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Law on Ensuring Balance of Budget Revenues Has Been Signed
On December 19, the President signed Law No. 1914-IX “On Amendments to the Tax Code of Ukraine and Certain Legislative Acts of Ukraine to Ensure Balance of Budget Revenues” (based on Bill No. 5600). According to the authors, the document aims to bring tax rates in line with inflation in the Ukrainian economy. The lawmakers express the expectation that the result of the Law will be the replenishment of the state budget at the expense of fairer and more attractive tax conditions for taxpayers.
The Law required a long review period: Chairman of the Committee on Finance, Tax and Customs Policy Danylo Hetmantsev reported during the presentation of the Bill for the second reading that since the first reading in July, 11.5 thousand amendments to the text had been proposed.
New Notions Introduced by Law No. 1914-IX
1. “Minimum tax liability” (MTL) is the minimum possible amount of taxes for land users, which may not be less than 5% of the value of the land.
2. “Own agricultural products” (those grown, fed, caught, collected, manufactured, produced, processed directly by the producer of these products ‒ the owner, tenant or user of agricultural land). It is taxed as personal income (18%) if the income from the sale exceeds 12 minimum wages.
3. “Environmental tax” is a tax on emissions of certain pollutants into the atmosphere by stationary sources of pollution.
4. Sale of the second real estate object (which is separated from the first sale) is taxed at the personal income tax rate of 5%. Income from the sale during the reporting tax year of the third and subsequent real estate objects is taxed at a rate of 18%.
Updated Provisions for Various Tax Categories
Regarding indexation of tax rates:
— rates of excise tax on alcoholic beverages and environmental tax, taking into account the consumer price index for 2020, increase by 5%;
— rent rates for subsoil use for purposes not related to mining, rent for special use of water and forest resources increase by 14.5%;
— it is proposed to change the approaches to determining the unit of excise duty on beer in accordance with the Association Agreement between Ukraine and the EU. Article 3 of Directive 92/83/EEC of October 19, 1992 on the Harmonization of the Structures of Excise Duties on Alcohol and Alcoholic Beverages provides that the excise tax on this beverage shall be determined according to the actual strength of the finished product, while in Ukraine the excise tax rate is set for 1 liter of the finished product. Taking into account the consumer price index for 2020, the proposed rate is 5%;
Regarding administration of taxes and fees:
— supervisory authorities are granted the right to collect the tax debt which arose as a result of non-payment of the monetary obligation determined by the payer in the tax return or clarifying the calculation by the decision of the supervisory authority without the necessity to address to court;
— a temporary restriction (by court decision) on the right of the head of the legal entity-debtor to travel abroad until full repayment of the tax debt, if it exceeds UAH 1 million, and the debtor has not repaid the debt within 240 days;
— creation of the Register of such heads-debtors has been established;
— tax authorities have the right to receive information (explanations) from the payer on request not only in relation to the fact of the detected offense, but also on other issues related to taxation, business activities and operations;
— a controlling body is also obliged to disclose information to local governments about natural persons-debtors (currently only information about legal entities is disclosed);
Regarding personal income tax:
— personal income taxation is introduced at the rate of 18% on income from the sale of the third and subsequent real estate objects during the reporting tax year (such a rate does not apply to the sale of inherited property);
— the procedure for taxation of payments received from non-legal entities: trusts, funds, partnerships, etc. has been defined, which will be taxed at a rate of 9%;
— PIT from the sale of electricity generated from alternative energy sources by generating units is paid to the relevant budget at the location of these units;
— the cost of acquiring an investment asset is equated to its value declared during a one-time declaration;
Regarding corporate income tax:
— adjustment of the pre-tax financial result for the amount of the listed non-refundable financial assistance to taxpayers who are related parties has been established;
— the mechanism of writing off losses to large income taxpayers has been improved: losses are counted until they are fully repaid, but in installments of 50% annually. If the amount of remaining losses is up to 10% of the financial result, such losses are counted in full;
— adjustment of the financial result for the amount of non-repayable financial assistance will be applied only by those payers who have included such assistance in expenses and provided it to a related party who declared losses for the previous period;
— until January 1, 2024, the income tax liability will depend on the payment of supplied electricity;
Regarding value added tax:
— the term provided for the registration of the calculation of the adjustment made to the tax invoice has been reduced from 1095 calendar days to 365 days from the date of the invoice;
— the limit on budgetary VAT refunds for intermediary payers in case of purchase and/or import of goods that are subsequently supplied to the customs territory of Ukraine has been fixed;
— the tax base has been expanded at the expense of the supply of the entire housing market (housing stock), except for housing built with the use of budget funds;
— VAT taxation of transactions on the sale of precious metals (except investment gold) by the National Bank of Ukraine to individuals and legal entities has been introduced;
Regarding excise tax:
— the excise tax exemption for payers who supply electricity (cogeneration energy and/or that received from renewable sources) has been abolished;
— tobacco fermentation plants must report on the volume of imports, production and circulation of tobacco raw materials, and such reports will equal to the tax return;
— the obligation to pay a 5% excise tax on retail sales of tobacco products has been transferred from sellers to producers and importers;
Regarding environmental tax:
— rates of environmental tax for discharges of pollutants into water bodies will be increased 8 times by 2029 (gradually);
— increase of the tax rate for carbon dioxide (CO2) emissions from UAH 10/ton to UAH 30/ton;
— increase of the waste tax rate for mining enterprises;
Regarding rent for the use of subsoil used for the extraction of minerals:
— a unified approach to the classification of extracted minerals in accordance with industry requirements has been established in order to eliminate the ability of the payer to subjectively determine the value of minerals;
— differentiation of iron ore tax rates depending on the size of the average actual selling price according to the IODEX index 62% FE CFR China. The higher the market price of ore, the higher the interest rate charged on it will be;
Regarding land tax:
— introduction of land taxation of land plots the ownership of which is not exercised, but they are actually used;
— abolition of benefits from the payment for land and land plots provided to scientific institutions, which are fully maintained at the expense of state or local budgets;
— lifting the moratorium on indexation of regulatory monetary valuation for all types of land except for agricultural land;
— for owners and users of agricultural land, a minimum tax liability for 1 hectare of land is established;
Regarding single tax:
— exclusion of the payers the main activity of which is poultry breeding from Group 4 of single tax payers.
The Law enters into force on January 1, 2022. Some of its provisions will come into force on December 22, 2021, March 1, 2022 and July 1, 2022.