The Tax Code defines the payers of taxes and duties in Ukraine. The following organizations and individuals are considered to be the taxpayers:

• individuals (residents and non-residents of Ukraine)
• legal entities (residents and non-residents of Ukraine) and their branches, who possess, receive (transfer) objects of taxation or undertake activities (operations) subject to taxation, and who are liable to pay taxes and duties according to the TCU.

Ukrainian state taxes:

• corporate income tax (CIT), 18%
• personal income tax (PIT), flat, 18% for residents and non-residents
• value-added tax (VAT), 20%,
• Unified social security tax, 22% due to employer, from gross income Foreign individuals employed by the Ukrainian employer are not subject to unified social security charge
• excise duties
• state duties

Any Ukraine-sourced income of a non-resident company is subject to a withholding tax (“WHT”) in Ukraine at a rate of 15%. Such income includes, inter alia, dividends, interest, royalties, capital gains, lease payments, brokerage and agency commission, etc. Income received as a consideration for goods/services/works provided to a resident is mostly WHT-exempt. Different WHT rates apply to certain types of non-residents’ income (e.g., freight, insurance premiums paid abroad and advertising fees).

Taxation of IT companies VAT: For the period until 1 January 2023 all supplies of software within the customs territory of Ukraine are exempt from VAT.

In terms of the TCU, supplies of software includes the following:

• results of computer programming in the form of operating system;
• system programs;
• application software programs;
• entertainment and/or educational computer programs and its components;
• web-sites and/or online services.
• cryptographic data protection services.

However, the wording of this exemption is somewhat ambiguous, thus resulting in different interpretation by the taxpayers and tax authorities.

Accounting

Accounting Financial statements of the Ukrainian entities must be prepared either based on the Ukrainian National Accounting Standards (the “Ukrainian GAAP”, developed on the basis of IFRS back in 1999) or IFRS.

In accordance with the Ukrainian legislation public interest entities (Public Joint Stock companies), banks, insurance companies, some other companies operating on financial markets are required to prepare financial statements in accordance with IFRS. The Cabinet of Ministers of Ukraine may provide additional list of entities subject to reporting under IFRS. All other entities may voluntarily choose IFRS as their reporting framework.

Obligatory independent audit

The Law on Audit Activity requires that public stock companies, legal entities – issuers of bonds, professional participants of stock exchange market, financial institutions and other business entities, financial reporting of which has to be made officially public, excluding institutions and organizations which are totally financed by the state budget, are required to have their entity and consolidated financial statements audited. The statutory audit requirement also applies to:

• founders of the banks, entities with foreign investments, public stock companies (excluding individuals), insurance and holding companies, institutions of joint investments, trust entities and other financial intermediaries;
• issuers of securities engaged in public offerings and issuers of derivatives, and also upon receipt of professional activity licenses in the stock exchange market.

Tax Audits

The State Fiscal Service of Ukraine (hereinafter, the “tax authorities”) is responsible for levying taxes and duties, and have the right to perform tax audits. It may perform both scheduled and unscheduled tax audits of taxpayers. Starting 2015, the tax authorities in Ukraine may also check the correctness of the financial accounting of the taxpayer.

Types of tax audits include:

• desk audits;
• regular audits (scheduled or unscheduled; field, in-house and electronic);
• factual audits (at the location where a taxpayer actually performs its business activities; may be carried out without providing the taxpayer with a prior notice);
• transfer pricing audits.

The frequency of scheduled regular audits depends on the tax risk level of the company’s activities:

• high – once per calendar year;
• medium – once every 2 calendar years;
• low – once every 3 calendar years.

The Tax Code of Ukraine defined new sources of exempt from taxation income (by Article 157).

Sources:

• The State Fiscal Service of Ukraine
• The Tax Code of Ukraine
• PriceWaterhouse Coopers Memo