Ukraine

Taxable period

The reporting year for companies generally follows the calendar year. The exception is for qualified agricultural manufacturers (other than on simplified [unified] tax), whose reporting period starts from 1 July of the current reporting year and ends on 30 June of the next reporting year.

Tax returns

Tax returns for CIT should generally be submitted on a quarterly basis, but some taxpayers will have to submit them annually (newly established, agricultural producers, and taxpayers with prior year annual income equal to or less than UAH 40 million net of indirect taxes).

Monthly returns (e.g. VAT, unified 2% tax under the simplified tax system) must be filed within 20 calendar days following the end of the respective reporting month.

Quarterly returns are due within 40 calendar days following the last day of the reporting quarter. However, the deadline for submitting a fourth quarter CIT return (on a quarterly reporting period basis) is 60 calendar days after the reporting year-end; this term also applies for other annual returns (including CIT returns on a yearly reporting period basis).

Taxpayers also have to submit financial statements to the tax authorities.

Resident companies and non-resident entities with a PE in Ukraine must keep records that comply with the tax rules.

Payment of tax

Taxes payable assessed on the basis of tax returns are due within ten calendar days following the deadline for filing the relevant tax returns.

Starting from 1 January 2021, a unified tax account is enabled. It is now possible to pay CIT, PIT, and USC through a unified tax account, as well as other payments, the control of which is entrusted to the State Tax Service. Please note, such account is not used for payments of VAT and excise tax on fuel and alcohol.

The use of a unified tax account starts on the next business day after the submission of the notification on the use of such tax account. If the taxpayer intends to stop usage of the unified tax account, it will be terminated starting from 1 January of the following calendar year.

Once in a year, the taxpayer has the right to notify (via electronic cabinet) of the choice either to use or terminate a unified tax account.

Penalties

The tax authorities will charge significant penalties for late filing, late payment, or understating tax liabilities.

Late payment of tax may result in a penalty in the amount of 10% of the underpaid amount for delays of up to 30 calendar days (20% if the delay exceeds this).

If the tax liabilities are understated, the amount of penalty depends on the frequency of violations (i.e. understatement of CIT and VAT liabilities, overstatement of VAT refunds) during a period of 1,095 consecutive calendar days. In particular: 10% for the first innocent violation, 25% for the first intentional violatiоn, and 50% for the second intentional violation and each subsequent violation related to the same taxes (75% may also be applied for the third and subsequent violation of WHT and payroll taxes).

In addition to the abovementioned penalties, late payment interest (LPI) is calculated based on 100%/120% of the prime rate of the National Bank of Ukraine. The rules for calculation of LPI are vaguely worded and are open to interpretation.

If a taxpayer fails to withhold tax when required, a penalty of up to 75% of the deficient tax is imposed. 

If the taxpayer fails to register VAT invoices, penalties are up to 150% of the VAT amount (100% if the customer complains and the supplier does not follow the tax authorities' prescriptions within deadlines). If the taxpayer fails to register excise tax invoices, penalties are up to 40% of the excise tax amount due on the supply of the respective excisable goods.

Potential criminal responsibility could be claimed against the taxpayer’s management if the total amount of additional tax liabilities assessed by the tax authorities during the tax audit exceeds 3,000 times the amount that is equal to 50% of the statutory subsistence minimum for able-bodied individuals (i.e. UAH 3,405,000 of additional tax liabilities for 2021 and UAH 3,721,500 of additional tax liabilities for 2022). There are several options to close such criminal proceedings (the procedure should be properly managed from the legal perspective).

If the taxpayer identifies and self-adjusts understated tax liabilities, such taxpayer is required to self-assess penalties of 3% or 5%, depending on the way in which the adjustment was made.

Non-resident legal entity that conducts activities in Ukraine through a separate business unit (including a PE) without registering with Ukrainian tax authorities will be charged with penalties of UAH 100,000.

As a part of tax measures related to COVID-19, taxpayers are exempted from penalties (with certain exceptions) and late payment interest for the period starting from 1 March 2020 and until the last day of the month in which the quarantine period ends.

Changes related to the introduction of martial law

During the period of martial law:

• Taxpayers who do not have the opportunity to meet the deadlines for payment of taxes and submission of tax returns are exempt from penalties provided that they will submit tax returns and pay the respective taxes within three months after the termination or abolition of martial law in Ukraine.
• Full release from responsibility for compliance with terms of payment of taxes and fees applies only to taxpayers (including branches, representative offices, etc.) that were not able to fulfil tax obligations. Tax obligations in this regard covers:
  • Registration of VAT invoices / adjustment calculations in the Unified Register of Tax Invoices (URTI).
  • Submission of tax reporting.
  • Payment of taxes and duties.
• To benefit from exemption from responsibility for failure to fulfil tax obligations, taxpayers having the possibility to fulfil tax obligations must register VAT invoices / adjustment calculation in URTI by 15 July 2022, submit tax reporting until 20 July 2022, and pay taxes and duties by 31 July 2022.
• Taxpayers under the simplified tax system (applying the 2% unified tax rate) are exempt from responsibility for untimely fulfilment of tax obligations, provided they fulfil such obligations within 60 calendar days from the date of transition to the tax system they used before transferring to the simplified tax system.
• Taxpayers are exempt from assessment and payment of penalties and interest for understatement of tax liabilities due to errors in the reporting periods covered by the martial law, provided such taxpayers adjust their tax reporting for the relevant periods to correct such errors until 20 July 2022.
• If the tax authorities detect violations of tax legislation in result of tax audits, taxpayers’ responsibility will be determined taking into account force majeure circumstances, but without consideration of moratorium on application of penalties during the period of martial law and/or emergency state and/or on the period of COVID-19 quarantine established by Cabinet Ministers of Ukraine.

Tax audit process

Starting from 24 March 2022, most tax audits (including scheduled tax audits) are under moratorium in Ukraine due to martial law.

After 24 March 2022, there was a very limited list of the allowed tax audits, which included:

• Desk audits.
• Unscheduled documentary tax audits initiated according to the taxpayer's request in case of reorganisation, liquidation, or bankruptcy of the taxpayer.
• Unscheduled documentary tax audits appointed due to tax information on taxpayer’s violation of the currency control rules.
• Actual tax audits.

In addition to the mentioned above audits, the Law of Ukraine No 8045 dated 3 November 2022 (the 'Law', effective from 25 November 2022) allows the following unscheduled tax audits:

• Transfer pricing audits in case of: failing to file the transfer pricing reports, receiving evidence of non-compliance of controlled transactions with the arm's-length basis, failing to file or non-compliant filing of the controlled transactions report and/or transfer pricing documentation, and receiving the controlled transaction report by tax authorities.
• Audits resulting from consideration of the objections to the audit report or the complaint against the tax notification decision where the taxpayer refers to any circumstances not examined during the audit, in case the State Tax Service of Ukraine establishes non-compliance of the conclusions in the audit report with law or incomplete scope of matters addressed during the audit, in case the tax authority received information and/or documents from foreign state authorities relating to matters covered during previous audits of the taxpayer that indicate a violation of the law requirements by such taxpayer, in response to any information that becomes available and provides evidence of a non-resident's business through the PE in Ukraine without appropriate tax registration, relating to taxation of legal entities or other non-residents conducting business activities through a PE in Ukraine, and income generated by non-residents and originating from Ukraine and/or unscheduled tax audits of non-residents (PEs of non-residents).

Tax audits may be conducted during martial law period providing there are:

• Safe access to the premises of the taxpayer.
• Safe access to the documents and certificates on business activities, received income, incurred expenses, and other tax information controlled by tax authorities, as well as financial and statistical information.
• Safe possibility to conduct inventory reconciliation of the fixed assets, goods and materials, funds, stocks, and cash.

From 1 January 2022 till end of November 2022, the Ukrainian tax authorities have conducted 597 scheduled tax audits and 4 953 out-of-schedule tax audits. According to the official statistics of the State Tax Service of Ukraine, the total amount of accrued tax liabilities is approximately UAH 4 billion.

Statute of limitations

Under Ukrainian tax legislation, a three-year statute of limitations applies (1,095 days) on any outstanding Ukrainian tax liability, starting from the date a tax return is due to be filed and/or the date the tax is due to be paid, if assessed by the tax authorities. There is no limit on the statute of limitations in which an assessment may be made if a taxpayer has deliberately evaded taxation (if proven in court) or when a taxpayer fails to file a return.

The statute of limitations for transfer pricing controlled operations is seven years (2,555 days).

As a part of tax measures related to COVID-19, the statute of limitations is suspended for the period starting from 18 March 2020 and until the end of the quarantine period.

In addition, the statute of limitation will lay off if there is one of the following conditions:

• The tax authorities are prohibited from starting the tax audit of the taxpayer.
• Tax authorities stopped, continued, or rescheduled the tax audit.
• The taxpayer refuses to let the tax authorities start the tax audit.
• There is litigation within which the taxpayer appealed the legitimacy of the tax audit.

Changes related to the introduction of martial law

The duration of all statutes of limitation supervised by tax authorities is suspended for the duration of the martial law legal regime.

Tax advice

The Ministry of Finance of Ukraine is authorised to issue summarising tax consultations in cases of inconsistency among various tax law provisions. Additionally, tax advice may be sought from the tax authorities, who are required to issue such clarifications.

Tax advice is not legally binding and may be challenged in court. A taxpayer may use the tax advice as guidance on the methodology to be applied by the taxpayer. In practice, the tax advice often does not provide solid protection against future assessment of tax, but it does protect from penalties.

A unified database of individual tax consultations was established in 2017 and administered by the State Fiscal Service of Ukraine with free unobstructed access to its records. All individual tax consultations issued by the tax authorities from 1 April 2017 and further on are to be entered into the database.

Topics of focus for tax authorities

Currently, tax authorities are focusing on the following areas:

• Proper calculation of taxable profits as per accounting records (including timely documentation of expenses and their proper allocation between the periods), and correct application of tax differences, prescribed by the Tax Code.
• Compliance with beneficial ownership requirements for the purposes of CIT and WHT.
• Compliance with transfer pricing rules and reporting requirements (including compliance with business purpose requirements).
• Deductibility of marketing/transport expenses with poor supporting documentation.
• Approach to payment of PIT for employees who work outside of head office.
• Approach to recognition of foreign exchange differences on payment of dividends in favour of non-residents.
• Analysis of taxpayer’s rights for recognition and recovery of input VAT.

Electronic taxpayer’s cabinet

An electronic taxpayer’s cabinet features the following functions:

• Access to the taxpayers’ information, which was collected and accumulated by tax authorities.
• Ability to reconcile tax payments made to the state and local treasuries by obtaining the reconciliation statements.
• Ability to manage overpaid or mistakenly paid monetary obligations and penalties.
• Electronic submission of tax returns and other reporting, registration of VAT, and excise invoices.
• Access to the electronic system of VAT administration.
• Informs taxpayers on scheduled audits, ability to file administrative appeals against decisions taken by the tax authorities.
• Ability to receive requests, tax audit reports, and tax assessment notices from the tax authorities.
• Informs on status of counterparties using information supplied by publicly available information sources maintained by the Ministry of Finance of Ukraine, other registries and databases that are maintained according to the Tax Code of Ukraine, etc.
• Exchange of documents between the taxpayer and the tax authorities.