Another package of amendments to tax and customs legislation

29/ 03/ 2022

On March 24, 2022, the Verkhovna Rada of Ukraine adopted the Law of Ukraine On Amendments to the Tax Code of Ukraine and Other Legislative Acts of Ukraine on Improving Legislation for the Period of Martial Law (draft law No.7190). This is the third major package of changes to tax and customs legislation, which is mainly aimed at simplifying the procedure for taxation of Ukrainian business during martial law. The law enters into force on the day of its publication. Given that the law has not yet been signed by the President of Ukraine and has not been published, our comments are based on the text of the relevant draft law. Single tax. The law addresses certain unresolved issues that have arisen since the introduction by the Law No.2120-IX of special tax regime for single taxpayers of the third group (special regime) and provides for a number of novelties. In particular, the issue of VAT registration status for taxpayers opting to apply the special regime was debatable. The law stipulates that such registration is suspended from the first day of the month in which the application for registration as a single taxpayer of the third group is submitted. This means that for the period of application of the special regime for VAT payers any rights and obligations set by the provisions of the Tax Code of Ukraine governing VAT are suspended. Transactions of taxpayers applying the special regime will be considered as not subject to VAT, and incoming VAT will not be taken into account while forming the registration limit. The application of deemed supply rules for goods / services, non-current assets purchased / manufactured with input VAT before the special regime is chosen is also governed. In case of their use by the taxpayer applying the special regime, accrual of tax liabilities shall be made not later than the last day of the reporting period in which the VAT registration was renewed. From now on, most of the import transactions of taxpayers applying the special regime will also be exempt from taxation. However, import and supply within the customs territory of goods originating in the Russian Federation or imported from the territory of the Russian Federation and / or from the occupied territory of Ukraine will not be exempt from taxation. It is also worth noting that the tax period for taxpayers applying the special regime was changed from a calendar quarter to a calendar month. It will be possible to register as a single tax payer applying the special regime after April 1, 2022. In this case, registration shall be effective from the next business day after the application is submitted. Real estate tax. For 2021 and 2022 tax (reporting) years, no real estate tax is charged and for residential real estate located in areas where hostilities are (were) conducted, or in areas temporarily occupied by the armed forces of the Russian Federation and for residential real estate that has become uninhabitable in connection with the armed aggression of the Russian Federation. For the period from March 1, 2022 until December 31 of the year in which martial law is terminated or abolished, no real estate tax is charged or paid for non-residential real estate located in the territories where hostilities are (were) conducted, or in the territories temporarily occupied by the armed forces of the Russian Federation. Taxes on imports. From April 1, 2022 for the period of martial law on the territory of Ukraine (i) imports carried out by single tax payers of the first, second and third groups (except for taxpayers paying single tax at the rate of 3% + VAT) are exempt from VAT, (ii) imports by individuals of cars, their bodies, trailers and semi-trailers, motorcycles, vehicles intended for the carriage of 10 persons or more, vehicles for the carriage of goods are exempt from VAT and excise tax. The above exemptions do not apply to operations on import of goods originating in or imported from the territory of the Russian Federation and / or from the occupied territory of Ukraine. Customs duties and customs clearance. From 1 April 2022 until the termination of martial law, the following goods are exempt from import duty when imported into the customs territory of Ukraine for free circulation by: (i) legal entities - goods other than ethyl alcohol, alcoholic beverages, beer, tobacco products, tobacco substitutes, liquids for electronic cigarettes; (ii) individuals - cars, motorcycles, vehicles for the carriage of 10 or more persons, vehicles for the carriage of goods. Certain goods, which import requires a permit or entry in the register, can be moved through the customs border without obtaining the relevant documents or customs formalities based on the decision of the Cabinet of Ministers of Ukraine, except for goods from the Russian Federation, drugs, military or dual-use goods, and certain others. Single tax payers of the first, second and third groups (except for taxpayers paying single tax at the rate of 3% + VAT) are allowed to import goods on the basis of the preliminary customs declaration. Certain goods that can be classified as subject to restrictions on import into the customs territory, but which in fact do not fall under such restrictions (in particular, military, drugs, cultural values), may be allowed into the customs territory on the basis of a relevant statement issued by the importer. Until the termination of martial law, desktop audits regarding compliance with customs requirements will be suspended. Certain time limits set by the Customs Code of Ukraine are suspended as well.

On March 24, 2022, the Verkhovna Rada of Ukraine adopted the Law of Ukraine “On Amendments to the Tax Code of Ukraine and Other Legislative Acts of Ukraine on Improving Legislation for the Period of Martial Law” (draft law No.7190).

This is the third major package of changes to tax and customs legislation, which is mainly aimed at simplifying the procedure for taxation of Ukrainian business during martial law.

The law enters into force on the day of its publication. Given that the law has not yet been signed by the President of Ukraine and has not been published, our comments are based on the text of the relevant draft law.

Single tax

The law addresses certain unresolved issues that have arisen since the introduction by the Law No.2120-IX of special tax regime for single taxpayers of the third group (“special regime“) and provides for a number of novelties.

In particular, the issue of VAT registration status for taxpayers opting to apply the special regime was debatable. The law stipulates that such registration is suspended from the first day of the month in which the application for registration as a single taxpayer of the third group is submitted.

This means that for the period of application of the special regime for VAT payers any rights and obligations set by the provisions of the Tax Code of Ukraine governing VAT are suspended. Transactions of taxpayers applying the special regime will be considered as not subject to VAT, and incoming VAT will not be taken into account while forming the registration limit.

The application of “deemed” supply rules for goods / services, non-current assets purchased / manufactured with input VAT before the special regime is chosen is also governed. In case of their use by the taxpayer applying the special regime, accrual of tax liabilities shall be made not later than the last day of the reporting period in which the VAT registration was renewed.

From now on, most of the import transactions of taxpayers applying the special regime will also be exempt from taxation. However, import and supply within the customs territory of goods originating in the Russian Federation or imported from the territory of the Russian Federation and / or from the occupied territory of Ukraine will not be exempt from taxation.

It is also worth noting that the tax period for taxpayers applying the special regime was changed from a calendar quarter to a calendar month. It will be possible to register as a single tax payer applying the special regime after April 1, 2022. In this case, registration shall be effective from the next business day after the application is submitted.

Real estate tax

For 2021 and 2022 tax (reporting) years, no real estate tax is charged and for residential real estate located in areas where hostilities are (were) conducted, or in areas temporarily occupied by the armed forces of the Russian Federation and for residential real estate that has become uninhabitable in connection with the armed aggression of the Russian Federation.

For the period from March 1, 2022 until December 31 of the year in which martial law is terminated or abolished, no real estate tax is charged or paid for non-residential real estate located in the territories where hostilities are (were) conducted, or in the territories temporarily occupied by the armed forces of the Russian Federation.

Taxes on imports

From April 1, 2022 for the period of martial law on the territory of Ukraine

(i) imports carried out by single tax payers of the first, second and third groups (except for taxpayers paying single tax at the rate of 3% + VAT) are exempt from VAT,

(ii) imports by individuals of cars, their bodies, trailers and semi-trailers, motorcycles, vehicles intended for the carriage of 10 persons or more, vehicles for the carriage of goods are exempt from VAT and excise tax.

The above exemptions do not apply to operations on import of goods originating in or imported from the territory of the Russian Federation and / or from the occupied territory of Ukraine.

Customs duties and customs clearance

From 1 April 2022 until the termination of martial law, the following goods are exempt from import duty when imported into the customs territory of Ukraine for free circulation by:

(i) legal entities – goods other than ethyl alcohol, alcoholic beverages, beer, tobacco products, tobacco substitutes, liquids for electronic cigarettes;

(ii) individuals – cars, motorcycles, vehicles for the carriage of 10 or more persons, vehicles for the carriage of goods.

Certain goods, which import requires a permit or entry in the register, can be moved through the customs border without obtaining the relevant documents or customs formalities based on the decision of the Cabinet of Ministers of Ukraine, except for goods from the Russian Federation, drugs, military or dual-use goods, and certain others.

Single tax payers of the first, second and third groups (except for taxpayers paying single tax at the rate of 3% + VAT) are allowed to import goods on the basis of the preliminary customs declaration.

Certain goods that can be classified as subject to restrictions on import into the customs territory, but which in fact do not fall under such restrictions (in particular, military, drugs, cultural values), may be allowed into the customs territory on the basis of a relevant statement issued by the importer.

Until the termination of martial law, desktop audits regarding compliance with customs requirements will be suspended. Certain time limits set by the Customs Code of Ukraine are suspended as well.