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Impact of Tax Reform on Reports: Main Changes in Corporate Income Tax Declaration 2021

16/ 02/ 2021
  Andrii Matlak. Tax Expert of Accountor Ukraine The tax reform, which started in 2020, has brought on many significant changes - first of all, in terms of fitting new legislative norms in the existing forms of tax reports. As a result, on December 01, 2020,  the Decree of the Ministry of Finance # 649 of  October 29, 2020  came into force, titled  On approval of amendments to Tax Declaration form on corporate income tax and on invalidation of the Decree of the Ministry of Finance of Ukraine # 544 dated June 13, 2016, thus updating the corporate income tax declaration. Accountor Ukraine suggests looking at the changes in more detail. Changes in the Main Part of the Declaration: To control collective investment institutions, the declaration has been supplemented with line 9: Full name of the collective investment institution. To ensure compliance with the changes in the Tax Code of Ukraine (TCU), the list of corporate income taxpayers has been edited and supplemented, and now includes: - legal entities and individual entrepreneurs, including those who switched to simplified taxation system, as well as individuals carrying out independent professional activities; - foreign companies; - collective investment institutions in the form of establishment with no legal entity status. These changes have resulted in an update to line 10: Special notes. The indicators of the main part of the declaration have been supplemented with line 06.1: “Corporate income tax of controlled foreign company (hereinafter – CFC, or “KIK” in Ukrainian)”, and the “Annexes, if any” item now has a cell for “CFC”.  New Annexes Introduced and the Old ones Updated Due to the TCU amendments, new taxation rules for controlled foreign companies have been implemented, and new annexes have been added to comply with the corresponding changes: “КІК”, “КІК-К”, “КІК-ТЦ” and “КІК-ЦП” (Ukrainian). In the “ЗП” annex, a line was removed - i.e. the one which ruled that the corporate income tax amount should be decreased by the amount of excise tax paid for the current tax (reporting) period for heavy distillates (gas oil) according to registered excise invoices. The “ПН” annex has been edited and now complies with the TCU amendments in terms of the procedure for calculating the income of non-residents. The list of taxable non-residents’ incomes originating from Ukraine has also been updated. Due to the TCU amendments, the “РИ” Annex now includes new differences for adjustment of financial result before taxes. Thus, The Financial Result Before Tax Shall be Reduced: The taxpayer who is a legal successor shall decrease the financial result by the amount of losses of the taxable object of the taxpayer that is being reorganized by means of consolidation, merger, transformation, division, separation, if the taxpayers had been related parties for more than eighteen consecutive months before the date of completion of the consolidation (merger) (§ 140.4.5. TCU); By the amount of accrued income in the form of dividends the taxpayer received from a controlled foreign company (§ 140.4.2. TCU); By the amount of accrued income the taxpayer received in the form of dividends, as well as from participation in equity (at least 10%) of non-resident companies that are not registered in Low-Tax Jurisdictions (clause 140.4.3. TCU). The Financial Result Before Tax Shall be Increased: By 30 percent of the value of goods, including non-current assets, works and services purchased by non-resident companies registered in Low-Tax Jurisdictions, and by non-resident companies whose legal form is on the list approved by the Cabinet of Ministers of Ukraine (140.5.4. of the TCU); By the amount of fines and penalties charged by regulatory authorities and other state bodies for breaking the law ( 140.5.11. of the TCU); By the amount of expenses incurred by the taxpayer when carrying out transactions with non-resident companies, if these transactions do not have a business purpose ( 140.5.15 of the TCU); By the amount of accrued reserve of expected credit losses ( 139.2.1 of the TCU). The “AM” annex has also been updated: following the changes implemented by Law # 466 on the possibility of using the minimum permissible useful life of the fixed assets, the relevant lines have been added for this purpose. Also, the annex now has a table for showing the inventory and  the balance cost of the fixed assets for which the depreciation method will change to production method. Please note that according to the updated form of the corporate income tax declaration, it will be necessary to report on the corporate income tax (Letters of the State Tax Service of Ukraine # 22431/7 / 99-00-05-05-01-07 of Dec 14, 2020). The reporting periods are as follows: For taxpayers with a quarterly reporting period: for Q1 of 2021; For taxpayers with an annual reporting period: for 2021. Thus, reports for 2020 shall still be filed according to the old forms.

Andrii Matlak

Tax Expert of Accountor Ukraine

The tax reform, which started in 2020, has brought on many significant changes – first of all, in terms of fitting new legislative norms in the existing forms of tax reports. As a result, on December 01, 2020,  the Decree of the Ministry of Finance # 649 of  October 29, 2020  came into force, titled  “On approval of amendments to Tax Declaration form on corporate income tax and on invalidation of the Decree of the Ministry of Finance of Ukraine # 544 dated June 13, 2016”, thus updating the corporate income tax declaration.

Accountor Ukraine suggests looking at the changes in more detail.

Changes in the Main Part of the Declaration:

  • To control collective investment institutions, the declaration has been supplemented with line 9: “Full name of the collective investment institution”.
  • To ensure compliance with the changes in the Tax Code of Ukraine (TCU), the list of corporate income taxpayers has been edited and supplemented, and now includes:

– legal entities and individual entrepreneurs, including those who switched to simplified taxation system, as well as individuals carrying out independent professional activities;

– foreign companies;

– collective investment institutions in the form of establishment with no legal entity status.

These changes have resulted in an update to line 10: “Special notes”.

  • The indicators of the main part of the declaration have been supplemented with line 06.1: “Corporate income tax of controlled foreign company (hereinafter – CFC, or “KIK” in Ukrainian)”, and the “Annexes, if any” item now has a cell for “CFC”. 

New Annexes Introduced and the Old ones Updated

Due to the TCU amendments, new taxation rules for controlled foreign companies have been implemented, and new annexes have been added to comply with the corresponding changes: “КІК, КІК-К, КІК-ТЦ and “КІК-ЦП(Ukrainian).

In the “ЗП” annex, a line was removed – i.e. the one which ruled that the corporate income tax amount should be decreased by the amount of excise tax paid for the current tax (reporting) period for heavy distillates (gas oil) according to registered excise invoices.

The “ПН” annex has been edited and now complies with the TCU amendments in terms of the procedure for calculating the income of non-residents. The list of taxable non-residents’ incomes originating from Ukraine has also been updated.

Due to the TCU amendments, the “РИ” Annex now includes new differences for adjustment of financial result before taxes. Thus,

The Financial Result Before Tax Shall be Reduced:

  • The taxpayer who is a legal successor shall decrease the financial result by the amount of losses of the taxable object of the taxpayer that is being reorganized by means of consolidation, merger, transformation, division, separation, if the taxpayers had been related parties for more than eighteen consecutive months before the date of completion of the consolidation (merger) (§ 140.4.5. TCU);
  • By the amount of accrued income in the form of dividends the taxpayer received from a controlled foreign company (§ 140.4.2. TCU);
  • By the amount of accrued income the taxpayer received in the form of dividends, as well as from participation in equity (at least 10%) of non-resident companies that are not registered in Low-Tax Jurisdictions (clause 140.4.3. TCU).

The Financial Result Before Tax Shall be Increased:

  • By 30 percent of the value of goods, including non-current assets, works and services purchased by non-resident companies registered in Low-Tax Jurisdictions, and by non-resident companies whose legal form is on the list approved by the Cabinet of Ministers of Ukraine (140.5.4. of the TCU);
  • By the amount of fines and penalties charged by regulatory authorities and other state bodies for breaking the law ( 140.5.11. of the TCU);
  • By the amount of expenses incurred by the taxpayer when carrying out transactions with non-resident companies, if these transactions do not have a business purpose ( 140.5.15 of the TCU);
  • By the amount of accrued reserve of expected credit losses ( 139.2.1 of the TCU).

The “AM” annex has also been updated: following the changes implemented by Law # 466 on the possibility of using the minimum permissible useful life of the fixed assets, the relevant lines have been added for this purpose. Also, the annex now has a table for showing the inventory and  the balance cost of the fixed assets for which the depreciation method will change to “production method”.

Please note that according to the updated form of the corporate income tax declaration, it will be necessary to report on the corporate income tax (Letters of the State Tax Service of Ukraine # 22431/7 / 99-00-05-05-01-07 of Dec 14, 2020). The reporting periods are as follows:

  • For taxpayers with a quarterly reporting period: for Q1 of 2021;
  • For taxpayers with an annual reporting period: for 2021.

Thus, reports for 2020 shall still be filed according to the old forms.

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