Effective taxation

Do not waste your time on tax planning. Firstly, your time will cost your business more than ours. Secondly, the tax laws texts have little to do with the practice in their application. You just need to make a schematic representation, and we will take care of working with tedious details and annoying tax authorities.

Briefly we can describe Ukrainian tax system as follows.

Companies pay income tax at the 18% rate and value added tax. Income is financial result in accounting which should be adjusted to the so-called tax differences for tax purposes. This means for example that certain types of expenses, which in accounting are fully related to expenses, for tax purposes are not or only partially related to expenses and under certain conditions. Therefore, each transaction should be planned, taking into account the practice of law and fiscal approach. Tax Service in Ukraine thoroughly examines primary documents for each transaction, so it is necessary to be attentive to their preparation.

Micro business with the annual gross income does not exceed 7 million UAH may choose the so-called simplified tax regime, where an entrepreneur or a company instead of income tax pay the so-called unified tax - income tax at the amount of 3% or 5% of the income, depending on whether he wants to pay value added tax. There are certain restrictions for entrepreneurs, applying the simplified system, including for the owners of the business. The smallest businesses can pay the unified tax at fixed rates (10% or 20% of the minimum wage), but they are restricted on the number of employees, types of business activities and counterparties with whom they can work. The simplified tax regime has its advantages and disadvantages that should be considered in tax planning. The simplified tax regime is also available for agricultural businesses.

To reduce the tax burden small business uses the simplified system, while the large business in tax planning uses tax advantages of other tax jurisdictions. But the state, like most states of the world, has been fighting for company profits being taxed on its territory.

That is why some transactions with non-residents are considered to be controlled in order to monitor compliance with the arm's length principle in transfer pricing. Companies must report such transactions and have documents to justify their prices. In the near future there are changes planned in legislation on transfer pricing.

Ukraine cooperates with OECD to implement the BEPS plan. The question is about the combatting the so-called tax base erosion, i.e., minimization of taxes through the use of options of jurisdictions with low tax rates (offshore and jurisdictions with favorable taxation) and "gaps" in the agreements on elimination of double taxation. Such cooperation will deepen, so business in Ukraine expects changes, including in the area of tax information exchange, use of jurisdictions with low tax rates, and introducing controlled foreign company (CFC) taxation. 

Besides the taxation of income or profit in Ukraine the operations are also taxable. The value added tax at 20% is paid on supply of goods, work and services at the territory of Ukraine (excluding preferential rates for imports of certain drugs). Also, the tax is paid at import. At export the zero rate of VAT is used. The administration system of the value added tax is quite complicated. There are difficulties with reimbursement of value added tax. Mostly it is about groundless revisions and untimely reimbursement. There is an erroneous opinion that without corruption it is impossible to get the refund of past periods in proper time. We have experience of targeted actions producing good results and our client was refunded from the budget with of tens of millions of compensation without court proceedings.

As general rule individuals pay tax at the rate of 18% from their income. Also, individuals pay the unified social tax at the rate of 22%.

There are also property tax and land tax in Ukraine.

Thus in theory the tax system in Ukraine is not too complicated. When we consult our clients on taxation in Europe or the USA, they are surprised by the local high tax rates and the complexity of tax laws. However, the "simplicity" in Ukraine exists only on paper, but in real life it is more complicated. Tax legislation in Ukraine often changes, and most of these changes are unexpected, no adaptation period is provided. The principle of stability of tax legislation does not actually work. Therefore you should carefully monitor changes in legislation and practice.

Authorities in Ukraine regularly try to simplify the tax system, reduce time for tax administration. Gradually the tax system does simplify. However, approaches of fiscal services officers for working with payers are changing much more slowly. Officials shall not bear the responsibility for their illegal actions, and therefore illegal inspections and additional tax are still common in Ukraine. A huge number of tax disputes concerns value added tax.

Often criminal proceedings are opened against taxpayers. Mainly they make it for pressure, as in criminal proceedings they can get the court permission to search the company and thereby paralyze its activities.

Formally, the law provides for the presumption of innocence, the burden of proving the legality of their actions and decisions is assigned to the official, there is the principle of legality of the taxpayer in the event of doubt as to the interpretation of the law. But these provisions are rarely applied and courts justify their decisions by doctrines which are fiscal in their nature.

When we work with clients, it is essential for us to consider the tax consequences of each operation. Sometimes customers mistakenly narrow competence of a lawyer and consider the question as "accounting one". There are no accounting issues for us. Accountants are turning with such problems to us. And we are ready to support customers during the tax audit, help making effective decisions on appeal of additional tax charges and fines and if it is necessary defend in court.

Ask us about everything. The only thing we cannot do in the field of taxation is to pay taxes for you.