In Ukraine all taxes or levies are national or local. Tax collection procedures and tax incentives may be established only by law. According to the Tax Code in Ukraine now exist 23 taxes and levies, 18 of which are national and 5 local.
The main taxes and payments are:
- Corporate Income Tax (CIT) (also known as Corporate profits tax-CPT);
- Value-Added Tax (VAT);
- Single contribution to mandatory social security fund;
- Employer contributions.
Other principal taxes include Personal Income Tax (PIT), land tax, royalties for the extraction of oil, natural gas and gas condensate, and the charge for using local symbols.
Corporate profit taxation
Ukrainian entities as well as foreign entities doing business in Ukraine are liable for corporate profit tax. Currently, the standard rate is 18% from the clean income (i.e. gross income). However, small legal entities in Ukraine may choose the simplified taxation.
Note: Simplified taxation is impossible for non-residents.
Legal entities incorporated and operating under Ukrainian law (even with 100% of foreign capital) and which carry out business in Ukraine are considered as domestic companies and treated as tax residents. In that case they are taxable on their worldwide income.
Legal entities that are incorporated abroad and operating under the laws of another country are foreign tax residents and are taxable on two sources of income:
- Income from carrying out business activities on the territory of Ukraine through a permanent establishment (PE);
- Profit from sources in Ukraine (the profit arises from activities performed or property located in Ukraine, in case of royalties, interest, dividends and other passive income, the income is paid by a resident of Ukraine).
Separate tax rules apply to insurance companies, operations with securities and agricultural enterprises.
In Ukraine value-added tax (VAT) is known as podatok na dodanu vartist (PDV). According to the Ukrainian legislation, VAT is levied at a rate of 20% and is imposed on:
- Domestic sales of goods and/or services,
- Imported goods or services.
The general rule is that the taxable amount is defined on the basis of the contractual value of the goods or services supplied.
Note: Currently, for exported goods or services the VAT rate is zero.
The model of VAT in Ukraine is the input-output one. VAT-registered persons deduct the VAT paid on their inputs from the VAT charged on their sales and account for the difference to the tax authorities.
Single contribution to mandatory social security fund
The social security system in Ukraine covers pensioners, workers and their dependants for work-related accidents, retirement, illness, disability benefits and death, severance pay, sickness and maternity benefits, medical care, and child and family allowances.
Single contribution to mandatory social security fund only apply if the salary is paid through the payroll of a Ukrainian enterprise or representative offices of foreign legal entities in Ukraine.
Note: Single contribution is not included into the taxation system and is regulated by the special Law “About collection and calculation of single contribution to mandatory social security fund”.
Single contribution is paid to the local offices of the State Pension Fund and its rate vary from 36,76 % to 49,7% depending on so-called “class of the professional risk”. This “risk class” is determined by the type of business activity of a legal entity.
Employer contributions. Ukrainian employers are liable to pay social security contributions on behalf of their Ukrainian and foreign national employees.
According to the legislation, the tax authorities may carry out scheduled tax audits. Business entities must be notified of the audit in written form at least ten days before the scheduled audit. Scheduled audits are supposed to be carried out no more than once a year. Normally, the period of such audit is 20 business days, although it may be extended by up to 10 days.
Also, there may be performed out-of-schedule audits because of different reasons (liquidation or reorganization of business entity, tax police investigation, when taxpayer initiates an appeal process against an assessment etc.).The duration of an out-of-schedule audit cannot exceed ten business days.
Foreign tax credits
If there is a double tax treaty between Ukraine and the relevant foreign state tax residents are allowed to credit foreign taxes paid on income received abroad against their Ukrainian tax liabilities. In that case the taxpayer requires an official confirmation of payment issued by the relevant foreign tax authority concerned. The amount of foreign tax credit is limited to the amount of Ukrainian tax that would arise from the equivalent income in Ukraine.