Tax simplifications in connection with the imposition of martial law

• During the state of martial law:
  • the zero rate of the excise tax applies to fuel;
  • transactions of the physical transfer of fuel within the customs territory of Ukraine as humanitarian aid, free transfer for the state needs to certain recipients (such as the Armed Forces of Ukraine, the Security Service of Ukraine, etc.) and condemnation/dispossession for the state needs shall not be considered as fuel sales. Similar rules shall apply during the period of duration of the state of emergency;
  • given the official notification of the impossibility of selling excise tax stamps, the import and sale of tobacco products shall be allowed with marking other than that envisaged by the Ukrainian legislation (including in compliance with requirements of the EU member state of manufacturing). Excise tax stamps shall apply to tobacco products imported in Ukraine in accordance with the procedure provided for by the Ukrainian legislation.
    Turnover of tobacco products marked in this manner shall be carried out until they are fully sold to end consumers but in any case, within 3 months after the termination or cancellation of martial law; 
  • no fines shall be imposed for non-compliance with requirements for the medical warning of consumers of specific types of tobacco products for smoking and the packaging requirement for those products  

• No tax liability shall arise for any type of the lost excisable products in the event of their condemnation/dispossession for the state needs in accordance with the legislation or its transfer to certain recipients (e. g. the Armed Forces of Ukraine) without the reimbursement of cost, as well as in the event of its provision as humanitarian aid;

• At excise warehouses partly destroyed or located in the military operation areas or territories occupied temporarily by the Armed Forces of the Russian Federation (“RF”), fuel and ethyl alcohol accounting shall be maintained on the basis of the data resulting from the stock-taking conducted after the termination of the above events;

• Paying the retail excise tax on sales of tobacco products manufactured prior to 1 January 2022 and not sold as of 1 April 2022 shall be performed till 2023 in accordance with the procedure and under the terms in effect prior to 1 April 2022;

• The excise tax rate has been increased for liquids used in electronic cigarettes from UAH 3,000 to UAH 10,000 per litre.

• The range of recipients of funds/goods as charitable assistance for whom a limitation on expensing an amount of funds or cost of goods in the amount of 4% of profit is not applied to has been expanded (a central executive power body responsible for civil defence, state/communal health protection institutions and units of local health protection authorities have been added);
  

• Transferring property, rendering services by a not-for-profit organisation and using the income (profits) of a not-for-profit organisation for cost funding purposes providing that those services and property are voluntarily granted to the Armed Forces of Ukraine and other formations established to counteract  the aggression of the RF, as well as health care institutions shall not be non-compliance with the requirements for the activities of not-for-profit organisations.

From 1 April 2022 to the termination of the state of martial law:

• The group 3 unified tax payers may also be business entities of any organisational and legal form, whose income for the calendar year does not exceed UAH 10 billion, without headcount or ownership structure limitations (and without other limitations set out by clause 291.5 of the Tax Code of Ukraine), except for
  • entities engaged in gambling games, manufacturing, import and sale of excisable goods, extraction and sale of mineral resources
  • financial institutions 
  • securities registrars
  • standalone units of legal entities which are not unified tax payers
  • non-residents;

The unified tax rate shall be set at 2% of revenue for the above taxpayers

• The one-month reporting period shall be set for the Group 3 unified tax payers. The above taxpayers shall pay the unified tax within 10 calendar days after the deadline set for filing a tax return for the reporting period;

• For taxpayers with the above specific features to transit to the STS, such taxpayers shall submit an appropriate application to the supervisory authority at the place of the tax address by the last day of the month preceding the STS transition period. Registered (newly established) business entities which submitted an STS application within 10 days after the state registration shall be considered the Group 3 unified tax payers from the day of their state registration;

• After the termination of martial law, taxpayers shall return to the tax system they applied before imposition of martial law;

• From 1 April 2022 to the termination/cancellation of the state of martial law, the Group 3 unified taxpayers shall be exempt from the VAT assessment, payment and reporting;

• Sole proprietors who are not Group 1 and 2 unified taxpayers shall be allowed not to pay the unified tax.

• The algorithm for the calculation of the actual sales price for imported gas (previously determined as the average customs value of imported gas for the reporting period) has been revised to add a partial link to the arithmetic mean of natural gas price quotes for the reporting month (Front Month Settlement Prices) at the Dutch gas hub (TTF) according to the EEX (The European Energy Exchange) data for the previous reporting month;
  

• Subsoil use tax rates for natural gas have been revised to introduce a progressive scale linked to the actual sales price for the period;

• The preferential subsoil use tax rate for the natural gas extracted from new wells defined by the TCU as of 1 January 2018 shall apply until 1 March 2022 instead of 1 January 2023;

• Subsoil use tax rates effective as of 1 March 2022 will apply between 1 March 2022 and 1 March 2023 to extracted natural gas (of any origin). There will be limited grounds for increasing these rates or applying adjusting factors or other mechanisms;

• The State guarantees of investment protection related to using the level of subsoil rent tax for extracted natural gas will apply from 1 March 2022 till 1 March 2032;

• A previously acquired site of new oil-and-gas-bearing subsoil may be returned if a conclusion is obtained that the intended activity is unacceptable due to environmental impacts; in this case, costs incurred in relation to the special oil-and-gas-bearing subsoil permit and any related charges shall be reimbursed.

• From 1 March 2022 until martial law is lifted/ cancelled and for 12 month thereafter, individual entrepreneurs, sole practitioners and farming enterprise members shall be exempt for paying the unified social contribution (“USC”) for themselves;
  

• Those individual entrepreneurs who are group 2 and 3 payers of unified tax and legal entities that are group 3 payers of unified tax shall be exempt from payment of USC in respect of their employees mobilised to Ukrainian Armed Forces. These amounts shall be covered from the state budget;

• For the duration of martial law, penalties for late payment, assessment, preparation and submission of USC reports shall be cancelled.

For the duration of the martial law legal regime and for 3 months thereafter, no penalties shall be assessed for USC payers and any penalties assessed for these periods shall be written off.

• The following shall be exempt from personal income tax:
  • Charitable aid to military servicemen and other individuals directly engaged in military operations against the military aggression of the RF, as well as current or former residents of localities with military operations and/or those displaced as a result of military operations in such localities;
  • non-targeted charitable aid to individuals affected by RF’s military aggression.

• A tax incentive of 16% (instead of 4%) shall be provided on cash balances or cost of property transferred by the taxpayer as donations or charitable contributions to not-for-profit organisations;

• Individuals, except those who opted for the simplified taxation system, shall be allowed to deduct property and cash provided voluntarily to Ukrainian Armed Forces and other forces established to counter RF’s military aggression and/or cash transferred to the special accounts opened by the National Bank of Ukraine to raise donations.

• A new basis for conducting a factual audit has been introduced, being the availability of information on potential non-compliance with the requirements to enable payments for goods/services using electronic means of payment;
  

• The duration of all statutes of limitation supervised by tax authorities shall also be suspended for the duration of the martial law legal regime;

• Any damages inflicted by illegitimate decisions (actions or omissions) of supervisory authorities or their officials shall not be reimbursed if such damages result from the martial law or state of emergency legal regimes;

• 0 penalties shall be assessed for any acts (actions or omissions) committed as a result of imposition of martial law or state of emergency;

• The moratorium on factual audits, fines and penalties resulting from such audits has been lifted;

• Until the martial law is lifted, electronic services shall be provided and electronic documents shall be accepted from taxpayers 8am to 6pm Monday to Friday;

• A moratorium has been imposed on desktop audits to establish accurate assessment, calculation and payment of USC for the duration of martial law and for 3 months thereafter;

• For the period until martial law is lifted/ cancelled in Ukraine, the deadlines for the tax registration of taxpayers at their tax addresses and recording of tax registration of such taxpayers in the Unified State Register of Legal Entities, Individual Entrepreneurs and Civil Associations shall be suspended for the supervisory authorities.

• Penalties have been renewed for non-compliance with the requirements for recording payment transactions of sales of excisable goods;
  

• For the duration of martial law, offline payment transactions and the use of fiscal numbers may exceed the statutory deadlines.

• The list of beneficiaries of voluntary transfers or seizures of goods or services for whom such transactions will not be treated as sales for tax purposes has been extended;
  

• For land plots where military operations are/were in progress or which are temporarily occupied by RF armed units or defined by regional military administrations as those contaminated by explosive items or bearing fortification constructions (based on the list approved by the Cabinet of Ministers of Ukraine):

  • no land tax shall be assessed and paid from March till 31 December 2022;

  • no general minimum tax liability shall be assessed and paid for tax (reporting) years 2022 and 2023;

• No environmental tax shall be assessed and paid for 2022 for taxable assets located in areas for which military operations are/were in progress or those temporarily occupied by RF armed units;

• Taxpayer’s property shall be released from tax pledge from the day of decision of the head of  military civil administration on seizure of property without general application of requirements for such seizure. In this case, if the property is seized for a charge, such proceeds shall be credited against the outstanding tax debt of the taxpayer whose property was seized;

• From March 2022 (inclusive) and until the end of the Month in which martial law is lifted/ cancelled, salaries of employees (including civil servants), except for individuals directly engaged in national defence and security (based on the list approved by the Cabinet of Ministers of Ukraine) shall be capped at UAH 65,000;

• State aid can now be provided as returnable financial assistance (paragraph 1 article 4 of the Law of Ukraine on State Assistance to Business Entities). All State assistance provided for the period of martial law shall be deemed acceptable;

• Providers of State aid shall be exempt from the requirement to submit notification on new State assistance provided for the reimbursement of losses inflicted during martial law, and to submit reports on such State assistance (paragraphs 5-2, Section 9, Miscellaneous and Transitional Provisions, of the Law of Ukraine on State Assistance to Business Entities).