New tax benefits available only to limited number of entrepreneurs
Kyiv. 1 April, 2011
Taras Rozputenko, attorney-at-law with Volkov & Partners Law Firm believes that narrowness of criteria provided by the Tax Code, which is effective from April 1, 2011, and used for applicability of tax benefits and tax holidays for small and medium-sized enterprises, puts in question applicability of such benefits for majority of entrepreneurs.
He commented to “Interfax-Ukraine” Agency regarding separate provisions of the new Tax Code that came into force on April 1 and which itself envisage reduction of corporate profit tax rate from 25% to 23%, introduction of tax benefits for certain industries, and tax holidays for enterprises with annual profit not exceeding UAH3 millions; as well as regarding Chapter III in full, which regulates corporate profits tax.
”Very narrow criteria for applicability of tax benefits in corporate profit tax, which makes impossible for majority of entrepreneurs to use it, could not be recognised as “tax benefits” or “tax holidays”. Such reality also puts in question government declarations with regard to tax breaks for small and medium-sized businesses,” said the expert.
Mr. Rozputenko believes that for straightforward understanding of tax code provisions regarding sound application of tax benefits by entrepreneurs it would be better to envisage clear requirements and specify industries to enable entrepreneurs to use mentioned tax benefits, rather than provide exclusive clauses.
"Moreover, if the structure and rough writing of regulations is anything to go by, it seems that law-maker develops laws for itself rather than for its people," emphasized Mr. Rozputenko.
According to him, for example, if to consider tax holidays prescribed for enterprises with annual profit up to UAH 3 million, only individual companies will be able to put it into a practice.
As the lawyer explained, the Tax Code sets forth zero rate of profit tax, effective during the period from April 1, 2011 to January 1, 2016, for taxpayers, whose annual profit does not exceed UAH3 million, and monthly salary of each employee amounts to at least two floor wages. In addition, a company must meet one of the following criteria: 1) it is established after April 1, 2011; or 2) a number of its employees is equal or less that 20 and annual profit for the last three years amounts up to UAH3 million; or 3) it has been registered as a flat tax payer before the Tax Code came into force, its profit for the previous year amounts up to a million hryvnias, and average number of employees is less than 50.
Mr. Rozputenko wonders how many Ukrainian companies comply with the foregoing criteria.
At the same time, he adds that not only all criteria and restrictions, but also supplementary terms must be complied with, in particular, tax exemption will not be applied, among others, to entertainment companies, companies involved with production, wholesale, and export/import of excisable goods or fuels and lubricants; financial, law, accounting, engineering and provision of services activities.
In addition, on April 1, 2011 Article 154 of the Tax Code reads to exempt from profit tax enterprises that were established by social organization of disabled people; receive their proceeds selling baby food products of in-house production – moreover, such income must be purposed to increase production volumes and reduce prices – but the list of baby food products to be determined by the Cabinet of Ministers Of Ukraine; as well as Chernobyl NPP; state enterprises, namely, Artek ICC and Molodaya Gvardiya (the Young Guards) UCC; and enterprises of power industry.
Another fact is that the Tax Code set forth to exempt from income tax enterprises producing biofuel and biofuel appliances before January 1, 2020. Within the following ten years, beginning from April 1, 2011 and until January 1, 2015, some enterprises are exempt from the tax in question, in particular, hotels of the 4-star category and higher, enterprises of light industry, shipbuilding and aircraft construction industries and agricultural engineering industry, companies producing renewable energy, and those involved with printing and publishing activity. If a film or cartoon production company places received funds or property to produce national films, than amounts of funds and cost of property will not be accounted as profits until January 1, 2016.
At the same time, under the Government’s decree No. 229 dated February 28, 2011, “On approval of procedure of application of funds, which are exempt from taxation due to corporate profit tax benefits applied in compliance with clauses 15, 17-19 of section 4 of Chapter XX "Transitional Provisions" of the Tax Code of Ukraine” (the Government’s decree), enterprises eligible for corporate profit tax benefits undertake to invest funds, to which tax benefits are applied, in production development or repayment of production development loans.
Also, under the document, if a taxpayer fails to apply exempted balance until April 1 of the year following the tax benefit introduction, its relative tax liabilities for the 1Q of such year will be increased by amount of such balance.
Exempted funds must be duly reflected in bookkeeping documents as the separate subaccount of “Target financing and receipts” account for reporting and taxation purposes.
Based on results of each fiscal (tax) period, the taxpayer reports on application of funds exempted from tax. Such report is presented on form approved by the State Tax Service of Ukraine (STSU). Then the report and corporate profit tax declaration are filed with the STSU.
The Government’s decree comes into force from its publication date and is in effect until April 1, 2021...
Lawyer: Restrictions for legal entities cooperating with “flat tax”-entrepreneurs not apply to IT expenses
Kyiv. 1 April, 2011
Legal entities that purchase goods and services from private entrepreneurs benefiting from the flat tax will no longer be able to account such payments as gross expenses. In other words, these payments will be subject to corporate profit tax. This rule is introduced by the new Tax Code and becomes effective from April 1, 2011. Alongside, it does not applied to expenses related to information technologies (IT), commented Attorney-at-law with Volkov and Partners Taras Rozputenko to Interfax-Ukraine on certain provisions stipulating, inter alia, the aforesaid restrictions and introduced from April 1 within the new Tax Code.
“It is obvious that IT businesses today are much luckier than many others,” added Mr. Rozputenko.
The Attorney-at-law explained that such restrictions do not apply to enterprises if goods, services and works purchased from private entrepreneurs benefiting from the flat tax relate to informatization field.
He also pointed out that the term “informatization” and those notions relative to it are interpreted by the Law “On National Informatization Program” and р. 72 “Activity in Informatization Field” of the National Classifier of Ukraine “Classification of Types of Economic Activity".
Reportedly, Chapter III of the new Tax Code dealing with the corporate profit tax became effective on April 1, 2011. It exactly prohibits legal entities to account purchases of goods and services from private entrepreneurs benefiting from the flat tax as gross expenses, i.e. they being chargeable with corporate profit tax.
In addition, since April 1, 2011 the legal instrument has introduced tax relieves for certain industries and “tax holidays” for enterprises with annual income below UAH 3 mln.
The Tax Code came into force from January 1, 2011.
At the same time, unless relevant amendments to the Tax Code concerning system’s simplicity are introduced, the President’s Decree “On Simplified System of Taxation, Accounting and Reporting of Small Businesses” No. 727/98 of July 3, 1998 continues to have effect.
Opinion: What affects automatic VAT refund?
Text of the article is
available in Ukrainian/Russian only
Киев. 29 марта, 2011
Возмещение налога на добавленную стоимость (НДС), осуществляемое с
помощью специализированного программного обеспечения, не исключает
влияния человеческого фактора на отбор кандидатов на такое возмещение.
Такое мнение высказал адвокат Адвокатского объединения "Волков и Партнеры" Тарас Розпутенко на пресс-конференции в агентстве "Интерфакс-Украина" во вторник.
"Программа обеспечения (возмещения НДС – ИФ) действительно работает в
автоматическом режиме, оно (программное обеспечение – ИФ) автоматически
определяет кому, отвечает или не отвечает предприятие этим критериям, но
(…) данные, которые заносятся в эту программу, они заносятся в ручном
режиме (…) тут никто не застрахован от человеческого фактора", - сказал
Он пояснил, что ответственность за неточности при занесении упомянутых
данных не предусмотрена ни в Налоговом кодексе, ни в других
нормативно-правовых актах, что может привести к непрозрачности данной
В свою очередь, первый вице-президент Украинского союза промышленников и
предпринимателей (УСПП) Сергей Прохоров отметил, что, не имея в
государстве совершенной системы возмещения НДС, оно идет в ручном режиме
и поэтому качество его остается низким.
"Принцип ручного управления выявляет недостатки и дает сбои относительно
того же возмещения НДС в автоматическом режиме", - отметил С.Прохоров.
Так, одно из требований Налогового кодекса, дающее право на
автоматическое возмещение НДС, это то, что предприятие должно иметь
высший показатель, чем средний по отрасли уплаты налога на прибыль.
"А кто знает, какой показатель налога на прибыль уплачивает отрасль?
Никто не знает кроме налоговиков. И поэтому выходит, что от налоговика
будет зависеть, откроет он этот ящик, или нет", - пояснил С.Прохоров.
Он отметил, о том кто как работает, знает только налоговик и только он
может сравнить условия, "и выходит, что автоматическое возмещение
зависит от конкретного лица, которое будет смотреть: отвечает или не
отвечает (лицо упомянутым критериям – ИФ)".
Помимо того, С.Прохоров добавил, что промышленность и
предпринимательство взволнованы тем, что определенные положения
Налогового кодекса ухудшают инвестиционную привлекательность
предприятий, в частности, норма, устанавливающая 12-месячный срок,
который предприятие должно проработать на общей системе налогообложения,
чтобы соответствовать критериям для автоматического возмещения НДС.
"Понятно, что никакой инвестор не будет ждать 12 месяцев своей прибыли,
при том, что он и так в сложных условиях находится, т.к. он должен
оплатить НДС на границе при ввозе своего нового оборудования (…). А
далее, зарегистрировав предприятие в Украине, он должен ждать еще 12
месяцев, пока получит возможность этот НДС возмещать", - пояснил
Как сообщалось, Государственная казначейская служба Украины провела
первые операции по возмещению НДС в автоматическом режиме на сумму 456,5
По данным Государственной налоговой службы, автоматическое возмещение
НДС получат 24 предприятия, из них 12 - крупные налогоплательщики.
Поступления от НДС в марте ожидаются на уровне 6,6 млрд грн при
запланированных в бюджете 5,9 млрд грн, тогда как на возмещение НДС
планируется направить 3,1 млрд грн.
Cancel of permits for seals and stamps manufacturing to trigger malfeasance
Kyiv. February 24, 2011
“Abolishment by the Ministry of Internal Affairs of Ukraine (MIA) of permits for seals and stamps manufacturing might lead to abuses as now the manufacturing process would not ensure the control over validity of data or information specified in a sample illustration of seal,” believes Associate with Volkov and Partners, Taras Rozputenko, commenting on the respective MIA’s Order No. 5 of January 11, 2011 “On Recognition of MIA’s Order No. 17 Dated January 11, 1999 Such as Ceased to Be Effective”, effective since February 21, 2011.
Specifically, this Order revoked the requirement to obtain permits for seals and stamps manufacturing.
“In other words, from now on any individual or legal entity may go to an appropriate enterprise manufacturing seals and order at own discretion a seal of either a different business entity, a government body, a local self-government body or a notary public, and so on indefinitely,” emphasized Mr. Rozputenko.
According to the Associate, the manufacturing enterprise will not be obliged to verify data or information set forth in the sample illustration of seal.
In addition, Mr. Rozputenko pointed out that the fact of order for a corporate seal by any person other than a company itself will not be now subject to a criminal liability. Instead, the subsequent use of such seal by the company will be qualified as a criminally punishable act.
“Simple abolishment of the requirement to obtain a special permit for seal manufacturing might result in unfair practices and, consequently, lead to disputes likely settled in a judicial proceeding with, thus, further burden laid on judicial authorities,” summed up Mr. Rozputenko.
Experts: exclusive title to export agri-commodities vested in agrarians and state agency to result in monopolized agricultural market
Kyiv. February 11, 2011
“Adoption of the Draft Law providing for export of objects of state
price regulation exclusively by agri-producers and state agent will lead
to monopolization of the agricultural market,” considers president of Ukrainian
Grain Association (UGA), Volodymyr Klymenko.
“The issue concerns (in the Draft Law – IF) monopolization of the
market, which may devastate the agricultural market and throw the market
back to 90’s,” said he during the press-conference on Friday, at the
Interfax-Ukraine Agency, Kyiv.
Head of the Association reminded that Ukrainian deputies Vitaliy Bort
(Party of Regions), Maryna Perestenko (CPU), Serhiy Tereshchuk (Litvin
Block) and Ivan Sydelnyk (BYT) registered the draft law, by which they
propose to provide permission to export the objects of state price
regulation within in-house volumes only to agri-producers and the state
Mr. Klimenko emphasized that agri-producers have never lost their right
to export their products, but the proposed deed is likely to restrict
agrarians’ export capabilities merely by the output yield. “As for
traders”, the export says, “the draft law adoption means they would be
able to operate Ukrainian grain on FOB terms only. And we must remember
that grain traders are owners of linear and port granaries, as well as
facilities on grain transshipment, with huge investments tied up into
them. If traders are deprived of the title to export, one can talk about
no investments at all.”
In addition, he assumed that the Draft Law adoption would affect
adversely Ukrainian agrarian sector’s investment attractiveness. “In
case where such draft is enacted, our agrarian operators will have
nothing to do at world stock markets”, said Mr. Klimenko.
Oleksiy Volkov, Managing Partner and Attorney at Law with Volkov
& Partners, believes the Draft Law, registered with the
Parliament, contravenes the effective legislation and, more
specifically, the Constitution of Ukraine, Economic Code, Laws "On
Foreign Economic Activity” and “On Protection of Economic Competition”...
Intent to license Ukrainian meat imports contradicts WTO rules
Kyiv. February 2, 2011
“The Draft Decree of the Ukrainian government “On Introduction of Meat
Products Licensing” runs counter to the commitments that Ukraine
undertook acceding to the WTO,” considers Associate of Volkov and
Partners Law Firm, Iryna Polovets.
“As a WTO member, Ukraine committed to cancel and disapply quantitative
restrictions of imports or other non-tariff measures, including
licensing, which are not in line with the provisions of WTO Agreements,”
commented Ms. Polovets during interview to the Interfax-Ukraine Agency
on the Draft Decree of the Government prepared by the Ministry of
Economic Development and Trade of Ukraine and published on the
“In turn, the Agreement on Procedure of Import Licensing requires
transparency, simplification and speeding-up of import procedures, as
well as prohibits introducing measures that suppress and violate the due
course of trade and appear to be administratively burdensome,” she
As Ms. Polovets states, such governmental actions shall, inter alia,
comply with the provisions of the WTO Agreement on Agriculture and
another one on Import Licensing Procedures.
The Associate mentioned that in accordance with the WTO Agreement on
Agriculture members of the organization waive such measures as mere
customs duties. “In its turn, definition of such measures includes
import licensing,” accentuated Ms. Polovets.
Moreover, the Associate considers licensing to be only necessary where
there is lack of other procedures applied to win the objectives. “So far
as, according to the explanation letter to the document, the licensing
is introduced to prevent import of low-cost and low-quality commodities;
it figures that veterinary and sanitary control is quite enough to
reach the aim,” she said.
Ms. Polovets also added that in case of the Draft Decree adoption
Ukraine shall inform about the said measures to the WTO Committee on
Import Licensing to notify interested counterparties and reconcile such
measures. “Otherwise, Ukraine could not escape a negative reaction from
interested WTO members. This, consequently, could aggravate business
climate in the country that has already become unstable after the
introduction of grain export quotation,” summed up the Associate...
Supreme Administrative Court of Ukraine decision on Livela case sets precedent for big business to avoid taxes
Kyiv. January 24, 2011
“The Supreme Administrative Court of Ukraine (the SACU) decision
upholding tax relief for Poltava-based Livela Company, an importer of
oil products, establishes a precedent for big business to break free of
taxes”, believes Partner of Volkov and Partners Ihor Martsyn.
“This decision may create a precedent for other courts to resolve in the
same “legal” manner with further benefit for big business to be
exempted from taxes and duties”, he noted.
Mr. Martsyn mentioned that interested state authorities have no legal
grounds to appeal against the SACU’s decision in the Supreme Court of
Ukraine, as the SACU did not apply the provisions of the substantial law
and issued a verdict solely on the basis of the procedural rules.
In addition, the Partner sees the previous judgments can hardly be
revised just because of newly disclosed facts in the case.
In his opinion, a possible solution is that interested parties would go
to the Avtozavodskoy District Court of Kremenchuh (the first instance
court that exempted Livela from taxes and duties) with a petition to
clarify the terms of the company’s exemption from taxes, and specify the
kinds of taxes and duties in question. “In case where clarifications
contradict the effective legislation, the respective decision will be
subject to appeal in the appellate and cassation procedure”, Mr. Martsyn
Reportedly, according to the decision dated December 22, 2010, the
Supreme Administrative Court of Ukraine upheld Livela’s tax relief,
including the one for tax-free imports of fuel products to Ukraine. In
addition, the decision reads that it is final and without appeal...
Minority Stake Sale Forced by 95%-Stake Holder Needs Additional Explanation of Constitutional Court
Kyiv. December 24, 2010.
The option to sell minority stakes upon the demand of 95%-stake holders
needs an additional explanation of the Constitutional Court of Ukraine,
believes Roman Drozhanskyi, Partner with Volkov and Partners.
Commenting to Interfax-Ukraine on the Law “On Amendments into the Law On
Joint Stock Companies” providing for such option, he said: “This
provision may be deemed inconsistent with the Constitution stating that
the condemnation of the objects of private ownership rights may be
applied only as an exception based on public need. As such, for a new
provision to be justifiably applied an additional decision by the
Constitutional Court might be required.”
The Partner highlighted that this novation also restricts the rights of
pledgees as the existence of earlier registered pledge of shares is not a
barrier to carve out shares to the benefit of a majority shareholder.
“Accordingly, in prospect pledgers would in practice loose an option to
use share portfolios of less than 5% of stock as a pledge due to
obvious unattractiveness of such portfolios for pledgees,” assumed Mr.
Furthermore, according to the expert, joint stock companies were granted
a delay till April 29, 2011 to fulfil the requirement as regards
conversion of a joint stock company’s shares into book-entry form.
“The adopted law also delivers public joint stock companies (PJSC) from a
cumbersome necessity of listing in the stock exchange,” the lawyer
mentioned. According to him, such requirement to PJSC was illogical and
its abolishment would lead to reasonable deregulation of joint stock
Reportedly, The Verlhovna Rada has lately adopted the Law “On Amendments
into the Law on Joint Stock Companies” giving the right to 95%-stake
holders to force minority shareholders to sell their shares...
Prolongation of 24% duty for export of non-ferrous metal threatens Ukraine with WTO members’ retaliatory measures
Kyiv. December 22, 2010
Prolongation of export duty for scrap non-ferrous metal transactions run
counter to a number of provisions of World Trade Organization (WTO)
agreements and can trigger retaliatory measures on the part of WTO
members, believes Associate from Volkov and Partners Law Firm,
“It is appropriate to assume that, owing to the prolongation, countries
infringed on their interests may apply countermeasures to Ukraine, for
instance, considering practices of other countries, by suspending
concessions on certain kinds of goods imported from Ukraine,” said Ms.
Kheruvimova to the Interfax-Ukraine Agency, commenting on the Law,
prescribing to keep up 24 per cent duty for non-ferrous metal export
from Ukraine in 2011.
As the Associate explained, in addition to the rules of the General
Agreement on Tariffs and Trade 1994 (GATT 1994), if a WTO member
considers that the benefit obtained is being nullified or impaired, this
member can make written representations or proposals to Ukraine or
other parties concerned with regard to consulting.
“Logically, importing countries have reason to eliminate infringements
of their interests, whereas an infringed balance of commitments and
concessions entails loss of the expected preferences,” said Ms.
According to the expert, paragraph 230 of the Report of the Working
Party on Ukraine’s Accession to the WTO acknowledges that high export
duties could act as trade barriers and hence Ukraine undertook to reduce
“The undertaken commitments have formed part of the balance of
commitments and concessions,” mentioned the Associate. Thus, pursuant to
239 of the Report the failure to comply with the commitments would
disturb the balance and give the right to contracting parties to take
appropriate action to rebalance the concessions.
The Associate said that regardless of the mechanism taken by a
contracting party, the fact of loss of expected benefit or advantage
should be proved.
In addition, Ms. Kheruvimova emphasized that the actions geared at
rebalancing may be in place even if one of the contracting parties has
applied measures notwithstanding their contradictory nature as to the
provisions of GATT 1994...
Permission of grain export to FTA countries to question practicality of introduced quotas
Kyiv. December 1, 2010.
Ukrainian Ministry of Economy’s offer to permit grain export to the Free
Trade Area (FTA) countries will question appropriateness of the
previously introduced grain export quotas, as such restrictive measure
has been purposed to prevent severe grain shortage.
An Associate of Volkov & Partners Law Firm Andrii
Zablotskyi expressed mentioned opinion commenting to the
Interfax-Ukraine Agency on the draft decree of the Cabinet of Ministers
of Ukraine, which provides that agricultural products should be
available for export to the countries that signed free trade agreements
"It’s worth considering, that Ukraine introduced quantitative export
restrictions to avoid the threat to the country’s food security.
Naturally, the question arises: are these actions appropriate? After
all, if the country is in shortage of foodstuff, it is doubtful whether
the issue of export can be discussed, even for the FTA countries," said
Besides, the Associate says that from the one hand such actions may be
regarded as violation of Article ХІІІ:1 GATT-1994, provide for
non-discriminatory application of quantitative restrictions with regard
to other WTO members and third countries. On the other hand, Mr.
Zablotskyi pointed to Ukraine’s right to create the most-favoured
treatment for the FTA countries as envisaged by Article XXIV GATT-1994.
He explained further that the said provision is an exception of the
most-favoured treatment, which is crucial in the multilateral trade
system and stipulates non-discrimination between member countries when
accruing preferences and benefits.
The Associate reminded that restrictions on agricultural products in the
form of quotas were designed to prevent severe grain shortages in
Ukraine. Mr. Zablotskyi added: "Today the procedure of exportation to
the countries, with which Ukraine has the Free Trade Agreements, has not
been definitely enacted. The point is whether the state will be able to
ensure an equitable access of all participants to the export. Otherwise
the competition will be restricted and the rights of disqualified
companies will be violated"...