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Top-5 Amendments to the Tax Code Proposed by the Ministry of Finance


Galyna Melnyk, lawyer at Ilyashev & Partners Law Firm

Last week the draft law “On Amendments to the Tax Code of Ukraine” was published on the website of the Ministry of Finance. At the moment, the draft has not yet been submitted to the Verkhovna Rada and has the status of a preliminary draft for public discussion. The draft contains a number of initiatives aimed at stimulating business development and improvement of the tax system, which we will discuss below.

1. Among the positive innovations it is worth noting that the above draft law expectedly specifies taxation of reorganization procedure – both in terms of income tax and in relation to VAT.

At the legislative level, the successor companies of the taxpayer, which is reorganized (liquidated) by affiliation, transformation, merger, are permitted to reduce the financial result subject to taxation for the amount of negative value, which is accounted with the taxpayer terminating its activities at the date of approval of the acceptance act.

In case of reorganization by division and split off the successors are permitted to take into account the negative value in the amount proportionate to the part of the property they receive.

With regard to VAT it is proposed in case of reorganization through affiliation or merger to permit transfer to the legal successor of a negative value, which is to be included in the tax credit of the next reporting period. It also clarified that such negative value is recorded as part of the tax credit of the legal successor in the period following the signing of the acceptance act.

2. The draft law also proposes to abolish the automatic budget VAT refund and, accordingly, to introduce a single register of VAT refund applications. At first sight, abolition of the automatic refund can hardly be considered a positive change. However, on the other hand, this step shows: the state honestly admitted that the system of automatic refund does not work in practice and raises more questions than it brings simplicity to the life of the taxpayers.

In particular, at present, along with the existence of two registers of VAT refund applications (i.e. for automatic and non-automatic compensation) the priority of satisfaction of proven applications for budgetary compensation is not defined at the legislative level, which are recorded in the “automatic” register and which are recorded in the “usual” register. In this regard, the introduction of a unified register will still make some clarity to the work of enterprises generating budgetary compensation.

At first sight, abolition of the automatic VAT refund can hardly be considered a positive change. However, on the other hand, this step shows: the state honestly admitted that the system of automatic refund does not work in practice

3. The liberalization of terms of registration in the unified register of tax invoice/estimation adjustment, which gives the right to a taxpayer-buyer to form tax credit. The draft law proposes to increase the term of such registration from 180 days to 365 days.

4. The introduction of a tax holidays on income tax until December 31, 2021 for the taxpayers whose annual income does not exceed UAH 3 mln, and the amount of wages accrued for each month is not less than two minimum wages. The said incentive may be used by the newly established and operating enterprises (including former payers of a single tax) that meet certain criteria, the main one is not exceeding the income threshold of UAH 3 mln.

It is noteworthy that the said incentive does not apply to the payment of dividends to which the advance payment of income tax according to the standard procedure continues to apply (that permits not pay the advance payment when paying dividends to individuals).

The draft law also lists a number of activities inconsistent with tax holidays, e.g. sale of excise goods, foreign trade activities (except for informational), wholesale trade, activities in the field of law and accounting, engineering and others.

5. Special tax treatment for the individuals who carry out individual activities (retail, consumer services), income from which does not exceed 250 minimum wages (in 2016 – UAH 344,500). Such persons shall be registered with the tax authorities and pay a fixed personal income tax (in 2016 – UAH 137.80) on a monthly basis.

As the draft law obliges such persons to file at year end the annual tax return on individual income, indicating therein the amount of income from individual activities, it may be expected that after adoption of the document the effective form of the declaration of property status and individual income will be amended.

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