Ukrainian Business Environment
(TAXATION)
Lecturer
Anatolii N. Shysh
The Chair of Statistics and
Economic Analysis
Context
► The
World Bank Group
Ranking: Leaders,
V4:Countries and
Ukraine
► The
Ukrainian Taxation
System
► Taxation
in Agriculture
► Expecting
Tax Code
Changes: New
Assumptions about the business
The business:
►
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►
►
►
►
►
►
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Is a limited liability, taxable company, which started
operations on 01.01.2007.
Is 100% domestically owned and has 5 owners.
Has a start-up capital of 102 times income per capita at
the end of 2007.
Performs general industrial or commercial activities.
Does not qualify for any benefits based on the age or
size of the company.
Has 60 employees
Has a turnover of 1,050 times income per capita.
Has a gross margin (pretax) of 20%.
Distributes 50% of its profits as dividends to the
owners.
The World Bank Group Ranking:
Leaders, V4:Countries and Ukraine
Economy
Singapore
New Zealand
Hong Kong SAR, China
United States
United Kingdom
…
Slovak Republic
Hungary
Poland
Czech Republic
Ukraine
Ease of Doing
Business, Total
Rank
1
2
3
4
5
42
47
72
74
142
Country Key Indicators of The
World Bank Group Ranking
►
Starting a Business
►
Dealing with Construction Permits
►
Employing Workers
►
Registering Property
►
Getting Credit
►
Protecting Investors
►
Paying Taxes
►
Trading Across Borders
►
Enforcing Contracts
►
Closing a Business
WBG Ranking through
Key Indicators, 2010
Economy
Singapore
New Zealand
Hong Kong
SAR, China
United States
United
Kingdom
Dealing
Starting
with
Employing
a
Construction Workers
Business
Permits
RegisteTrading
Getting Protecting Paying
Enforcing Closing a
ring
Across
Credit Investors Taxes
Contracts Business
Property
Borders
4
1
2
5
1
15
16
3
4
4
2
1
5
9
1
26
13
10
2
17
18
1
6
75
4
3
3
2
3
13
8
25
1
12
4
5
61
18
8
15
16
16
35
23
2
10
16
16
23
9
…
Slovak
Republic
Hungary
Poland
Czech
Republic
Ukraine
66
56
81
11
15
109
119 113
61
39
39
117
87
163
77
76
61
88
30
15
119
41
122
151
70
42
14
75
58
85
113
76
25
62
43
93
121
53
82
116
134
181
83
141
30
109
181 139
43
145
The Ranking of Doing Business in
Ukraine (WBG version), 2008-2009 yy.
Ukraine
Region: Eastern Europe & Central Asia
Income category: Lower middle income
Population: 46,258,200
GNI per capita (US$): 3,213.33
Key Indicators
Doing Business
Starting a Business
Dealing with Construction Permits
Employing Workers
Registering Property
Getting Credit
Protecting Investors
Paying Taxes
Trading Across Borders
2010
2009
142
134
181
83
141
30
109
181
139
146
126
181
90
144
27
143
182
139
Changes,
+(-)
+4
-8
0
+7
+3
-3
+34
+1
0
Comparative Analysis of
Paying Taxes
DB10 rank: 181 DB09 rank: 182 Change in rank: +1
The data below shows the tax that a medium-size company must pay or withhold in 2009, as well as
measures of the administrative burden in paying taxes. These measures include the number of
payments an entrepreneur must make; the number of hours spent preparing, filing, and paying; and the
percentage of their profits they must pay in taxes.
Indicator
Payments (number per year)
Time (hours per year)
Profit tax (%)
Labor tax and contributions (%)
Other taxes (%)
Total tax rate (% profit)
Ukraine
Eastern
Europe &
Central Asia
OECD*
Average
147
736
12,3
43,1
1,9
57,2
46,3
336,3
10,9
23,1
9,4
43,4
12,8
194,1
16,8
24,4
3,3
44,5
* - Countries of Organization for Cooperation and Development
Ranking of the Ukraine in Paying Taxes –
Compared to Good Practice and Selected
Economies:
Number of Reforms in the World
Trend of Paying
Taxes in Ukraine,
2008-2010
Indicator
Rank
Payments (number per year)
Time (hours per year)
Total tax rate (% profit)
2008
2009
2010
147
2085
56,6
182
147
848
57,2
181
147
736
57,2
Paying Taxes in Ukraine
Tax or mandatory
contribution
Pension fund contributions
Payments
(number)
Time
Statutory tax rate
(hours)
Tax base
24
5
364
140
0,332
gross salaries
0,25
taxable income
-
0,022
Social Security contributions
24
24
Unemployment insurance
contributions
24
-
0,013
-
UAH 1175 per square
meter at 1%
Corporate income tax
Work accident insurance
fund contribution
Land tax
12
Municipal tax
Vehicle tax
Advertising tax
Environmental taxes
Advance corporate income
tax
Value added tax (VAT)
Totals:
12
-
4
-
0,015
UAH 1,70 per each
permanent employee
per month
UAH 15,00 per 100
cubic cm
gross salaries
land area
number of
employees
Engine capacity
0,25
0,2
value added
-
0,001
4
-
various rates
232
736
gross salaries
advertising
expenses
weight of
contaminants
discharged
gross amount of
dividends
1
1
12
147
gross salaries
Total tax
rate (%
profit)
Notes on
TTR
37,5
12,3
2,5
1,7
1,5
1,4
0,2
0,2
0,1
0
0
included in
other taxes
not included
57,2
Tax system and administration
Investor considerations:
 The Ukrainian tax system continues to develop.
 A recent World Bank study concluded that Ukraine was one of the
most difficult countries out of the 183 countries surveyed to pay
taxes in. This is due more to the administrative burden than the
underlying tax rate.
 Individual tax residents are taxed on worldwide income (at 15%).
Non-residents are taxed only on income from Ukrainian sources
(up to 30%).
 Prior to late 2009 it was relatively easy to become a Ukrainian tax
resident.
 Corporate profits are subject to 25% tax. Dividends are separately
taxed at the shareholder level in the hands of individuals and
foreign shareholders.
 There is a simplified tax system for small businesses and private
entrepreneurs. The VAT rate is 20% and is not fully consistent with
EU legislation. With the exception of agricultural enterprises, the
fiscal year is the calendar year. There is a 200% penalty for failing
to deduct and remit withholding tax.
Taxation System of Ukraine
State Taxes
Local Taxes
(30)
(14)
Main State Taxes:
√ Corporate Income (Profits) Tax
Main Local
Taxes:
√ Value-Added Tax
√ Advertising tax
√ Income tax for individuals
√ Charge for using
√ Payments to Pension Fund
√ Excise tax and import duties
√ Land tax
local symbols
√ Municipal Tax
Ukraine Tax Collections
100
90
UAH billions
80
70
60
50
40
30
20
10
0
2005
- Corporate
2006
- Personal
2007
2008
- VAT
2009
General tax rates for
enterprises in Ukraine*
Taxes and mandatory payments
VAT rate
Tax on profits of companies
Employers' social payments (percentage of payroll)
Including:
Pension Fund
Employment Fund
Social insurance Fund
Income tax for individuals (hired workers)
Employers' social payments (percentage of payroll)
Rates
20%
25%
37-38%
33,20%
1,30%
1,50%
15%
2-4%
* — For small enterprises and private entrepreneurs, there is a simplified
order of taxation, in particular, the payment of a single tax which is
calculated as a percentage of turnover
Taxation of Corporations
Investor considerations:
 The standard corporate tax rate is 25%.
 Qualifying small companies may opt to use a
simplified tax system (with very favourable
tax rules).
 Depreciation is based on the reducing
balance method; relatively generous rates are
available.
 Losses may be carried forward indefinitely.
 When companies pay dividends, they are
generally required to pay advance corporate
tax (ACT) at the 25% CPT rate. This is in
addition to potential withholding taxes of up
to 15%.
 Taxable income expenses are based on the
"first event rule".
Corporate Income (Profits) Tax
Since 2004 taxpayers have been permitted to
adopt any depreciation rate up to the following
maximum quarterly rate:
Description of fixed assets
Group 1: Buildings, constructions, premises
Group 2: Motor transport, spare parts,
furniture, household electronic, optical and
engineering devices and tools
Group 3: All other assets, except Group 1, 2
and 4 assets
Group 4: Computers, telephones, etc.
Depreciation
rate, % per
quarter
2%
10%
6%
15%
Taxation of individuals
Investor considerations:
 The tax year is the calendar year.
 Ukrainian tax residents are taxed on their
worldwide income. Non-residents are
subject to Ukrainian tax only on their
Ukrainian source income.
 The standard tax rate for tax residents is
15%. The standard rate is applicable to
most types of income, including salary
income, dividends, royalties and
investment income.
 Income received by non-residents as
interest, royalties, dividends and
(arguably) salary paid by a Ukrainian
employer is taxed at 15%. Other income
may be taxed at double this rate (i.e.,
30%).
Value Added Tax
Investor considerations:
 The standard rate of VAT is 20%. The export
of goods and a very limited range of
services are zero-rated.
 Refunds are available according to the law,
but obtaining refunds is very difficult, and is
a major issue for many investors. In
addition, VAT-registered persons may not
claim a refund during their first twelve
months following registration.
 Buyers must ensure that invoices they
obtain comply fully with VAT rules. The tax
authorities look at invoices closely, and
disallow input tax credits, even if the
defects in the invoice are relatively minor.
 VAT returns and payments must generally
be made monthly.
Taxation in
Agriculture
Taxation of Agricultural Enterprises
Flat
Agricultural
Tax
Usual
Business
Entity
(Fixed)
VAT
exemption
Flat Agricultural Tax replaces
• Corporate Income
(Profits) Tax
• Land Tax
• Municipal Tax
• Charge for Prospecting
Works
• Charge for Commercial
License
• Charge for Special Water
Using
Flat Agricultural Tax
May Use Enterprises
if more than 75%
of their income is
derived from
agricultural
activities.
The Main Principles of FAT
 The basis of FAT is the
normative value of
agricultural land
 FAT is paid monthly but the
amount of payment varies
each quarter:
1 – 10%
2 – 10%
3 – 50%
4 – 30%
Tax rates of FAT are based on the
cost of types of agricultural land
Type of Agricultural Land
√ arable(tillable) land, hayfields
and pastures
√ perennial plantings
√ water funds in inland waters
Rate per year
(% of the cost
of land)
0,15%
0,09%
0,45%
Tax Code
as a part of the Program
of Ukrainian Economic
Reforms in 2010-2014
Tax Code of Ukraine
Direction of changes
More than 20 Laws and
more than 50
legislative enactments,
sometimes not agreed
between themselves
TAX CODE
the only harmonized
law based on EU
legislation
Well-ordered regulation
base, stability of tax
legislation
Stimulation of Business
Activity and Economic
Development:
- decreasing a number
of taxes:
- contraction tax rates
of Income Tax and VAT
- simplification of
administrative
procedure and
decreasing business
environment burden
Opposition to
shadow
economics and
enlargement of
the taxation base
due to improving
tax administration
Stimulation of
innovative and
investment activity
Corporate Income (Profits) Tax
Main Innovations
► Scale
down tax rate to 16% (2011 – 19%;
2012 – 19%; 2013 – 18%; 2014 – 18%;
2015 – 17%; 2016 – 16%)
► Determination
of taxation base by the same
method as in bookkeeping
► Possibility
to use 5 methods of depreciation
including accelerated amortization method
►
Providing special investment benefits for
new-organized entity
Value-Added Tax (VAT)
Main Innovations
► Scale
down tax rate to 17% (2011 –
20%; 2012 – 19%; 2013 – 18%; 2014
– 17%)
► Have
been added to the category of
VAT payers legal entities which use
simplified taxation system
Land Tax
Main Innovations
► Impose
enhanced index to the land tax
rates when agricultural enterprise do
not produce food products more than
three years
Special Tax Regimes
Special taxation regime of legal entities which actualize investment
projects based on energy saving, ecology safe and high technologies
Main Innovations
Include legal entities which actualize investment projects
more than 3 millions US dollars, and small entities - more than
500 thousands US dollars;
The Tax Code provides:
Nontaxable investment project profit during 3 years
Exemption from import duty for equipment and its
components
Possibility to pay VAT for import equipment and its
components in 360 days
Useful Links
►www.agribusiness.kiev.ua
Ukrainian Agribusiness Club
►http://www.doingbusiness.org
World Bank Group "Doing
Business"
►www.pwc.com
PricewaterhouseCoopers
►www.kpmg.com
KPMG International Cooperative
Ukrainian
Business
Environment
(TAXATION)
Thanks for your
attention!