Value-added tax (VAT)
There are three VAT rates: 20%, 7%, and 0%.
The rate of 20% applies to all transactions subject to VAT except specific transactions subject to 7% and 0% VAT.
The reduced rate of 7% applies to supply and import of qualifying medicines and specific medical goods, as well as medicines, medical goods, and medical equipment for use in clinical trials. Starting from 1.01.2021 it will also apply to cultural/artistic events, providing
excursions in museums, zoos and reserves, visiting their territories and objects, distribution of films, adapted in Ukrainian version for people with vision or hearing disorder, temporary accomodation services.
The 0% VAT rate applies to export and re-export of goods. The 0% rate also applies to the supply of international transport services (confirmed by a single international shipping document), toll manufacturing services (if the finished goods are then re-exported from Ukraine), and certain other services.
Recently the Parliament of Ukraine adopted the draft Law reducing the VAT rate (from 20% to 14%) for the import and supply in Ukraine of agricultural products (products of animal origin such as live cattle and pigs, sheep, whole milk; products of plant origin such as corn, soybeans, sunflower seeds and certain other goods). The bill has yet to be signed by the Chairman of the Parliament and the President of Ukraine. The amendments shall enter into force on the day following the day of publication of the Law and shall apply to tax periods starting from the first day of the month following the month of publication of the Law.
Provision of services to a non-resident is not considered to be zero-rated. Such services are subject to 20% VAT or considered to be outside the scope of VAT (effectively exempt with no input VAT recovery), depending on the place of supply as determined by the legislation.
Transactions that are subject to VAT include the following:
- The supply of goods and services when the place of supply is in Ukraine, including when the supply is made free of charge without consideration.
- Transfer of the object of a financial lease to the lessee when the place of supply is in Ukraine.
- The importation of goods into Ukraine.
- Exportation of goods (0% VAT).
- International transportation services (0% VAT).
Transactions that are not subject to VAT include the following (among others):
- The issue, sale, and exchange of securities.
- Assignment of claims, transfer of debt.
- The transfer of property from a lessor to a lessee under an operating lease and the return of property upon expiration of the operating lease (other than in the course of import operations).
- Transfer of property right of finance leasing object from one lessor to another.
- Interest/commission element of lease payments under financial lease agreements.
- Provision of financial loans and bank guarantees.
- Insurance and reinsurance services supplied by licensed insurers and services of insurance/reinsurance agents and brokers.
- Payment of royalties and dividends in cash.
- Reorganisation of a legal entity (merge, spin-off, accession, division, and change of legal form).
Transactions that are VAT exempt include the following (among others):
- Transit of cargo and passengers through Ukrainian territory and services related to such transit.
- Supply and import of goods and services within international technical assistance projects or the import of humanitarian aid.
Tax registration as a VAT payer is compulsory if the volume of an entity's taxable transactions exceeds the compulsory registration threshold. The current registration threshold is UAH 1 million for the past 12 consecutive months. An entity qualifying as a taxable entity should register with the tax authorities at the place of its location and obtain a VAT registration number.
Voluntary VAT registration is available prior to achievement of the mentioned threshold. The application for VAT registration may be submitted simultaneously with the application for the state registration of the legal entity.
There is no mechanism for a non-resident to register for VAT purposes without a PE in Ukraine. Accordingly, any Ukrainian VAT incurred by a non-resident is non-recoverable.
Electronic VAT administration
A special electronic administration system, which includes VAT accounts for all VAT payers in the State Treasury, is used for settlement of VAT to the budget. Both VAT output and VAT input should be reflected in this system. For these purposes, VAT accounting documents (VAT invoices) are issued electronically and subject to mandatory registration by the taxpayer.
The aim of this system is to make VAT input of the customers (i.e. VAT payers) guaranteed by payment of VAT liabilities by the suppliers. VAT input on domestic purchases can be recognised by the taxpayer only if the supplier issued a duly registered VAT invoice. In order to register a VAT invoice, the supplier should have sufficient balance in the electronic VAT administration system (e.g. sufficient amount of input VAT). Otherwise, it may be required to transfer cash to the VAT account (i.e. to prepay its VAT liabilities).
Registration of a VAT invoice can be suspended by the tax authorities under the procedure prescribed by the Cabinet of Ministers of Ukraine.
VAT recovery and refunds
Generally, VAT incurred by a registered entity on the purchase and/or importation of goods and services used for the purpose of its own business (except for VAT incurred in relation to exempt supply) may be recovered by way of a credit against output VAT. If the VAT credit exceeds VAT output, a VAT refund is available in the form of a cash payment.
VAT refunds should be performed in a chronological order based on sequence of claims reflected in a registry maintained by the tax authorities and published on their official website. Such registry contains claims submitted starting from 1 February 2016.
Older claims (i.e. submitted before 1 February 2016) should be included into a separate Temporary Registry of VAT refund claims.
A VAT refund should be provided within 36 calendar days following the deadline for submission of the VAT return unless a field tax audit has been assigned. In this case, the term for provision of VAT refund is extended for at least 30 days.
VAT returns must be filed by the taxpayer on a monthly basis in electronic form. Monthly tax returns are due within 20 calendar days following the end of the reporting month. The amount of tax payable is assessed on the basis of tax returns and is due within ten calendar days following the deadline for filing the relevant tax returns.
VAT liabilities are paid to the budget through a special VAT account based on the registers submitted to the State Treasury by the tax authorities.
Customs duty is usually payable by the importer upon import of the goods into Ukraine. Customs duty rates are established by the Customs Tariff of Ukraine. From June 2020 a new edition of the Customs Tariff of Ukraine is in force, which is based on the Harmonised Commodity Description and Coding System 2017 and the Combined Nomenclature of the European Union (EU).
Currently, there are three duty rates: preferential, relieved, and full rates. Preferential rates apply to goods originating from the countries with which Ukraine has concluded free trade agreements (FTAs). Relieved rates of duty apply to goods originating from the World Trade Organisation (WTO) countries and countries that have granted Ukraine ‘most favoured nation’ trade status. Full rates of duty apply to the goods originating from all other countries or where the country of origin cannot be determined (is unknown).
Also, Ukraine has export duties on natural gas, scrap metal, livestock, rawhide, and certain oil seeds.
Ukraine concluded FTAs with the countries/members of the European Union, Commonwealth of Independent States (CIS) excluding Russia, European Free Trade Association (EFTA) countries, and such countries as Canada, Georgia, Israel (ratification by Israeli Knesset is expected soon), Macedonia, and Montenegro. These agreements allow many goods to be imported into Ukraine duty-free (or with preferential rates of duty), subject to compliance with preferential rules of origin. In addition, FTAs with Turkey and Serbia are negotiated.
Due to political issues, Russia and Ukraine have currently suspended the FTA between each other and introduced an embargo on import of selected goods (mostly on agricultural products, foods, cigarettes, chemical substances, glassware, and some types of vehicles). In addition, from 1 January 2020, embargo on import of automobiles from Russia was introduced.
From August 2020 Ukrainian companies may obtain status of Authorized Economic Operator (AEO). The AEO programme was developed in Ukraine in accordance with EU legislation. It is expected that obtaining AEO would simplify the customs clearance process, speed up the logistics and increase security of international supplies.
Excise tax applies to certain goods imported to or produced in Ukraine. Excisable goods include ethyl alcohol, alcoholic beverages, beer, tobacco and tobacco products, cars, car bodies, motorbikes, liquefied gas, petrol, diesel fuel, other fuel material, and electric power.
The excise tax rate for all types of tobacco, cigarettes, raw tobacco, and tobacco waste, as well as the minimum excise tax on cigarettes, will increase by 20% per annum by 2025.
Ukraine has special electronic administration systems for excise tax on fuel and alcohol. These systems are aimed to control incoming and outgoing flows of fuel and alcohol in the market. The systems require entities to issue and register within the systems excise accounting documents (excise invoices) electronically on each operation of fuel and alcohol sale, their usage for the company’s needs, including for manufacturing purposes.
Tax on real estate other than land plots (real estate tax)
Owners of residential and non-residential property in Ukraine (both individuals and legal entities, including non-residents) are subject to local real estate tax (RET). The tax base is determined based on the size of the living space of a real estate asset.
Some types of property are exempt from RET, for example:
- Industrial buildings (i.e. production buildings, workshops, storehouses of industrial entities).
- Buildings and facilities of agricultural producers (both legal entities and individuals), which are classified as 'agricultural buildings, buildings of forestry, and fishing enterprises' by the State Classifier of Buildings and Facilities and which are not leased by the owner.
- Non-residential premises that are used by small and medium-sized businesses, conducting their activities at ‘small architectural structures’ (e.g. kiosks, stalls, pavilions) and markets.
- Property owned by government agencies and the non-profit organisations established by them, etc.
The RET rates are set by the local government but cannot exceed 1.5% of the minimal salary as of 1 January of the reporting year per square metre (for 2021, the maximum is around UAH 90 per square metre).
As a part of tax measures related to COVID-19, taxpayers are able to not pay tax on real estate for March 2020.
Land tax is a local tax and assessed annually for the following year, paid monthly in equal instalments by the owners or users of the land. The rate of land tax depends on the category, location, and the existence of a state valuation for each particular land plot.
As a part of tax measures related to COVID-19, taxpayers are able to not pay land tax for March 2020.
A local transport tax is charged on owners of passenger cars with an average market value exceeding 375 minimal salaries as of 1 January of the reporting year (i.e. UAH 2,500,000 for 2021) and less than five years old.
The Ministry of Economic Development and Trade of Ukraine is required to publish (on an annual basis, before 1 February of the reporting year) on its web-site a list of vehicles that are subject to the transportation tax (including brand, model, year of production, engine displacement, fuel type).
A tax of UAH 25,000 for each car per year should be paid by the car owner.
Stamp duty is imposed on certain actions, including the notarisation of contracts. In most cases, the amounts involved are nominal.
Operations carried out at commodity exchanges and real estate sales incur a stamp duty of 1%.
Employers and other business entities that pay income to individuals are defined as tax agents and are responsible for withholding personal income tax (PIT), military tax, and mandatory unified social contribution (USC) (see below) and remitting them to the state.
Unified social contributions (USCs)
Employers (including representative offices of foreign companies in Ukraine) are required to pay USC in respect of their employees. USC applies to all salaries paid through the payroll of a Ukrainian entity or a Ukrainian representative office of a foreign entity, as well as remuneration paid to individuals under civil agreements.
The general USC rate (payable by the employer) is 22% (except for special decreased rates for contributions regarding disabled people, etc.), which applies to gross remuneration. The USC accrued by the employer is deductible for CIT purposes.
The taxable base for contributions is capped. The cap is set at 15 times the minimal salary; starting from 1 January 2021, the cap is UAH 90,000 per month.
Employees are relieved from paying USC.
Special Pension Fund charges
The following special charges are payable to the State Pension Fund:
- 3%, 4%, or 5% charge on the value of a new car, which is first subject to registration with the government agency (state traffic inspectorate), depending on the value criteria prescribed by the legislation and the amount of the statutory subsistence minimum for able-bodied individuals (for the year 2021, the following value criteria range applies: up to UAH 374,550 - 3%; above UAH 374,550, but not more than UAH 658,300 - 4%; above UAH 658,300 - 5%).
- 1% charge on the acquisition of real estate payable by individuals and legal entities that purchase real estate.
- 5% charge on mobile communication services.
- 10% charge based on the value of precious metal contained in jewellery during its marking on the public enterprises of assay control.
Charges on environmental pollution
Environmental pollution charges (ecological taxes) are imposed on any legal entity that discharges contaminants into the environment (air or water) or disposes of waste. The actual rate depends on the type and toxicity of each contaminant.
Charges on environmental pollution are deductible for CIT purposes.
Charge for subsoil usage (rent)
Companies engaged in extracting mineral resources in Ukraine, regardless of the form of their ownership, are liable for a charge for use of subsoil.
Rent payment for subsoil use is calculated as follows:
= Value of extracted mineral resource * Cost of respective unit of extracted mineral resource * Tax rate (%) * Adjustment coefficient
The value of extracted mineral resources is determined as the greater of the following two calculation methods:
- The actual taxpayer’s selling prices.
- The taxpayer’s costs increased by the established profitability coefficient.
Specific rules apply in determining the selling prices for extraction of oil, condensate, natural gas, and iron ore.
Adjustment coefficients may apply to the rent payment for subsoil use rates depending on the type of minerals and conditions of extraction. For example, coefficient 0.25 will be applied to the tax rate for iron ore extracted by underground mining methods with a depth of over 300 metres for the enrichment of magnetite iron content of less than 35%.
Starting from 1 January 2019, the rent payment rates for condensate extraction were reduced from 45% and 21% to 31% and 16%, depending on the depth of deposits. At the same time, the rent payment rates for oil extraction were increased from 29% and 14% to 31% and 16%, depending on the depth of deposits.
Temporary rent rates for the use of land and its deposits for mining purposes specifically for extraction of gas from new gas wells (12% and 6%, depending on the depth of deposits) were introduced until 1 January 2023. The Tax Code stipulates that these rates will remain unchanged until 1 January 2023.
The following temporary rent rates were introduced for the extraction of amber (instead of the standard 10% rate):
- 5% until 31 December 2020.
- 8% starting from 1 January 2021 and until 31 December 2021.
Starting from 23 May 2020, the following changes were introduced in respect of the rent:
- Within controlled transactions, the tax base for rent is determined based on the actual selling price of the mineral, which cannot be less than the price determined in accordance with the arm’s-length principle.
- The tax rate for the extraction of ferrous (except for iron ore), non-ferrous, and alloying metals has been increased from 5% to 6.25%.
- The tax rate of iron ore mining has been increased from 8% to 11% or 12%, depending on the average value of iron ore according to the IODEX index 58% FE CFR China for the reporting period.
Charges for the use of subsoil are deductible for CIT purposes.
Other local taxes
According to the Tax Code, there are other local taxes that may be levied at the discretion of the local authorities (i.e. vehicle parking place duties, tourism duty).