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Tax changes to watch out for in 2013

Source «KiyvPost»
By Oleksii Khrystoforov
Attorney at Law, Head of Kharkiv Office «Ilyashev and Partners»

The coming year is set to be busy, with numerous changes to regulations governing both business and the social spheres. In 2012, the Tax Code of Ukraine was subject to more than 50 amendments, many of which have come into life with the new year.

Thus, 2013 will begin with a reduction in the corporate income tax rate to 19 percent, down from the previous 21 percent. Advance payment of income taxes for enterprises will also be affected, with monthly advance payments amounting to at least 1/12 of the accrued tax payable for the previous year.

Particularly noteworthy are the various innovations providing for preferential tax treatment of some priority sectors of the domestic economy. One very promising amendment is the establishment of income tax incentives (0 percent) for enterprises planning to modernize their production operations through investments ranging from 500,000 euros ($665,000) to 3 million euros. Subject to a number of other criteria, such enterprises can be exempt from income tax until 2017.

This year will also be marked by the enactment of tax regulations stipulating preferential conditions for firms operating in the software industry. Thus, starting from January 1, 2013 and until January 1, 2023 the sale of software-based goods and services will be exempt from value-added tax. Furthermore, entities operating in the software industry will see their income tax rates drop to five percent. However, it should be noted that only those enterprises meeting a range of fairly stringent statutory criteria (i.e. not all market participants) will enjoy this privilege.

The brand new Law of Ukraine «On Employment», adopted in the previous year and taking effect from the beginning of 2013, will be one of the most resonant (in all respects) documents for the domestic business. As a result of this law employers who during one year created new jobs and paid salaries of not less than three minimum wages per month to each person employed are entitled to a benefit in the next year amounting to 50 percent of the accrued single fee for this person. In addition, subject to certain conditions, employers hiring so-called «non-competitive» workers (mostly people who have less than 10 years before retirement, those who meet the criteria of first youth employment, orphans, the disabled) will be eligible for a 100 percent «discount» (read compensation) of the fee. The most interesting innovations also include the prohibition of charging money from the applicants for employment (fees for agent’s services during employment will be paid by the employers only), and the ban on placing information about the desired age of the applicant in vacancy advertisements. The same applies to gender discrimination, and the requirement to provide any information about the private life of the applicant.

Its a positive sign that the main legislative developments are aimed at resolving the key issues plaguing the national economy every year, i.e. the very unattractive investment climate, the unpredictability of state regulatory policy, the instable tax system, and miscarriages of justice.

The outlined legislative trend of «eradicating» unemployment, aimed at reviving the domestic labor market, which experienced difficult times in recent years, deserves special attention.

Will the newly adopted laws improve the situation? It seems that only partly. The recent history of our country shows that in Ukraine its not the laws themselves that matter, but rather how they are applied in practice.

On the one hand, the above-mentioned legislative innovations should encourage businesses to leave the shadows, create new high-paying jobs, and invest in production – the proverbial «real economy». On the other hand, problematic aspects connected with the practical implementation of these legal innovations (most of which will manifest themselves only at the stage of application) can completely distort the positive intentions behind the legislation – as we have seen happen many times before.

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