Corporate Taxation in Ukraine: What do you need to know

July 2, 2024

The below article and presentation provide a comprehensive overview of the taxation landscape for corporate taxpayers in Ukraine. It covers the key taxes and charges that companies are required to pay, including corporate income tax, value-added tax (VAT), exices and customs charges, local taxes, social security contributions, and other obligatory payments. The aim is to equip businesses with essential knowledge to navigate the Ukrainian tax system effectively, ensuring compliance and strategic financial planning.

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Taxes at corporate level include:

• Corporate Taxation
• VAT
• Affordable real estate and land tax
• Targeted ecological taxes and fully deductible expense
• Transport tax
• Excise taxes
• Royalty for minerals extraction and subsoil use (rent)
• Capped and deductible 22% payroll taxation
• Low charges to the State Pension Fund for special transactions
• Customs charges

Corporate Taxation

• 18% flat corporate income tax (CIT)
• Tax reporting is based on IFRS or national GAAP
• Most of the business expenses are deductible subject to standard tax adjustments
• Deductions of royalties, interest and cross border expenses
• Depreciation of real estate and fixed assets from 1 to 20 years
• Possibility for foreign companies to obtain a residency status in Ukraine based on a place of effective management
• 15% withholding tax on incomes derived from Ukraine, unless a relevant double tax treaty provides lower rate or exempt
• Broad network of effective double tax treaties with around 80 countries
• Available standard transfer pricing rules and reporting system
• No Pillar 2 application

VAT

• 20% - a standard rate for goods, services and e-services
• 14% - certain agricultural products
• 7% - medicines, medical devices, medical equipment, transportation
• 0% - export of products and services
• VAT exempt for most of defence goods during the period of martial law
• Import VAT exemption for certain goods

Real Estate Taxes

Subject to Real Estate Taxes: Owners of residential and non-residential property

Exemptions:

• Industrial buildings (production buildings, workshops, storehouses)
• Agricultural buildings (classified as such by the State Classifier)
• Non-residential premises for small and medium-sized businesses (e.g., kiosks, stalls)Government and non-profit organization properties

Rate: Up to 1.5% of the minimum salary per m2 as of January 1 of the reporting year (around EUR 2,5 per m2 for 2024).

Exempt Properties from 2022:

• Real estate in areas affected by military operations or occupied by Russian forces
• Properties damaged or destroyed due to war with Russia

Land Taxes

Subject to Land Taxes: Owners or users of the land.

Categories of Lands: All land categories are subject to different rates of land tax.

Rate: Varies by land category and location, based on state valuation. The general rate for land is typically around 1% to 3% of the state valuation of the land. State valuation typically corresponds to or below the market value of the specific land plot.

Ecological Taxes

• Ecological Taxes (environmental pollution charges) shall be paid by a legal entity that release contaminants into the air or water, or disposes of waste
• The rate varies based on the type and toxicity of the contaminants. For example, cost of CO2 emissions is EUR 0,75 per 1 ton
• For the CIT purposes paid Ecological Taxes are fully deductible expense

Transportation Tax

• A local transport tax is charged on owners of passenger cars with an average market value exceeding approx. EUR 62 000 and less than five years old
• A tax of UAH 25,000 (approx. EUR 582) for each car per year should be paid by a car owner

Excise taxes

• The following goods imported to or produced in Ukraine are subject to excise taxes: liquefied gas, petrol, diesel fuel, other fuel materials, electric power, ethyl alcohol, alcoholic beverages, beer, tobacco and tobacco products, e-cigarette liquids, cars, car parts, and motorbikes.
• The rates of excise tax on excisable goods are specific and established as a fixed amount per item. The excise tax is calculated based on the following: a fixed rate applied to the sales turnover and a set fee per item sold.
• Import and supply of armored transport for the needs of defence are exempt from excise taxes.

Royalty for minerals extraction

• Companies engaged in extracting mineral resources in Ukraine are subject to royalty (rent payment). The payment of royalties for subsoil use is calculated as:

Value of extracted mineral resource × Cost per unit × Tax rate (%) × Adjustment coefficient

• Specific rules apply for determining the selling prices of extracted oil, condensate, natural gas, and iron ore. For example:

• Royalty fee for special use of underground water for 2024 is approx. EUR 2,2 per 100 m³ in Kyiv Region.
• Rate for oil extraction - from 16% to 31% and depends on drilling depths.

• Companies that use subsoil for the purposes other than extraction also pay royalty fee per m³ or km2.
• Transportation of oil, oil products and ammonia through pipelines across the territory of Ukraine is also subject to royalty payments.
• Royalties for the extraction use of subsoil are deductible for corporate tax purposes.

Payroll Taxes

• All Ukrainian employers and other businesses that pay income to individuals under either an employment agreement or a civil law contract are designated as tax agents. They are responsible for withholding personal income tax, military tax, and the mandatory unified social contribution (USC) and remitting these to the state budget
• The general USC rate, payable by the employer, is 22% of gross remuneration. The taxable base for the monthly contribution is capped at 15 times the minimum salary. For 2024, the maximum USC payment is UAH 26,400 (approximately EUR 613).
• Employees are exempt from paying USC.
• The USC accrued by the employer is deductible for Corporate Income Tax purposes.

Charges to State Pension Fund

The following charges are payable to the State Pension Fund:

• A charge of 3%, 4%, or 5% on the value of a new car applicable when the car is first registered with the state traffic authority
• A 1% charge on the acquisition of real estate property
• A 7.5% charge on mobile communication services

Customs duties

General Regulation

Customs duty in Ukraine is generally paid by the importer upon importing goods. The rates are determined by the Customs Tariff of Ukraine. This tariff aligns with the 2022 version of the Harmonised Commodity Description and Coding System and the Combined EU Nomenclature.

There are three types of duty rates:

1. Preferential Rates: For goods from countries with free trade agreements (FTAs) with Ukraine
2. Relieved Rates: For goods from WTO member countries or those granting Ukraine 'most favored nation' status
3. Full Rates: For goods from other countries or where the origin is unknown

Ukraine, from time to time, may impose export duties primary to the agricultural products and commodities.

There are 14 customs regimes in Ukraine:

1. Import (Release for Free Circulation)
2. Export (Permanent Export)
3. Transit
4. Temporary Importation
5. Temporary Exportation
6. Customs Warehousing
7. Processing under Customs Control
8. Inward Processing
9. Outward Processing
10. Free Customs Zone
11. Duty-Free Trade
12. Re-export
13. Destruction or Disposal
14. Customs Transit of Goods for Repair.

Ukraine's customs regulations are being transformed to align with EU regulation.

Customs Previligies

European Union Tariff Measures

The suspension of import duties and quotas on Ukrainian exports to the EU is extended until 5 June 2025. These Autonomous Trade Measures (ATMs), in place since June 2022, are a key pillar of the EU's support for Ukraine. The Commission is also negotiating longer-term reciprocal tariff liberalisation with Ukraine to provide economic certainty and support Ukraine's integration into the EU market.

Free Trade Agreements

Ukraine has FTAs with the EU, EFTA countries, and countries including Canada, Georgia, Israel, Macedonia, Montenegro, the UK, and Turkey (pending ratification). These agreements enable the import of goods at 0% or preferential rates, provided the preferential rules of origin are met.

Authorised Economic Operator Status

Since August 2020, Ukrainian companies can obtain Authorised Economic Operator (AEO) status, which simplifies customs clearance, optimizes time, speeds up logistics, and enhances the security of international supplies. This status aligns with EU legislation.

Common Transit Procedure

Since October 2022, Ukraine joined the Convention on a Common Transit Procedure (NCTS) and the Convention on the Simplification of Formalities in Trade in Goods, enhancing trade efficiency and integration with the EU and other member countries. These procedures facilitate the movement of goods through multiple countries using a single transit document and guarantees, reducing customs formalities. This step simplifies customs processes and promotes smoother international trade for Ukraine.

Alternative Rules of Origin

Starting December 1, 2023, Ukraine and the EU introduced Alternative Rules of Origin at the bilateral level. This includes new terms and simplified procedures for confirming the origin of goods. Notable changes include:

• The use of only two documents (EUR.1 certificate and declaration of origin) instead of four.
• Extended validity of origin documents from four to ten months.
• Clarified list of documents to confirm the origin of materials/raw materials.
• Simplified mechanism for granting authorized exporter status.

Contact our team for more insights on corporate taxation in Ukraine.