Review of the new changes in Ukrainian taxes for 2017
It is the year-end. A great time to reflect on all recent tax innovations introduced in Ukraine. Although they are not equally popular among people and some of them are not even implemented yet, all they aim to fight corruption and improve the business environment.
Automatic VAT Register
The automatic VAT refund system operates since 1 April. Its functions have been reduced as compared to the periods before. What is more important is that this system ensures a total transparency allowing you to exclude third parties from VAT assessment. Another undisputable advantage is that the system assesses funds in order on a daily basis, i.e. the sooner an entrepreneur files a refund application the sooner he/she gets the money. Before this system, VAT would be always refunded within the last 5 days of a month, which did not allow companies to plan their budget ahead.
The automatic system for blocking tax returns designed to prevent illegal VAT refunds was introduced on 1 July. Alas, there were some problems with it. As it turned out, it was blocking both fictitious and compliant returns. For now, it has been two months since the government suspended the system. During these two months, they plan to improve its functionality.
It is one of the most long-lasting ones as far as the reform development is concerned. It took several years to discuss the necessity of its adoption alone and more than one year to develop it. The final version was approved on 21 December. It stipulates a transformation of Ukrainian auditing to align with the EU standards. This measure will allow to increase the efficiency of Ukrainian auditors and ensure that foreign investors are confident in the industry. The reform can also enhance the reporting accuracy of banks, insurance companies, other public organisations such as state-owned enterprises, and open European markets for Ukrainian auditors.
Exit Capital Tax (ECT)
Implementation of this measure is only a matter of debate for now, but we have every reason to believe it will be approved. It seems so from the Law No. 1787 as of 21 December 2016 that governs the Ministry of FInance to develop mechanisms for this new tax.
It is assumed that the Exit Capital Tax would replace the existing Income Tax. Once this innovation is introduced, companies will not pay the tax when they obtain the profits but when they are distributed among shareholders and owners as dividends and similar payments. That makes sense since, on one hand, it can allow companies to keep most profits and, on the other hand, it becomes a barrier to illegal withdrawal of funds from Ukraine. The problem is how they implement the system. The Income Tax was a good source to replenish the budget and its abolishment can result in substantial budget losses. Therefore, we need an alternative that would rid of that issue.
Single account and cash registers (payment transaction recorders)
Another two developments currently exist only as drafts. The first one aims at creating a single account for taxes, duties, and unified social tax. The second one aims to expand the use of cash registers. Including the implementation of digital cash registers, which is at the discussion stage now. Thus, companies can use their own PCs or some other devices to form payment documents and fiscal receipts.
Moreover, there is a draft designed to amend the Order of the Ministry of Finance No. 547 and liberalise the registration process for cash registers.
Ukraine has extended the list of risk countries from 65 to 85 states as part of the transfer pricing control
At the end of 2017, the Cabinet of Ministers of Ukraine included Estonia, Iran, Cuba, Laos, Latvia, Lebanon, Malta, Morocco, Monaco, UAE, Singapore, Georgia, and Hungary in the list of countries that stipulated the transactions involving counterparties from the countries above to be governed by the law on transfer pricing. This list also included Guadeloupe, Guatemala, French Guiana, Commonwealth of Dominican Republic, Dominican Republic, Mauritius, Independent State of Samoa. The total number of countries increased from 65 to 85. The adopted resolution has come into force on 1 January 2018.
Transactions involving a counterparty registered in a listed state are deemed controlled for the transfer pricing purposes starting 1 January of the reporting year following the calendar year that the states were enlisted. Then, transfer pricing reports and documents on these controlled transactions are to be submitted to regulatory agencies according to Article 39 of the Tax Code of Ukraine. Moreover, the costs incurred on imports from these states pursuant to Article 140 of the Tax Code of Ukraine are adjusted by 30% downwards (it is possible to avoid reducing the costs once the transfer pricing documentation is prepared).
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