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Customs Сlearance of Imported Cars During Martial Law
On March 24, 2022, the Verkhovna Rada of Ukraine adopted Law No. 2142-IX, according to which foreign transport imported into the country during martial law was exempted from the payment of import duties, VAT and excise duty.
At the same time, on June 21, 2022, the parliament considered Draft Law No. 7418 on the revision of certain tax benefits. The Draft Law provides for the return of paid customs clearance of automobiles from July 1, 2022. The proposal was supported by deputies and adopted as a basis and as a whole as a law. The Law is currently being prepared for the President’s signature and will enter into force after its official publication.
Who Will Be Affected by the Abolition of Benefits?
The Law restores pre-war taxes on imports by individuals of cars, their bodies, trailers and semi-trailers, motorcycles, vehicles intended for the carriage of 10 people or more, and vehicles for the carriage of goods.
The preferential regime of taxation of goods, in particular cars, imported by enterprises into the customs territory of Ukraine for free circulation is also abolished.
As a result of the exemption from import duty, excise tax and VAT, the budget did not receive about UAH 17.8 billion; more than 163,000 cars were imported; there are many cases of importing premium cars.
As a reminder, the car duty is 10% of its declared value. For electric cars, the duty is 0%. The rate of the car import duty in some cases may be reduced in the presence of a certificate EUR.1, which confirms its European origin.
The rate of excise tax depends on the volume of the engine and the year of manufacture of the car.
VAT is fixed and is 20% of the amount of car value, duty and excise tax.
Other Changes Provided by the Law
- the possibility of registration by the single tax payer at the rate of 2% by business entities importing certain types of vehicles is introduced;
- the exemption from VAT taxation of operations on import of goods into the customs territory of Ukraine imported by payers of the single tax of the I-III group, including payers of 2% of the single tax for the period of martial law;
- owners of passenger cars equipped exclusively with electric motors are exempt from paying the pension duty paid at the first registration;
- tariff benefits in the form of exemption from import duties may be applied with the approval of the Cabinet of Ministers in response to friendly actions of foreign states on the subjects of foreign economic activity of Ukraine, in particular states with which international free trade agreements have been concluded.
Automobiles Imported as Humanitarian Aid
Issues of customs clearance of humanitarian aid are regulated by the Resolution of the Cabinet of Ministers “Some Issues of Passage of Humanitarian Aid across the Customs Border of Ukraine under Martial Law” of March 1, 2022 No. 174.
In peacetime, donors were required to apply to specially authorized state bodies for humanitarian aid (Ministry of Social Policy, local executive bodies, etc.) and to complete the procedure of recognizing aid as humanitarian. At the same time, the Resolution of the Cabinet of Ministers of Ukraine No. 174 abolished the need to recognize goods as humanitarian aid and to receive a relevant decision from state bodies.
Article 6 of the Law of Ukraine “On Humanitarian Aid” states which cars can be classified as humanitarian aid. Such criteria include:
- vehicles received during the implementation of measures to ensure national security and defense, repulsion and deterrment of armed aggression of the Russian Federation;
- vehicles of special and specialized purpose to meet the socio-economic needs of territorial communities;
- automobiles equipped for the transport of persons with disabilities, which are transferred for use to social protection institutions, state health care institutions, public organizations of persons with disabilities, the Red Cross Society, etc.
At the same time, goods are currently recognized as humanitarian aid on a declarative basis. The list of goods that can be recognized as humanitarian aid approved by the Cabinet of Ministers was abolished by the Resolution of the Cabinet of Ministers of Ukraine No. 239 of March 20, 2022. As a result, all categories of goods, including cars, are eligible for humanitarian aid.
In addition, a number of vehicles are included in the list of critical imports, such as cars (UKT ZED code 8703), trucks (UKT ZED 8704), special purpose vehicles, namely cranes, fire trucks, radio vehicles (UKT ZED 8705), etc.
Procedure of Automobile Customs Clearance
1) upon arrival at the entrance to Ukraine, the driver of the car passes passport control in order to identify them;
2) the driver (declarant) fills in the declaration on the list of goods recognized as humanitarian aid. In the “Type of Assistance” section, the data of the vehicle with indication of make, model, VIN code is specified;
3) the car is registered by the customs inspector as a commodity (humanitarian aid).
The obligatory requirement is that the driver (declarant) has documents (letters, appeals) to confirm the recipient of humanitarian aid and the purpose of import.
The declarant also enters information that they undertake to deregister the vehicle.
After passing all types of control, the car leaves the checkpoint.
Taxation of Humanitarian Aid
Operations on import of property into the customs territory of Ukraine as humanitarian aid provided in accordance with the Law of Ukraine “On Humanitarian Aid” are exempt from taxation with:
- value added tax on the basis of par. 197.11 of Art. 197 of the Tax Code of Ukraine;
- excise duty in accordance with par. 213.3.9 of Art. 213 of the Tax Code of Ukraine;
- import duty in accordance with par. 1 of Art. 287 of the Customs Code of Ukraine.
Thus, the return of paid customs clearance of cars under Draft Law No. 7418 does not apply to cars imported into Ukraine as humanitarian aid.
What to Consider When Buying a Car Abroad?
1) Environmental standard of the car
Euro-2 standard applies to used cars imported for free circulation on the territory of Ukraine. New cars must meet environmental standards not lower than Euro-5.
The requirement to comply with the Euro-5 standard is also set for new and used trucks and special purpose vehicles.
Nevertheless, there are exceptions to these rules. In particular, the above environmental standards do not apply to:
- cars imported into Ukraine temporarily, for the purpose of transit and relocation of citizens to a permanent place of residence in Ukraine;
- ambulances, fire trucks recognized as humanitarian aid;
- transport imported by state order for use in the production of defense products, etc.
Special requirements are provided for legal entities that import cars for their own use.
Thus, for the period until December 31, 2022 inclusive, the environmental standard has been reduced to Euro-3 for legal entities in the case of customs clearance and the first state registration of vehicles under codes of commodity items 8702, 8704 and 8705 (with certain exceptions), both produced in Ukraine and imported into the customs territory of Ukraine. This regulation does not apply to automobiles.
At the same time, such vehicles cannot be alienated by legal entities within 3 years from the date of their first state registration in Ukraine.
If the technical data sheet of the car does not specify the environmental standard to which it meets, it is necessary to obtain a certificate of conformity from an accredited center in Ukraine. At some customs, the environmental standard is checked by VIN code (only for cars from EU countries).
So, if the car you choose does not meet the established environmental standards, you should be prepared that you may not pass the procedure of customs clearance of such a car.
2) Bank compliance requirements and rules for conducting foreign currency transactions
When business entities use a non-cash method of settlements with the counterparty, the transaction of purchase and sale of a car will definitely fall under the compliance control of your bank.
In order to identify financial transactions that may be related to or carried out with assets owned by residents of Russia or Belarus, the bank may request the following documents/information:
- supporting documents (foreign trade agreement, invoice, specification), which contain information about the car manufacturer, including a certificate of origin;
- documents on the ownership structure and ultimate beneficial owners (controllers) of the non-resident counterparty;
- other documents, for example, letters of justification on the economic feasibility (meaning) of the foreign exchange transaction, the type of activity and business reputation of the participants in the foreign exchange transaction, the purpose of the purchase of goods, etc.
Some banks decline to conduct foreign currency transactions for economic entities and public organizations if such persons are not registered with the supervisory authorities as subjects of foreign economic activity, or their constituent documents do not mention the right to engage in foreign economic activity.
However, note that by virtue of Art. 2 of the Law of Ukraine “On Foreign Economic Activity”, the subjects of foreign economic activity in Ukraine can be any business entities, regardless of ownership, the chosen system of taxation and other characteristics. The current legislation does not provide for the obligation of additional registration with the supervisory authorities of the subjects of foreign economic activity, which was emphasized by the tax authorities in subcategory 114.01 of the Public Information and Reference Resource of the State Tax Service of Ukraine.
Thus, in order to accelerate the transfer of foreign currency abroad, we recommend that you and the bank clarify a list of documents required for settlements with the counterparty in advance.
Lawyers and consultants of K.A.C. Group will be happy to advise on issues related to changes in the legislation in connection with the imposition of martial law, as well as provide comprehensive legal support.