Tax compliance and incentives during martial law in Ukraine
VAT and indirect tax
Tax compliance and incentives during martial law in Ukraine
Fri 20 May 2022
A crucial number of Ukrainian companies (including subsidiaries of international enterprises) experienced negative business and financial impacts as a result of the Russian invasion of Ukraine which started on 24 February 2022.
The urgent relocation of staff to other regions of Ukraine and abroad, interruption of access to internal databases, IT systems, and paper documents (accounting and legal), loss of premises, raw materials, and product stocks, manufacturing assets and facilities, loss of established business connections – are a small sample of the consequences that these businesses have faced.
After the war started, the Ukrainian authorities reacted quickly to stabilise the economy and support businesses. Several laws and regulations were adopted immediately, providing tax relief and benefits for businesses. However, the Government also imposed some significant limitations and restrictions.
Listed below are the main restraints, as well as tax reliefs and simplifications effective in Ukraine as of 4 May. Please note that most of the changes listed below were established for the period of martial law and may be cancelled or prolonged depending on the development of the situation in Ukraine.
Restrictions and limitations
The significant regulations which have the most severe impact on business activities are the following:
- The Ukrainian Hryvnia (UAH) to US$ exchange rate is fixed as of 24 February 2022 at a rate of around 0.034US$ to 1 UAH and is further used as a base for computation of the exchange rates of UAH to other currencies.
- Ukrainian entities are not allowed to transfer currency from Ukraine (e.g. arranging payments abroad) except for payments of critical imports (as per the list of certain goods approved by the Government), separate transactions approved by the National Bank of Ukraine, and other industry or military specific exemptions.
- The VAT refund procedure is on hold. Also, the electronic system of VAT administration is suspended, however, companies are allowed to determine VAT obligations and credit based on respective accounting and legal documents confirming the transaction.
- Any payments, repayments of debts, disposition of intangible assets, estates, vehicles, aircraft, etc. to entities registered in Russia or Belarus are prohibited.
- The state registers are working on a restricted basis: corporate changes in capital, changes of founders (participants) and/or the nominal value of their shares, and transactions with real estate are limited by regions and could be performed only by selected notaries (as per the list approved by the Ministry of Justice of Ukraine).
Tax reliefs and simplifications
The following reliefs and simplifications were implemented to provide support to businesses during the period of martial law:
- The possibility to apply a simplified taxation system was extended for large taxpayers. The reduced tax rate of 2% of the turnover will substitute the Corporate Profit Tax (CPT at 18%) and Value Added Tax (VAT at rates of 20%, 14%, 7%, and 0) for companies that applied for this regime.
- VAT exemption on import of goods into the customs territory of Ukraine by companies applying a simplified tax system.
- The import of cars and other vehicles by individuals is exempt from VAT and excise tax.
- Exemption from the annual ownership tax on real estate and immovable property located in areas of hostilities or temporarily occupied territories.
- Ecology taxes are not charged for the period of 2021 and up to the end of the year when martial law is cancelled.
- Taxpayers (including legal entities, private entrepreneurs, and individuals) are allowed to submit reporting documents and statements covering their own personal tax affairs within 6 months after the cancellation of the martial law.
- The term of validity of the various licenses and permits shall be automatically prolonged for the period of martial law.
- The Tax Authority and other controlling authorities are not entitled to execute audits and reviews of Ukrainian businesses (with some exceptions).
Besides considering the high risks in areas of hostilities, the Ukrainian Government will support the relocation of businesses to the western part of Ukraine. Such support may include assistance in logistics, identification of the new manufacturing facilities, cooperation with the local authorities, etc.
Whereas in the first weeks of the Russian invasion, many Ukrainian companies were paralysed, we may now see signs of renewal of some business activity. We believe that the current Ukraine tax environment will encourage further business development aimed at the reconstruction of Ukraine.
The Mazars in Ukraine team continues to monitor the situation and support clients in compliance, tax, and related legal matters.
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