BUSINESS TAXATION IN UKRAINE

The Tax Code of Ukraine defines all taxes, duties, incentives, rates, processes, and arrangements for assessing the volume of taxes and payments. It also makes provision for two tax regimes – a general tax regime and a simplified taxation system. 

All companies and entrepreneurs registered in a tax office are subject to the general taxation system by tacit agreement. However, from the very beginning entities can request a transition to the simplified taxation system. At the same time, there are different requirements for the transition and some companies cannot do that. The list of companies that are not allowed to be subject to the simplified tax system includes:

• The companies that relate to gambling, lotteries, commodity sales, and non-resident enterprises;
• In case the annual income of a company exceeds 7 million UAH (approx. 180.000 USD);
• The taxpayers who have fiscal tax liabilities;
• Legal entities and non-resident enterprises.

General Tax Regime

Under the Tax Code of Ukraine, the general taxation system includes the following types of taxes.

CIT (Corporate Income Tax)

The corporate profit tax is paid from net income (profit minus charges) generated in Ukraine and in a country abroad. The net income is determined by increased or decreased bottom-line results before any taxation. The financial result is stated in the company’s financial records by UAS (Ukrainian Accounting Standards) or IFRS (International Financial Reporting Standards). Resident commercial entities, foreign legal entities that draw income from the sources in Ukraine, and permanent establishments of foreign enterprises come under an 18% corporate income tax rate. The overall volume of CIT is calculated by reference to the bottom-line results of a company by UAS or IFRS.

PIT (Personal Income Tax)

The rate of personal income tax is 18% (tax accrued on profit). Nevertheless, there is a possibility to request a lower or zero PIT rate per relevant international double taxation agreements. Personal income tax is subject to payment by any individual, including both – resident and non-resident, upon receipt of taxable revenue. In addition, PIT is payable on profit obtained from investment dealings. The notion of “investment dealing” includes corporate rights, stocks issued by JSCs, and equity derivatives.

VAT (Value Added Tax)

The sale of commodities and provision of services within the customs (fiscal) duty area of Ukraine, merchandise imports into the fiscal territory of Ukraine, and merchandise exports out of the fiscal territory of Ukraine are subject to value-added tax. The VAT rate amounts to 20% of the agreed price of the corresponding goods or services. Non-resident enterprises are taxable through their permanent establishments, which are registered for VAT.

Withholding Tax

The withholding tax rate in Ukraine amounts to 15%. This type of tax is withheld by a resident enterprise or by the permanent establishment of a foreign organization from the amount of any profit gained in Ukraine unless otherwise agreed by an applicative bilateral double tax agreement. There are more than seventy bilateral double tax agreements where Ukraine is stated as one of the parties. There is a special tax rate of 18% that refers to the profit obtained by non-resident enterprises from discounted or noninterest treasury obligations and bonds.

Eco-tax (Environmental Tax)

The ecological tax depends upon the contaminant. The amount of green tax corresponds to the type of the pollution:

• Contaminants are exhausted into the air by steady sources;
• Contaminants discharged directly into water bodies;
• Sited pollution agents, except for the types of waste, which are defined as recyclable materials housed within the territory of commercial entities;
• Radioactive waste materials;
• Electric energy generated by nuclear power stations.

Simplified Tax System

Under the Tax Code of Ukraine, the simplified taxation system is divided into four groups. Keep in mind that all business entities that come under the simplified tax system are supposed to pay a single social security tax for 1562 UAH (approx. 40 USD) per month.

First Group

The first group includes sole proprietors who do not employ salaried employees. They perform retail sales of goods in markets or provide consumer services to people. The amount of profit does not exceed 300 thousand UAH (approx. 7.800 USD) per calendar year.

Sole proprietors are subject to a single tax in the amount of up to 10% of subsistence income for able-bodied persons.

Second Group (contains restrictions by type of activity)

The second group includes sole proprietors who undertake economic activity on delivering services, including consumer services, to people. In addition, these sole proprietors produce and/or sell commodities and perform catering business provided they meet the following requirements:

• They do not employ salaried employees or the number of persons who are in an employment relationship with them does not exceed 10 persons;
• The amount of income does not exceed 1.500.000 UAH (approx. 39.000 USD).

All sole proprietors in this group are subject to a single tax in the amount of 20% of the minimum wage.

Third Group

The number of individuals and legal entities being in an employment relationship with such sole proprietors is not limited. The overall amount of income of the pre-cited legal entities must not exceed 5.000.000 UAH (approx. 130.000 USD) per calendar year.

All sole proprietors in the third group are subject to a single tax in the amount of 3% provided that VAT is paid separately. Another option suggests a single tax in the amount of 5% provided VAT is included in the single tax.

Fourth Group

The fourth group includes agricultural goods producers. The rate of tax assessment depends on the types of lands, their location, appraised monetary value, and indexation coefficient.

Minimum Amount of Taxes per Year to Keep Ukrainian Company Alive

All individuals and legal entities that come under the general tax regime are subject to all payments when it comes to the taxes mentioned above despite any circumstances. No minimum options for tax payments are stipulated in this case.

As for the simplified tax system, all sole entrepreneurs who belong to the third group of taxation can avoid paying a single tax provided their income is zero. However, they are still liable to pay a single social security tax.