As a part of tax measures related to COVID-19, the following incentives were introduced to Ukrainian tax legislation:
- Donors of funds or medical goods and other listed goods during the quarantine period will be able to fully deduct the respective expenses for tax purposes for until the last day of the month in which the quarantine period ends.
- State and municipal health care institutions that have received funds or free of charge medical goods and other listed goods during the quarantine period shall not tax income from the receipt / tax deduct expenses from the use of such funds and goods for tax periods of 2020 and 2021.
In addition, application of a reduced statutory minimum useful life is allowed for machines, equipment, and vehicles (two years), as well as for transmitting devices and other fixed assets (five years), provided that certain conditions are met (see Depreciation and amortisation in the Deductions section for more information).
Temporarily, up to 1 January 2035, there is a CIT exemption for the income received by investors with significant investments. The taxpayer can use this regime during five consistent years after receiving the status of investors with significant investments. The amount of the potential tax benefit is limited and correlated with the investment made.
The government has provided industrial parks with a number of tax incentives, namely with regard to the payment of income tax (will not be paid for ten years), VAT, import duty, etc. Industrial parks will be able to apply such tax benefits only if they direct tax-exempt funds to the development of the industrial park.
Simplified (unified) tax system
Entities and individuals (i.e. private entrepreneurs) are entitled to use a simplified (unified) tax system (with exemption from CIT) if certain requirements are met.
Groups 1 and 2 of the simplified (unified) tax system are available for private entrepreneurs only, and group 3 for both private entrepreneurs and legal entities (depending on the types of activities, the level of income [only up to 1,167 minimal salary as of 1 January of the reporting year (for 2023 this amount is equal to UAH 7,819,000), except agricultural producers], and the number of employees’ criteria).
These regimes foresee low effective tax rates (up to 10% of the amount of statutory subsistence minimum for able-bodied individuals as of 1 January of the reporting year for group 1 per month; up to 20% of the minimal salary set as of 1 January of the reporting year for group 2 per month, or up to 5% of revenue for a private entrepreneur/an entity of the third group) and easier reporting for small businesses. However, specific types of business activities are prohibited under this tax regime (inter alia, transactions with certain excisable products, exploration/production/sale of precious metals and stones, company management and communication services).
Taxpayers of group 1 are not required to use cash registers. Taxpayers of group 2, 3, and 4 are obligated to start using cash registers in the quarter following the one when their revenue exceeds 220 minimal salary as of 1 January of the reporting year (2022 this amount is equal to UAH 1,474,000). Taxpayers engaged in selling technically complex household goods subject to warranty services, medicines, and healthcare products are obligated to use cash registers regardless of the revenue amount they earn.
Starting from 1 October 2020, the list of taxpayers required to use cash registers regardless of the revenue amount they earn was extended, in particular to taxpayers engaged in: e-commerce; hoteling; selling jewellery and household goods made from precious metal and gems; retail of used goods via shops; restaurant business; providing travel agency and tour operator services; and selling of textiles, spare parts, and accessories for motor vehicles.
Starting from 1 January 2022, all taxpayers of group 2, 3, and 4, regardless of their revenue, are required to use cash registers.
The group 4 classification of the simplified (unified) tax system is available for qualified agricultural producers.
Agricultural producers are entitled to use a very favourable tax regime (with exemption from CIT), provided certain requirements are met. The main criterion requires that income from the sale of their own agricultural products constitutes not less than 75% of their total gross revenue of the previous tax (reporting) year.
Under this system, the amount of tax due depends on the size of the agricultural land plot owned or rented by the agricultural producers. The tax rates vary from 0.19% to 6.33%, apply to the normative monetary value of one hectare of agricultural land, and depend on the type of such land.
As a part of tax measures related to COVID-19, private entrepreneurs, individuals engaged in independent professional activity, and members of a farm were exempted from mandatory payment of USC for the reporting periods of March, April, and May 2020.
Changes related to the introduction of martial law
Starting from 1 April 2022 and during the period of martial law, the business entities of any organisational and legal form, without headcount or ownership structure limitations (and without other limitations set out by clause 291.5 of the Tax Code of Ukraine), may opt to choose a simplified tax system, except for:
- Entities engaged in manufacturing, import and sale of excisable goods (only retail distributors of excisable goods are allowed), and extraction and sale of mineral resources.
- Financial institutions.
- Securities registrars.
- Standalone units of legal entities that are not unified taxpayers.
- Business entities engaged in the organisation and conducting of gambling, lotteries (except distribution of lotteries), and bets (e.g. bookmaker bets, totaliser bets).
The simplified tax system has the following features:
- The unified tax rate for the simplified tax system is set at 2% of revenue.
- From 1 April 2022 to the termination/cancellation of the state of martial law, the group 3 unified taxpayers shall be exempt from the VAT assessment, payment, and reporting.
- The VAT registration (if any) of taxpayers that switched to the simplified tax system is suspended for the period of using the simplified tax system.
- Reporting period is one month. The simplified tax system taxpayers shall pay the unified tax within ten calendar days after the deadline.
- In order to switch to the simplified tax system, taxpayers shall submit an appropriate application to the supervisory authority at the place of the tax address by the last day of the month preceding the simplified tax system transition period. Registered (newly established) business entities that submitted a simplified tax system application within ten days after the state registration shall be considered group 3 unified taxpayers from the day of their state registration.
- The taxpayers can opt out of the simplified system by submitting an application.
- After the termination of martial law, taxpayers shall return to the tax system they applied before imposition of martial law.
- CIT payers that switched to the simplified tax system, upon return to the general tax system, will be able to utilise the following tax assets available at the moment of transition to the simplified tax system:
- Tax losses.
- CIT overpayments.
- Advance payments for dividends.
- Interest in excess of the limit (see Thin capitalisation in the Group taxation section) that increased the financial result and remained unaccounted for in the decrease of the financial result.
- Sole proprietors who are not group 1 and 2 unified taxpayers shall be allowed not to pay the unified tax.
Starting from 1 August 2023, the simplified (unified) tax system is cancelled. The taxpayers who switched to the simplified (unified) tax system during the martial law are required to return to the tax system they were on before such transition.
Foreign tax credit
Tax residents are allowed to credit foreign taxes paid on income received abroad, provided there is a DTT between Ukraine and the relevant foreign jurisdiction. The amount of foreign tax credit is limited to the amount of Ukrainian tax payable in the respective reporting period. To claim a tax credit, the taxpayer requires an official confirmation of income received, tax base, and amount of income tax paid in such a foreign jurisdiction. Such documents are issued by the relevant foreign tax authority and should be properly legalised and translated into Ukrainian.