Investor considerations
- The standard rate of VAT is 20%. The export of goods and a very limited range of services are zero-rated.
- Many services to non-residents are effectively considered VAT-exempt, although the authorities tend to be restrictive in their interpretation of the law.
- Ukraine uses the inpu-output model. VAT-registered persons account for output tax after deducting VAT paid on their inputs.
- Buyers must ensure that invoices they obtain comply fully with the invoicing rules. The tax authorities look at invoices closely, and disallow input tax credits even if defects in the invoice are relatively minor.
- VAT returns and payments must generally be made monthly. Businesses with an annual turnover of less than UAH 300,000 may elect to account for VAT quarterly.
- Obtaining refunds is very difficult. In addition, the tax authorities' interpretation of the law is that VAT-registered persons may not claim a refund for their first twelve months following registration.
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Content
12.1 Introduction
Ukraine first introduced value-added tax (VAT), or podatok na dodanu vartist (PDV) as it is known in Ukrainian, in 1992. New VAT legislation, which was loosely based on the principles of the EU Sixth Directive, was put in place in 1997.
Ukraine operates the input-output model of VAT. VAT-registered persons deduct the VAT paid on their inputs from the VAT charged on their sales and account for the difference to the tax authorities.
The standard rate of VAT on domestic sales of goods and services and the importation of goods is 20%. Exported goods and related services are zero-rated.
12.2 Taxable activities
Other than businesses that elect to be covered by the unitary tax (see Corporate tax system and Incentives), a person engaged in business is required to register for VAT if their sales for the past 12 months exceed UAH 300,000. Taxpayers engaged in business with sales below this threshold may also register voluntarily for VAT.
12.3 Scope of VAT
Unless there is an express exemption in the law, VAT applies to:
- Supply of goods and services where the place of supply is in Ukraine, including when supply is made without consideration; and
- Importation of goods into Ukraine.
Place of supply for goods
The place of supply for goods is determined under the following rules:
- If goods are to be transported, the supply takes place where the goods are located when they are dispatched.
- If the goods do not need to be transported, the supply takes place where the goods are located when they are sold.
- When goods are sold that require assembly or installation, the supply occurs where the goods are assembled or installed. However, when it is not possible for the goods to be shipped in assembled form, supply occurs where the goods are located when they are dispatched.
- The sale of real estate occurs in the place where the property is located.
- The supply of goods to sea, air or railroad vessels occurs at the place where the vessel will depart.
- For internet sales, goods are considered to be supplied in the place where the seller is located or is resident.
Place of supply for services
The general rule is that services are supplied from the place where the supplier is registered. However, when services are provided by a non-resident:
- The place of supply will be the location of its representative office or person exercising agency functions for the non-resident.
- If the non-resident has no representative office or agent, the place of supply is the location of the buyer. (The buyer is then required to account for VAT on the services under a reverse charge mechanism see VAT compliance
Specific place of supply rules apply to the following services:
- The services of realtors and entities responsible for the preparation, co-ordination, supervision and performance of real-estate construction and finishing work (e.g., architects and designers) are supplied in the place where the relevant realty is, or will be, located.
- Personnel services for servicing maritime, air and space facilities occur in the place where the services are provided.
Special place of supply rules also apply to the supply of intellectual property rights, advertising, accounting, legal, consulting and data processing services, and the leasing of movable property to non-residents:
- If the non-resident recipient of such services has a permanent representative office, address or residence in Ukraine, the services are considered supplied at the location of that representative office, address or residence, so will be subject to VAT.
- if the non-resident does not have a permanent representative office, address or residence in Ukraine, the services will treated as performed outside Ukraine, so will be VAT-exempt.
The legislation is not clear and the tax authorities tend to claim that the above services provided to non-residents should be subject to 20% VAT.
VAT on importation
Unless expressly exempted under the law, imported goods are subject to 20% VAT during customs clearance. The taxable base is the higher of the contractual or customs value of the goods, plus the amount of any import duties and excise duties (if any). The imposition of VAT by Customs is not affected by whether the importer is VAT-registered.
12.4 Zero-rating
The export of goods and the supply of services that are ancillary to the export of goods are zero-rated. Zero-rating also applies to the supply of international transport services and toll manufacturing services.
12.5 Exempt supplies
Ukrainian law distinguishes VAT-exempt transactions from transactions that are outside the scope of VAT. From a practical perspective, however, the distinction is not important. In either case, a person making such sales will not be entitled to claim an input tax credit against those sales.
A number of transactions are "exempt" from VAT under Ukrainian law. Some of the more common exemptions are:
- Some financial services and the transfer of certain financial instruments. However, as exemptions are defined with respect to specific transactions, transactions must be reviewed individually to confirm whether an exemption applies.
- Depository, clearing and registrar activities in the securities market, as well as brokerage and dealer services for securities transactions.
- The issue, sale and exchange of securities and corporate rights and the payment of dividends and royalties in cash or securities.
- The interest or commission element of payments under a financial lease, up to a maximum of 200% of the NBU prime rate. However, the transfer of property under a financial lease is treated as a taxable sale.
- Insurance and reinsurance services supplied by licensed insurers, agents and brokers.
- The transit of cargoes and passengers through Ukraine.
12.6 Taxable amount
In most cases, the amount of VAT will be determined based on the transaction price for the supply of goods or services.
If the market price exceeds the transaction price by more than 20%, the seller must account for output VAT based on the market price.
For imported goods, VAT is based on the higher of the contract price or customs value stated in the bill of entry, increased by the amount of costs bringing those goods to Ukraine, excise taxes and duties payable at the time of importation, and any payments for the use of intellectual property incorporated into the goods.
Where the place of supply is in Ukraine, VAT must be incorporated into the stated sale price.
12.7 Input tax credits
The general rules for VAT input tax credits are as follows:
- VAT paid on goods and services that will be used to make taxable sales may be claimed as an input tax credit.
- VAT incurred to purchase or import goods and services that will be used to make sales that are VAT-exempt or not subject to VAT may not be claimed as a credit.
- When goods and services will be used to make partly taxable and partly non-taxable sales, the input tax credit is apportioned between the taxable and non-taxable sales. Input tax credits are directly attributed to taxable and non-taxable sales. Any input tax credits that cannot be directly attributed would then be allocated based on the proportion of taxable sales to total sales for each month.
- No input tax is available for the purchase of a car, unless it will be used as a taxi cab.
A claim for input tax must be supported by a valid VAT invoice issued by a VAT-registered person or a duly executed import customs declaration.
In most cases, input tax credits will be based on the transaction price. However, if the transaction price exceeds the market price by more than 20%, the input tax credit should be based on the market price.
12.8 VAT compliance
Registration
A person qualifying as a taxable person is required to register with the tax authority at the place where its business is located and to obtain a VAT registration number.
The local tax authority should issue a VAT registration certificate to the applicant within ten business days. VAT registration takes effect from the date specified on the registration certificate.
Accounting requirements
VAT-registered persons are required to keep separate accounts for taxable and VAT-exempt sales and purchases.
Information on VAT invoice
If requested by the buyer, a VAT-registered person is required to issue a VAT invoice. The invoice must include the following information:
- The number of the tax invoice and the date the invoice is issued.
- The full name and registration number of both the buyer and the seller.
- The address of the seller.
- The type and quantity of the goods and services provided.
- The sales price (excluding VAT), the tax rate and amount of VAT, and the total amount payable.
Separate invoices are required for taxable and exempt transactions. Invoices for exempt transactions must include the words, "Без ПДВ" (
bez PDV - without VAT).
Buyers need to pay particular attention to the information contained in VAT invoices, particularly when significant amounts are involved. The tax authorities pay close attention to the details on invoices when they conduct audits, and will disallow input tax credits even if there are relatively minor defects in the invoice.
VAT liability
The VAT liability is calculated using the input-output method. The VAT liability in any accounting period will be the total amount of output tax charged on sales, less the input VAT paid relating to taxable sales.
VAT is accounted for as follows:
- VAT on the sale of goods is generally accounted for at the earlier of the date that goods are delivered to the customer and the date that payment is received from the customer.
- VAT on the sale of services is generally accounted for at the earlier of the time a document is executed evidencing delivery of the service and the receipt of payment from the customer. It is usual commercial practice for both supplier and customer to sign a formal document evidencing the delivery of the service.
- The entitlement to an input tax credit for purchases arises on the earlier of the date of payment to the supplier or the date on which the VAT invoice is received.
- The entitlement to an input tax credit for imported goods or services arises on the date the tax is paid.
Reverse charge
Services acquired from non-residents are subject to the application of a VAT reverse charge. A person required to account for VAT on such transactions would report the VAT as output tax in a special line in the VAT return for the period in which the transaction is required to be recognised. The corresponding input tax would then be claimed as a credit in the following period (if the buyer is entitled to a VAT credit).
Returns and payments
Generally, VAT-registered persons are required to file VAT returns on a monthly basis. The return must be filed within 20 calendar days of the last day of the month (or the next working day if the 20th day falls on a weekend or a public holiday).
VAT-registered persons with annual sales of less than UAH 300,000 may opt for quarterly filing instead.
VAT payments must be made within ten calendar days of the date on which returns are required to be filed.
Refunds
A VAT-registered person may apply for a refund if they have been in a VAT credit position for two consecutive months. The refund is limited to the amount of input tax paid for the previous month.
According to the law, if an application for refund is filed, the tax authorities are required to check and confirm the entitlement within 35 days. In theory The State Treasury should then remit money to the applicant's bank account within five business days from receiving approval from the tax authorities. There is no liability for the government if it does not issue VAT refunds on a timely basis.
Historically, obtaining VAT refunds has been a major problem area for investors, and there is still uncertainty in this respect. Careful consideration is required.
VAT-registered persons are specifically not entitled to refunds if:
- They have been registered for VAT for less than 12 calendar months before the month for which a refund is sought.
- The amount of the refund claimed exceeds taxable sales for the last 12 calendar months.
- They have not carried on business activities during the last 12 calendar months.
It appears that the restriction under the first two tests should not apply to input tax arising from the construction or acquisition of fixed assets. In practice, however, the authorities are applying a blanket rule that refunds cannot be issued for the first 12 months following registration.
