As of Jan. 1, 2011, the new Tax Code came into force and substantially changed Ukraine’s tax system. According to this law, all taxes or levies are either as national or local. As a basic legal principle, taxes or levies, their rates, tax collection procedures and tax incentives may be established only by law.
National taxes such as Corporate Income Tax (CIT), Value-Added Tax (VAT), Personal Income Tax (PIT), Customs Duties, and Excise Taxes form the largest share of Budget revenues. Local authorities also collect revenues through a number of local taxes, such as Real Estate Tax, Levies for conducting certain types of business, Parking Tax, Recreation Tax, and other taxes. The new Code has changed the number and range of state and local taxes and levies, introducing 23 new taxes and levies, including 19 national and 5 local ones.
Ukraine’s tax system includes these main taxes and mandatory payments:
- Corporate Income Tax (CIT);
- Value-Added Tax (VAT);
- Personal Income Tax (PIT);
- Pension and Social Security Contributions;
- Excise Duty;
- Customs Duty;
- State Duty;
- Land Tax;
- Vehicle Owners’ Tax;
- Payments for Licenses/Patents.
Corporate Income Tax
Legal entities incorporated and operating under Ukrainian law are normally treated as tax residents and are taxable on their worldwide income. Legal entities incorporated abroad and operating under the laws of another country are normally treated as foreign tax residents or non-residents and are taxable on two sources of income:
• Business income from carrying out trade or commercial activities in Ukraine, and
• Non-business income received from Ukrainian sources.
The tax on companies is known as corporate income tax. Currently, this tax is calculated at a flat rate of 23%. The CIT will be gradually reduced: to 21% from Jan. 1, 2012 through Dec. 31, 2012; to 19% from Jan. 1, 2013 though Dec. 31, 2013; a flat 16% as of Jan. 1, 2014.
For a 10-year period starting Jan. 1, 2011, the Code provides an exemption from CIT to income from: hotel services in all categories from three- to five-star hotels; light industry enterprises, except those working on a tolling basis; sales of electricity produced from renewable energy sources; shipbuilding and aircraft construction; the manufacture of farm machinery.
For the period of Apr. 1, 2011 through Jan. 1, 2016, the applicable rate of corporate income tax shall be 0% for companies that meet one of these three criteria:
a) they were established after Jan. 1, 2011;
b) they are active companies that, during the previous of three consecutive years (or during all previous periods, if they have been established less than three years ago), declared annual income in an amount not exceeding UAH three million and the average number of employees during this period was not over 20;
c) they are companies registered as single tax payers in accordance with the legislation for the period prior to the coming into force of the Code and whose volume of revenues from sales of products, goods or services for the previous calendar year was under UAH 1 million and the average number of employees under 50.
This rule has a number of exceptions, however. A company cannot enjoy a zero rate CIT if it carries on business activities in: entertainment (lotteries, billiards, bowling, board games, children's video games, and so on); manufacturing, wholesale, import or export of excisable goods; manufacturing, wholesale and retail sale of oils and lubricants; mining, production and manufacturing of precious metals and stones; financial services; currency exchange services; and a number of other activities (around 20). Separate tax rules apply to agricultural enterprises, operations with securities, and insurance companies.
In accordance with the Ukrainian legislation, Value-Added Tax or VAT is imposed on:
(a) Domestic sales of goods and/or services,
(b) Imported goods or services for use or consumption in Ukraine,
(c) Exported goods or services for use or consumption outside Ukraine.
VAT is levied at a rate of 20% of the taxable amount for domestic sales and imported goods or services until Dec. 31, 2013. As of Jan. 1, 2014, the VAT will be reduced to 17%. For exported goods or services, the VAT rate is zero. The general rule is that the taxable amount is defined on the basis of the contractual value of the goods or services supplied.
Personal Income Tax
Individuals who are tax residents of Ukraine are subject to personal income tax on their worldwide income. Non-resident individuals are taxed only on income from Ukrainian sources. The Tax Code also introduced a number of significant amendments to the way individual taxpayers are taxed.
The law sets a differential tax rate based on the size of income, at 15% and 17%.
This tax rate does not depend on the tax status of the individual. The profit of non-residents is taxable at tax rates established for residents of Ukraine.