On 18 November 2011 the President of Ukraine has signed the Law No.4014-VI "On amending of the Tax Code and some other legislative acts of Ukraine (on simplified taxation system and accounting of small-business entities)" (the "Law"). The Law was updated in respect of the President's proposal to exclude the provision on restoration of VAT zero rating of export of grain and industrial crops.

The Law will come into effect starting from 1 January 2012 except for some provisions.

Looking back, the Law will alter legislation by introduction of simplified taxation system. The most notable changes are listed below:   
      
§  restriction on deduction of expenses on purchase of goods, services or assets from entrepreneurs which use simplified taxation was removed;

§  tax payers obliged to submit together with tax return a list of income and expenses under transactions with counterparties which use simplified taxation;

§  new simplified system of taxation and accounting is introduced (in this regard Decree of the President of Ukraine "On simplified taxation system and accounting of small business entities" No. 727/98 dated 03 July 1998 will be repealed);

§  new scope of simplified taxation system;

§  classification of single tax payers into four categories;

§  limitations of types of activity established for certain categories;  

§  tax rates vary depending on the category;

§  procedure of calculation of single tax and components of income.

SCOPE OF SIMPLIFIED SYSTEM

The Law establishes persons which are not allowed to use simplified taxation system:

§  entrepreneurs which conduct engineering testing and research, and provide auditing services; 

§  entrepreneurs which lease out land plots with area exceeding 0,2 hectares, residential premises with area exceeding 100 square meters, and non-residential premises with area exceeding 300 square meters;

§  insurance brokers, banks, credit unions, pawnshops, leasing companies, investment funds and companies, and some others subjects of financial activity;

§  legal entities whose charter capital is 25% or more owned by legal entities which are not single tax payers;    

§  subjects of commercial activity which are involved in the following types of activity:

o      foreign currency exchange;
o      manufacturing, export, import and sale of excise goods (except retail trade in specified amounts);
o      extraction and realization of precious metals, gems and mineral resources; 
o      activity of financial intermediaries (except activity of insurance agents, surveyors, insurance commissioners and adjusters);
o      activity in the field of company management;
o      some other types of activity.

§  non-residents and some other subjects of commercial activity

CATEGORIES OF SINGLE TAX PAYERS

Single tax payers are divided into four categories depending on their legal status, type of activity, number of employees and annual turnover:

Category of a single tax payer Legal status Annual turnover, UAH Usage of employees Rate
I entrepreneurs 150 k none 1-10% of statutory minimum salary
II entrepreneurs 1 mio not more than 10 simultaneously 2-20% of statutory minimum salary
III entrepreneurs 3 mio not more than 20 imultaneously 3% of income (for VAT payers) or 5% of income (for non-VAT-payers)
IV legal entities 5 mio not more than 50 simultaneously

Limitations over types of activities are established for some categories. In particular, entrepreneurs of category I are only allowed to conduct retail trade of goods in markets and render consumer services to individuals. Entrepreneurs of category II may not provide services related to purchase, sale, lease and valuation of real estate, and may provide services only to individuals and single tax payers. There are no specific limitations applicable to categories III and IV

TRANSITIONAL PROVISIONS

Under the Law, existing certificates of single tax payers shall remain in force until new ones are obtained under the new procedure, but in any case - not later than 1 June 2012.

Please do not hesitate to contact us should you have any questions on the above.

Svitlana Musienko
Partner
T +380 44 490 9564
E svitlana.musienko@dlapiper.com
  
Illya Sverdlov
Senior Associate
T +380 44 490 9575
E illya.sverdlov@dlapiper.com 

DLA Piper ukraine llc is part of DLA Piper, a global law firm, operating through various separate and distinct legal entities.

The matters covered in this newsletter are intended as a general overview. This newsletter is not intended, and should not be used, as a substitute for taking legal advice in any specific situation. DLA Piper ukraine llc will accept no responsibility for any actions taken or not taken on the basis of this newsletter. If you would like further advice, please contact Tax Team at +380 44 490 9575.

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