Legislation Overview (September 2015)

Legislation Overview (September 2015)

Taxes

VAT

The State Fiscal Service of Ukraine by its Letter “On customs duties taxation on Property imported to Ukraine as contribution of foreign investor in authorized capital of foreign-invested enterprise” of 08.09.15, № 19204/6/99-95-42-01-16-01 reminds that import of property as contribution of foreign investor in authorized capital of foreign-invested enterprise is exempt from import duties provided that it is imported for a term not less than three years.

At the same time, VAT under such transaction should be paid on a general basis. The subject to taxation is agreement-based (contract) value of the property but not lower than its customs value (determined in accordance with Section III of the Customs Code of Ukraine) taking into account duties and excise tax that are payable and included in the price of goods.

If company, which received property contribution from foreign investor, disposes of such property earlier than three years from the time of its accounting on the balance - the duty should be paid on general grounds. The penalty for appropriate period also should be transferred.

The tax base of VAT is to be increased on size of duty, which is payable (it was not paid when importing of property and therefore it was not included into the tax base).

In this regard, the taxpayer should additionally charge the tax liabilities for VAT on the corresponding amount.

The State Fiscal Service of Ukraine in its letter “On implementation of requirements of the Law of Ukraine dated 16.07.2015, № 643” of 25.08.15, № 31376/7/99-99-15-01-04-17 mentioned: sanctions and penalties should not be applied to the taxpayer if the funds for payment of agreed amount of tax liabilities there were on an electronic VAT account of the payer, but for some reason they were not transferred to the budget within the legal period.

If during the transitional period (from 01.02.15 to 01.07.15) the following fines were charged, the controlling authority at the place of registration of VAT payer should cancel them within 14 working days.

It should be reminded: Department of the Treasury of Ukraine independently transfers funds to pay the agreed amount of VAT-obligations to the budget (and / or to special accounts) from electronic accounts of taxpayers submitted under SFS registers. This transfer should be conducted not later than the last day of the term established by the TCU for self-payment of tax obligations. Then the Treasury gives information to the SFS on taxpayers and their transferred funds on the day following the day of the transfer and not paid amounts due to the lack of funds on such accounts.

The State Fiscal Service of Ukraine by its letter “On tax credit arrangements when receipt of servitude object for usage (other than land)” of 01.09.15, № 18681/6/99-99-1903-02-15 explained: transfer transaction of certain rights concerning use of such property by the owner of immovable property under servitude contract of immovable property (other than land) to another person to be the subject to VAT.

Accordingly, if the property owner is the VAT payer, he/she should issue a tax invoice and charge tax liabilities at 20% rate of VAT under the transaction.

Service recipients of the servitude object use has every right to form a tax credit under such tax invoice on condition of its correct issuing and registration in URNI.

With regard to income tax, the incomes and expenditures under such a transaction should be recognized on accounting regulations.  In addition, adjustment of financial result before income tax on the cost of services for the use of the servitude is not provided by the sec.III of the TCU.

It should be reminded: servitude – is the right to use of property of another person (Art. 401 of the Civil Code of Ukraine). Further it doesn’t divest the property owner, in respect of which it established, of the right to possess property, use and dispose of the property. From his/her part, the person using the servitude is obliged to pay for the use of property, unless otherwise provided by contract, law, last will or a court decision.

The State Fiscal Service of Ukraine in its letter “On the procedure of determining the VAT tax base on export transactions of electricity at a price below its acquisition” of 07.09.15, № 19090/6/99-99-19-03-02-15 considered the situation when goods export, including electricity, came at a price below than the purchase price. They stress that the amount of the excess of purchase price over the actual price does not form the value of the exported goods. Thus, according to taxmen, such a difference is not subject to export transaction and should be taxable at a rate of 20% rather than 0%.

The VAT payer should draw up a tax invoice with the type of reasons “15” and register it in the Unified Register of tax invoices on the amount of difference between the value of the exported goods and the purchase price of such goods.

The State Fiscal Service of Ukraine by its letter “On the application of the regime of VAT exemption” of 16.09.15, № 19763/6/99-99-19-03-02-15 indicated that “grain” benefit provided for by subpara.152 of subsec. 2 of Sec. XX of the TCU should not be used by agricultural enterprises, which met the criteria of para.209.6 of the TCU.

Consequently, those taxpayers whose value of agricultural products / services supplied within 12 months exceeds 75% of all goods / services or transactions of personally cultivated cereal crops of headings 1001 – 1008 according to UCG FEA and technical crops headings 1205 and 1206 00 according to UCG FEA should be taxed at 20% rate of VAT.

It should be noted that controllers do not require the agricultural enterprises to be at the special regime.

It should be additionally reminded: transactions of the first delivery of cereals and technical crops of companies that directly purchased grain and technical crops in agricultural enterprises–manufacturers to be also taxable at a rate of 20% of VAT.

Income tax

The State Fiscal Service of Ukraine in its letter “On taxation of incomes from sales of agricultural products” of 07.09.15, № 8479/X/99-99-17-02-01-14 reminded us on what conditions the realization of agricultural products should be exempt from the income tax.  Thus, according to subpara.165.1.24 of the TCU incomes received from the sale of agricultural products cultivated by the individual on land plots given in the amounts established by the Land Code of Ukraine to conduct:

• gardening and / or for the construction and maintenance of residential houses, commercial buildings and structures (household plots) and / or for an individual summer cottages construction;
• subsidiary agriculture and / or land shares allocated in kind (on the ground), which total amount does not exceed 2 hectares.

When selling products (except animal production) individual should submit to the tax agent a copy of certificate about an availability of land on the form № 3DF. If the company-buyer received specified certificate which data indicate the presence of the right to use benefits, it should not charge the income tax.

Single tax

The State Fiscal Service of Ukraine in its letter “On application of the simplified taxation system” of 25.08.15, № 8135/П/99-99-15-03-01-14  notes that a business entity operating in a sphere of telecommunications is entitled to go to the simplified taxation system on condition that he/she does not operates licensed types of activity and cancels appropriate license if available.

It should be reminded that the following is included in the licensed types of activities in telecommunications sector: providing of fixed and movable (mobile) telephone communications, and also services for maintenance and operation of telecommunication networks, radio and television broadcasting networks, wired broadcasting system and networks (Art.7 of the Law of Ukraine “On Telecommunications” of 18.11.03,  № 1280-IV).

Therefore, transition to a special tax regime for business entities is closed if the mentioned above activities are implemented and licenses for them are available.

For example, a provider of telecommunications networks can be a single tax payer (provided that he/she does not operate other licensed activities), but the operator cannot be.

Additional note: business entities engaged in providing mail services (except courier activities) and communications (except activities that are not subject to licensing) cannot be single tax payers. In turn, the sphere of telecommunications is a component of communication industry of Ukraine.

The Ministry of Economic Development and Trade of Ukraine in its letter “On adoption of electronic money payment by single tax payers of the second group” of 03.06.14, № 3132-04/18028-02 noted: individuals – single tax payers could not make payments for shipped goods (works and services) through electronic payment systems. According to officials, the calculations of electronic money are not cash or cashless payments.

Thus, if the single tax payer would use electronic money in his/her activity, he/she should pay the tax at higher 15% rate because another way of calculations would be used by the taxpayer (paras. 3 of para. 263.4 of the TCU.

Environmental tax

The Ministry of Finance of Ukraine approved a new tax declaration form on environmental tax (see the Order of the Ministry of Finance of Ukraine “On approving of tax declaration form of environmental tax” of 17.08.15, № 715 (comes into force after its official publication).

Taxpayers give an account under it within 40 calendar days following the last calendar day of the tax (reporting) quarter.

It should be noted that the new declaration form is significantly different from current form for today approved by the Order of the SFS of Ukraine of 24.12.10, № 1010. Moreover, the annexes to it separately contain Codifier pollutants.

Control and Responsibility

The State Regulatory Service of Ukraine by its letter “On revocation of permit documents” of 03.09.15, № 6466/0/20-15 reminds that revocation of permit documents is possible in two ways which depend on the grounds for their application:

1. According to the decision of the licensing authority provided that:

• the business entity makes an application for revocation of the permit document;
• termination of legal entity by the way of merger, joining, division, transformation and liquidation, unless otherwise provided by the law;
• termination of business activity of individual-entrepreneur.

2. According to the decision of the Administrative Court. In such a circumstance the licensing authority can file an action with the Court in case of detection false information in the application for permit document issuance and in the documents. Such documents are invalidated on the basis of the relevant decision of the Administrative Court.

The State Regulatory Service of Ukraine in its letter “On setting of starting of validity period of the decision to license issuing” of 14.09.15, № 6810/0/20-15 noted: starting of validity period of the decision to license issuing to be the date of receipt of application license by the licensing authority.

It should be recalled, decision period on a license issuing is ten working days following the day of the receipt of license application by the licensing authority.

Labour and Salaries

The State Inspectorate of Ukraine on Labor in its letter “On submitting of the notice of acceptance for employment of the employee” of 03.08.15, № 1364/24/21/01/2298-15 reminded that the notice of acceptance for employment of the worker of the SFS of Ukraine to be a part of conclusion of employment agreement. It consists of an issued Order and notice of the SFS and its territorial bodies.

Owners of companies (institutions, organizations) or individuals must submit such notices in one of the following ways:

• means of electronic communication using a digital signature of responsible persons in accordance with current legislation;
• in hard copies together with a copy in electronic form;
• in hard copies, if the labor contracts concluded with not more than five people.

According to representatives of agencies, the notice in hard copy could be sent by mail with notice of receipt. The date of notice is to be the date of sending of a letter in accordance with postal receipts.

It should be reminded that the employee could not be allowed to work without labor contract, part of which is notice of acceptance for employment. Otherwise, a penalty of 30 minimum wages (today it is UAH 36540) should be imposed on the employer.

Accounting and Reporting

The State Fiscal Service of Ukraine reported that entrepreneurs-single tax payers of 2 and 3 groups could sell beer retail so as without using cash register as when it mandatory available (see category 109.03 ZIR).

Cash register is not used only performing the following requirements:

• beer should be sold in bottles and cans;
• there is no other sale of excise goods;
• income amount of  entrepreneurs-single tax payers of 2 and 3 groups does not exceed UAH 1 million during a calendar year;
• rheostat controller and registration book of payment transaction should be used instead of cash register;
• the license for retail sales of alcoholic drink should be available. Please note that this license should include information about registration book of payment transaction.

The entrepreneur-single tax payer of 2 and 3 groups is required to use cash register when beer sales if it is sold by the glass. In addition, other conditions should be met:

• to sell beer by glass is permitted only through restaurant enterprises or specialized department that has the status of restaurant;
• the license for retail sales of alcoholic drink should be available. In this case, the license should include all the information on appropriate cash register.

The State Fiscal Service of Ukraine in category 103.17 ZIR of the SFS of Ukraine explained: if an employee sent  on a business trip paid for two places in a double room of a hotel, living expenses on the basis of one room should be compensated with appropriation within expenditure of the company. If the company compensates to the employee full cost of the double room, the cost of second place in this room is to be considered as additional boon in accordance with paragraphs 164.2.17 of the Tax Code of Ukraine and be taxable at 15% (20%).

The Ministry of Social Policy of Ukraine in its letter “On use of seal by business entities” of 22.05.15, № 7610/0/14-15/06 reported that all business entities that have a seal according to the statutory documents should use it.

Business entities are (para.2 of Art. 55 of the Commercial Code of Ukraine, hereinafter − CCU):

1) Economic organizations − legal entities established under the Civil Code of Ukraine (hereinafter − the Civil Code), State, public and other enterprises established under the Civil Code and other legal entities engaged in economic activity and registered in accordance with the procedure established by the law;

2) citizens of Ukraine, foreigners and stateless people engaged in business activity and registered as entrepreneurs in accordance with the Law.

It is noted: para 1 of Art. 581 of the CCU provides for that business entities could have seals. Therefore, those who do not have the seal (good example − individual entrepreneurs) are entitled to dispense with it in their business activity.

The State Fiscal Service of Ukraine by its letter “On application of fixed assets group for made improvements of leased fixed assets” of 04.08.15, № 16335/6/99-99-19-02-02-15 explained how object of non-current tangible assets, which appeared as a result of improvements of leased fixed assets (hereinafter − FA) and formed from tenant’s costs, should be reflected in updated tax-profitable accounting.

According to tax officials, the cost of improvement of leased FA for the purposes of tax depreciation calculating should be entered as a new object of 9th group “Other fixed assets” as defined in paragraphs 138.3.3 of the TCU. The minimum allowable amortization periods for such FA are 12 years.

It should be reminded that the tenant’s costs for improvement operating lease object (upgrade, modification, finishing, re-adjustment, further construction etc. that lead to increase of future economic benefits, which are initially expected from its use, should be reflected as capital investments in creation (construction) of other non-current tangible assets (para. 8 AS 14 “Rent”).

We assume that state financial control also has similar approach regarding repair and / improvement FA established to 01.01.15, from the costs of repairs / improvements of leased FA.

The State Fiscal Service of Ukraine in its letter “On the application of cash registers” of 10.07.15, № 14505/6/99-99-22-07-03-15 underlined: when conducting cash payments for the lease of real estate and payment of utilities provided by the lease agreement, business entities are required to apply Cash Registers according to the Law of Ukraine “On the application of Cash Registers in trade industry, catering and services” of 06.07.95, № 265/95-ВР.

However, in case of payments via banking institutions - by transferring money to the account of a business entity by tenants - Cash Registers are not to be used.

In addition, fiscals explained: Cash Registers are not used when the payment for trademark registration and payment of registration fee for granting a certificate of trademark.

The State Fiscal Service of Ukraine in subcategory 109.02 ZIR of the SFS of Ukraine pointed: individuals-unified tax payers of the third group, who exceeded the amount of revenue UAH 1000000 for the first half of 2015, to be required from 01.10.15 when operating their activities to use the cash register or cross over to use of cashless payments only.

Individuals-unified tax payers of the second group in case of exceeding of the income amount UAH 1000000 in 2015 (regardless of the month when an excess was) are obliged to start using of cash register when operating their activities.

The State Fiscal Service of Ukraine in its letter “On violations when filling in the form № 1DF” of 02.09.15, № 18766/6/99-99-17-02-01-15 reported: if during the validation for I - II quarters controllers recognize violation of the order of filling in and submission of tax settlements under f. № 1DF, UAH 510 and UAH 1020 of penalty should be applied to the tax agent (if penalty for the same offense was applied during the year), to the total number of violations specified in Sec. 1 of para. 119.2 of the TCU, not to each violation separately.

Fiscal Policy

The Cabinet of Ministers of Ukraine made adjustments on estimated cost of projects under construction at the expense of budget funds (including funds of state companies and public utilities, institutions and organizations and credits granted under state guarantees) on which the procedure for approval of construction projects depended (see CMU Resolution “On Amendments to the Procedure for approval of construction projects and their expertise” of 26.08.15, № 665).

Thus, the Cabinet should approve the projects costing 400 million hryvnia and more (currently the figure is 100 million). The document should be submitted to the Cabinet by central executive bodies and other public authorities by agreement with the Ministry of Economic Development, the Ministry of Finance and the Ministry of Regional Development.

The following also are entitled to approve construction projects by the decision of the Ministry of Finance:

• central executive bodies (other public authorities), if total estimated cost of projects under construction is 120 to 400 million (currently 30 to 100 million);
• government enterprises (institutions, organizations), executive bodies of village council, township council and city council – concerning projects with total estimated cost to 120 million hryvnia (now - 30 million).

Also specific deadlines of approval of construction projects are determined. It should be adopted not later than three months from the date of sending of the report to construction project owner based on the results of the expertise.

The legislatures specified that construction projects to be the subject to mandatory expertise at the expense of budget funds, if their estimated cost exceeded UAH 300 thousand.

The Verkhovna Rada of Ukraine adopted amendments to the State Budget for 2015. Thus, the living wage size and minimum wage would be raised from 01.09.2015.

Minimum wage would be amounted to UAH 1 378, general index of living wage (per one person per month) – UAH 1 330, for able-bodied population − UAH 1378 and for people who are unable to work - UAH 1 074.

Public Procurement

The Verkhovna Rada of Ukraine adopted project (№ 2087а) of the Law “On amendments to Certain Laws of Ukraine on public procurements to bring them into compliance with international standards and to take measures to overcome corruption”.

The purpose of the document is noble - to simplify participation in public procurement procedures for business. This could increase the level of competition, overcoming the abuse of appeal procedures in the procurement and also bring public procurement system into compliance with international standards.

The project provides for that the Law would be applied to all customers and procurement of goods, works and services, on condition that the procurement price should be:

• for goods and services - UAH 200 thousand and more;
• for works – UAH 1.5 million and more.