The impact of the financial crisis on tax payers in Ukraine

The Law provided for the extension of the fixed agricultural tax regime to local agricultural producers for an indefinite period. The fixed agricultural tax applies to local agricultural producers if the revenues from the sales of produced or processed agricultural commodities and services make up not less than 75% of the aggregate amount of sales. Moreover, agricultural producers now enjoy the special preferential procedure of VAT retention, which allows them to use available additional funds to finance the production of agricultural commodities.

The Law On Amending Certain Legislative Acts of Ukraine aimed at Prevention of the Negative Effects of the World Financial Crisis on the Development of the Agricultural Sector No. 922-VI of February 4 provided for the VAT – which is being paid by processing enterprises out of sales of milk and meat products – to subsidise the producers of milk and meat products.

Transport

Following the initial increase of the transport tax in 2008, the Law On Introduction of Amendments to the Law of Ukraine On the Tax Levied On the Owners of Motor Vehicles, Other Self-Propelled Machines and Mechanisms No. 1075-VI, which was adopted on March 5, significantly reduced the tax paid by the owners of cars, machines and mechanisms.

State property

Further relief was provided to the tenants of state property – for example, the cabinet of ministers – by Resolution No. 316 of April 14. From April 14 until January 1 2010, rent rates under leases of state property will be charged at 45% of the current rent rates. However, the reduced rates will not apply if state property is used by the lessee for the location of questionable activities such as gambling and Internet cafes.

Inspections

By its Resolution No. 502 of May 21, Ukraine's cabinet of ministers declared a moratorium on scheduled and unscheduled inspections of business entities performed by regulatory (controlling) state authorities. The moratorium will last until December 31 2010.

Euro 2012

The Law On Amending the Law of Ukraine On the Organization and Staging of the Final Part of the European Football Championship 2012 in Ukraine and Other Legislative Acts of Ukraine No 1474-VI of June 5 provided for certain tax benefits in connection with the European Football Championship 2012 which will be effective until September 1 2012. In particular, the Law sets forth that the goods (capital assets) received by UEFA in Ukraine shall be exempt from import VAT. Furthermore, the profits generated by UEFA from its activities in Ukraine, including income from the sale of commercial and marketing rights, shall be exempt from corporate profit tax.

The Law also provides for the personal income tax exemption for salaries and compensations received by UEFA members' representatives and employees, official delegation and team members and individuals accredited by UEFA – but not including Ukrainian residents. All imported goods (except for goods subject to excise duty) to be used in the construction and equipment of sports facilities for EURO 2012 will be exempt from import customs duty.

Balancing the books

Not all changes introduced by the parliament or government were positive for Ukrainian taxpayers. The excise duty has been increased for some categories of alcoholic drinks, tobacco and fuels starting 2009. And on April 14 the cabinet of ministers adopted the controversial resolution No. 505 On Mandatory State Pension Contributions Paid by Individual Entrepreneurs Subject to the Special Tax Regime. The resolution provided for additional contributions to the state pension fund to be paid by individual entrepreneurs. This is subject to the special tax regime (the so-called single tax) not less than the minimal insurance contribution per person (Hrn209.16 as of July 1), including part of the single tax paid to the state pension fund.

Further changes can be expected in the future, as introduction of the so-called “wealth tax” or “property tax” is being raised again by the cabinet of ministers and the state tax administration. But the rates of VAT and corporate profit tax are unlikely to be decreased. In a country trying to cope with the effects of the financial crisis by applying for an IMF aid package, no substantial tax relief can be expected.