Accounting and tax in Ukraine_2016, HWC competence brochure

Informa)on Brochure

© HWC, Kyiv, 2016

Outsourcing Services

Accoun)ng & Tax

2 HWC LLC (Henniger Winkelmann Consulting), Kyiv, Ukraine, www.hwc.com.ua, +380 44 451-51-54

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CONTENT

1.  SPECIFICS OF THE UKRAINIAN MARKET 3

2.  ACCOUNTING IN UKRAINE 4

3.  MAIN TAXES IN UKRAINE 5

4.  START-‐UP COST 6

5.  INTERNATIONAL PAYMENTS 6

6.  PAYMENTS IN FOREIGN CURRENCY 7

7.  CORPORATE PROFIT TAX (CPT) 7

8.  VALUE ADDED TAX (VAT) 9

9.  PERSONAL INCOME TAX (PIT) 11

10.  UNIFIED SOCIAL SECURITY CONTRIBUTION (USSC) 12

11.  MILITARY TAX 13

12.  SIMPLIFIED TAXATION SYSTEM (SINGLE TAX) 14

13.  CASH PAYMENTS 16

14.  FOREIGN CURRENCY TRANSACTIONS 17

15.  LICENSING 18

16.  TRANSFER PRICING 19

17.  PERSONNEL ADMINISTRATION 20

18.  OPTIONS TO FINANCE UKRAINIAN SUBSIDIARIES 22



1. SPECIFICS OF THE UKRAINIAN MARKET

On January 1, 2016, the European Union (the EU) and Ukraine began applying the

Free Trade Area, which forms the part of the EU-‐Ukraine Associa)on Agreement

signed on 27 June 2014. The poli)cal part of the Associa)on Agreement came into

force in November 2014 (the status of the Associa)on Agreement is “temporary”

un)l the Parliaments of all countries-‐members of the EU will approve the

Agreement).

Making business in Ukraine is embedded into a quite unique market situa)on. On

the one hand the country is associa)ng itself towards the European Union by

ini)alizing reforms and rejuvena)ng its authori)es. This atmosphere of change

promises massive chances to capture a remunera)ve market. On the other hand

the country conducts its heritage of the former Soviet Union including laws and

regula)ons, specific local accoun)ng standards, a variety of different authori)es

directly impac)ng the business world by a high level of bureaucracy and corrup)on.

Excellent personal rela)onships and the crea)on of trust are essen)al to establish a

successful joint venture or market presence.

HWC is combining local exper)se with Western European business manner and acts

as the interface between you and this complex environment. Adap)ng your

business to the Ukrainian market, consul)ng on business relevant decisions and

suppor)ng with business services is our core competence. Making your business work – is what we do!



§  With effect from January 1, 2000, Ukraine implemented the Na)onal Accoun)ng Standards (NAS), which are primarily based on the Interna)onal Financial Repor)ng Standards (IFRS);

§  Since January 1, 2012, all taxpayers in Ukraine are allowed to use IFRS for financial repor)ng;

§  Regardless of NAS or IFRS being in use, a taxpayer has to complete a significant number of different accoun)ng and repor)ng forms required by the local law;

§  Financial statements (incl. balance sheet, income statement, cash flow statement, statement of changes in equity and notes to the financial statements) are to be prepared in local currency and must be filed for a calendar year and relevant interim repor)ng periods (quarters);

§  Taxpayers are not able to use their own “charts of accounts” and have to adapt them in line with the essen)al “Chart of Accounts”, directly required by the Ukrainian law. As a result, the number of accoun)ng entries to be made is about twice as much as in comparison with the requirements to the foreign en))es in comparable situa)ons;

§  Certain obligatory principles have to be applied by any local taxpayer when preparing its “accoun)ng policy”. The Ukrainian government adopted the list of items are to be regulated by the “accoun)ng policy”;

§  “Customs declara)on” (for import/export of goods) and “Act of acceptance” (for other cases) are essen)al for tax and accoun)ng. “Invoice” is rather formal than essen)al document. “Credit note” is not required at all;

Basic accoun6ng principles are:

§  Accoun)ng is based on historical cost which is subject to infla)on adjustments;

§  Accoun)ng direc)ves are aimed at uniformity and con)nuity across businesses;

§  Design of the accoun)ng forms is regulated by NAS;

§  Form of a transac)on prevails over its substance for the accoun)ng;

§  In par)cular NAS implement and develop accoun)ng rules.

2. ACCOUNTING IN UKRAINE



§  Corporate Profit Tax (CPT) Basic Rate -‐ 18%;

Cap – n/a; Repor)ng periods – calendar quarter, half year, three quarters, year

§  Value Added Tax (VAT) Cap -‐ n/a; Basic Rates -‐ 0%; 7% and 20%; Repor)ng period -‐ calendar month.

§  Personal Income Tax (PIT) Cap -‐ n/a; Basic Rates -‐ 18%; Repor)ng period -‐ calendar quarter.

§  Unified Social Security Contribu6on (USSC); Cap – up to 25 minimum wages; (UAH 34,450 for Jan–April 2016 and UAH 36,250 for May -‐ Dec 2015; Basic Rates: -‐ employee – n/a (payroll and civil law ); -‐ employer -‐ 22%; Repor)ng period -‐ calendar month.

§  Military Tax Cap – Gross salary (including any benefits); Basic Rates: employee -‐ 1,5%; Repor)ng period -‐ calendar quarter.

§  Excise Taxes Excise tax applies to the exhaus)ve list of the goods imported to or produced in Ukraine, including mainly: alcoholic beverages, tobacco

and tobacco products, fuel, and certain other products;

The rates of the excise tax can be “ad valorem” (a percentage of the value of the goods), “specific” (in monetary units per unit of goods), or “combined”. The rates of the excise tax are subject to permanent changes and must be checked for each par)cular case separately.

3. MAIN TAXES IN UKRAINE



§  During the start-‐up any founder/shareholder of a NewCo, as a rule, have to incur certain expenses (e.g. registra)on fees, notary fees, payments to lawyers, etc.) before comple)ng of a NewCo’s registra)on and opening its bank accounts;

§  The Na)onal Accoun)ng Standards, which are the essen)al ground since 2015 to form the taxable base, directly presume possibility to deduct for the CPT purpose the expenses required by the Ukrainian law for the registra)on (e.g. the registra)on fees, du)es, etc.);

§  Deduc)bility for the CPT purposes of the “addi)onal” expenses paid before the state registra)on completed and/or not from a NewCo’s bank accounts (e.g. payments for the office equipment, furniture, sta)onary, etc.) is ques)onable, and, as a rule, unaccepted by the local fiscal authori)es;

§  In order to prevent non-‐deductable expenses, a founder/shareholder should pay the “addi)onal” expenses, arer the registra)on completed and from the registered NewCo’s bank account.

5. INTERNATIONAL PAYMENTS §  Ukraine has a moderately well-‐developed network of effec)ve double taxa)on

trea)es. The rules incorporated in DTTs ra)fied by Ukraine prevail over the same ones contained in the Ukrainian domes)c tax legisla)on.

§  To be eligible for the reduced tax rates prescribed by the DTT, inter alia, the beneficial ownership test needs to be passed. Under Ukrainian law the beneficial owner of the income is a person who has the right to receive the relevant Ukrainian-‐source income, and is not an agent, nominee or intermediary (conduit). In addi)on, the cer)ficate of residence of a foreign recipient in the relevant jurisdic)on is a must.

4. START-‐UP COST



§  Seslements between residents and nonresidents of Ukraine in trade and service transac)ons are allowed in both hard and local (UAH) currencies;

§  Seslements under export/import of goods, works or services contracts must be made within the period not exceeding 90 calendar days. Otherwise a penalty (0,3% of the overdue debt) will apply for each day of the delay. The 90-‐day period may be extended only based on an individual permission granted by the relevant Ukrainian state authori)es;

§  Offset of the debt between a resident and a non-‐resident is not allowed. This is due to the fact that an offset results in viola)on of the 90-‐day rule (i.e. no funds actually transferred to the bank account of a Ukrainian exporter);

§  75% of foreign currency proceeds received by residents under cross-‐border agreements must be sold on the Ukrainian inter-‐bank foreign exchange market. The foreign currency must be sold not later than the next business day arer the relevant proceeds have been credited to the bank account;

§  If Ukrainian en)ty intends to pay to its foreign counterpart for services, or use of the intellectual property rights in excess of USD 50,000 (or its equivalent in another foreign currency), such Ukrainian en)ty shall obtain a price valua)on statement from the State Informa)on and Analy)cal Center for Monitoring of External Commodity Markets. Otherwise, the bank will disallow the transfer;

§  The Na)onal Bank of Ukraine announced significant changes off the foreign currency regula)ons during the 1st and/or 2nd quarter 2016. Therefore the issue in ques)on has to be monitored on permanent bases.

6. PAYMENTS IN FOREIGN CURRENCY

7. CORPORATE PROFIT TAX (CPT) §  Since 2015, in par)cular the annual financial result (profit or loss from ordinary

ac)vi)es before taxa)on) declared by a taxpayer in its financial repor)ng (prepared in line with NAS or IFRS) and adjusted by several gains/losses directly presumed by the Tax Code, is to be taken, as the basis for the CPT calcula)on;

§  A Taxpayer, whose annual income (net VAT) from any ac)vi)es does not exceed UAH 20 mln. may not apply, at its own discre)on, any adjustments, except the losses carried forward from the previous periods;

§  If it is the case, then the taxpayer will not be able to apply the adjustments during all subsequent repor)ng periods (years), un)l its annual income (net VAT) exceeds the threshold of UAH 20 mln.;



§  A Taxpayer, whose annual income (net VAT) from any ac)vi)es exceed UAH 20 mln., shall apply the adjustments required/granted by the Tax Code. The adjustments are mainly relevant to the transfer pricing rules, accruals of reserves, deprecia)on of noncurrent assets, etc.;

§  CPT e-‐return shall be filed with the local fiscal (tax) authori)es during 40 calendar days following the repor)ng period (for the quarterly repor)ng) and during 60 calendar days following the reported year. CPT liabili)es shall be paid during 10 (ten) days following the deadline presumed to filie the CPT return;

§  Certain business may qualify for a different tax regime, including agricultural, insurance and certain other businesses specified in the Tax Code.

Advanced CPT payment

§  Only one advanced CPT payment is mandatory for the taxpayers, which report quarterly;

§  Advanced CPT payment is due by the end of the repor)ng calendar year in the amount of 2/9 of the CPT liabili)es are due as a result of the CIT declara)on for the three quarters of such repor)ng calendar year;

§  In general, quarterly repor)ng required by the law from the CIT payers, whose annual income from any ac)vi)es (net VAT), exceeds UAH 20 mln. for the previous repor)ng calendar year;

§  Accruals and payments of the CPT on dividends are subject to separate regula)ons. The CPT and Withholding Tax on dividends are separate taxes;

§  Being registered during a calendar year a taxpayer shall file annual CPT return for such year and shall pay CPT (if any) for the period from the date of its registra)on )ll the end of the relevant calendar year;



§  As of 1 January 2016, there are three VAT rates: 20%, 7%, and 0%; §  The rate of 20% applies to almost all transac)ons subject to VAT except specific

transac)ons subject to 7% (medicines, medical goods and equipment incl. for trial) and 0% (export of goods, interna)onal transport and tolling services);

§  Provision of services to a non-‐resident is not directly considered to be zero-‐rated. Such services are subject to 20% VAT or considered to be outside of the scope of VAT (with no right to claim input VAT) depending on “the place of supply”, as it is in the Tax Code;

§  VAT registra)on is obligatory for a taxpayer, whose volume of VAT-‐able opera)ons exceeds UAH 1 mln. during the preceding 12 months; Voluntary registra)on allowed as well, even for those taxpayers, which have no VAT-‐able opera)ons (e.g. VAT registra)on during the ini)al registra)on as a taxpayer); In 2016 the restric)on to credit input VAT in excess of paid output VAT does not applied;

§  Registra)on of a non-‐resident company as a VAT payer is not possible. Being unregistered as VAT payer, a non-‐resident cannot claim a VAT refund of input VAT paid in Ukraine;

§  The “first event” rule applies to input and output VAT. Under the “first event” rule, the liability to pay output VAT as well as the right to credit input VAT arises either at the moment of receiving services/ goods (signing of the acts of acceptance) or when paying money for the services/ goods, depending on which event happens first;

§  VAT e-‐declara)on is to be filed with the local tax authori)es monthly, by the 20th day of the month following the repor)ng one. Relevant tax liabili)es (if any) are to be paid during 10 days following the repor)ng deadline;

§  Taxpayer, who applies paying Simple Tax at the rate 5 % (for details see below) may work without registra)on as VAT payer;

§  In 2016 an absence of a VAT-‐payer at the address, which was declared by such VAT-‐ payer as its tax address, does not lead to the cancela)on of its VAT registra)on.

8. VALUE ADDED TAX



Electronic VAT administra6on

§  In Ukraine the Electronic VAT administra)on came into force in January 2015;

§  A separate VAT bank account is required for the electronic VAT administra)on;

§  All VAT invoices and correc)ons shall be registered in the “Register of the Tax Invoices” (the -‐ Register) during 15 calendar days following the date of issuing. Registra)on delay results in fines up to 50% of the respec)ve VAT. All VAT invoices shall be issued in electronic form. No paper copies are required for the accoun)ng;

§  VAT liabili)es shall be paid from the separate VAT account. If the volume of the funds on the VAT account is lower than the VAT liabili)es to be paid, a tax payer has to transfer a sufficient amount from its opera)onal bank account to the VAT bank account to compensate the lack of the funds;

§  For the purposes of input VAT adjustments (pro-‐rata or self-‐assessed VAT liabili)es) a consolidated VAT invoice should be issued by the end of the respec)ve month;

§  A registered VAT invoice can be included into input VAT within 365 days arer issuing.

VAT recovery and refunds

§  Generally, VAT incurred by a registered en)ty on the purchase and/ or importa)on of goods and services used for the purpose of its own business (except for VAT incurred in rela)on to exempt supply) may be recovered by way of a credit against output VAT. If the credited VAT exceeds output VAT, the refund is available in monetary form;

§  An automa)c VAT refund procedure is available for the eligible taxpayers. Two separate registers (chronological) will be implemented from Feb.1, 2016.

Special VAT regime for the agricultural companies

§  Till 2016 the agricultural companies were allowed to accumulate 100% of their VAT liabili)es on the special bank accounts and use this accumulated VAT for the business development;

§  In 2016 the agricultural companies must pay VAT, pro rate, i.e.:

§  VAT on grain -‐ 85% to the budget and 15% to the special bank account;

§  VAT on milk/meat -‐ 20 % to the budget and 80% to the special bank account;

§  VAT on other products-‐ 50% to the budget and 50%to the special bank account



§  Individuals -‐ tax residents are subject to PIT in Ukraine, regardless of whether they are ci)zens of Ukraine or not. Tax residence, as a rule, is regulated by the Double Tax Trea)es concluded between Ukraine and a country of residence of the individual non-‐resident. Individuals -‐ tax residents are to be taxed on their worldwide income;

§  There is one standard rates of PIT in Ukraine -‐ 18%; §  Dividends are paid by a CPT payer are subject to PIT at the rate 5%. Other

passive income (incl. interests, royal)es, dividends paid by a non CPT payer, etc.) are subject to PIT at the rate 18%;

§  In general, PIT shall be withheld at the payment sources and shall be paid out by the employer prior to or simultaneously with the relevant taxable payments (e.g. salary, payments under the civil law agreements, etc);

§  In general, the employees (incl. non-‐residents working in Ukraine), who have the wage as one source of income, are not liable to file PIT declara)on; Reports on personal income tax (Form – “1DF”) of these employees shall be quarterly filed by the employers, and must include informa)on regarding each of the employees as to the income received and PIT withheld;

§  Income from foreign sources or income from Ukrainian sources, which was not taxed at the sources, is subject to taxa)on in Ukraine. The tax liabili)es are to be calculated based on the data declared in the annual PIT return;

§  Annual PIT return is to be filed with the local tax authori)es by the 1st May of the calendar year following the repor)ng one. The self-‐assessed tax is to be paid in local currency (UAH) by the 1st August of the calendar year following the repor)ng one;

§  Interna)onal agreements signed by Ukraine (i.e. Double Taxa)on Trea)es) prevail over domes)c legisla)on. Therefore, the lower tax rates or even tax exemp)on can be applied based on the interna)onal agreements.

9. PERSONAL INCOME TAX (PIT)



§  Remunera)ons, allowances and other similar payments to employees (regardless of being locals or foreigners) through payroll are subject to the Unified Social Security Contribu)on (the “USSC”). The USSC is to be paid by both employer and employee.

§  Foreigners, who work in the representa)ve offices of foreign companies, are not liable for the USSC;

§  The USSC covers the payments to the: §  Pension Fund; §  Social Security Fund; §  Unemployment Benefit Fund; §  Accident Insurance Fund

§  The taxable base for the USSC is capped by 25 minimum wages, i.e. the cap for the USSC calcula)on will be:

§  UAH 34,450 from January 1 to April 30, 2016 and

§  UAH 36,250 from May 1 to December 31, 2016;

§  The employees are not liable to pay USSC in 2016;

§  The employer’s contribu)on cons)tutes 22% of the gross income, which, however, is subject to the cap (see above);

§  The USSC due by the employer is to be paid simultaneously with the relevant income is paid to the employees or other recipients;

§  The USSC e-‐reports are to filed with the fiscal authori)es by the 20th day of the month, following the repor)ng one. If an employer applies any social benefits, they should be reported quarterly by the 20th calendar day of the month following relevant quarter.

10. UNIFIED SOCIAL SECURITY CONTRIBUTION



Penal6es for the USSC viola6ons include:

§  failure to pay/un)mely pay of USSC – 20% of the underpaid/overdue amounts;

§  addi)onal accruals of USSC by fiscal authori)es result in penal)es amoun)ng to 10% of the accrued amount for each omised repor)ng period, however, not more than 50% of the accruals;

§  failure to file, un)mely filing or filing of the USSC report in a form other than the required one, are result in the fine amoun)ng to UAH 170 (10 nontaxable minimum) for the first viola)on, and UAH 1,020 (60 nontaxable minimum) for the repeated viola)on during the same year.

11. MILITARY TAX §  The Military Tax effec)ve from 3 August 2014 and would apply un)l the reform

of the Ukrainian Military Forces is completed. The comple)on should be confirmed by respec)ve decision of the Parliament of Ukraine;

§  Star)ng from 1 January 2016 the tax base for the military tax is the same as for PIT. This means that income, which was not subject to Military Tax in 2015 (i.e. the USSC paid by an employee, etc.), is now taxable;

§  Tax at the rate 1,5% is to be paid by employees only;

§  Administra)on of the Military tax is similar to the PIT administra)on.



12. SIMPLIFIED TAXATION SYSTEM (SINGLE TAX) §  Upon the entry into force of the Law of Ukraine No.71 on January 1, 2015 the

number of single tax payers’ groups has been reduced from 6 to 4;

§  Simplified Taxa)on System grants payment of CPT at the rates 3% or 5%, possibility to avoid registra)on as VAT payer and is regulated by the Tax Code of Ukraine;

§  In general, the condi)ons to apply the System and relevant advantages and disadvantages are briefly provided in the table below.

Individuals (private entrepreneurs) and Legal en66es Group 1 Group 2 Group 3 Group 4

Taxpayers P r i v a t e entrepreneurs (PEs) PEs and lega l

en66es PEs and legal en66es Agricultural producers

(legal en66es and individual farmers)

Max. income per year UAH 300k UAH 1.5 mln UAH 5 mln The main criterion-‐

income from the sale o f t h e i r o w n agricultural products cons6tutes not less than 75% of the total gross revenue of the p r e v i o u s t a x (repor6ng) year

Max. number employees Nil 10 employees No limit No limit

Major ac6vi6es Trading in markets Specified consumer services

S e r v i c e s ( i n c l u d i n g c o n s ume r ) t o payers of Unified t a x a n d / o r i n d i v i d u a l s Manufacturing/ Produc6on Sale of goods Restaurants

Any a c6v i t y ( u n l e s s s p e c i fi c a l l y excluded)

Sale of agricultural products produced and processed (other t h a n s p e c i fi c a l l y excluded)

Tax rates up to 10% of min salary per month up to 20% of min

salary per month 3% of turnover ( i f V A T r e g i s t r a 6 o n made) 5% of turnover, i f n o V A T registra6on

The amount of tax due depends on the size of the agricultural land plot owned or rented by the agricultural producers. The tax rates vary from 0.49% to 5,4%, apply to the norma6ve monetary value of one hectare of agricultural land, and depend on the type of such land.



§  Taxpayers from the 3rd Group cannot be registered as VAT payer from the very beginning. Firstly registra)on as 5% tax payer is required. Nevertheless, re-‐registra)on is not complicated and can be performed from the beginning of any calendar quarter, provided relevant statement submised to the tax authori)es at least 15 days prior to the beginning of the relevant calendar quarter;

§  Taxpayers that adopt the Simplified Taxa)on System must maintain their accoun)ng records in line with the specific procedures presumed by the Tax Code for such tax payers.



§  Payments in cash (salary, compensa)ons, etc.) require special suppor)ng documenta)on (cash receipts, cash disbursement vouchers, etc.) and must be recorded in a standardized cashbook. To compensate for any expenses incurred by an employee for a company’s business, a so-‐called “advance report”, using a standardized form, must be completed;

§  To keep cash in office (pesy cash), a company has to set a “cash limit”. For this purpose, a company has to use a specific algorithm required by the Na)onal Bank of Ukraine. The “cash limit”, in general, depends on the average number of cash transac)ons per month and on the nature of the company’s business. In that case of a start-‐up business, the “cash limit” is set based on the presumed number of cash transac)ons and may be revised arer three months based on actual number of the cash transac)ons;

§  Cash exceeding the “cash limit” that is withdrawn by a company from the bank for specific payments (e.g. advance for business trips) has to be returned to the bank if not paid to a recipient within 3 days;

§  Exceeding the cash limit, if iden)fied by the tax authori)es in a company’s office, results in significant fines for the company (up to quintuple amount of the excess);

§  The limits for cash payments in Ukraine are set at: §  UAH 10,000 -‐ cash payments between companies during one working day; §  UAH 150,000 – cash payments between individuals and companies during

one working day for goods (labor, services);

§  Payments between individuals amoun)ng to UAH 150,000 under the sale and purchase agreements are to be endorsed by a notary;

§  The Na)onal Bank of Ukraine (NBU) plans to narrow the use of cash by reducing the upper limit of cash payments between individuals by three )mes, to UAH 50,000.

13. CASH PAYMENTS



§  Historically Ukraine had strict and administra)vely burdensome currency control rules. Nevertheless, during 2014/2015 the excessive state regula)on in this area was significantly increased. This is mostly to avoid poten)al default of Ukraine.

§  The broad ranges of administra)ve instruments to govern the Ukrainian currency market were adopted by the Ukrainian government.

§  As a result the following currency control restric)ons con)nue to apply in August 2015:

§  75% mandatory sale of all foreign currency proceeds;

§  Limita)ons on purchase of hard currency by individuals (UAH 3,000 per day);

§  A ban on the following transac)ons in foreign currency: §  Payments under import and export transac)ons exceeding 90 calendar days; §  Early repayment of loans, as well as the conclusion of supplements on the

reduc)on of payment terms; §  Offset of mutual claims under foreign trade agreements; §  Remisance of funds to foreign investors due to:

•  proceeds from the sale of corporate rights (except shares); •  the sale of Ukrainian securi)es outside the stock exchange (except state bonds);

•  payment of dividends (except from securi)es traded on the stock exchange).

§  The threshold for service payments to non-‐residents, which require price exper)se of the Foreign Markets Monitoring Centre cons)tutes EUR 25,000 per year;

§  Ukrainian residents (except for individuals) cannot purchase foreign currency if they have more than USD 10,000 on their current and deposit accounts in all banks;

§  A ban on the remisance of funds to foreign investors due to: §  Payment of dividends under securi)es traded on the stock exchange; §  Decrease of the charter capital or exit of foreign investors from legal

en))es;

§  A ban on the transfer of UAH from investment accounts for the purchase of state bonds.

14. FOREIGN CURRENCY TRANSACTIONS



§  In Ukraine, certain types of business ac)vi)es may be carried out only upon obtaining a license from the relevant state authori)es;

§  Since July 2015 about 30 types of ac)vi)es are subject to licensing in Ukraine. The main of them are: banking and financial services; professional stock market ac)vity; certain types of construc)ons; certain types of cross-‐border business ac)vity; business ac)vity in the sphere of intellectual property; manufacturing and sale of ethanol, cognac and fruit spirits, alcohol beverages and tobacco; produc)on and sale of ethanol, cognac and fruit spirits, alcohol beverages and tobacco; produc)on and sale of pharmaceu)cals; business ac)vi)es in telecommunica)ons, TV and radio broadcas)ng; cargo, passenger and baggage transporta)on; medical and veterinarian prac)ce; transporta)on of oil and petroleum products via long-‐distance pipelines; transporta)on of natural, oil-‐well gas and methane via pipelines and their distribu)on; sale of biomass liquid fuel and biogas, etc.;

§  License can be obtained both in hard copy and in electronic form. The documents for license can be submised personally, by post or electronically;

§  Licenses are issued for an indefinite period of validity unless a limited term is prescribed for a par)cular type of license. Generally, the term of the license should not be less than 5 years. For a license a one-‐)me fee shall be paid. Re-‐issuing of a license shall be done free of charge.

15. LICENSING



§  The new transfer pricing rules for the Ukrainian companies came into effect on September 1, 2013 and are subject to permanent changes.

§  Transfer pricing rules involve price control over the following transac)ons: §  with related non-‐resident companies; §  with unrelated non-‐resident agents; §  with companies from the “low-‐tax” jurisdic)ons; and §  with companies from the jurisdic)ons, which have no agreements with

Ukraine “On the informa)on exchange”.

§  Since July 2015, the threshold for controlled transac)ons cons)tutes UAH 5 mln. with one counterparty (provided the total annual revenue of the taxpayer exceeds UAH 50 mln.);

§  The "arm's-‐length” principle is the basic rule for the transfer pricing regula)ons, and presumes that the prices in the controlling transac)ons must comply with the prices in the comparable uncontrolled transac)ons between independent counterpar)es (“fair market price”);

§  In general, a taxpayer must prove compliance of its prices in the controlled transac)ons with the fair market prices by filing the annual report on the controlled transac)ons (a deadline is May 1), as well as by provision of suppor)ng documenta)on upon the request from fiscal authori)es. The proving must performed based on the method(s), described in the amended Tax Code.

§  Suppor)ng documenta)on above include: factors affec)ng the prices; informa)on about the func)ons, assets and economic risks of the counterpar)es to the controlled transac)ons; economic analysis (including analysis of the range of the fair market prices or comparable profitability); reason to use the method(s) chosen to confirm that the price in the controlled transac)ons equals to the fair market price, etc.

§  In case of non-‐compliance of the controlled prices with the fair market prices, the adjustment of the controlled prices and corresponding recalcula)on of tax liabili)es are required.

16. TRANSFER PRICING



§  The main legisla)ve act regula)ng employment rela)ons in Ukraine is the Labour Code of Ukraine (“Labour Code”). The Labour Code is inherited from the Soviet era and has not undergone any major revisions since its adop)on in 1971;

§  Employment can be formalized through a labour agreement or an employment contract in wrisen form. Employment can also be formalized with a standard “order”, signed by a company’s director;

§  An employer has the right to establish a proba)onary period (up to 6 months) for a newly-‐hired employee. For unskilled and low skilled employees, the dura)on of the proba)onary period may not exceed one month;

Payroll and labor essen6als

§  Salaries should be paid at least twice a month. The gap between installments should not exceed 16 days, and the salary must be paid within 7 calendar days arer the end of the period to which it is asributable;

§  In general, working )me is limited to 40 hours per week with a five-‐day working week. In certain cases an employer may introduce a six-‐day working week. Over)me may be introduced in excep)onal cases and must be paid at double rates;

§  Annual vaca)on is 24 calendar days. The weekends during a vaca)on are counted as vaca)on days;

§  Addi)onal social vaca)ons are granted to couple categories, including but not limited to: §  women having two or more children under the age of 15; §  women having a disabled or an adopted child; §  single parents; etc.

§  Vaca)on allowances are calculated based on the average salary during the previous twelve months. Each employee must be granted vaca)on of 24 calendar days. The main part of the annual vaca)on should be not less than 14 days. Unused vaca)on days can be carried forward; however, with certain limita)ons;

§  Being on sick leave an employee has to be paid in the amount of: 60-‐100% of average salary of such employee depending on the length of service: 5 years or less -‐ 60%; 5-‐8 years -‐ 80%; more than 8 years -‐ 100%).

17. PERSONNEL ADMINISTRATION



§  Sick leave allowances are calculated based on the average salary during the previous six months;

§  Protec)on from termina)on during the first four months of uninterrupted sick leave, is granted by the labour law;

§  The system of sick leave in Ukraine requires an employee to submit a medical cer)ficate only arer his/ her recovery, i.e., on the first working day arer an employee’s recovery;

§  Sick leave compensa)on is covered by the Ukrainian State Social Security Fund, except for the first 5 (five) days of each period of an employee’s sickness, which paid for by the employer. Paid maternity leave is up to 70 calendar days before and up to 56 calendar days arer the childbirth.

Disabled individuals

§  In accordance with Ukrainian legisla)on companies with more than eight employees are required to be registered in the relevant fund and employ a minimum number of disabled people – 4% of their total headcount (for the companies with 8 to 25 employees this quota is one disabled person).

§  If an employer does not meet the quota, it is required to make a one-‐)me payment per year to the Fund for the Social Protec)on of Disabled People which is equivalent to the company’s one employee’s annual average salary (50% for companies with 8 to 15 employees) for each posi)on that is not occupied by a disabled person.

Work permit

§  A foreign na)onal can be hired in Ukraine following receipt of a work permit issued by the State Employment Centre of Ukraine. A convincing statement of reasons for a foreigner (as opposed to a Ukrainian na)onal) to be employed with a Ukrainian company is mandatory. It usually takes up to a calendar month to receive a work permit;

§  Work permits are usually granted for a period of one year, but can be prolonged for another year on an annual basis. A foreigner who is employed without a proper work permit can be immediately deported at the expense of his/ her employer.



§  The situa)on may exist where foreign founders/ shareholders (regardless of being individuals or legal en))es) need to finance their Ukrainian companies (subsidiaries). In general certain op)ons exist for financing in the legal way, namely:

§  Increase of the statutory fund. Advantages:

§  full legi)macy; §  minimum tax risk (in case of the investments in monetary form); §  guarantee of repatria)on of the investments and all profits associated with

them; no individual currency license required. Disadvantages:

§  necessity to prepare obligatory package of the suppor)ng documents; §  changing of the statute of a recipient and further registra)on of the changes

with the state authori)es; §  the funds must be transferred arer the registra)on. In the opposite case tax

authori)es treat the funds rather as non-‐returnable financial assistance than as increase of the statutory fund;

§  Refundable financial aid Advantages:

§  refundable financial aid obtained from the founder/ shareholder (including a non-‐resident) does not trigger any tax implica)ons for its recipient within 365 days following the date of its receipt.

Disadvantages:

§  necessity to prepare obligatory package of the suppor)ng documents; §  obligatory registra)on with the Na)onal Bank of Ukraine before receipt by a

Ukrainian borrower; §  ban to refund before the date directly presumed for the refund by the

relevant agreement, due to the limita)ons for opera)ons in foreign currency implemented by the Na)onal Bank of Ukraine in 2014 and prolonged for 2015 and 2016.

§  In general the 3rd popular op)on is provision of the loan. If it is the case, then all advantages and disadvantages provided above regarding the refundable financial aid are relevant to the provision of the loan by the founder/ shareholder (including a non-‐resident).

18. OPTIONS TO FINANCE UKRAINIAN SUBSIDIARIES

Making your business work – is what we do!

HWC LLC Ukraine Kyiv 04205 Obolon Residences Obolonskyi Ave 26 +380 44 451-‐5154 [email protected] www.hwc.com.ua

Date post:	23-Jan-2017
Category:	Services
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