Value Added Tax

Effective date

Section V of the Code that deals with value added tax will take effect on 01 January 2011.

Tax rate

- 20% within the next years;

- 17% from 01 January 2014.

Tax base

The tax base is determined based on the contractual value of goods / services, but not less than fair market prices. Since new Transfer Pricing regulations will take effect on 01 January 2013, until such date the existing transfer pricing regulations remain in full force and effect (as prescribed by Clause 1.20 of the Law “On Corporate Income Tax”). The Code contains no provision for the 20% deviation from fair market prices.

Tax accounting

- First-event rule continues to apply to VAT input / VAT output;

- No special tax accounting rules are applicable to agency arrangements (e.g. agency agreement, commission agreement, etc.). For tax purposes, these transactions are to be accounted for according to the basic rules.

Vat payer registration

- The main obligatory registration criteria (including the UAH 300,000 registration threshold) remain intact;

- Tax payers may not be de-registered as VAT payers if they report no VAT-able sales within the last 12 months, but perform VAT-able purchases to accumulate VAT input.

Taxation of specific transactions

Taxation of reorganized entities clarified

- Reorganization of a tax payer (by way of a merger, acquisition, transformation, separation or spin-off) does not require the recognition of deemed sale of inventories and intangibles (or any VAT input adjustment) on the balance sheet of the tax payer as of the date of reorganization.

Supply of certain types of services

- The Code contains conflicting provisions as regards the provision of certain types of services, including consulting, engineering, legal, etc. (the list of services is similar to that specified in Clause 6.5 д of the existing VAT Law), and services related to software development, delivery and testing, including other similar services. Under Clause в) of Article 186.3, the place of supply of such services is the place of the purchaser’s registration. Yet, under Article 196.1.14, the above services are not subject to VAT.

Vat input

- The Code clarifies the procedure for recognizing VAT input with regard to VAT paid upon imports of assets under operating lease arrangements;

- VAT invoices received with delay may be included in VAT input within 365 days following the date of issue of such invoices, except for the transfer of ownership to pledged property under which the right to recognize VAT input is retained until the date of disposal of such pledged property;

- The Code determines the procedure for calculating the amount of VAT that may be included in VAT input, if tax payers perform VAT-able transactions concurrently with non-VAT-able or VAT exempt transactions. The ratio is calculated as a correlation of the volume of VAT-able supplies (net of VAT) and the total volume of supplies (net of VAT) for the preceding calendar year. The ratio is applied during the entire current year. At the end of the last reporting period, the respective amounts are re-calculated based on the actual data for the reporting year.