2% single tax cancelled, tax audits resumed and more – novelties in the tax law of Ukraine
On 26 July 2023, the President of Ukraine signed Law No. 3219 "On Amendments to the Tax Code of Ukraine and Other Laws of Ukraine on Peculiarities of Taxation during the Period of Martial Law" (the "Law"), which will come into force on 1 August 2023.
The amendments to the Tax Code of Ukraine do not introduce new tax rates. They primarily target the goal to return the tax legislation in Ukraine to its pre-war status. Learn more in the overview of the key changes by our Tax and Customs lawyers.
2% single tax cancelled
Starting from August 1, the 2% single tax (the "ST") will be cancelled. This has been a special (preferential) tax and legal regime which was supposed to be in effect for the entire period of martial law and allowed paying the ST at a rate of 2% instead of 5%.
The Law regulates the transition from the 2% ST to other taxation systems.
Thus, business entities which are not VAT payers and switched to the general taxation system in 2023 have the right to switch to the ST (simplified taxation system) again in 2023 by submitting an application by September 1, 2023. At the request of the taxpayer, the transition to the chosen system and group will take place from 1 August 2023. In case of a failure to submit an application, the taxpayer will be automatically transferred to the system they were on before the introduction of the 2% regime.
At the same time, newly established business entities which have chosen the 2% STS from the date of state registration will automatically be considered to be ST payers of the group 3 at the rate of 5%. A taxpayer can switch to the general taxation system from August 1, 2023, by submitting an application.
Importantly, starting from August 1, the income limit for ST payers will be restored. For the period from August 1 to December 31, 2023, the income limit for single taxpayers of the group 3 with 3% and 5% rates will be UAH 3,257,875.
Those taxpayers who applied for the simplified taxation system with specific features during the period of martial law must bring their activities in line with the requirements of the Tax Code of Ukraine by September 1, 2023, including the abandonment of activities prohibited for single taxpayers.
The Law also provides for the peculiarities of the transition to the payment of income tax and VAT on a general basis for "transitional transactions": when the delivery took place in the period of payment of the single tax, and payment takes place in the period of payment of corporate income tax and VAT on a general basis and vice versa. The Law also stipulates the peculiarities of preparing corporate income tax and VAT returns, tax invoices and calculations of adjustments in 2023, determining the tax reporting period and the amount of annual income, tax differences.
Tax audits resumed
The Law cancels the current moratorium on scheduled documentary audits of the following business entities (hereinafter referred to as "BE") from August 1, 2023:
i. taxpayers engaged in the production and/or sale of excisable goods;
ii. taxpayers operating in the field of gambling; and
iii. taxpayers providing financial and payment services.
The audit schedule will be available on the official website of the State Tax Service of Ukraine.
Importantly, the Law extends the moratorium on documentary audits of taxpayers, except for audits of: budgetary reimbursement; at the request of the taxpayer and upon the latter's complaint; liquidation (termination of a legal entity/business activity); objections to an act; in the case of disciplinary proceedings; transfer pricing; international taxation; audits of non-residents; and currency legislation.
During martial law, documentary and factual audits will be carried out provided that:
there is a safe access to territories, premises and property related to business activities and taxation;
there is a safe access to documents related to business activities and taxation; and
safety conditions are in place for an inventory of fixed assets, material assets, cash, withdrawal of material assets and cash balances.
At the same time, the Law provides that temporarily, from August 1, 2023 and until the day of termination of martial law, if a taxpayer pays the amount of taxes additionally assessed based on the results of documentary audits within 30 days, no penalties will be applied, and no interest will be charged.
Single tax for sole proprietors of groups 1 and 2 of the ST is back
The Law restores the mandatory payment of the unified social tax for sole proprietors of groups 1 and 2 from 1 August 2023.
The only exception is for those sole proprietors registered and located in the temporarily occupied territories or in the combat zone. The list of such territories is approved by the Order of the Ministry of Reintegration of the Temporarily Occupied Territories of Ukraine No. 309 from 22.12.2022.
The possibility of non-payment of the unified social tax will remain:
before the last day of the month in which active hostilities ended, the possibility of hostilities ceased, or the temporary occupation ended;
or by the end of the month in which the sole proprietor registered the change of location to another, "calm" territory.
The Law also provides that taxpayers who have exercised the right not to pay the ST in the period from April 1, 2022, to July 31, 2023, are exempt from advance payments, penalties and fines for non-payment/incomplete payment of the ST in the specified period.
Cash register fines are back
Starting from 1 October 2023, the application of cash register fines in all territories will be resumed.
The exception is the sale of goods/services (except for violations in the sale of excisable goods) in:
territories of active or possible hostilities; and
temporarily occupied territories.
At the same time, the Law makes an important clarification regarding the cash register fines for the periods before October 1, 2023. In particular, fines will not be applied specifically for violations committed between 01.01.2022 and 01.10.2023. However, during this period, BE will not be exempted from liability for violations of the procedure for conducting settlement transactions when selling excisable goods, carrying out activities related to the purchase/sale of foreign currency, and activities in the field of organising and conducting gambling.
For sole proprietors who use cash registers, liability for violations involving the use of cash registers is reduced. In particular, the following amounts of fines are provided for:
25% of the value of goods, works, services sold in violation – for a violation committed for the first time; and
50% of the value of goods, works and services sold in violation – for each subsequent violation.
The period of application of the reduced rates will start on August 1, 2023, and will last until July 31, 2025, but no later than the date of termination or cancellation of martial law.
Unified social contribution fines/penalties lifted
From August 1, 2023, the moratorium on fines and penalties will be lifted.
However, from August 1, 2023, until the end of martial law, there will be a moratorium on documentary audits on the correctness of the charging, calculation, and payment of the unified social contribution, except for audits:
related to the termination of a legal entity or business activity of an individual entrepreneur;
those carried out at the request of the single contribution payer; and
for BE engaged in the production and/or sale of excisable goods; gambling; and providing financial and payment services.
However, if, based on the results of the audits to be carried out since August 1, 2023 and completed before the day of termination of martial law, additional unified social tax is accrued, and the taxpayer pays it within 30 calendar days, such a taxpayer is exempt from paying fines and penalties on the additional amounts.
Restoration of terms
Starting from August 1, 2023, the following terms will be restored for taxpayers and regulatory authorities:
for providing individual tax consultations;
for consideration of taxpayer complaints;
for taxpayers to respond to requests from regulatory authorities.
Changes to the taxation of charitable assistance and compensation for damaged property
Funds that were received in 2022 and still arrive in 2023 to an individual's account as donations, if such individual is officially registered as a volunteer in the Register of volunteers of the anti-terrorist operation and/or implementation of measures to ensure national security and defence, repulsion and deterrence of armed aggression of the Russian Federation, are not subject to taxation in such tax reporting years:
in the reporting tax year preceding the year of including the individual in the Volunteer Register;
in the reporting tax year in which the individual is included in the Volunteer Register;
in the tax years following the year of including the individual in the Register of Volunteers, but not later than December 31 of the year following the one in which the anti-terrorist operation is completed and/or the martial law or state of emergency in Ukraine is terminated or cancelled and/or measures to ensure national security and defence, repulse and deter the armed aggression of the Russian Federation are completed.
The amount of income received by an individual as compensation for damaged/destroyed real estate in accordance with the Law of Ukraine "On Compensation for Damage and Destruction of Certain Categories of Real Estate as a Result of Hostilities, Terrorist Acts, Sabotage Caused by the Armed Aggression of the Russian Federation against Ukraine and the State Register of Property Damaged and Destroyed as a Result of Hostilities, Terrorist Acts, Sabotage Caused by the Armed Aggression of the Russian Federation against Ukraine" is not subject to taxation.
It's been more than 500 days since Ukraine continues struggling for its freedom and independence in the war against russia. During martial law the doors of INTEGRITES office in Kyiv remain open, our team is in Kyiv and keeps supporting clients in need of legal advice.