Legislation overview (July 2020)

Taxes

VAT

The State Tax Service of Ukraine in an individual tax consultation “On determining the VAT tax base in case the payer receives annual interest due to non-performance/improper performance of contractual obligations” No. 2842/ІПК/04-36-04-01-16 of July 14, 2020 considered the case when the company receives annual interest due to improper performance by counterparties of monetary obligations to pay rent and other payments under the lease agreement. Moreover, the question of the legality of the inclusion in the contractual value of interest per annum in a different amount (smaller/larger) than defined in item 188.1 of the Tax Code of Ukraine (hereinafter – Tax Code).

The tax authority has noted the following.

According to item188.1 of the Tax Code, the amounts received as three percent per annum, which the buyer pays to the supplier in case of delay in payment for goods/services, do not change the base of value added tax (hereinafter – VAT) of goods/services delivered.

If the parties enter into lease agreements that provide for a different (higher) amount of interest for non-performance/improper performance of contractual obligations, the VAT base of the seller of such goods (works, services) will be greater. In this case, it should be determined on the basis of the contractual value of the relevant goods/services, increased by the amount of interest in excess of the amount specified in item 188.1 of the Tax Code.

Unified Social Contribution

The State Tax Service of Ukraine in “ZIR” has clarified the procedure for filling in the reporting by sole proprietors (hereinafter – SP), who did not pay the unified social tax (hereinafter – UST) for March – May 2020

It should be recalled that for the periods from March 1 to May 31, 2020, self-employed persons are temporarily exempt from accrual, calculation and payment of USTs for themselves.

The law does not provide for self-employed persons to reflect in the UST statement or to apply for the right to a temporary exemption from the accrual and payment of USTs.

Those who have benefited from the exemption from accrual and payment of UST for March-April-May 2020, should not show the amount of income and the amount of UST in the form No. Д5. Otherwise, when declaring income and amounts of UST in the reporting will have to pay UST.

The tax authorities has explained how to fill in the indicators of column 3 of table 1 of the UST Statement (form No. Д5 (annual) when determining the base for accrual of UST for the reporting year by taxpayers exempted from paying UST for themselves).

In case of exemption from accrual, calculation and payment of UST for the periods from 1 to 31 March, from 1 to 30 April and from 1 to 31 May 2020, the indicators of column 3 “The amount of net income (profit) stated in the tax return/Self-determined amount income/Share of distributed income” of table 1 of the Statement (form No. Д 5 (annual)) (hereinafter – the Statement), are filled in as follows:

sole proprietors in the general system of taxation and persons engaged in independent professional activity, in the lines for each calendar month indicate the average monthly taxable income. It is determined by dividing the annual net income (profit) declared in the annual tax return on property and income by the number of months during which such taxpayer was registered as a payer of UST;
sole proprietors in the simplified system of taxation – in the lines for each calendar month indicate a self-determined amount of income, which may not be less than the minimum wage established by law per month;
members of the farm – in the lines for each calendar month indicate the average monthly taxable income. It is determined by dividing the annual distributed income received by such taxpayers from the net income of the farm in the reporting year, which is subject to personal income tax, by the number of months during which such taxpayer was registered as a payer of UST.

In column 4 “The amount of income on which the unified single tax is accrued, taking into account the maximum amount” of table 1 of the Report in the months of exemption from accrual, calculation and payment of UST (March, April, May 2020) are crossed out, and other calendar months when such a payer was registered as a payer of UST, are filled in on the general grounds specified in Art. 7 of the Law on UST and chapter IV of Instructions No. 449.

PIT

The State Tax Service of Ukraine has published a general algorithm for calculating the amount of the tax benefit.

The list of documents for obtaining a tax benefit has been expanded.

The algorithm for calculating the tax benefit is as follows:

on the basis of supporting documents the amount of expenses which is allowed to be included in a tax benefit is defined;
the tax base is determined by deducting from the total annual taxable income the amounts of applied social tax benefits and the amounts of expenses that may be included in the tax benefit (information on the amounts of accrued total annual taxable income, applied social tax benefits, withheld personal income tax (hereinafter – PIT) the individuals receive in the form of a certificate of income from their employer).

The STSU has pointed out that the amount of expenses incurred by the taxpayer is not refunded to the taxpayer, but the difference in the amount of PIT obtained as a result of reducing the tax base by the amount of expenses allowed to be included in the tax benefit.

As a result of the recalculation there is an overpayment of personal income tax, as the total annual taxable income is reduced by the amount of expenses incurred to be included in the tax rebate.

The amount to be refunded to the taxpayer shall be credited to the latter’s bank account opened with any commercial bank or sent by postal transfer to the address specified in the property and income tax return within 60 calendar days of receipt of such tax return to fiscal authority.

Example of calculation

In 2019, the father spent UAH 25,000 on the education of his son (or another family member of the first degree of kinship).

The father's salary for 2019 amounted to UAH 200,000, UAH 36,000 of personal income tax was deducted from it (18% of the income received). The social tax benefit was not applied to the father's salary.

We calculate the amount of personal income tax to be refunded as a result of the taxpayer's application of the right to a tax benefit:

1) determine the tax base, reduced by the amount of education costs:

200 000 - 25 000 = 175 000 UAH;

2) determine the amount of PIT from this database:

175 000 × 18% = 31 500 UAH.

2) The amount of PIT to be refunded to the payer is the difference between the tax actually withheld and the tax to be withheld as a result of the tax rebate: 36,000 - 31,500 = 4,500 UAH.

Thus, the amount of personal income tax to be refunded as a result of the taxpayer's use of the right to a tax benefit is UAH 4,500.

Other Taxes and Fees

The Cabinet of Ministers of Ukraine has adopted a resolution “Some issues of payment of rent for state property during quarantine” No. 611 of July 15, 2020. With this document, the Cabinet of Ministers established a number of easing regarding the lease of premises for the quarantine period.

Thus, tenants who use premises at airports (bars, cafes, cafeterias, etc.) are exempt from rent in the amount of 25% for the use of state real estate.

The following are exempt from rent for the use of state property in the amount of 50%:

1) tenants who use state property for accommodation:

cafes, bars, cafe-bars, snack bars, cafeterias that sell or do not sell goods of the excisable group;
restaurants, restaurants that work at night;
canteens, cafeterias that do not sell goods of the excisable group;
photocopying equipment;
computer clubs and internet cafes;
trade facilities for the sale of industrial goods (except for those engaged in the retail sale of hygiene products);
trade facilities for the sale of non-food products that were in use;
holding exhibitions of art or book products made in Ukraine;
exhibitions of non-food products without trade;
hotels;
transport facilities (in particular at airports);

2) domestic legal entities and individuals who are small businesses that carry out production activities directly on leased production areas (including airports);

3) subjects of cinematography, the main activity of which is film production or technical support and maintenance of film production, provided that they are entered in the State Register of Producers, Distributors and Demonstrators of Films.

List of tenants who are completely exempt from rent for the use of state property:

tenants who rent premises of educational institutions and science of the state form of ownership for cafes, canteens, cafeterias, provision of photocopying services, sale of non-food goods, vending machines with food, etc.;
tenants who rent premises for private educational institutions, state and municipal out-of-school education institutions, publishing houses of Ukrainian printed mass media, objects for sale of books and newspapers, physical culture and sports institutions, libraries, museums, etc.;
tenants who rent premises for the organization of concerts, consumer services, tour operators, etc.

The State Service of Ukraine on Food Safety and Consumer Protection has named the most common violations of consumer rights in the capital.

In particular, in the first half of 2020, due to violations of consumer rights, the Main Department of the State Service of Ukraine on Food Safety and Consumer Protection in Kyiv initiated the imposition of fines in the amount of UAH 7.944.111, violators paid almost UAH 1 million.

This year’s leaders of violations:

untimely refund of tickets for cultural and entertainment events (concerts, performances, etc.), which were canceled or postponed due to quarantine;
non-refund for non-provided tourist services;
complaints about low-quality housing and communal services;

in the field of trade:

discrepancy between the price list and the settlement document;
improper quality of goods purchased through the Internet;
untimely return of funds for goods of proper quality;
failure to provide reliable and timely product information.

Accounting and Reporting

The State Statistics Service of Ukraine will require the submission of a new form No. 3-debt (monthly) “Statement of wage arrears”, starting with the statement for January 2021.

This form of statistical reporting will be applied by legal entities in accordance with the approved methodology.

Not only employers with existing salary debts will apply for the No. 3-debt form. Section 1 “Information on the absence of arrears of wages” contains the line “At the enterprise (institution, organization) there is no arrears of wages and payments due to temporary incapacity for work (if in column 1 there is a mark “V”, then there is no need to further fill the report).”

Therefore, all employers from whom the State Statistics Service wants to receive it can fill in and submit this form.

Control and Responsibility

The Ministry of Health of Ukraine has updated the list of countries in the “red” and “green” zones. This was announced on its Facebook page by the State Agency for Tourism Development of Ukraine.

According to updated data, the “reds” now include:

Kazakhstan;
the Turks and Caicos Islands;
Palestine;
Kyrgyzstan;
Seychelles;
Mexico;
Montenegro;
Suriname;
El Salvador;
Albania;
the Czech Republic.

It should be reminded that citizens coming from the “red zone” countries to Ukraine must undergo a 14-day observation or use the “Act at Home” application.

The Cabinet of Ministers of Ukraine has allowed to end the regime of self-isolation or observation for those who enter the territory of Ukraine from the countries of “red zone”, provided that they test for COVID-19 by PCR after crossing the state border and have a negative result. From the countries of the “green” zone - without restrictions.

To enter Ukraine, foreigners need an insurance policy that covers the costs of COVID-19 and observation.

Financial Markets

The National Bank of Ukraine has approved and promulgated the Regulations on financial monitoring by non-bank financial institutions (hereinafter – the Regulations).

The Regulation was developed in connection with the introduction on April 28, 2020 of new requirements of the legislation on financial monitoring. The Regulation applies to participants of the non-banking financial market, which are regulated and supervised by the National Bank in the field of financial monitoring.

The National Bank of Ukraine (hereinafter – the National Bank, NBU) provided non-banking institutions with enough time to set up their own financial monitoring processes and procedures - by the end of 2020.

Basic conceptual approaches set out in the Regulation:

use of a risk-oriented approach;
set up of a proper risk management system;
enhanced and simplified customer due diligence;
methods of remote identification and verification;
adapted list of risk criteria and risk indicators;
risk-oriented approaches to politically significant individuals, their family members and related parties (PEPs).

The National Bank has taken into account the peculiarities of the non-banking financial sector. Thus, some requirements for institutions are simplified compared to banks. For instance:

most institutions are recommended to have a system of automation of financial monitoring processes, but it is mandatory only for payment systems that transfer funds online;
customer risk assessment is performed using simplified methods. Institutions are given the opportunity to assess the risk not of each client individually, but on a group basis;
special measures have been established for proper screening of clients and beneficiaries for insurance companies;
non-banking institutions do not approve with the National Bank the candidacy of the employee responsible for financial monitoring. The responsible employee is allowed to combine and work part-time.

Procedure for remote identification and verification of the client

Client identification and verification is possible in several variations. In addition to the physical presence and copies of original documents for non-banking institutions, as well as for banks, remote identification and customer verification is also available.

Full-fledged verification models are: use of the BankID of the NBU, a qualified electronic signature (hereinafter – QES), a video broadcast session, as well as verification using the resource of state online services “ACTION”.

Simplified verification models are: BankID NBU, QES, reading data from a biometric document chip, data verification from credit histories.

At the same time, the Regulation defines the procedure for identifying the client with the involvement of the agent and the use of information on the proper verification of the client, obtained from a third party.

From now on, a visit to a branch or a personal meeting with a representative of the institution is not required for concluding an insurance contract or taking out a loan with a financial company or credit union.

Controlled Transactions and Transfer Pricing

State Tax Service of Ukraine in an individual tax consultation “On determining the first reporting period to which the amendments introduced by Law of Ukraine No. 466-IX of January 16, 2020 on transfer pricing” No. 2569/6/99-00-05-50-02-06/ІПК of June 26, 2020 has expressed its vision of the issue for which first reporting period the global documentation on transfer pricing (master file) and notification of participation in an international group of companies must be provided.

Thus, in the case of controlled transactions (hereinafter – CT) a notice of participation in an international group of companies is submitted for the first time in 2021 for 2020 together with the report on controlled transactions.

Taxpayers are required to report on CT by October 1 of the year following the reporting year.

Regarding the submission of global documentation (master file), the requests of regulatory authorities to taxpayers are applied for the first time for the financial year ending in 2021.

The right to send such a request to a taxpayer that is part of an international group of companies arises if the aggregate consolidated income of the international group of companies for the financial year preceding the reporting year, calculated in accordance with accounting standards applied by the parent company of the international group of companies, is equal to or exceeds the equivalent of 50 million euros.

The request may be sent not earlier than 12 months and not later than 36 months from the end of the financial year established by the international group of companies to which such taxpayer belongs, and in the absence of information on the established financial group of companies - not earlier than 12 months and not later than 36 months after the end of the reporting year.

Global transfer pricing documentation (master file) must be provided by the taxpayer within 90 calendar days from the receipt of the request.

If two or more taxpayers belonging to the same international group of companies are registered in Ukraine, the tax authorities send a request to only one of such taxpayers of their choice (item 39.4.7 of the Tax Code).

Labor and Salaries

The State Labor Service of Ukraine has explained for which categories of foreigners it is necessary to obtain a work permit.

The Law of Ukraine “On Employment” stipulates that employers may employ foreigners on the basis of the work permit.

The work of a foreigner without the permit will be a violation of the law and will result in liability. But there are exceptions to this rule. The work permit is not required for:

foreigners permanently residing in Ukraine;
foreigners who have acquired refugee status in accordance with the legislation of Ukraine or have received an immigration permit to Ukraine;
foreigners who are recognized as persons in need of additional protection or who have been granted temporary protection in Ukraine;
representatives of the foreign naval (river) fleet and airlines that serve such companies in Ukraine;
employees of foreign mass media accredited to work in Ukraine;
athletes who have acquired professional status, performing artists and artworkers to work in Ukraine by profession;
employees of emergency rescue services to perform urgent work;
employees of foreign missions who are registered on the territory of Ukraine in the manner prescribed by law;
clergy who are foreigners and temporarily stay in Ukraine at the invitation of religious organizations to conduct canonical activities only in such organizations with the official consent of the body that registered the statute (regulations) of the relevant religious organization;
foreigners who arrived in Ukraine to participate in the implementation of international technical assistance projects;
foreigners who arrived in Ukraine to conduct teaching and/or research activities in institutions of professional post-secondary and higher education at their invitation;
other foreigners in cases provided by laws and international treaties of Ukraine, the binding nature of which has been approved by the Verkhovna Rada of Ukraine.

Summary of Court Rulings

The Supreme Court of Ukraine has expressed its position on foreign currency debt, namely inflation and penalties for late payment.

If the terms of the loan agreement stipulate that the borrower undertakes to repay the same amount (euro equivalent), the amount of inflation losses charged by the plaintiff shall not be recoverable from the defendant.

The relevant provision is contained in the decision of the Supreme Court of June 22, 2020 in case No. 752/10525/16-ц.

Facts of the case

The person filed a lawsuit against the defendant to recover the debt in the amount of UAH 1,310,124.00 under the loan agreement concluded between the parties.

The statement of claim is motivated by the fact that the plaintiff lent the defendant cash in the amount of UAH 1,310,124.00 for business activities, and these circumstances are confirmed by a certificate of pledge. Defendant undertook to return the funds according to the schedule by May 31, 2016. However, the defendant partially fulfilled the obligations and subsequently refused to fulfill the obligations.

The plaintiff, taking into account the specified claims, asked the court to recover from the defendant the amount of debt under the loan agreement in the amount of UAH 1,269,124.00, the amount of interest for the use of funds in the amount of UAH 221,699.97, the amount of inflation losses in the amount of UAH 161,727.00 and UAH 29,401.05 3% per annum.

The decision of the local court denied the claim. This decision was partially overturned by the Court of Appeal.

The position of the Supreme Court

The Supreme Court dismissed the cassation appeal and upheld the appellate court's decision.

According to Art. 1 of the Law of Ukraine “On indexation of monetary income of the population” inflation index (consumer price index) is an indicator that characterizes the dynamics of the general level of prices for goods and services purchased by the population for non-productive consumption.

The official inflation index calculated by the State Statistics Committee determines the level of depreciation of the national currency of Ukraine, i.e. the purchasing power of the hryvnia, not foreign currency.

Thus, only the currency of Ukraine, the hryvnia, is subject to indexation due to depreciation. Foreign currency is not subject to indexation.

Norms of Part 2 of Art. 625 of the Civil Code of Ukraine (hereinafter – Civil Code) on debt payment, taking into account the established inflation index apply only to cases of overdue monetary obligation, defined in UAH.

At the same time, in case of breach of a monetary obligation, the subject of which is money, expressed in hryvnias with the definition of the equivalent in foreign currency, provided for in Part 2 of Art. 625 of the Civil Code, inflation losses are not recoverable, as losses from the depreciation of the national currency due to inflation are restored by the equivalent of foreign currency.

Given the abovementioned, as well as the fact that the terms of the loan agreement have determined that the borrower undertakes to repay the same amount (euro equivalent), the amount of inflation losses accrued by the plaintiff is not recoverable from the defendant.

The Other Things

The Ministry of Internal Affairs of Ukraine has updated the Instruction on the procedure for taking exams to obtain the right to drive and issue driver's licenses and the Instruction on the use of technical means of control during examinations by Order “On Amendments to the Order of the Ministry of Internal Affairs of Ukraine No. 515 of December 7, 2009” No. 4018 of May 22, 2020.

Documents certifying the training and retraining of vehicle drivers are:

certificate of completion of the institution for training, retraining, advanced training of drivers, information about which is entered by the institution in the Unified State Register of the Ministry of Internal Affairs;
documents on professional (vocational) education of the state standard in the professions “Driver of vehicles”, “Driver of motor vehicles”, “Tram driver”, “Trolleybus driver” (diploma of a skilled worker, certificate of assignment (improvement) of working skills), issued by an institution that has a license to conduct educational activities in the field of vocational education.

If a person for any reason did not pass the exams in the territorial service center of the Ministry of Internal Affairs (hereinafter – TSC MIA), the issued document certifying the training and retraining of drivers is valid for exams within two years from the date of graduation.

During the theoretical and practical exams, technical means of control (including photo and video recording) of the exam process are used. The procedure for using technical means is established by the Instruction.

The theoretical exam is taken in a specially equipped room of the TSC of the MIA. Exam tickets contain 20 questions. Each of them has two to five possible answers, only one of which is correct. The person is asked only questions that correspond to the categories of vehicles, the right to drive which he claims to receive.

In the case of opening two or more categories of vehicles, the theoretical examination is based on examination tickets of the highest category.

The time of the theoretical exam is 20 minutes from the moment the first question is displayed on the monitor.

The theoretical examination is considered to be not passed in case of three mistakes, failure to answer in the allotted time and use of additional electronic devices, educational literature, means of communication, reading devices, as well as tips from others. The theoretical re-examination is scheduled no earlier than five calendar days from the day after the examination.

The result of a successfully passed theoretical exam is valid for three months.

The practical exam is held in the same TSC of the MIA. Before the exam, the examiner acquaints the person with the procedure.

Taking the practical exam is carried out in two stages:

the first stage of the practical exam – on the site for training in initial control;
the second stage of the practical exam – in traffic conditions on the routes determined by the TSC of the Ministry of Internal Affairs (except for testing the skills of driving vehicles of categories A1, A, B1).

A person who has not passed the first stage of the practical examination is not allowed to the second stage.

If a person has not passed the practical examination for the third time, such a person is admitted to the next examination after passing a repeated course of training in practical driving in any institution.

Registration and issuance of a new driver's license instead of the lost or stolen one is carried out without passing exams.

In case of application of the owner of the lost or stolen driver's license obtained for the first time, before the expiration of its validity TSC MIA issues a new license, which is considered to be issued for the first time, indicating the validity of the lost or stolen license.