Amendments to the Tax Code of Ukraine and other laws for support of taxpayers during the coronavirus epidemic

14/ 04/ 2020

On March 17, 2020 the Verkhovna Rada of Ukraine (the Parliament) has adopted the Law of Ukraine “On Amendments to the Tax Code of Ukraine and Other Laws of Ukraine on Support of Taxpayers for the period of Measures Aimed at Preventing the Occurrence and Spread of the Coronavirus Disease (COVID-19)” No. 533-IX (the “Law No. 533-IX”) and the Law of Ukraine “On Amendments to Certain Legislative Acts of Ukraine Aimed at Preventing the Occurrence and Spread of the Coronavirus Disease (COVID-19)” No. 530-IX (the “Law No. 530-IX”) based on the Draft Laws No. 3220 and No. 3219 respectively. The Laws were promptly signed by the President of Ukraine as stated on the website of the Parliament and the President. The amendments being introduced by the Law No. 533-IX and Law No. 530-IX have come into force on the next day following its official publication (except for amendments as regards to public procurement). As for amendments, the Laws have introduced the following: Amendments to the Tax Code. Provisions of sub-section 10 of Section 10 of the Tax Code of Ukraine (the “Tax Code”) are to be completed with several paragraphs on the following: 1.1. Penalties for violation of tax legislation committed within the period March 01 – April 30, 2020 shall not be imposed, except for penalties for: accrual, declaration and payment of the value added tax, excise tax, rent; violation of regulations on accounting, production and turnover of fuel or ethanol at excise warehouses, that are applied on the general basis (penalties under Article 128-1 of the Tax Code); requirements to the long-term life insurance agreements or non-state pension insurance agreements, in particular supplementary pension insurance agreements (penalties under Article 123-1 of the Tax Code); alienation of property held in tax lien without respective consent of the controlling authority (penalties under Article 124 of the Tax Code). At the same time as it follows from the Law No. 533-IX we understand that a large number of penalties related to accrual, declaration and payment of the value added tax, excise tax, rent is not covered by the abovementioned release. It means that penalties under Articles 120, 123, 126 of the Tax Code in view of stated above taxes are subject to be imposed. Besides, proceeding from wording of the Law No. 533-IX the pending issue is whether untimely registration of VAT and excise invoices or its absence are subject to be released from penalties (under Article 120-1 and 120-2 of the Tax Code). We are of the opinion that these penalties are not deemed to be penalties for violation of accrual of VAT and excise tax, therefore, the release stipulated by the Law No. 533-IX should be applied. 1.2. Within the period March 01 – May 31, 2020 a fine shall not be charged (the one which has been charged but is still not paid for the respective period is subject to be written off). 1.3. Documentary and actual tax audits shall not be conducted within the period March 18 – May 18, 2020 (tax audits in progress shall be suspended), except for tax audits on lawfulness of declaration of VAT stated for budget refund and/or VAT negative value exceeding UAH 100 K (para. 78.1.1 of Article 78 of the Tax Code). It means, that within the stated above period tax audits on budget refund and VAT negative value (over UAH 100 K) may be conducted. Along with that, the moratorium implemented shall not be applied to the in-office tax audits, therefore the issues that may be subject of in-office tax audits (tax returns, timely registration of VAT or excise invoices and others under para. 75.1 of Article 75 of the Tax Code) shall not be covered by the moratorium. Tax audits being in progress from March 18, 2020 and not completed yet shall be temporary suspended till May 31, 2020 (no special decision of the controlling authority on this matter is required). Scheduled tax audits for this period (March 18 – May 18, 2020) shall be postponed and included into updated plan-schedule that shall be published till March 30, 2020. In other words, the tax audits may be “postponed” only providing that the Plan-schedule is published till March 30, 2020. 1.4. Running of the limitation periods stipulated under Article 102 of the Tax Code shall be stopped for the period March 18 – May 18, 2020. It means that this term shall not influence on the calculation of the 1095-day limitation period for the purposes of tax audits, accrual of tax liabilities and return of overpaid tax liabilities. 1.5. The term set for submission of annual asset and income tax return for the year of 2019 shall be extended till July 01, 2020 (which was subject to be submitted till May 01, 2020), as well as term for settlement of the respective tax liabilities under such tax return shall be extended till October 01, 2020 (which was subject to be settled till August 01, 2020). 1.6. Land payments shall be neither charged nor settled (land tax and rent for land plots of state and municipal property) within the period March 01 – April 30, 2020. In order to apply this release in case if the land payment has been already accrued for the relevant period (followed by tax return submission) the taxpayers (except for individuals) shall submit the adjusting tax returns and “correct” the respective tax liabilities. For application of the release any additional actions on behalf of individuals shall not be required – the controlling authority will perform the readjustment itself. 1.7. Besides, tax on immovable property other than a land plot shall not be charged within the period March 01 – April 30, 2020 as regards to non-residential property being in possession of individuals and legal entities. 1.8. The following import transactions shall be released from VAT: import of medicines, medical products and/or medical equipment required for implementation of measures aimed at preventing the occurrence and spread, as well as localization and liquidation of the Coronavirus Disease (COVID-19) outbreaks, epidemics and pandemics, as listed by the Cabinet of Ministers of Ukraine. Amendments to other legislative acts. As regards to the Unified Social Contribution (the “USC”) For the period March 01 – 31, 2020 and April 01 – 30, 2020 it is prescribed that: 1) The following categories shall be released from individual accrual and payment of the USC: individual entrepreneurs including those on the simplified tax system; self-employed individuals; members of farming enterprise, if they do not belong to individuals who are subject to the insurance on other grounds. Please note, that individual entrepreneurs being employers shall continue to pay the USC for their employees. Furthermore, the period of non-payment of the USC shall be included to the pension insurance record and shall be considered that insurance payments have been made in the amount of the minimum insurance premium determined by the legislation for each such period. However, the mentioned individuals are entitled to decide on payment of the USC for the specified periods. In this case information on insurance payments shall be specified in the reporting on the USC. 2) Within these periods the penalties shall not be imposed upon the following: untimely payment (transfer) of the USC; partial or untimely payment of the USC along with issuance of payments to which the USC is charged (advance payments); untimely submission of reporting to the tax authorities including repeated non-submission, untimely submission, submission not under specified form of reporting. 3) A fine shall not be charged, and the charged one for specified periods is subject to be written off. Alongside the moratorium for documentary audits as regards to the USC is introduced for the period March 18 – May 18, 2020. The audits being in progress from March 18, 2020 and not completed yet shall be temporary suspended till May 18, 2020. As regards to cash register Implementation of provisions stipulating the application of automatically operated cash register shall be postponed till August 01, 2020 (had to come into force from April 19, 2020). Implementation of provisions regarding obligatory application of cash register shall be postponed till January 01, 2021 and April 01, 2021 respectively depending on the type of business activity. Increasing the financial penalties for settlements on partial cost of goods sold (services rendered); non-execution of settlements through a cash register, failure to issue a settlement document etc. (to 100% of the cost of goods sold for the first violation and to 150% for each subsequent violation) shall be postponed from October 01, 2020 to January 01, 2021. Within the period August 01 – December 31, 2020 the penalties shall be applied in amount of 10% for the first violation and to 50% for each subsequent violation. As regards to temporary disability benefits A new ground for receiving the temporary disability benefits is introduced for the period of struggle against COVID-19. This refers to the period of stay in specialized healthcare institutions, as well as period of self-isolation under medical supervision due to implementation of measures aimed at prevention the occurrence and spread, as well as localization and liquidation of the Coronavirus Disease (COVID-19) outbreaks and epidemics. The Social Insurance Fund will pay such benefits at the rate of 50% of the average salary (income) without taking into account the pension insurance record. The benefits will be paid from the 6th day of disability and will cover the entire period before recovery or assignment of disability. Please note, that the provision is referred to stay in specialized healthcare institutions and self-isolation under medical supervision. It means, that temporary disability shall be supported by the respective documents including the case of self-isolation under medical supervision. Self-isolation due to quarantine aimed at prevention of the occurrence and spread of the disease, i.e. without a medical supervision, shall not be considered as a sufficient ground for receiving the temporary disability benefits. Along with that, the Law says nothing about paying the first 5 days of an individual’s disability. We assume that the employer will be the one who pays it by analogy with the current procedure. The above commentary presents the general statement for information purposes only and as such may not be practically used in specific cases without professional advice.

The amendments being introduced by the Law No. 533-IX and Law No. 530-IX have come into force on the next day following its official publication (except for amendments as regards to public procurement).

As for amendments, the Laws have introduced the following:

Amendments to the Tax Code

Provisions of sub-section 10 of Section 10 of the Tax Code of Ukraine (the “Tax Code”) are to be completed with several paragraphs on the following:

1.1. Penalties for violation of tax legislation committed within the period March 01 – April 30, 2020 shall not be imposed, except for penalties for:

accrual, declaration and payment of the value added tax, excise tax, rent;
violation of regulations on accounting, production and turnover of fuel or ethanol at excise warehouses, that are applied on the general basis (penalties under Article 128-1 of the Tax Code);
requirements to the long-term life insurance agreements or non-state pension insurance agreements, in particular supplementary pension insurance agreements (penalties under Article 123-1 of the Tax Code);
alienation of property held in tax lien without respective consent of the controlling authority (penalties under Article 124 of the Tax Code).

At the same time as it follows from the Law No. 533-IX we understand that a large number of penalties related to accrual, declaration and payment of the value added tax, excise tax, rent is not covered by the abovementioned release. It means that penalties under Articles 120, 123, 126 of the Tax Code in view of stated above taxes are subject to be imposed.

Besides, proceeding from wording of the Law No. 533-IX the pending issue is whether untimely registration of VAT and excise invoices or its absence are subject to be released from penalties (under Article 120-1 and 120-2 of the Tax Code). We are of the opinion that these penalties are not deemed to be penalties for violation of accrual of VAT and excise tax, therefore, the release stipulated by the Law No. 533-IX should be applied.

1.2. Within the period March 01 – May 31, 2020 a fine shall not be charged (the one which has been charged but is still not paid for the respective period is subject to be written off).

1.3. Documentary and actual tax audits shall not be conducted within the period March 18 – May 18, 2020 (tax audits in progress shall be suspended), except for tax audits on lawfulness of declaration of VAT stated for budget refund and/or VAT negative value exceeding UAH 100 K (para. 78.1.1 of Article 78 of the Tax Code).

It means, that within the stated above period tax audits on budget refund and VAT negative value (over UAH 100 K) may be conducted. Along with that, the moratorium implemented shall not be applied to the in-office tax audits, therefore the issues that may be subject of in-office tax audits (tax returns, timely registration of VAT or excise invoices and others under para. 75.1 of Article 75 of the Tax Code) shall not be covered by the moratorium.

Tax audits being in progress from March 18, 2020 and not completed yet shall be temporary suspended till May 31, 2020 (no special decision of the controlling authority on this matter is required).

Scheduled tax audits for this period (March 18 – May 18, 2020) shall be postponed and included into updated plan-schedule that shall be published till March 30, 2020. In other words, the tax audits may be “postponed” only providing that the Plan-schedule is published till March 30, 2020.

1.4. Running of the limitation periods stipulated under Article 102 of the Tax Code shall be stopped for the period March 18 – May 18, 2020. It means that this term shall not influence on the calculation of the 1095-day limitation period for the purposes of tax audits, accrual of tax liabilities and return of overpaid tax liabilities.

1.5. The term set for submission of annual asset and income tax return for the year of 2019 shall be extended till July 01, 2020 (which was subject to be submitted till May 01, 2020), as well as term for settlement of the respective tax liabilities under such tax return shall be extended till October 01, 2020 (which was subject to be settled till August 01, 2020).

1.6. Land payments shall be neither charged nor settled (land tax and rent for land plots of state and municipal property) within the period March 01 – April 30, 2020.

In order to apply this release in case if the land payment has been already accrued for the relevant period (followed by tax return submission) the taxpayers (except for individuals) shall submit the adjusting tax returns and “correct” the respective tax liabilities.

For application of the release any additional actions on behalf of individuals shall not be required – the controlling authority will perform the readjustment itself.

1.7. Besides, tax on immovable property other than a land plot shall not be charged within the period March 01 – April 30, 2020 as regards to non-residential property being in possession of individuals and legal entities.

1.8. The following import transactions shall be released from VAT: import of medicines, medical products and/or medical equipment required for implementation of measures aimed at preventing the occurrence and spread, as well as localization and liquidation of the Coronavirus Disease (COVID-19) outbreaks, epidemics and pandemics, as listed by the Cabinet of Ministers of Ukraine.

Amendments to other legislative acts

As regards to the Unified Social Contribution (the “USC”)

For the period March 01 – 31, 2020 and April 01 – 30, 2020 it is prescribed that:

1) The following categories shall be released from individual accrual and payment of the USC:

individual entrepreneurs including those on the simplified tax system;
self-employed individuals;
members of farming enterprise, if they do not belong to individuals who are subject to the insurance on other grounds.

Please note, that individual entrepreneurs being employers shall continue to pay the USC for their employees.

Furthermore, the period of non-payment of the USC shall be included to the pension insurance record and shall be considered that insurance payments have been made in the amount of the minimum insurance premium determined by the legislation for each such period.

However, the mentioned individuals are entitled to decide on payment of the USC for the specified periods. In this case information on insurance payments shall be specified in the reporting on the USC.

2) Within these periods the penalties shall not be imposed upon the following:

untimely payment (transfer) of the USC;
partial or untimely payment of the USC along with issuance of payments to which the USC is charged (advance payments);
untimely submission of reporting to the tax authorities including repeated non-submission, untimely submission, submission not under specified form of reporting.

3) A fine shall not be charged, and the charged one for specified periods is subject to be written off.

Alongside the moratorium for documentary audits as regards to the USC is introduced for the period March 18 – May 18, 2020. The audits being in progress from March 18, 2020 and not completed yet shall be temporary suspended till May 18, 2020.

As regards to cash register

Implementation of provisions stipulating the application of automatically operated cash register shall be postponed till August 01, 2020 (had to come into force from April 19, 2020).
Implementation of provisions regarding obligatory application of cash register shall be postponed till January 01, 2021 and April 01, 2021 respectively depending on the type of business activity.
Increasing the financial penalties for settlements on partial cost of goods sold (services rendered); non-execution of settlements through a cash register, failure to issue a settlement document etc. (to 100% of the cost of goods sold for the first violation and to 150% for each subsequent violation) shall be postponed from October 01, 2020 to January 01, 2021. Within the period August 01 – December 31, 2020 the penalties shall be applied in amount of 10% for the first violation and to 50% for each subsequent violation.

As regards to temporary disability benefits

A new ground for receiving the temporary disability benefits is introduced for the period of struggle against COVID-19. This refers to the period of stay in specialized healthcare institutions, as well as period of self-isolation under medical supervision due to implementation of measures aimed at prevention the occurrence and spread, as well as localization and liquidation of the Coronavirus Disease (COVID-19) outbreaks and epidemics.

The Social Insurance Fund will pay such benefits at the rate of 50% of the average salary (income) without taking into account the pension insurance record. The benefits will be paid from the 6^th day of disability and will cover the entire period before recovery or assignment of disability.

Please note, that the provision is referred to stay in specialized healthcare institutions and self-isolation under medical supervision. It means, that temporary disability shall be supported by the respective documents including the case of self-isolation under medical supervision. Self-isolation due to quarantine aimed at prevention of the occurrence and spread of the disease, i.e. without a medical supervision, shall not be considered as a sufficient ground for receiving the temporary disability benefits.

Along with that, the Law says nothing about paying the first 5 days of an individual’s disability. We assume that the employer will be the one who pays it by analogy with the current procedure.

The above commentary presents the general statement for information purposes only and as such may not be practically used in specific cases without professional advice.