Changes in tax legislation of Ukraine

On 31 March 2014, Law of Ukraine “On preventing financial catastrophe and creating grounds for economic growth in Ukraine” No. 1166-VII dated 27 March 2014 (the “Law”) came into effect. The Law provides for, inter alia, substantial changes in the taxation regime of individuals and legal entities, in particular:

  • corporate income tax rate is fixed at 18% (earlier a decrease to 16% was planned);
  • value added tax (VAT) rate also remains at 20% (earlier a decrease to 17% was planned). In addition, sales of pharmaceuticals become subject to 7% VAT from 1 April 2014. At the same time supply within the territory of Ukraine and export of grain and technical crops is free from VAT until 1 October 2014;
  • a progressive rate of personal income tax at the rate of 15%, 17%, 20% or 25%, depending on the amount of income, will apply to passive income (interest in the amount exceeding UAH 20,706 (approx. USD 1,800 at the exchange rate as of 1 April 2014), dividends, royalties) and investment income of individuals starting from 1 July 2014. However, entities paying out such income will have to withhold the tax at the rate of 15%, and the difference must be calculated and paid by individuals themselves;
  • the rates of excise tax, residential real estate tax, ecological tax, fee for the use of subsoil for mining, fee for the use of radiofrequency, and fee for the first registration of a vehicle are increased, and indexation of fixed agricultural tax is introduced;
  • 0,5% pension duty will be levied on all operations of purchase of foreign currency (including cash) by individuals and legal entities;
  • the ceiling of the VAT exemption applicable to goods mailed internationally (online purchases) was lowered from EUR 300 to EUR 150.

The Law does not contain any indications of the temporary nature of changes or period thereof.

For more information, please contact Vladimir Sayenko.

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