Legislation overview (May 2020)

Taxes

VAT

The State Tax Service of Ukraine, through the Office of Large Taxpayers, explained in detail the VAT features of reimbursement of expenses for the maintenance of leased property.

According to Articles 284 and 286 of the Commercial Code of Ukraine, an essential condition of the lease agreement is, in particular, the rent, which is a fixed payment that the lessee pays to the lessor regardless of the consequences of its business activities. The amount of rent may be changed by agreement of the parties, as well as in other cases provided by law.

According to subitems 14.1.36 of the Tax Code of Ukraine (hereinafter – Tax Code) business activity is the activities of a person associated with the production (manufacturing and/or sale of goods, works, services, aimed at obtaining income and carried out by such person independently and/or through its separate subdivisions, as well as through any other person acting in favor of the first person, in particular under commission agreements, power of attorney and agency agreements.

An integral part of economic activity with real estate is the acquisition by the owner of such property of certain goods and receiving a number of services related to the need to maintain such property, payment of taxes related to movable/immovable property, payroll, etc., as well as setting the amount of rent for movable/immovable property taking into account such costs.

Therefore, in the cost of rent for movable/immovable property, the lessee must provide economic reimbursement (compensation) of all elements of costs associated with the services of renting property.

Item 185.1 of the Tax Code stipulates that the object of value added tax is the supply of goods and services, the place of supply of which is located in the customs territory of Ukraine, in accordance with Art. 186 of the Tax Code.

Item 188.1 of the Tax Code stipulates, in particular, that the tax base of transactions for the supply of goods/services is determined on the basis of their contractual value, taking into account national taxes and fees (except for excise tax on retail sales of excisable goods, mandatory state pension fee insurance that copes with the cost of cellular mobile services, value added tax and excise tax on ethyl alcohol used by producers – businessentities for the production of medicines, including blood components and preparations made from them (except medicines in the form of balms and elixirs).

The contractual value includes any amounts of funds, the value of tangible and intangible assets transferred to the taxpayer directly by the buyer or through any third party in connection with the compensation of the value of goods/services.

The contract value does not include the amount of penalties (fines and/or fees), three percent per annum and inflation, received by the taxpayer due to non-performance or improper performance of contractual obligations.

The tax base includes the cost of goods/services supplied (except for the amount of compensation to cover the difference between actual costs and regulated prices (tariffs) in the form of a production subsidy from the budget and/or the amount of reimbursement to the lessor - budgetary institution the cost of maintenance of leased property, utilities and energy), and the value of tangible and intangible assets transferred to the taxpayer directly by the recipient of goods/services supplied by such taxpayer.

Therefore, if the lessor (except for the budgetary institution) receives funds from the lessee as reimbursement (compensation) of the lessor's expenses incurred by the maintenance of the leased property, such funds are part of the rent and are included by the lessor in the tax base in the generally established manner, including if the lessor and the lessee have entered into separate agreements for lessee to provide compensation for such expenses.

Rent

The State Property Fund of Ukraine has provided a new clarification on the procedure for exempting tenants of state property from rent, provided by the new version of item 14 of the chapter “Final and Transitional Provisions” of the Civil Code of Ukraine.

This item was amended by Law of Ukraine “On Amendments to the Law of Ukraine “On the State Budget of Ukraine for 2020” No. 553-IX of April 13, 2020, which entered into force on April 18, 2020.

Following the promulgation of relevant amendments to the Civil Code of Ukraine regulating the issue of property lease, the Fund clarified the conditions under which tenants of state property may be exempted from paying rent due to prohibitions on certain business and other activities introduced by Government Resolution “On prevention of the spread on the territory of Ukraine of the acute respiratory disease COVID-19 caused by the coronavirus SARS-CoV-2” No. 211 of March 11, 2020 (with amendments and additions).

Thus, in particular, to obtain an exemption from rent, the tenant must:

• check whether the prohibitions to carry out certain types of business and other activities, introduced by Cabinet of Ministers of Ukraine Resolution “On prevention of the spread of acute respiratory disease COVID-19 caused by coronavirus SARS-CoV-2” No. 211 of March 11, 2020 (with amendments and additions) covers the type of activity for which the state property is used under the lease agreement;
• if such prohibitions apply to the type of its activity, the tenant applies to the lessor with a request to release him/her from paying rent under the contract in accordance with Art. 762 of the Civil Code of Ukraine. This article, in particular, clarifies that the tenant may be exempt from rent for the entire period during which the property could not be used due to objective circumstances beyond his/her control (in this case such an objective circumstance is quarantine).

Upon receipt of the tenant's application, the lessor, together with the property holder that is the subject of the lease agreement, conducts an inspection of the leased premises in order to obtain evidence of the tenant's suspension of activities on the leased object and draw up the inspection report.

After that, on the basis of the tenant's application and the inspection report drawn up by the representatives of the lessor and the property holder, the lessor decides to exempt the tenant from paying the rent for the quarantine period.

Other Taxes and Fees

The Cabinet of Ministers of Ukraine by Resolution “On Approval of the Procedure for Functioning of the Single Account and Compliance with Article 35¹ of the Tax Code of Ukraine by Central Executive Bodies” No. 321 of April 29, 2020 approved the procedure for functioning of the single account for taxes and fees.

The document defines the mechanism of crediting funds to the single account, transferring funds from a single account to budget accounts and returning (accounting) of erroneously and/or excessively credited funds by payers.

Through the single account you can pay:

• corporate income tax;
• personal income tax;
• unified social tax;
• single tax;
• rent;
• other payments, the control of which is entrusted to the State Tax Service.

It is not used to pay value added tax and excise tax on fuel and alcohol. This exception is related to the operation of special electronic administration systems for these taxes. In addition, the exception applies to the payment of part of the net profit (income) by state and municipal enterprises and their associations.

The only account is opened in the Treasury in the name of the State Tax Service. The taxpayer announces the intention to use the State Tax Service system in electronic form through an electronic account. The State Tax Service opens a single card of payer on the basis of data from the register of payers who use the single account.

The single card of the payer displays data on the payer and transactions with funds that are credited/transferred/returned (accounted) to/from the single account.

Current information on the movement of funds on the single account is available to the payer in the electronic account.

When using a single account, the payer is not entitled to pay such funds to other accounts opened by the Treasury for the payment of such taxes, and funds paid to other accounts are considered erroneously paid and refundable.

If the single account receives funds from a payer not included in the register of payers who use the single account, or the State Tax Service cannot identify the payer from the information on the movement of funds in the single account, such funds the State Rax Service returns to the payer's account opened in the bank through which the enrollment was made. These funds are not considered credited to the single account and are not subject to reflection in a single card of the payer.

For funds that are erroneously paid monetary obligations, the State Tax Service sends to the payer through the electronic cabinet notifications of errors or discrepancies in such settlement document no later than the next working day from the date of their enrollment.

The payer determines the payment to the appropriate recipient no later than the next business day after receiving the notification.

If the payer has not determined the payment within the specified period, the information from the settlement document is considered as information without determining the payment to the recipient and the amount of such payment is included by the State Tax Service in the register of payments from the single account for an individual payer as part of the consolidated payment register taking into account the payment priority set by item 35¹.6, Art. 35¹, item 89.7, Art. 89 and item 131.2, Art. 131 of the Tax Code of Ukraine (hereinafter – Tax Code).

Amounts erroneously and/or overpaid by the payer of monetary obligations and penalties, obligations from the single contribution, according to the State Tax Service, are considered as funds received in the single account and are taken into account by the State Tax Service when forming the register of payments from the single account concerning a particular payer on the date of formation of such a register as follows:

- are recognized as credited for the same type of income to the state and/or local budgets, and in the part of liabilities from the single contribution – to the budgets of the Pension Fund of Ukraine and funds of compulsory state social insurance, under which such funds are accounted;

- are allocated by the Treasury between different types of revenues of the state and/or local budgets according to the conclusion of the State Tax Service submitted to the Treasury in the manner prescribed by law, on the basis of a certain direction of use of the amount of erroneously and/or excessively paid monetary obligations and penalties by such a payer.

This provision does not deprive the payer of the right to return erroneously and/or overpaid monetary obligations and penalties in the manner prescribed by Art. 43 of the Tax Code.

Simplified Tax System

The State Tax Service of Ukraine in categories 107, 108 “ZIR” has explained the application of the maximum amount of income that gives the right to be a single tax payer, in connection with its increase from April 2, 2020.

It should be reminded that Law of Ukraine “On Amendments to Certain Legislative Acts of Ukraine Aimed at Providing Additional Social and Economic Guarantees in Connection with the Spread of Coronavirus Disease (COVID-19)” No. 540-IX of March 30, 2020, which entered into force on April 2, 2020, made amendments, in particular, to item 291.4 of the Tax Code of Ukraine (hereinafter – Tax Code) to increase the maximum income, which entitles businesses to apply a simplified system of taxation, accounting and reporting of annual income:

• Group I – from UAH 300,000 to UAH 1 million;
• Group II – from UAH 1.5 million to UAH 5 million;

In their explanation, the tax authorities noted that legal entities - payers of the single tax of the third group, which:

• in the first quarter of 2020 exceeded the maximum amount of income that entitles them to be in the third group – UAH 5 million, must in accordance with item 293.8 of the Tax Code apply the single tax rate double the rates specified in item 293.3 of the Tax Code to the amount of excess, and pay other taxes and fees established by the Tax Code (as it stated prior to the amendments on April 2, 2020);
• in the first quarter of 2020 did not exceed the maximum income – UAH 5 million, have the right to be in the selected group. At the same time, such payers of the single tax from April 2, 2020 adhere to the new annual maximum amount of income – UAH 7 million, which is That is, the tax authorities no longer propose to divide the marginal amount of income into periods before April 2, 2020 and after and to derive a new amount of marginal income, as previously recommended.

The same recommendations are given by the tax authorities to sole proprietors who:

• in the first quarter of 2020 exceeded the income margins (UAH 300 thousand - the first group, UAH 1.5 million - the second group, UAH 5 million – the third group), must apply a single tax rate of 15% to the amount of the excess and start paying other taxes or choose another group of single tax payers;
• in the first quarter of 2020 did not exceed the maximum income (UAH 300 thousand - the first group, UAH 1.5 million - the second group, UAH 5 million – the third group), have the right to be in selected groups of the single tax payer or at their own request change group. At the same time, such single tax payers from April 2, 2020 adhere to the new annual maximum income (UAH 1 million – the first group, UAH 5 million – the second group, UAH 7 million – the third group), which are determined for the period from January 1, 2020 to December 31, 2020 (inclusive).

Control and Responsibility

The Cabinet of Ministers of Ukraine has presented the State economic stimulus program to overcome the negative consequences caused by COVID-19. The aim of the program is to implement a comprehensive system of measures to stabilize and sustainably develop Ukraine's economy, increase employment by maintaining existing and stimulating job creation.

The program contains three sections. Thus, the first section contains short-term initiatives in response to COVID-19: ensuring the safe functioning of the economy; supporting branches of economy and protecting their goods, works and/or services from their import alternatives supplied to the territory of Ukraine, taking into account international agreements and obligations of Ukraine.

To support the economy, measures have been developed for six sectors: industry, agriculture, energy, transport and infrastructure, information and communication technologies, services (trade, hotels and restaurants, education, creative industries, personal services).

Supporting sectors of the economy should be accompanied by the implementation of general functional measures that will strengthen sectoral initiatives. Functional areas include support for small and medium-sized businesses, stimulating international trade, attracting investment, developing innovation and the labor market, and prudently regulating economic activity.

Financial Market

The State Tax Service of Ukraine has clarified which financial transactions are subject to financial monitoring and in what amount.

In accordance with paragraphs 67, item 1 of Art. 1 of Law of Ukraine “On Prevention and Counteraction to Legalization (Laundering) of Proceeds from Crime, Financing of Terrorism and Proliferation of Weapons of Mass Destruction” No. 361-IX of December 6, 2019 (hereinafter – Law No. 361) the financial transactions subject to financial monitoring are threshold financial transactions, suspicious financial transactions (activities).

Financial transactions are threshold if the amount for which each of them is carried out is equal to or exceeds UAH 400 thousand (for business entities that provide services in the field of lotteries and/or gambling – UAH 30 thousand) or is equal to or exceeds the amount in foreign currency, bank metals, other assets, equivalent at the official exchange rate of hryvnia to foreign currencies and bank metals UAH 400 thousand at the time of the financial transaction (for businesses that provide services in the field of lotteries and/or gambling – UAH 30 thousand), in the presence of one or more of the following features:

• crediting or transferring funds, granting or receiving a loan, carrying out other financial transactions if at least one of the parties – participants in the financial transaction has the appropriate registration, place of residence or location in the state (jurisdiction) that does not perform or improper implements the recommendations of international, intergovernmental organizations involved in the fight against legalization (laundering) of proceeds from crime, financing of terrorist or proliferation of weapons of mass destruction (including diplomatic missions, embassies, consulates of such a foreign state), or one of the parties – participants in the financial transaction is a person who has an account in a bank registered in the specified state (jurisdiction);
• financial transactions of politically significant persons, their family members and/or persons related to politically significant persons;
• financial transactions for the transfer of funds abroad (including to the states referred by the Cabinet of Ministers of Ukraine to offshore zones);
• financial transactions with cash (deposit, transfer, receipt of funds) (paragraph 1 of Article 20, Chapter III of Law No. 361).

Financial transactions or attempts to conduct them, regardless of the amount for which they are conducted, are considered suspicious if the subject of primary financial monitoring has a suspicion or sufficient grounds to suspect that they are the result of criminal activity or related to financing of terrorism or proliferation of weapons of mass destruction (item 1 of Article 21, Chapter III of Law No. 361).

Labor and Salaries

The State Labor Service of Ukraine has clarified who should be left to work during the personnel reduction.

As you know, item 1 of Part 1 of Art. 40 of the Labor Code of Ukraine (hereinafter – the Labor Code) provides for the possibility of dismissal of an employee at the initiative of the owner or authorized body in connection with changes in the organization of production and labor, including reduction in the number of staff. According to Art. 42 of the Labor Code in the event of a reduction in the number or staff, the preemptive right to stay at work is granted to employees with higher qualifications and efficiency.

At the same time, under equal conditions of labor productivity and qualification, the advantage in keeping the job is given to the following employees:

• who have family with two or more dependents;
• persons whose families do not have other self-employed workers;
• employees with long continuous work experience at this enterprise, institution, organization;
• employees who study in higher and secondary special educational institutions without separation from production;
• participants in hostilities, war invalids and persons covered by the Law of Ukraine “On the status of war veterans, guarantees of their social protection”;
• authors of inventions, utility models, industrial designs and innovation proposals;
• employees who received an occupational injury or occupational disease at this enterprise, institution, organization;
• persons deported from Ukraine within five years from the time of return to permanent residence in Ukraine;
• employees from among former conscripts and persons who have served alternative (non-military) service - within two years from the date of their discharge from service.

Under the general rule of terminating an employment contract with an employee, the owner or authorized body is obliged to notify the employee personally no later than two months before dismissal, while offering the employee another job at the same company.

If the employee to be dismissed does not agree to the job offered, he/she carries out further employment independently or through the state employment service, where the employer is obliged to provide information on the subsequent dismissal of employees, indicating their professions, specialties, qualifications and salary .

The State Labor Service emphasizes that under Part 2 of Art. 40 of the Labor Code dismissal of employees in connection with changes in the organization of production and labor is allowed only if the employee can not be transferred with his/her consent to another job.

It is also not allowed to dismiss the employee at the initiative of the owner or authorized body during his/her temporary disability to work (except for dismissal in case of absence from work for more than four consecutive months due to temporary disability to work, excluding maternity leave, if the legislation does not establish a longer period of preservation of the place of work (position) during a certain illness), as well as during the period of the employee's leave. This rule does not apply in the case of complete liquidation of the enterprise, institution, organization (Part 3 of Article 40 of the Labor Code).

In some cases, the dismissal of the employee requires the prior consent of the elected body (trade union representative) of the primary trade union organization of which the employee is a member.

The Other Things

The Ministry of Infrastructure of Ukraine has presented a three-stage plan to resume the regular passenger services. The corresponding plan was published by the head of the department Vladyslav Krykliy in his telegram-channel.

At the first stage they plan to resume:

• urban road transport (except for minibuses) and suburban (within one district);
• intra-regional routes;
• 50% of suburban trains that will take people to/from work during rush hour;
• long-distance Intercity+ trains, night express;
• internal communication.

At the second stage they plan to resume:

• interregional and international road transport, in particular to allow shuttle busses to work;
• all suburban trains that will run in daylight;
• all passenger trains on schedule, except seasonal ones.

At the third stage the following transport will be resumed:

• international trains and, if necessary, seasonal passenger flights in Ukraine;
• international flights to countries that have opened their airports.