Tax Reform 2020. Major Changes in VAT Administration

10/ 07/ 2020

Darya Todorova. Accountant Expert, Accountor Ukraine Accountor Ukraine would like to inform you that on May 23, 2020, the Law of Ukraine On Amendments to the Tax Code of Ukraine to improve tax administration, eliminate technical and logical inconsistencies in tax legislation of 16.01.2020 №466-IX came into force. Below, we are discussing the most important changes which have to do with VAT administration and which, accordingly, entered into force on May 23, 2020. Procedure for VAT Payers Registration From now on, the registration letter of a person who is registering as a value added tax (hereinafter – VAT) payer shall be submitted to the relevant supervisory authority by electronic means only (par.183.7). The letter must be submitted no later than 10 calendar days prior to the beginning of the tax period when the persons plans to become a VAT payer or to make changes in his/her VAT payer status. However, in case of re-registration due to name change (last name, name and patronym) except in case of transformation, the relevant changes are made by the supervisory authority based on the data from the Unified State Register, without the taxpayer needing to submit he letter. Annulment of a Taxpayer’s Registration In case if state registration of a legal entity or natural person-entrepreneur is terminated (except in case of transformation), or if a simplified taxation system is applied (which does not require VAT to be paid), the annulment of registration shall be made automatically by the supervisory authority based on the relevant data (par. 184.2). Tax Reporting Period The norm about submitting quarterly VAT report for Unified Tax payers has been abolished. We are looking forward to clarifications from tax authorities regarding the reporting procedure for Unified Tax payers for April and May 2020. Cash Method From now on, when making transactions related to (sub)contract construction works, taxpayers (contracts and subcontracts) have the opportunity to use cash method of VAT accounting (par. 187.1). Tax Base After amendments made pursuant to this Law, the contractual value of goods/services shall not include the forfeiture amounts (fines and/or penalties), three percent per annum of the overdue amount and inflation costs, damages, including compensation for lost profits due to rulings of international commercial and investment arbitrations or foreign courts received by the taxpayer as a result of non-performance or improper performance of contractual obligations. It is stated that the tax base for transactions on export of goods outside the customs territory of Ukraine shall be the contractual value of such goods specified in the customs declaration. When supplying electricity at the price determined by the electricity market, the rule that the tax base shall not be not lower than the purchase price shall not apply. Registration Deadlines for Consolidated VAT Invoices and Adjustment Calculations For consolidated VAT invoices and adjustment calculations to the VAT invoices for transactions specified in paragraph 198.5 of Article 198 and paragraph 199.1 of Article 199, the registration period in the Unified Register of Tax Invoices is 20 calendar days following the last calendar day of the month when they were issued. Penal Sanctions Tax authorities have finally put an end to disputes over exemption from penalties for late registration of VAT invoices/adjustment calculations, and have established a separate penal procedure for VAT invoices/adjustment calculations for tax exempt transactions, for transactions taxed at zero rate, for accrual of compensatory liabilities, for consolidated tax invoices with proportional attribution of tax amounts to tax credit, for additional accrual of the transactions’ amounts to minimum tax base. For such VAT invoices/adjustment calculations, the penalties are as follows: - for failure to meet registration deadline: 2% of the scope of supply (excluding value-added tax), but not more than UAH 1020, when registered in Unified Register of Tax Invoices; - for failure to register, according to findings of inspection conducted by a supervising authority: 5% of the scope of supply (excluding value-added tax), but not more than UAH 3400. Accountor would like to emphasize that in case of penalties accrued from January 01, 2017 to December 31, 2019 for the VAT invoices/adjustment calculations listed above, monetary obligations for which were not agreed upon (i.e., Tax Notifications-Decisions are in the process of administrative appeal or court appeal and monetary obligations for them were not paid) as of the date this Law entered into force, new amounts of penalties shall be imposed on the taxpayer. Supervising authorities must recalculate the amount of the penalty and send a new Tax Notification Decision to the taxpayer. The previous Tax Notification Decision is deemed canceled (revoked). VAT Perks. Transitional Provisions From now on, the following VAT-related matters shall be tax exempt: The value of imported goods for the needs of diplomatic representative offices on the basis of international agreements. Supply of goods/services in the customs territory of Ukraine, intended for provision of humanitarian aid in Ukraine by diplomatic missions, consular posts of foreign states and representative offices of international organizations in Ukraine in accordance with the Law of Ukraine On Humanitarian Aid. Perks Canceled: The norm of the TCU requiring VAT exemption for transactions related to export of soybeans and seeds of bittercress or rapeseed has been removed. These export transactions are now subject to a 0% VAT rate for all businesses, not just agricultural producers. The perk for transfer of property to state ownership or to state institutions, organizations maintained at the expense of budget funds, as well as to orphanages, has been abolished. From now on, the TCU considers these transactions as non-taxable transactions. The norm of the TCU, which provided for temporary VAT exemption for transactions on import of electric generators and electric transformers to the territory of Ukraine, was removed. The possibility of installment payments of VAT for import transactions of equipment and components according to the list of “Ukrainian Classification of Goods of Foreign Economic Activity” codes given in paragraph 65 of subsection 2 of section XX of the TCU has been extended till January 1, 2022. Transactions on free transfer of cars to the ownership or use of persons with disabilities, as well as special vehicles for the needs of central executive bodies are temporarily exempt from VAT till December 31, 2020. Taxpayers who provide services to ensure public interest related to electricity market functioning in accordance with the Law of Ukraine On Electricity Market, shall determine the date of occurrence of liabilities and tax credit by means of cash method till January 1, 2022.

Darya Todorova

Accountant Expert, Accountor Ukraine

Accountor Ukraine would like to inform you that on May 23, 2020, the Law of Ukraine “On Amendments to the Tax Code of Ukraine to improve tax administration, eliminate technical and logical inconsistencies in tax legislation” of 16.01.2020 №466-IX came into force. Below, we are discussing the most important changes which have to do with VAT administration and which, accordingly, entered into force on May 23, 2020.

Procedure for VAT Payers Registration

From now on, the registration letter of a person who is registering as a value added tax (hereinafter – VAT) payer shall be submitted to the relevant supervisory authority by electronic means only (par.183.7). The letter must be submitted no later than 10 calendar days prior to the beginning of the tax period when the persons plans to become a VAT payer or to make changes in his/her VAT payer status. However, in case of re-registration due to name change (last name, name and patronym) except in case of transformation, the relevant changes are made by the supervisory authority based on the data from the Unified State Register, without the taxpayer needing to submit he letter.

Annulment of a Taxpayer’s Registration

In case if state registration of a legal entity or natural person-entrepreneur is terminated (except in case of transformation), or if a simplified taxation system is applied (which does not require VAT to be paid), the annulment of registration shall be made automatically by the supervisory authority based on the relevant data (par. 184.2).

Tax Reporting Period

The norm about submitting quarterly VAT report for Unified Tax payers has been abolished. We are looking forward to clarifications from tax authorities regarding the reporting procedure for Unified Tax payers for April and May 2020.

Cash Method

From now on, when making transactions related to (sub)contract construction works, taxpayers (contracts and subcontracts) have the opportunity to use cash method of VAT accounting (par. 187.1).

Tax Base

After amendments made pursuant to this Law, the contractual value of goods/services shall not include the forfeiture amounts (fines and/or penalties), three percent per annum of the overdue amount and inflation costs, damages, including compensation for lost profits due to rulings of international commercial and investment arbitrations or foreign courts received by the taxpayer as a result of non-performance or improper performance of contractual obligations.

It is stated that the tax base for transactions on export of goods outside the customs territory of Ukraine shall be the contractual value of such goods specified in the customs declaration.

When supplying electricity at the price determined by the electricity market, the rule that the tax base shall not be not lower than the purchase price shall not apply.

Registration Deadlines for Consolidated VAT Invoices and Adjustment Calculations

For consolidated VAT invoices and adjustment calculations to the VAT invoices for transactions specified in paragraph 198.5 of Article 198 and paragraph 199.1 of Article 199, the registration period in the Unified Register of Tax Invoices is 20 calendar days following the last calendar day of the month when they were issued.

Penal Sanctions

Tax authorities have finally put an end to disputes over exemption from penalties for late registration of VAT invoices/adjustment calculations, and have established a separate penal procedure for VAT invoices/adjustment calculations for tax exempt transactions, for transactions taxed at zero rate, for accrual of compensatory liabilities, for consolidated tax invoices with proportional attribution of tax amounts to tax credit, for additional accrual of the transactions’ amounts to minimum tax base. For such VAT invoices/adjustment calculations, the penalties are as follows:

– for failure to meet registration deadline: 2% of the scope of supply (excluding value-added tax), but not more than UAH 1020, when registered in Unified Register of Tax Invoices;

– for failure to register, according to findings of inspection conducted by a supervising authority: 5% of the scope of supply (excluding value-added tax), but not more than UAH 3400.

Accountor would like to emphasize that in case of penalties accrued from January 01, 2017 to December 31, 2019 for the VAT invoices/adjustment calculations listed above, monetary obligations for which were not agreed upon (i.e., Tax Notifications-Decisions are in the process of administrative appeal or court appeal and monetary obligations for them were not paid) as of the date this Law entered into force, new amounts of penalties shall be imposed on the taxpayer.

Supervising authorities must recalculate the amount of the penalty and send a new Tax Notification Decision to the taxpayer. The previous Tax Notification Decision is deemed canceled (revoked).

VAT Perks. Transitional Provisions

From now on, the following VAT-related matters shall be tax exempt:

The value of imported goods for the needs of diplomatic representative offices on the basis of international agreements.
Supply of goods/services in the customs territory of Ukraine, intended for provision of humanitarian aid in Ukraine by diplomatic missions, consular posts of foreign states and representative offices of international organizations in Ukraine in accordance with the Law of Ukraine “On Humanitarian Aid”.

Perks Canceled:

The norm of the TCU requiring VAT exemption for transactions related to export of soybeans and seeds of bittercress or rapeseed has been removed. These export transactions are now subject to a 0% VAT rate for all businesses, not just agricultural producers.
The perk for transfer of property to state ownership or to state institutions, organizations maintained at the expense of budget funds, as well as to orphanages, has been abolished. From now on, the TCU considers these transactions as non-taxable transactions.
The norm of the TCU, which provided for temporary VAT exemption for transactions on import of electric generators and electric transformers to the territory of Ukraine, was removed.

The possibility of installment payments of VAT for import transactions of equipment and components according to the list of “Ukrainian Classification of Goods of Foreign Economic Activity” codes given in paragraph 65 of subsection 2 of section XX of the TCU has been extended till January 1, 2022.

Transactions on free transfer of cars to the ownership or use of persons with disabilities, as well as special vehicles for the needs of central executive bodies are temporarily exempt from VAT till December 31, 2020.

Taxpayers who provide services to ensure public interest related to electricity market functioning in accordance with the Law of Ukraine “On Electricity Market”, shall determine the date of occurrence of liabilities and tax credit by means of cash method till January 1, 2022.