Ukraine Tax Reform 2015

At the end of January 2015, the Law “On Amendments to the Tax Code of Ukraine and Certain Legislative Acts of Ukraine on Tax Reform” entered into force and introduced significant tax reforms into Ukrainian legislation. The main points of the tax reform are briefly summarized below:

  • The number of taxes has decreased from twenty-two to nine. Though, some taxes were completely eliminated, most were combined and renamed.
  • Electronic VAT was introduced as of February 1, 2014 and will run in a test phase until July 1, 2015. After the test phase, electronic VAT will run normally (as foreseen by the The Law of Ukraine “On Amendments to the Tax Code of Ukraine and Certain Legislative Acts of Ukraine” of July 31, 2014). In particular, the law abolishes paper invoices and requires the use of electronic VAT invoices. It is now mandatory to register electronic VAT invoices with the Unified Register of Tax Invoices which was also introduced on February 1, 2014. Moreover, fines will be imposed on companies which do not comply with these rules.
  • Single Social Contribution rules have been changed in an attempt to decrease the amount of salaries not being paid officially. Specifically, companies can apply the 0.4 ratio to the existing single contribution rate which can decrease actual expenses up to 40%. However, this only applies to entities which fulfill the following criteria: average salary is 30% more than in 2014; average salary exceeds three times the minimum wage; average social contribution is greater than UAH 700. Such changes are expected to initiate the process of bringing salaries out of the shadows.
  • Personal Income Tax has been increased from 17% to 20% for employees earning more than UAH 12,180. This change will negatively influence the net income of these employees.
  • In the same manner, the military tax of 1.5% which was introduced in 2014 as a temporary measure has been prolonged for the year 2015. The tax is levied on all salaries and other benefits or rewards and is paid by employees.
  • The new tax legislation also includes many amendments concerning property tax. In particular, the tax base has decreased (for apartments: from 120 m2 to 60 m2 ; for houses from 250 m2 to 120 m2) while, at the same time, the tax rate has increased from 1% to a maximum of 2% of minimum wage. In addition, property tax also now covers commercial real estate.
  • A new transportation tax has been levied on luxury automobiles. Owners of vehicles that are five years old or newer and contain engines exceeding three liters will be required to pay, inter alia, UAH 25,000 annually.

If you would like to learn more about the recent changes in Ukrainian law and how this might affect you and your business, or if you have other questions regarding corporate law, please contact us.