by CMU’s Decree No.224 dated 20 March 2020.

Law No.540 provides additional exemption from VAT of supplies within Ukrainian customs area of goods (including medications, medical devices and/or medical equipment) necessary to prevent, localize, and eliminate COVID-19 outbreaks, that are included in the list approved by the CMU.

Furthermore, transactions exempted from VAT in accordance with the above provision shall not be subject to Article 198.5 and Article 199 of the TCU (this applies to transactions performed after 17 March 2020).

VAT: civic organizations and charitable organizations

Civic organizations and charitable organizations shall not include in their total amount of supplied goods/services subject to VAT imported and supplied goods (including medications, medical devices and/or medical equipment) necessary to prevent, localize, and eliminate COVID-19 outbreaks, that are included in the list approved by the CMU.

Corporate income tax

During 2020, taxpayers shall be exempted from using tax differences under p. 140.5.9 of the TCU on amounts transferred or cost of goods provided free of charge to civic organizations and/or charitable organizations and/or relevant authorities and/or health care institutions owned by state and/or community (and other entities) to prevent COVID-19 spread in Ukraine. The Law provides a list of such goods and qualified entities that may obtain charity support. Such expenses may be tax-deductible with no limit on amount from 2 April 2020.

To health care institutions owned by state and/or community and/or to persons authorized to perform health care procurement that are income taxpayers, special tax rules shall be applied during 2020 that involve use of tax differences to support such taxpayers.

Excise tax

Temporary procedures for shipment of ethanol for production of sanitizers are introduced. In fact, from the effective date of the law until 31 May 2020, excise tax shall be charged at the rate of UAH 0 per 1 liter of 100% ethanol used for production of sanitizers. During that period, permission is granted for shipment of ethanol to manufacturers of pharmaceuticals and manufacturers of chemical and technical products used in production of sanitizers. Temporarily, until 30 April 2020, p. 229.1.8 of the TCU that requires to equip each site of ethanol receipt/release with flowmeters shall not apply to production of sanitizers, provided that tax inspectors are in place.

Maturities of tax anticipation bills issued in accordance with p. 229.8 of the TCU by producers or importers of jet propulsion and/or aviation fuel that fall on the period from 1 March 2020 to 31 May 2020, shall be extended through 15 August 2020.

Personal income tax

Tax allowance for 2020 income may be granted with no standard limits (p. 166.3.2 of the TCU) for expenditures incurred for medical purposes and voluntary donations aimed to prevent spread of dangerous diseases (a list of such expenditures is provided in the Law No.540).

Simplified taxation system

Law No.540 increases limits for single tax payers as follows:

• Group 1 – UAH 1 million (previously: UAH 300 thousand)
• Group 2 – UAH 5 million (previously: UAH 1.5 million)
• Group 3 – UAH 7 million (previously: UAH 5 million)

Unlike most other amendments, this one is effective not temporarily.

It should be noted that local authorities may decide to reduce local rates of single tax for 2020.

Financial statements

Exemption from liability for late submission and publication of financial statements (including consolidated financial statements and financial statements with auditor’s report), if such financial statements are submitted and published during the quarantine period or within 90 calendar days from the day following the last day of such quarantine period, but no later than 31 December 2020.

State control

Scheduled inspections by state oversight (control) authorities intended to perform state oversight (control) in business operations (except for entities with high risk of noncompliance with state regulated prices and sanitary and epidemic requirements) are suspended until 30 June 2020 (31 May 2020 as per first-phase amendments).

Law No. 533 postpones effective date of the Payment Transaction Register law for three months – until 1 January 2021.

If you have any questions on new tax law provisions or tax implications of anti-crisis regulations in current environment, please contact us.

We wish your business to successfully meet all the challenges of the period. You can always rely on KPMG support.