Review of Legislative Acts that Entered into Force on January 1, 2022

The New Year holidays have ended and, immersing in the world of business processes, it is important to pay attention to the changes that have come into force this month. What new responsibilities have emerged for Ukrainian taxpayers, and what innovations should businesses consider when planning for 2022?

1. Reporting on CFC

The CFC rules will apply to residents of Ukraine who own or control (directly or indirectly) foreign companies or entities without the status of a legal entity (trusts, funds, partnerships, etc.). Such persons will need to prepare special CFC reports and, in certain cases, pay CFC income tax in Ukraine. At the same time, the notice of purchase/sale/liquidation of the CFC from January 1, 2022 will need to be sent to the tax administration no later than 60 days from the date of the transaction.

2. Location of Effective Management

Starting from 2022, a foreign company can be recognized as a tax resident of Ukraine in the case of effective management of such a company from the territory of Ukraine.

3. Business Purpose Test

The business purpose test will be applied to transactions with residents of low-tax jurisdictions or those registered in low-tax organizational and legal forms, as well as to transactions for the payment of royalties to non-residents. It was implemented within the framework of Ukraine’s implementation of the OECD BEPS Project.

Lack of business purpose (economic effect) in accordance with paragraph 14.1.231 of Article 14 of the Tax Code of Ukraine in these transactions will increase the financial result before taxation of the taxpayer for the full amount of the value of such goods, works and services.

4. Value-Added Tax

VAT exemption for investment gold transactions has been introduced:

• import into the customs territory of Ukraine and supply of investment gold in the customs territory of Ukraine;
• provision of services of agents involved in the supply of investment gold;
• provision of services related to the production of investment gold and/or services for the conversion of gold into investment gold;

The peculiarities of VAT taxation of operations on import and supply of tobacco products, for which the maximum retail prices are set, have been introduced:

• VAT on transactions of import and supply of tobacco products, which will be carried out only by manufacturers and trading houses of such manufacturers, will be subject to VAT;
• the maximum retail price of such goods excluding VAT will be the basis for VAT taxation on operations on import and supply of tobacco products to be carried out by manufacturers and their trading houses;
• transactions on the subsequent supply of tobacco products will be exempt from VAT;

VAT for non-residents providing electronic services:

• Law of June 03, 2021 No. 1525-IX provides for registration of a non-resident as a VAT payer in Ukraine if he provides electronic services in Ukraine for the benefit of individuals/individual entrepreneurs, if the amount of such transactions exceeds UAH 1 million per year. They have to pay 20% VAT.
• Ministry of Finance approved the form of the simplified VAT return for electronic services of non-residents provided to individuals in the field of advertising and the Procedure for its completion in accordance with Order № 555 of October 21, 2021.

5. Registrars of Settlement Operations for Individual Entrepreneurs

From January 1, 2022, the use of RSOs in cash settlements becomes mandatory for sole proprietors (second and fourth groups). Private individuals will be required to register and use RSOs (software RSOs) when settling accounts with individuals. The amount of the fine depends on the number of illegal settlement and cash transactions: the first one – 100% of the check amount, the second and subsequent ones – 150% of the check amount.

6. Tax Amnesty

In 2022, the one-time (special) voluntary declaration procedure, better known as the “tax amnesty”, continues. Those who plan to use the right of special declaration before September 01, 2022, have the opportunity to apply a reduced fee rate when declaring foreign income/assets until March 01, 2022. This reduced rate will be 7% instead of the standard 9% rate.

7. Amendments Provided by the Law “On Amendments to the Tax Code of Ukraine and Other Legislative Acts of Ukraine to Ensure Balance of Budget Revenues” (Bill 5600)

Income tax on the sale of real estate: Income from the sale of third and subsequent real estate sold by an individual during the year should be taxed at a standard rate of 18%.

Taxes for landowners and farmers:

• “Minimum tax liability” is an innovation starting from January 2022. This is the amount of taxes that each owner of agricultural land must pay to the budget. This amount will be about 5% of the value of land per year. MTL is not determined for vegetable gardens, land plots of country-building and gardening cooperatives, as well as for agricultural land located within settlements.
• Personal income tax is taxed at 18% if the income from the sale of products exceeds 12 minimum wages. In 2022 it is 78 thousand UAH.
• Entrepreneurs raising poultry (except chickens) are excluded from the fourth group of single tax payers.

Register of Heads of Taxpayers-Debtors is created: Supervisory authorities will have the right to apply to the court to establish a temporary restriction on the right of departure of heads of legal entities or permanent establishments of non-resident debtors outside Ukraine in case of tax debt.

Environmental tax rates for air emissions and discharges of harmful substances into water will increase.

8. Amendments to the Law of Ukraine “On Amendments to the Tax Code of Ukraine and Other Laws of Ukraine on Stimulating the Development of the Digital Economy in Ukraine”, Which Provides for the Introduction of a Special Tax Regime for IT Companies – Residents of Diia City

• For companies – residents of Diia City, it is possible to choose between the usual system of taxation with income tax at the rate of 18% or the application of a special tax regime with withholding tax at the rate of 9%;
• In turn, the Law provides for restrictions for residents of Diia City to purchase goods/services from private entrepreneurs based on the simplified taxation system;
• Diia City resident companies will be able to hire IT specialists on the basis of employment contracts or gig contracts;
• The following preferential tax rates for their income will be applied to the above IT specialists: 5% – PIT; 1.5% – military duty; unified social tax – 22% of the minimum wage;
• Dividends paid by a resident company of Diia City, which has not paid dividends for at least the previous 2 years, will not be subject to taxation if they are paid to an individual;
• An individual is entitled to a tax deduction on the amount of expenses for the acquisition of shares (corporate rights) of a resident of Diia City, if they were acquired before becoming a resident of Diia City or during a period when the resident’s annual income did not exceed 1.167 minimum wages (approximately UAH 5 million);

9. Taxes for Individual Entrepreneurs

Single social contribution:

• Increase of the minimum wage from December 1, 2021 to UAH 6.500 will affect the amount of unified social tax (UST), as its accrual rate remains unchanged at 22%.
• Thus, from January 1, 2022, as well as from December 2021, the minimum amount of UST per month will be UAH 1.430, and from October 1, it will increase to UAH 1.474.
• The maximum amount of accrued UST (15 minimum wages) per month from December 1 has been increased to UAH 21.450, and from October 1, 2022 it will be UAH 22.110.
• From December 2021, sole proprietors pay UST for themselves for the fourth quarter of 2021 until January 19, 2022.

The quarterly amount will be UAH 4.070. In the tax return for 2021 it is necessary to indicate the change in the amount of UST: from January to November – UAH 1.320, and in December – UAH 1.430.

• An individual entrepreneur will submit one declaration (on the single tax and UST), not two. It will include a report on UST.

Single tax:

• For IEs of the first group – UAH 248.10 (not more than 10% of the subsistence level for able-bodied persons as of January 1).
• For IEs of the second group – UAH 1.300 (20% of the minimum wage), for the third group – 5% of income or 3% of income and VAT.
• For IEs working under the general taxation system – at the rate of 18% of personal income tax and 1.5% of the military tax on net income.

Sources:

Bill No. 5600

Law No. 1667-ІХ

Order No. 555

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