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  • Service: Tax, Global Indirect Tax
  • Type: Regulatory update
  • Date: 11/1/2012

Ukraine: VAT essentials 

Essential information regarding VAT as it applies in Ukraine.


Scope and Rates

What supplies are liable to VAT?


VAT is due on:


  • supply of goods and services in the customs territory of Ukraine
  • importing goods (related services) to the customs territory of Ukraine in the customs regime of import or reimport (hereinafter the import);
  • exporting goods (related services) in the customs regime of export or reexport (hereinafter the export)
  • supply of goods (related services) that are in free circulation in Ukraine to the customs regime of a duty free shop, a customs warehouse or a special customs area (is qualified as export)
  • supply of goods (related services) out of the customs treatment of a duty free shop, a customs warehouse or a special customs area for further free circulation thereof in Ukraine (is qualified as import)
  • supply of services of international transportation of passengers and baggage as well as cargoes by railway, motor, maritime and river, and air transport.

Place of supply of the goods


The goods are deemed to be supplied in Ukraine if they are actually located in Ukraine at the moment of the supply. If the goods are transported by the seller, customer or a third party, the goods would be deemed supplied in Ukraine if they are located in Ukraine at the start of transportation. If the goods are assembled or installed by the seller, they would be deemed supplied in Ukraine if they are assembled or installed in Ukraine. In case the goods are supplied for consumption in ships, planes or trains during transportation within the territory of Ukraine, such goods would be deemed supplied in Ukraine if the departure point is located in Ukraine.


Place of supply of the services


  • General rule

    The services are generally deemed to be supplied at the place of registration of the service provider. Consequently, if a service provider is registered in Ukraine, the services shall be deemed supplied in Ukraine.

  • Location of the customer

    In certain cases, the services are deemed to be supplied at the place of business registration or residence of the customer. Such services include:


    • provision of intellectual property rights, creation of intellectual property objects on request of customer and their use, including under licensing agreements and provision (transfer) of the rights to the reduction of greenhouse gas (carbon unit) emissions
    • advertising services
    • consulting, engineering, legal , accounting, audit, actuary and other similar services as well as information services and services of development, delivery and testing of software, data processing provision of information and other services in the field of IT, including those involving computer systems
    • provision of personnel, including cases where the personnel works at the location of a customer
    • renting (leasing) movable property except for vehicles and banking safes
    • telecommunication services, namely: services related to transmitting, spreading and receiving signals, words, images and sounds or information of any kind with the help of wire, satellite, cellular, radio, optical and other electromagnetic communication systems including issuing and transmitting the right to use the capacities of transmitting, spreading and receiving it and access to global information networks
    • radio and television services
    • provision of intermediary services on behalf and at the expense of another person or on one‘s own behalf but at the expense of another person, if services listed in this sub-clause are provided to the customer
    • provision of transport and forwarding services

As an exception to this rule, services relating to movable property are deemed to be supplied at the place of their actual performance (location of the immovable property).


What is the standard rate of VAT?


The standard rate of VAT is 20 percent. From 1 January 2014 it will be reduced to 17 percent.


Are there any reduced rates, zero rates, or exemptions?


There is an extensive list of zero-rated supplies, including:


  • export of goods (with some exceptions)
  • provision of goods to refuel or upkeep sea vessels which (1) are used for navigation purposes, transportation of passengers or cargo for a fee, industrial, fishing or any other business activities which are carried out outside the boundary of the territorial waters of Ukraine, (2) are used to rescue or to give aid in the neutral or territorial waters of other countries, (3) are part of the Navy of Ukraine and sail outside the boundary of the territorial waters of Ukraine, including riding at anchor
  • provision of goods to refuel or upkeep aircraft which: (1) performs international flights for navigation purposes or to transport passengers or cargo for a fee, (2) is part of the Air Forces of Ukraine and cross the air border of Ukraine including flying to temporary bases
  • provision of goods to refuel (to refill) and to provide space ships, carrier rockets or satellites
  • provision of goods to refuel (to refill) or upkeep land military transport or any other special personnel of the Armed Forces of Ukraine which participate in peace-keeping actions abroad or in other cases, stipulated by Ukrainian legislation
  • delivery of goods/services by retail enterprises which are situated in the territory of Ukraine in customs control areas (duty free shops) in accordance with the procedure established by the Cabinet of Ministers of Ukraine
  • international transportation of passengers and baggage as well as cargo by railroad, car, sea, river and air (if certain conditions are met)
  • services of maintenance of aircraft making international flights.

The list of main exemptions includes:


  • supplies of infant food products and baby goods subject to certain conditions
  • education, subject to meeting certain criteria by supplier
  • supply of sets and means for rehabilitation
  • services to deliver pensions and other monetary benefits to the population
  • health care services by the health care establishments
  • services for disabled persons, children‘s asylums
  • provision of services on city passenger transport
  • religious services
  • funeral services and goods by state and communal enterprises
  • free-of-charge privatization of the housing
  • providing housing (a housing unit) except for their first provision
  • charity
  • provision of free goods/services produced by auxiliary enterprises and medical-industrial workshops
  • provision of services to register marriages;
  • providing plots of land, land lots (shares), except for those located under the objects of real estate and included in their costs
  • free of charge transfer of devices, equipment, materials except for excisable ones to scientific institutions
  • providing (subscribing to) periodical printed media and books published in Ukraine,
  • the conveyance of the forfeited property, finds, treasures, ownerless property, property not claimed by the owner earlier
  • supply of drugs allowed for production and use in Ukraine
  • supply and import of goods/services meant for the needs of diplomatic representative offices
  • the operations to import goods of sea fishing
  • import of cultural values
  • the operations to providing services to transport (move) passengers and cargoes in transit through the customs territory of Ukraine
  • provision of services to foreign vessels and domestic vessels involved in international transportation of passengers, their luggage and cargo, paid by them in accordance with the legislation of Ukraine shall be exempted from taxation in the form of port charges.
  • transactions of supply of air navigation services for the aircraft making domestic, international and transit flights within the areas of the air data of the Ukrainian responsibility zone
  • transactions of banks and other financial institutions to supply (sell, to dispose in other way) property placed as collateral
  • bank‘s operations to sell (transfer) or purchase deposit obligations shall be exempt from taxation
  • import of natural gas under certain customs code
  • the transactions to import equipment that runs on renewable energy sources and its parts
  • transactions of supply of, within the customs territory of Ukraine, the fuel and lubrication materials to be purchased by non-residents to be transferred to participants of the military exercised joint with units of the Military Forces of Ukraine.

There are many transactions which are outside the scope of Ukrainian VAT including:


  • some transactions in securities
  • settlement and clearing, registration and depositary activities on the stock market, as well as the asset management activities (including the management of pension assets and bank-managed funds)
  • the hand-over and the return of the property into custody keeping (safekeeping), leasing (lease), other than the conveyance into the financial leasing
  • the accrual and the payment of interest or commissions as a part of the lease (leasing) payment within the scope of a financial leasing contract
  • the provision of property as pledge (mortgage) and the return of the said property from the pledge (mortgage) to the owner, if the place of such provision (return) is situated within the customs territory of Ukraine
  • cash payments of the principal of the consolidated mortgage debt and the interest accrued thereon and some other transactions related to mortgage debt, obligatory state social insurance (including pension insurance) services, non-state pension security services, the attraction and the service of pension deposits and accounts of members of bank-managed funds, the administration of non-state pension funds as well as the services of insurance (re-insurance) brokers and insurance agents
  • trade in foreign currency valuables (including domestic and foreign)
  • financial services including the provision of services of cash collection, cash and payment services, the raising, placement and return of funds under loan and bank sureties by the party that has provided such loans, guarantees or sureties
  • the trade in debt liabilities for cash or securities, except for transactions of the collection of debt claims and factoring, other than factoring transactions
  • cash disbursements of salaries (other payments comparable thereto), pensions, scholarships, subsidies and grants from budgets or the Pension Fund of Ukraine or other obligatory state social insurance funds
  • payment of dividends and royalties as cash or in the form of securities carried out by an issuer
  • the provision of commission services (brokerage, dealership) in respect of the trade in securities and/or the management of securities (corporate rights), derivatives and currency valuables
  • reorganization (merger, accession, separation, division or transformation) of legal entities
  • the supply of paid extracurricular education services by an extracurricular education establishment
  • provision, by banks (financial institutions), of services related to the management of bank management funds, of real estate transactions funds, of construction finance funds
  • the payment of the arbitration charge and the reimbursement for other expenses associated with the dispute settlement by a court of arbitration
  • the provision of maritime commercial fleet agency and freight services by agents to the benefit of non-residents providing services of the international transportation of passengers, their luggage, cargo or international correspondence

What are the other local indirect taxes beside VAT?


Ukraine has the following indirect taxes beside VAT and customs duties: excise tax and state duty.

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Registration

Who is required to register for Ukrainian VAT?


Ukrainian entities


  • Mandatory registration


    In cases where the total amount of transactions of supplies of services/goods subject to VAT, including those that involve use of the local and global computer networks of a person (includes both residents and non-residents) during the last 12 calendar months exceeds UAH 300,000 (VAT exclusive), such a person must register as a VAT-payer, unless such person is a payer of a unified tax having opted not to pay VAT.

  • Voluntary registration


    If a person that performs taxable transaction and is not a taxpayer under aforementioned provisions due to the amount of its taxable transactions being lower than the established threshold finds it necessary to register as VAT payer, such person may apply for voluntary registration as a VAT payer.


Non-Ukrainian entities


If the overseas company does not have any permanent establishment (“PE”) in Ukraine, it cannot be registered as VATpayer. If it has a PE it may register as explained above.


Are there penalties for not registering or late registration?


A fine of UAH 510 (EUR 50) may be imposed for non-registration or late registration. Officials of the corporate taxpayers may also be imposed with fines of up to EUR 20 for failure of timely registration.


At the same time, if a taxpayer subject to mandatory registration as a VAT payer fails to submit a VAT-registration application to state tax authorities it shall be responsible for non-accruing or failure to pay this tax as the registered taxpayer without the right to calculate and claim input VAT credit.


Is voluntary VAT registration possible for an overseas company?


Voluntary VAT registration is possible for the overseas company having PE in Ukraine. If the overseas company does not have PE in Ukraine, it cannot be registered as VAT payer.


Are there any simplifications that could avoid the need for an overseas company to register for VAT?


No, if the overseas company does not have PE in Ukraine, it cannot be registered as VAT payer. If it has PE and meets the abovementioned criteria, it may register or is subject to registration on a general basis.


Does an overseas company need to appoint a fiscal representative?


N/A.

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VAT grouping

Is VAT grouping possible?


No.


Can an overseas company be included in a VAT group?


N/A.

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Returns

How frequently are VAT returns submitted?


VAT returns are submitted monthly. Business paying unified tax, as well as businesses with: a) an annual turnover in each of the three consecutive years of less than UAH 3,000,000; b) not more than 20 employees; c) each employee's salary amounting to at least two state minimum salaries - may apply to account for VAT quarterly.


The return must be filed within 20 calendar days of the last day of the reporting month (or the next working day if the 20th day falls on a weekend or a public holiday).


VAT liabilities reported in the VAT return should be settled within 10 calendar days following the expiry of the term for submission of VAT return, i.e. in general, VAT liabilities should be settled within 30 days following the last day of the calendar month.


Example of VAT return can be found at the following link: http://zakon2.rada.gov.ua/laws/show/z1490-11


Are there any other returns that need to be submitted?


In general, no.


If a business receives a purchase invoice in foreign currency, which exchange rate should be used for VAT reporting purposes? (e.g. central bank’s exchange rate applicable on the date of the invoice)


National Bank of Ukraine’s (NBU) rate on the date when the VAT liability occurred must be used. The so-called "first-event rule" is prescribed to determine the moment when the VAT liability (and VAT credit) arises. The rule suggests that that VAT liability (and VAT credit) should arise at either of the dates, whichever occurs earlier: 1) the date when the payment was received by the company's cashier or a servicing bank, or, alternatively, when the payment was credited to the taxpayer's bank account, or 2) the date of discharge of goods, export goods clearance or execution of services acceptance act.  

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VAT recovery

Can a business recover VAT if it is not registered?


Non-registered persons cannot recover VAT.


Does your country apply reciprocity rules for reclaims submitted by non-established businesses?


No.


Are there any items that businesses cannot recover VAT on?


There is no separate list of items that businesses cannot recover VAT on. In general, VAT will not be recoverable if the purchased items are used in non-VATable transactions. In case of use in both taxable and non-taxable transactions, an apportionment should be made. Also VAT cannot be recovered if the purchase of goods or services cannot be evidenced by tax or customs invoices.

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International Supplies of Goods and Services

How are exports of goods and services treated?


Goods


Export of goods is generally subject to 0 percent VAT rate.


Exports of certain goods (e.g. grain) are VAT exempt.


Services

There is no definition of export of services. The services are subject to VAT if their place of supply is in Ukraine. In certain cases, the services are deemed to be supplied at the place of business registration or residence of the customer. Such services include:


  • provision of intellectual property rights, creation of intellectual property objects on request of customer and their use, including under licensing agreements and provision (transfer) of the rights to the reduction of greenhouse gas (carbon unit) emissions
  • advertising services
  • consulting, engineering, legal, accounting, audit, actuary and other similar services as well as IT services
  • provision of personnel, including cases where the personnel works at the location of a customer
  • renting (leasing) movable property except for vehicles and banking safes
  • telecommunication services, namely: services related to transmitting, spreading and receiving signals, words, images and sounds or information of any kind with the help of wire, satellite, cellular, radio, optical and other electromagnetic communication systems including issuing and transmitting the right to use the capacities of transmitting, spreading and receiving it and access to global information networks
  • radio and television services
  • provision of intermediary services on behalf and at the expense of another person or on one‘s own behalf but at the expense of another person, if services listed in this sub-clause are provided to the customer
  • provision of transport and forwarding services

As an exception to this rule, services relating to movable property are deemed to be supplied at the place of their actual performance (location of the immovable property).


How are goods dealt with on importation?


When goods are imported into Ukraine, import VAT and customs duties are due by the importer (generally, a purchaser of the imported goods). Import VAT is due on the contractual price of imported goods, but not less than its customs value. VAT credit can be formed on the basis of customs declaration.


How are services which are brought in from abroad treated for VAT purposes?


If the place of supply of such services is in Ukraine (e.g. consulting services), services brought from abroad would be subject to VAT.

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Invoices

Is a business required to issue tax invoices?


Yes, if it is a registered VAT payer.


What do businesses have to show on a tax invoice?


A tax invoice it should contain the following data:


  • name, address, and tax identification number of supplier
  • the date and place the invoice was issued
  • the sequential number of the invoice
  • name, address and tax identification number of customer
  • the assortment, quantity and nature of the goods supplied
  • the extent and nature of the services rendered
  • taxable amount per tax rate
  • amount of VAT
  • VAT rate applied
  • type of the civil contract
  • seal and signature.

Can businesses issue invoices electronically?


Yes.


It should be noted, that from 1 January 2012 - VAT invoices with VAT amount exceeding UAH 10,000 should be recorded in the Unified register of VAT invoices. VAT invoices issued electronically should be registered in the said register independently of their amounts. Paper form VAT invoices with less than UAH 10,000 VAT amount, as well as VAT invoices which are not handed over to the customer (e.g., VAT invoice for deemed sales) are not required to be entered in the Register.


Also, the taxpayer should record issued and received tax invoices. The copies of such records are to be submitted to the tax authorities on the monthly basis.


Is it possible to operate self-billing?


No.


Can a business issue VAT invoices denominated in a foreign currency?


No.

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Transfers of Business

Is there a relief from VAT for the sale of a business as a going concern?


No but here is a VAT exemption for issuance and sale of securities for cash funds and for mergers and other types of reorganization.

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Options to Tax

Are there any options to tax transactions?


No.

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Head Office and Branch transactions

How are transactions between head office and branch treated?


Transactions between Ukrainian company and its local branches are not treated as VAT-able supplies.


At the same time, the Tax Code of Ukraine is silent with respect to transactions between foreign head office and local branch (and vice versa). From a legal point of view, supplies between a branch and its head office should be considered as supplies within the same legal entity. However, the current position of the Ukrainian tax authorities is that cross-border supplies of goods/services between the head office and the branch are subject to VAT according to the rules on cross-border supplies.

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Bad Debt

Are businesses able to claim relief for bad debts?


No.

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Anti-Avoidance

Is there a general anti-avoidance provision under VAT law?


There are no general anti-avoidance provisions for VAT purposes.

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Penalty Regime

What is the penalty and interest regime like?


The amount of penalties is provided for each specific type of violation of tax legislation. Please refer to paragraphs below.


In addition to tax penalties, a taxpayer may be assessed a late payment interest for failure to pay the declared or additionally assessed taxes on a timely basis. The tax arrears interest is calculated using the prime interest rate established by the NBU multiplied by 1.2.

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Tax authorities

Tax audits


How often do tax audits take place?


Tax authorities are entitled to perform desk, off-site, documentary (scheduled or unscheduled; on-site and off-site) and physical audits.


A desk audit shall be conducted by officers of the relevant controlling authority without any special decision by its head or mandate.


A documentary on-site scheduled audit shall be part of a work plan of the documentary scheduled audits.


A documentary on-site unscheduled audit shall be carried out in case of occurrence of certain limited occasions, prescribed by the Tax Code.


Documentary off-site audit is performed in case the head of the state tax authority makes decision to carry out such audit and in case of reasons for carrying out documentary audit.


Physical audit may be conducted on the basis of decision made by the head of state tax authority documented as an order which copy is served to a taxpayer or its authorized representative against receipt prior to commencement of such audit.


As a general rule, tax returns remain open and subject to audits by the tax authorities, especially for the periods which are yet to be audited by them. However, given the statutory limitation period of three years in respect of tax liabilities, the risk of retroactive tax assessments/re-assessments and penalty charges are usually limited to three years. If management is found guilty of tax evasion or the relevant tax return was not filed, the limitation period may not apply.


Are there audits done electronically in your country (e-audit)? If so, what system is in use?


No.


Advance rulings and decisions from the tax authority


Is it possible to apply for formal or informal advance rulings from the (indirect) tax authority?


At the request of taxpayers tax authorities provide free consultations on practical applications of specific provisions of the tax legislation during 30 days after the receipt of the request.


Are rulings and decisions issued by the tax authorities publicly available in your country?


Tax consultation has individual character and can be used exclusively by the taxpayer to whom such consultation was provided.


The central tax authority conducts periodic unification of tax consultations relating to a significant number of taxpayers or a large amount of tax liability and issues unified tax consultation to be disclosed.

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Miscellaneous

In your country, are there unique specific indirect tax rules (regimes) that differ from standard indirect tax rules in other jurisdictions?


No.


Are there indirect tax incentives available in your country (e.g. reduced rates, tax holidays)?


  • for the period till 1 January 2019 import of equipment for alternative energy is VAT exempt from VAT if certain requirements are met
  • for the period till 1 January 2016 certain aircraft industry transactions are exempt from VAT (subject to certain conditions)
  • for the period till 1 January 2015 transactions of works and supply of services by resident business entities that simultaneously perform publishing activities, activities on production, distribution of books and manufacturing of paper and cardboard shall be exempt from VAT
  • for the period till 1 January 2015 certain transaction with goods produced by organizations of disabled persons are exempt from VAT
  • for the period till 1 January 2015 certain transactions connected with supply of national movies are exempt from VAT
  • for the period till 1 January 2014 supply of grain except for the first supply thereof by the agricultural producers is exempt from VAT. Export of grain is exempt from VAT.
  • within the period from 1 January 2012, through 31 December 2013, supplies of raw skins and hides without further processing, including transactions of imports of such commodities, shall be exempt from the VAT
  • for the period till 31 December 2012 transactions on supply of specialized healthcare vehicles are exempt from VAT.
 

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