Corporate income tax
Tax rates
Since 2014 the basic CIT rate is 18%. Agricultural and small businesses may qualify for a simplified tax regime at a low tax rate (3% or 5% of the sales). Special tax treatment also applies to insurance companies and lotteries.
In Ukraine, CIT administration is centralized and no additional corporate income taxes are imposed at regional or local levels. For each reporting period, CIT is calculated on a self-assessed basis.
CIT returns must be filed on a quarterly basis and in some cases – on calendar year basis (for new legal entities, and for entities with annual income less than UAH 40 million that is appr. USD 1.1 million).
It is allowed to credit the foreign income tax (up to the amount of the Ukrainian income tax on the same income).
Taxable base
CIT is levied on tax residents of the Ukraine on their gross worldwide income and it is levied on nonresidents on their Ukraine- sourced income. A non-resident entity with place of effective management in Ukraine qualifies as a tax resident taxed on Ukraine-sourced income only.
The taxable base for CIT is calculated as Ukraine and foreign-sourced income, which is determined by adjusting (increasing or decreasing) the financial result before tax (profit or loss), as defined in the financial statements in accordance with IFRS or the national accounting regulations (standards) (an election available for most businesses except banks, insurance companies etc.), for tax differences according to the Tax Code. Income includes any income from the sale of goods/works/services, capital gains, foreign exchange gains, free-of-charge transfers, and other taxable receipts in cash, in kind, or in the form of intangibles accrued within the reporting period.
Taxpayers with annual income below UAH 40 million (that is appr. USD 1.1 million) may opt to not apply the tax differences.
Ukraine uses an accrual method for tax accounting. Income is realized in the tax period when the transfer of ownership title to goods/services/works occurs, while deductible expenses (forming the cost of production of sales) are recognized on the date when the relevant goods/services/works were supplied.
Dividends received from residents of Ukraine and non-residents under the recipient’s control shall not be included into taxable incomes.
Tax Loss Use
Tax losses can generally be carried forward indefinitely, except for so-called big taxpayers – that are allowed to use in a tax year only 50% of unused tax loss (the remaining 50% can be forward to the next year). It is not allowed to carry back a tax loss.
A taxpayer qualifies as a big one if at least 2 conditions are met (assets value above EUR 20 million, sales proceeds above EUR 40 mln, average staff count – above 250).
Allowable Deductions
Most business-related expenses are deductible for CIT purposes. However, the deductibility of certain expenses is specifically limited (for example, interest payable to related non-residents; royalties paid to non-residents).
Transfer Pricing
The Ukrainian transfer pricing rules correspond to OECD transfer pricing guidelines. The amount of taxable profit received by a taxpayer from one or more controlled operations is considered to be at “arm’s length” if the determination of cost or income is calculated in a manner that is no different from the way it is determined for comparable transactions between unrelated parties.
The List of Controlled Operations
For purposes of transfer pricing, controlled operations are defined as the following types of transactions, so long as the total income of the taxpayer and/or its related persons exceeds 150 million UAH per year and the volume of business transactions of the taxpayer with one counterparty exceeds 10 million UAH for the corresponding year:
- Business transactions conducted between a taxpayer and related parties that are non-residents (including through a non-related intermediary(ies) that does not perform any significant activities);
- Business transactions amounting to the sale or purchase of goods through a non-resident agent;
- Business transactions between a non-resident and its PE in Ukraine;
- Business transactions where one of the parties is a non-resident of legal forms (specific for each country) that do not pay tax on their foreign incomes and/or do not qualify as a tax resident in a country of their incorporation. The list of such forms in the respective countries is published by the Cabinet of Ministers of Ukraine;
- Business transactions where one of the parties is a non-resident registered in a country that is included in the list of countries published by the Cabinet of Ministers of Ukraine (including the countries with the CIT rate is at least 5% lower than in Ukraine).
Also 30% adjustment applies to income from sales to a resident of low-tax jurisdiction or of a special legal form, or expenses on purchases from them unless a transfer pricing documentation proves an arm’s length price.
Annual Reporting and Penalties
For transfer pricing purposes, the reporting period is the calendar year. Taxpayers having transactions with controlled operations during the reporting period with one counterparty in amount exceeding UAH 10 million should submit a report on controlled operations and a notification on participating in a multinational group to the tax office before 1 October of the following year (in a prescribed format) and the transfer pricing documentation on them – within 30 days after the tax office’s request.
Withholding Tax
Any income received by (and paid to) a non-resident company is subject to a withholding tax (WHT) in Ukraine at a rate of 15% unless an applicable double tax treaty provides otherwise and the income’s beneficial owner is confirmed (also anti-avoidance rules apply to prevent treaty shopping). Such income includes dividends, interest, royalties, capital gains, lease payments, brokerage and agency commission, and so on. Income from a non-resident’s sale of a Ukrainian real estate company is also subject 15% WHT.
Income received as consideration for goods/services/works provided to a resident is mostly WHT exempt. Different WHT rates apply to certain types of income paid to non-resident’s (for example, freight, insurance premiums paid abroad, and advertising fees). Withholding tax rate may be reduced under an international taxation convention.
Ukraine started to apply MLI in December 2019.
Taxation of non-residents acting via permanent establishment
Foreign entities that conduct commercial or non-commercial activities in Ukraine are required to follow the tax registration procedure and file the CIT returns for commercial activities via their permanent establishment (PE) in Ukraine.
PE is a fixed place of business through which economic activities of non-residents in Ukraine are carried out wholly or partially, in particular: a place of management; branch; office; factory; workshop; installation or structure for the exploration of natural resources; mine, oil/gas well, a quarry or any other place of extraction of natural resources; warehouse or premises used for the delivery of goods, computer servers.
PEs are subject to normal corporate income tax. However, an exemption may be available if the activities of the non-resident do not lead to creation of a PE under the Tax Code or the relevant tax treaty. With regard to corporate income tax, taxable profits of a PE can be determined based on direct method where profits are determined as gross income (received offshore or onshore) less allowable expenses incurred by the PE.
Thin capitalisation
For a debtor whose debt obligations from transactions with non-resident related parties exceed the amount of equity by more than 3.5 times (or by more than 10 times for financial institutions and companies involved exclusively in leasing activities), the debtor’s financial result before tax is additionally increased by the excess amount of interest on loans, borrowings, and other debt obligations over 30% of the financial result before tax, interest and depreciation (EBITDA).
Interest that exceeds this limit is added back (i.e., increases the financial results before tax). Annually the taxpayer may carry forward 95% of the remaining excessive interest (non-deducted during a year) until it is fully utilized.
Controlled Foreign Companies (CFC)
CFC’s profits are taxed at 18% for legal entities and 5% or 9% for an individual. The first CFC reports shall be filed by a controlling shareholder in 2023 for 2022.
Value added tax
Tax rates
In general terms, Ukraine uses input/output VAT system similar to the EU. VAT applies at the following rates:
- 20% is levied on the supply of goods and services in the customs territory of Ukraine and on the importation of goods and services to Ukraine.
- 7% - for medical drugs and products.
- 14% - import and local sales of some agricultural products.
Supplies of certain goods and services (for example, charitable aid, financial services, and so on) and export of software development, consulting and some other services, are exempt from, or not subject to, VAT. (That is, they are exempt without a right to a VAT credit).
Export supplies of goods are zero-rated. (That is, they are exempt with a right to a VAT credit).
Since 2022 e-supplies of services to individuals in Ukraine are subject to 20% VAT and the foreign providers must VAT register in Ukraine (if their sales in Ukraine exceed UAH 1 million for any preceding 12 month period), add 20% VAT to the price and file the monthly VAT returns.
Registration for VAT purposes
Registration as a VAT payer is compulsory for all Ukrainian companies, individuals, and permanent establishments of non-resident companies that qualify as VAT payers (in other words, those whose volume of transactions subject to VAT exceeds UAH 1 million (approximately USD 27 thousand) for any preceding 12 months of operation. Taxpayers whose volumes of transactions do not reach the mandatory threshold can voluntarily register as VAT payers.
VAT mechanism
The amount of VAT that a registered VAT payer incurs on local purchases of goods and services (so-called input VAT) can be credited against the taxpayer’s VAT liabilities (so-called output VAT) in computing the final VAT payable to (or refundable from) the government. The input VAT amount in excess of the taxpayer’s VAT liabilities may be used to offset VAT liabilities of subsequent tax periods, or it can be refunded in cash.
VAT on import of goods (payable to the customs) and services is collected through a reverse charge mechanism (sometimes referred to as “import VAT”). This mechanism requires self-assessment and payment of the 20% VAT by a Ukrainian importer for the tax period (which is a month under the VAT system) when goods/services are imported to Ukraine. The paid VAT can usually be claimed by the Ukrainian importer as a VAT credit in the same tax period. If the goods or services imported are used in transactions that are not subject to VAT, or for transactions outside the business activity of the Ukrainian importer, the import VAT cannot be recovered, and it becomes a cost to the Ukrainian importer.
The reverse charge mechanism does not apply if a non-resident service provider has a PE registered as a VAT payer in Ukraine. In such a case, the VAT registered PE is in charge of assessing VAT liabilities, offsetting them against the input VAT, and paying the difference to the government.
System of electronic VAT administration
VAT payers are automatically assigned with accounts in the system of electronic VAT administration. The system of electronic VAT administration ensures automated VAT accounting in respect of each taxpayer. Upon sale VAT payers must register all VAT invoices in the system that is a pre-condition for recognition of VAT credit by a customer/buyer.
VAT reporting
For VAT purposes, the reporting period is a calendar month (though in rare cases of low volume activities it can be a quarterly reporting period). VAT payers are required to file VAT returns within 20 days after the end of the reporting month. VAT payable, if any, should be remitted to the government within 30 days after the end of the reporting month.
Unified tax
Legal entities and individual entrepreneurs may choose to pay taxes pursuant to so-called “simplified taxation system”, if they meet certain thresholds. In such cases, they can be registered as unified taxpayers (UT). Unified taxpayers are exempt from some taxes. For example, depending on the UT taxpayer group, UT is a substitute for corporate income tax, personal income tax regarding the business activity of an individual, VAT (unless the taxpayer chooses to pay Unified Tax at a reduced rate plus VAT), land tax (on land used for business purposes), and so on.
If a taxpayer engages in certain, specifically excluded types of business activities or is owned by a nonresident, they cannot qualify as unified taxpayers. The types of activities listed include, for example, currency exchange, export, import of excisable goods, gambling, financial services, and so on. Nonresident individuals of Ukraine are also not allowed to be registered as unified taxpayers. UT taxpayers are also subject to simplified tax reporting requirements.
