Legislation Overview (October 2015)

Legislation Overview (October 2015)

Taxes

VAT

The State Fiscal Service of Ukraine in its letter “On budget refund of value added tax” of 28.09.15, № 20540/6/99-95-42-01-16-01 explained: the following VAT payers have the right to include VAT amounts in the budget refund, amounts paid when purchasing of goods (services) used for construction of fixed assets (hereinafter − FA):

• those who received this status for less than 12 calendar months;
• those who had less volume of taxable transactions for the last 12 calendar months than claimed amount of budget refund.

The following people are not entitled to the budget refund, according to para. 200.5 of the Tax Code of Ukraine:

• those who were registered as VAT payers for less than 12 calendar months before the month by results of which the application to budget refund to be applied. The exception is accruing of the tax credit resulting of purchasing or construction of FA;
• those who had less volume of taxable transactions for the last 12 calendar months than claimed amount of budget refund (except accrual of credit when purchasing or construction of FA).

The State Fiscal Service of Ukraine in Kyiv city in its letter “On peculiarities of preparation of the consolidated tax invoice” of 17.09.15, № 14401/10/26-15-15-01-18 reminded: if within a month the supplier received in payment for goods / services more funds than was actually delivered of goods / services during that month, this overrun should be considered to be as advance payment on which a separate tax invoice to be prepared in general terms. It is permitted to issue consolidated tax invoice on deliveries, which have continuous or rhythmic character (two or more times per month for one buyer), not later than the last day of the month. Thus, VAT payers should draw up consolidated tax invoice carefully, avoiding getting in it the advance payment under transactions on which the tax invoice was already drafted in the previous period.

The State Fiscal Service of Ukraine in Kyiv city in its letter “On VAT accrual on the cost of supply” of 16.09.15, № 14321/10/26-15-15-01-09 explained the procedure of application of VAT benefits when the supplies of printed periodical publications of mass media.

According to them, the regime of VAT exemption applies to supply transactions (prepayment) and delivery of periodical publications of mass media (except publications of erotic nature) of domestic production at all stages of the supply from producers to the final consumer.

According to the subparagraph 197.1.25 of the Tax Code Ukraine (hereinafter - TCU), the following transactions are exempt from VAT:

• supply (prepayment) and delivery of periodical publications of mass media (except publications of erotic nature) of domestic production;
• preparation (literary, scientific and technical editing, adjusting, design and layout), manufacturing (printing on paper or record in electronic form), distribution of books, including electronic content (except publications of erotic nature) of domestic production, student copybooks, schoolbooks and training manuals, dictionaries of Ukrainian-foreign or foreign-Ukrainian language of domestic production in the customs territory of Ukraine.

Goods delivery is any transfer of the right to regulation of goods as owner, including their sale, exchange or donation and also the supply of goods by a court decision (Art. 14.1.191 of TCU).

Service delivery is any transaction that is not a supply of goods or other transaction on right transfer of objects of intellectual property and other intangible assets or providing of other property rights on such intellectual property rights objects and the provision of services consumed in the course of a particular action or implementation of certain activity (subparagraph 14.1.185 of TCU).

The State Fiscal Service of Ukraine by its letter “On debts receivable” of 16.09.15, № 21853/10/28-10-06-11 explained that utility companies, which use the cash method of accounting for VAT according to para. 187.10 of the Tax Code of Ukraine could debit the debts receivable for goods / services listed in this paragraph without VAT charging.

According to the controllers, the debt could be credited if limitation of action period expired and the company took the necessary steps for its recovery. But tax liabilities do not arise because:

1) there is no receipt of funds to the bank account (to the cash desk) of the utility provider in payment of delivered goods / services;

2) VAT payer does not receive any other compensation for delivered goods / services.

The State Fiscal Service of Ukraine in its letter “On amendments to the SFS letter dated 26.08.2015 № 31730/7/99-99-19-03-02-17” of 09.10.15, № 37545/7/99-99-19-03-02-17 revised their guidelines for filling the application D4 to the VAT declaration if a VAT payer wanted to return the cash overage from electronic account.

So, all the columns should be filled in the application D4 including columns 4 and 5 of the second table regardless of the funds direction, to the budget or to current account.

Thus, the amount of funds on the electronic account, which can be transferred to the budget and determined as the difference between columns 1 and 2 (column1- column 2) should be indicated.

In column 5 of the table should be indicated the amount of funds on the payer’s electronic account that can be transferred to the taxpayer’s current account and determined as difference between columns 1,2 and 3 (col. 1− col. 2 – col. 3).

The VAT payer should indicate the direction of funds transfer and appropriate amount in the text below the table.

It should be reminded that earlier tax authorities recommended not filling in the column 5 in case of directing of cash overage on electronic account to the budget (the SFSU letter of 26.08.15, № 31730/7/99-99-19-03-02-17). Now they withdrew this advice.

The State Fiscal Service of Ukraine in its letter “On the right of a person, registered as VAT payer less than 12 calendar months, on the cancellation of the registration” of 17.08.15, № 17440/6/99-99-19-03-02-15 noted: the TCU didn’t provide possibilities of applying for cancellation of registration of a person registered as VAT payer less than 12 calendar months.

They mentioned as an argument the norm of subpara. “a” of para. 184.1 of TCU, which said that the cancellation of registration of VAT payers to be when any person registered as a taxpayer during the previous 12 months applied for cancellation of registration, if the total value of taxable goods / services provided by such person over the past 12 months was less than UAH 1 million (excluding VAT) upon payment of all tax liabilities.

The State Fiscal Service of Ukraine in its letter “On determining of VAT taxation base of goods delivery transactions within the customs territory of Ukraine, which previously were imported by the taxpayer” of 01.10.15, № 20876/6/99-99-19-03-02-15 explained: the tax base for transactions of delivery of goods imported by the taxpayer on the territory of Ukraine should be determined by the general rule – due to their agreed cost exclusively of value of customs cost.

According to para.188.1 of the Tax Code of Ukraine, the tax base of transactions of goods delivery should be determined according to their agreed cost taking into account national taxes and fees.

In addition, the base could not be lower than the purchase price of such products, except:

• goods, which prices are the subject to state regulation;
• gas, which is supplied for needs of the population.

The State Fiscal Service of Ukraine in its letter “On registration in the Unified Register of Tax Invoices of adjustment calculation to tax invoice prepared by VAT payer if on the date of registration of such adjustment calculation in URTI, the buyer is not a VAT payer” of 24.09.15, № 20255/6/99-99-19-03-02-15) explained: if VAT registration of the buyer is cancelled after the delivery, the buyer loses the  right to credit adjustment formed by him/her during the period of VAT registration.

According to state financial control, it means that the seller has no reasons to prepare the adjustment calculation to tax invoice (hereinafter − TI) for the buyer.

If, after the cancellation of VAT registration, the buyer’s amount of compensation increased, the supplier should prepare a new TI on the increase amount on the date of increase.

The supplier should indicate “100000000000” conditional ITN of the buyer in the TI column “Individual Tax Number of buyer “. “Defaulter” should be indicated in column “Person (taxpayer) – buyer”.

According to para.192.1 of the Tax Code of Ukraine if after goods/services delivery it is carried out any change of the amount of compensation of their value, the amounts of liabilities and credit of the supplier and the recipient are the subject to adjustment based on the adjustment calculation to TI registered in the Unified Register of tax invoices (hereinafter – URTI).

Prepared adjustment calculation to TI by the supplier, issued to the buyer − VAT payer, should be registered in URTI:

• the supplier – if the compensation amount is increased (or it’s not changed);
• the buyer – when the compensation amount is decreased. The supplier sends him/her the adjustment calculation for this purpose. And the supplier is entitled to reduce the liabilities only after registration of adjustment calculation in URTI by the recipient.

The State Fiscal Service of Ukraine in its letter of 19.10.2015, № 2794/10/25-01-25-01-09 considered the issue of accounting of VAT negative value when determining the tax amount on which the payer was entitled to register the tax invoices/adjustments calculations in URTI.

In particular, the document indicated: if line 24 “Amount of negative value, payable to the tax credit of the next reporting (tax) period” was not filled in VAT declaration for June 2015, it meant that the registration amount was not automatically increased for the company before 31 July 2015 according para. 2001.3 of TCU.

However, the entity is entitled to move the value of the line 24, which was indicated by taxpayer in adjusted calculation submitted in September 2015 by the company, to line 20.1 of Declaration of the next reporting (tax) period.

PIT

The State Fiscal Service of Ukraine in its letter “On taxation of income in the form of non-pecuniary damage and incomes paid by decision of a court for the forced absence” of 01.10.15, № 9186/Х/99-99-17-02-01-14 explained: the subjects to the income tax to be incomes in the form of compensation for pecuniary or non-pecuniary (moral) damages, except amounts that directed by the court decision for indemnity for losses caused to the taxpayer as a result of causing him/her property damage and life and health injury. The tax rate in 2015 is 15% to the income within UAH 12 180 and 20% − to the excess amount over UAH 12 180.

Also it is noted in the letter that 1.5% of the war tax should be paid from the amounts that are included in taxable income.

The State Fiscal Service of Ukraine in its letter “On taxation of wages of nonresident who works in the representation of a foreign company located in the territory of Ukraine” of 16.09.15, № 19780/6/99-99-17-03-03-15 informed: if the permanent representation of a legal entity-nonresident in Ukraine counted (pays) wages in favor of individual – nonresident, in other words taxable income with source of origin in Ukraine, it was a tax agent (employer) of such nonresident in understanding of the TCU.

Therefore, a permanent representation is obliged, when charging (payment, providing) of such an income to the nonresident, to withhold and transfer 15% (20%) of income tax and 1.5% of war tax to the budget of Ukraine.

But the Unified Social Contribution shouldn’t be charged or withheld in this case. Because according to para. 10 of Sec. 1 of Art.1 of the Law on the Unified Contribution, an employer - representation of the foreign company, located in Ukraine, is not an insured concerning a foreigner (a citizen of another country).

Simplified Tax System

The State Fiscal Service of Ukraine in its letter “On income determination of unified tax payers - business entities of retailing that pay excise tax” of 07.08.15, № 16757/6/99-95-42-03-15 informed: the amount of excise tax, which to be obtained by the unified tax payers – retailer of exercise goods as a part of the cost of sold excisable goods, should be included into the income of the unified tax payer.

Consequently, such an income should be taxed taking into account amounts of excise tax at rates in force for certain groups of unified tax payers (subparagraph 1, 2, 3 of para. 293.3 of TCU). Increased rates of unified tax (paras.293.4, 293.5 of TCU) are not applied to such income.

The State Fiscal Service of Ukraine in Kyiv city by its letter “On application of the simplified tax system by individuals – entrepreneurs engaged in real estate rent providing” of 25.09.15, № 2845/Щ/26-15-17-04-12 reported: entrepreneur − unified tax payer, who has his/her own real estate (residential or non-residential), which total amount fits into restrictions established by subparagraph 291.5.3 of TCU, has no right to rent out one its part as regular individual and another part as an entrepreneur.

It should be reminded that according to subparagraph 291.5.3 of TCU, individuals – entrepreneurs cannot work on the simplified system if they rent out the following:

• residential accommodations and/or their parts, which total area exceeds 100 square meters;
• non-residential accommodations (buildings, constructions) and/or their parts, which total area exceeds 300 square meters;
• In addition, the entrepreneur can be on simplified system and rent out one residential accommodation and a part of another dwelling, which areas jointly do not exceed 100 square meters, on condition that the rest of the residential accommodation is not rented including free use.

Therefore, entrepreneur − unified tax payer can lease property as an entrepreneur or as regular entrepreneur – not a business entity.

The State Fiscal Service of Ukraine in its letter of 16.10.2015, № 9676/П/99-99-15-03-01-14  explained: public organization entered into the Register of non-profit organizations and institutions could choose the simplified tax system in case of compliance with the requirements established by Ch. 1 of sec. XIV of TCU.

In particular, the controllers indicated the following restrictions:

• legal entities − business entities of any organizational and legal form whose amount of income does not exceed UAH 20 million during a calendar year are included into unified taxpayers of the third group;
• business activities which do not allow the legal entities to choose the simplified tax system, given in para. 291.5 of TCU;

In addition, the legal entity should take into account restrictions on the totality of founders’ shares in the authorized capital, established by subpara.291.5.5 of TCU, when the transition to the simplified tax system.

Control and Responsibility

The Cabinet of Ministers of Ukraine by its Resolution “On Approval of Regulations on data sets, which are required to be published in the form of open data” of 21.10.15, № 835 determined the list of public information, which was required to be disclosed. This government decision was adopted in order to implement Art. 101 of the Law of Ukraine “On Access to Public Information” of 13.01.11, № 2939-VI (hereinafter − Law №2939).

According to the resolution, all public information managers in the next 6 months should make public and regularly update the data determined by the document. For example, local government authorities should open to wide audience:

• main provisions of general settlements and detailed plans of territories;
• list of communal property;
• list of communal property leased or other right of use (with data on assignment clause);
• list of unused land and property objects (premises) of communal property form that could be transferred for use;
• list of business entities of communal ownership form;
• financial statements of the business entities of municipal property;
• debt obligations register of business entities of communal property of territorial community;
• information about complex configuration plan of temporary structures for business activities realization;
• list of carriers that provide passenger transport services and rout transportations;
• list of distributors that obtain a license for outdoor advertisement installation;
• information about advertising media;
• list of land plots proposed for development;
• list of concluded contracts.

It should be recalled that according to the provisions of the Law №2939 public information managers are considered to be subjects of public authority (state and local authorities); legal entities financed at the expense of the budget; persons to whom powers of authority are delegated including the provision of educational, health and other services; business entities that are monopolists.

The State Fiscal Service of Ukraine in its letter “On the procedure for penalty charge” of 09.10.15, № 21492/6/99-99-15-04-02-15 noted that the new rules of penalty charge should be applied to liabilities which payment deadline to be accounted for a date after 01.09.15.

The amendments to paragraphs 129.1.1 of the Tax Code of Ukraine require to apply a penalty in case of independent charging of amount of monetary liability by the taxpayer − only after 90 days following the last day of the deadline for payment of the liability.

So, according to tax officials in case of submission of revised data for the periods on which payment date is to 01.09.15, the rules for penalty charge, which effected before this date, should be used.

The State Fiscal Service of Ukraine in its letter of 16.10.2015, № 9647/Б/99-99-10-03-02-14 informed: violating the deadlines of tax assessments to the budget due to fault of the bank or the board of Treasury, where the accounts of payer in the system of electronic VAT administration to be opened, the taxpayer should submit an application to the supervisory authority with copies of payment documents certifying the fact of submitting them to the bank.

If the bank or its legal successors restore solvency, the deadline of collection of taxes, fees and other payments starts since the recovery.

Controlling authority does not apply penal sanctions to the business entity in case of late transfer (non-transfer) of taxes, fees or payments to the budgets and state trust funds due to fault of the bank including of regulation economic standards of such bank by the NBU.

Labour and Salary

The State Fiscal Service of Ukraine in its letter “On granting of tax social benefits to the taxpayer that supports three children (one disabled child)” of 15.10.15,  № 9593/К/99-99-17-03-03-14 explained: worker, who supports children up to 18 years (including a disabled child), to confirm the right to social benefits should provide, in particular, the documents proving that the person is their father or mother (including adoptive parent), guardian or trustee. It is meant that copies of certificates (duplicate certificates) on birth of children or documents containing data about the father in the Register book of official records of births, deaths and marriages or documents confirming the age of the children approved by the appropriate authority of the foreign state, where the individual always lived before coming to Ukraine. If it is about the guardian or trustee, it is required to provide a copy of the decision on guardianship establishment or trusteeship of the custody and guardianship agency.

 In addition, it is necessary to submit documentary confirmation of the status of disabled child:

• if the child is aged between 16 and 18 years old - child pension certificate or a certificate of medical and social examination;
• if a child is under 16 years old - medical report issued by institutions of the Ministry of Health according to the established procedure.

This tax social benefit is to be provided when the compliance with all the requirements specified in Art.169 of the TCU.

The State Fiscal Service of Ukraine by its letter “On taxation of wage indexation amounts” of 19.08.15, № 7682/6/99-99-17-03-03-15 notes that in the case of additional accruals of wage indexation for previous tax periods (months), such amounts of additional accruals in terms of reassessment should be attributed to the relevant tax periods when the accruals with appropriate reflection in the tax calculation of form № 1DF.

The State Fiscal Service of Ukraine in its letter “On reflection of expenses on paid leave to company’s employees in 2015 at the expense of provision established before 01.01.2015” of 04.09.15, № 18916/6/99-99-19-02-02-15 informs: expenses on employees’ leaves, which are compensated after 1 January 2015 at the expense of reserves and provisions formed before 1 January 2015 in accordance with National Accounting Standards or international financial reporting standards, should be included in expenses  provided that they are not taken into account when determining the subject of taxation before 1 January 2015. The basis for this explanation is para.24 of subsec.4 of sec. XX of the Tax Code of Ukraine.

The Ministry of Social Policy of Ukraine in its Order of 21.10.2015, № 1022 approved Examples of average wages (income) calculation by the types of compulsory state social insurance.

Examples of calculation could be found in the mentioned above order:

• payments for unemployment insurance;
• payments for insurance against accidents at work and occupational diseases that caused disability;
• payments for the purpose of maternity leave, temporary disability aid and payment of the first five days of temporary disability at the expense of the employer.

Accounting and Reporting

The State Fiscal Service of Ukraine by its letter “On foreign economic activity” of 28.09.2015, № 9062/Б/99-99-17-02-02-14 reported that invoice in foreign economic activity should not be considered to be as primary document, since it provided for invoicing of certain amounts to be paid to customers for goods (services). The very fact of goods receipt to be confirmed by the expenditure invoice of the supplier or by the Delivery-Acceptance Act of executed works (services).

The Ministry of Finance of Ukraine in its letter “On the procedure of reflection in the accounting of charging, receipt and payment of compensation from the budget within the average wage of employees called up for military service during mobilization” 24.09.15, № 31-11410-08-10/29963 explained that charging, receipt and payment of compensation from the budget of amounts of average wage of mobilized employees should be reflected in the accounting as follows:

charging of compensation of amounts of average wage reserved to mobilized employee: DT 94 “Other operating expenses” DT 66 “Calculations under payments to the employees”;

arrival of funds to the account of the company from the social protection authorities to  pay compensation: DT 31 “Accounts in banks” Сr 48 “Target financing and target receipts”. The revenue is simultaneously recognised on this amount: DT 48 Cr 71 “Other operating income”;

compensation payment to mobilized employees: DT 66 Cr 30 “Cash” or Cr 31.

The Ministry of Finance of Ukraine in its letter “On reflection in the accounting of expenses associated with the payment of real property tax, other than land” of 18.08.15, № 31-11410-08-16/26592 reported: expenses associated with the payment of real property tax, other than land should be reflected in the accounting on appropriate accounts of expenses (according to the Regulations on the application of the Plan of Accounts for accounting of assets, capital, liabilities and business transactions of companies and organizations, approved by the Ministry of Finance of Ukraine of 30.11.99, № 291).

Although para.18 of Accounting Regulations 16 “Expenses” approved by the Ministry of Finance of Ukraine of 31.12.99, № 318 said that taxes, duties and other mandatory payments provided by the law should be reflected within administrative expenses. But this does not apply to taxes, duties and mandatory payments included in the production cost of products, works and services.

The State Fiscal Service of Ukraine in its letter of 21.10.2015, № 22220/6/99-95-42-03-15 noted that according to para. 11 of subsection 4 of sec. XX of “Transitional Provisions” of TCU when calculating of depreciation of fixed assets and intangible assets in accordance with paragraph 138.3 of Art.138 of TCU the book value of fixed assets and intangible assets as of 01.01.2015 should be equal to the balance sheet assets that determined as of 31.12.2014 in accordance with Articles 144-146 and 148 of TCU in the version, which was in force before 01.01.2015.

Therefore, balance sheet value of fixed assets, increased by the amount of improvement (repair) of leased assets, implemented before 01.01.2015 and formed as of 31.12.2014 according to the rules of taxation, should be depreciated under the provisions of paragraph 138.3 of Article 138 of TCU in the version effective from 01.01.2015.

The Ministry of Finance of Ukraine by its Order of 28.09.2015, № 841 approved the updated Report forms on the use of funds granted for a business trip or on account, and its preparation procedure.

The Order comes into force from 06.11.2015 (being prepared for publication in “Official Journal of the Ukraine” № 86 for 06.11.2015).

The decision to update the advance report was taken due to the fact that currently function of approving of such documents passed to the Ministry of Finance, and the previous Order, which approved advance report form, was issued by the Ministry of Revenues.

However, advance report forms as well as the procedure of its filling were not changed significantly.  There are some amendments of reference to paragraphs 170.9.1 of TCU in their text, and when the calculating of the amount of personal income tax in case of non reimbursement of excessively spent money, the rates of 15% and 20% are used.

The Other Things

The Cabinet of Ministers of Ukraine by its Resolution “On amendments to paragraph 5 of the Model Statute of Limited Liability Company” of 07.10.15, № 820 brought the Model Statute of Limited Liability Company in line with current legislation.

In particular, the document states that the LLC may have a seal with its name, identification code or stamps.

It should be recalled that from 06.11.14 the seals for legal entities are not required.

The State Fiscal Service in Ukraine in Kyiv city in its letter “On reflection of exchange differences in tax accounting” of 25.09.15, № 14781/10/26-15-15-03-11 noted that exchange differences from recalculation of obligations of founders in the formation of authorized capital should not be reflected in incomes and expenses. The amounts of such exchange differences are entered into the additional capital.

The State Fiscal Service of Ukraine in its letter “On taxation of real property in the transfer of ownership of the housing part at the expense of alimony” of 05.10.15, № 9299/C/99-99-17-03-03-14 explains: transaction under the contract on termination of the right alimony payment for child due to transfer of ownership of real estate (housing part) is considered to be a sale. In this case the tax officials base upon para. 172.8 of the Tax Code of Ukraine according to which sale is any transfer of ownership right to real estate, except for their inheritance and donation.

Accordingly, in this case we should be guided by the rules of Art.172 of the TCU. The transaction is not the subject to taxation if the immovable property, mentioned in para.172.1 of the TCU, owned by individual over three years and is the only one sale of real estate during the reporting year. And condition on ownership of such property over three years has no effect if the property was previously received as inheritance.

The Cabinet of Ministers of Ukraine by its Resolution “On Amendments to the Resolution of the Cabinet Ministers of Ukraine dated 6 August 2014, № 409” of 28.10.15 specified a number of social standards for use of utility services.

So, in case of using electricity for individual heating needs, volumes of such energy differentiated by time are established. Therefore, corresponding percentages of electricity amount are established to calculate the cost of utilities according to the social standards. Different tariff rates (there are two- or three-zone rates, differentiated by day period) would be applied.

Also, social standard in an amount of 0.0548Hkal by 1m2 area, which is heated in heating season, is established for consumers who use centralized heating service (heating supply) and have an apartment or house counter.

If there is no hot water more than 14 days, the social standard of cold water rises to 4 m3 per capita per month (instead of 2.4 m3 per person per month if centralized hot water is available).

Adjusting coefficients for the 1-2-storeyed, 3-4-storeyed buildings and buildings of 5 floors or more by region are established to calculate the cost of heat and electric energy, natural gas and other fuels for heating.

The Government established the social standard for the export of liquid sewage in the absence of centralized wastewater disposal system (if centralized water supply and cesspools are available) - 4 m3 per person per month. A social standard for the export of liquid household waste is established at the level of 0.76 m3 per month.

It should be reminded that benefits for housing subsidies are calculated within the state social standards of consumption of utility services.