Accounting for Donations to Ukrainian Army
The start of the year is about looking back on the past and making plans for the future. It is with the hope of a peaceful and bright future that we are starting chapter 2024 in the book of our life. For every page of this book, for every chance to wake up and say "Good morning", we are thanking our Defenders. Let us always remember this, and let us keep donating to the Armed Forced of Ukraine.
Today, we at Accountor Ukraine are explaining some aspects of accounting for such donations.
Important! Companies may make direct donations only to those military organizations that are on the State Register of Non-Profit Institutions and Organizations. If a military organization is not on the Register, companies may donate to it through a charity organization.
To prove your company's expenses for donating to the Armed Forces, you need to prepare the supporting documents. The list of the required documents typically includes:
- Order / Decree of the company's Director on making a charitable donation;
- Request letter for the specific type and amount/number of the donation;
- Confirmation letter from the organization accepting the donation;
- Bank statement proving the transfer of funds;
- Fixed Asset Acceptance / Transfer Act (standard form ОЗ-1) or similar document confirming the transfer of fixed assets;
- Consignment note (in case of transferring goods)
What about the company's donation expenses and the corporate income tax?
- If your company does not apply tax differences, according to accounting rules, the entire amount of expenses will reduce the financial result;
- If your company applies tax differences, please note that the amount of tax expenses for charity is limited to 4% of the taxable profit for the previous accounting year;
- However, according to the new clause 69.6 of subsection 10 of chapter XX (amended by the Law 2118), there is no need to make adjustments under clause 140.5.9 of the Tax Code of Ukraine if two conditions are met.
First Condition: if the company donates to:
- The Armed Forces of Ukraine;
- The National Guard of Ukraine;
- The Security Service of Ukraine;
- The Foreign Intelligence Service of Ukraine;
- State Border Guard Service of Ukraine;
- The Ministry of Internal Affairs of Ukraine;
- Department of the State Guard of Ukraine;
- The State Special Communications Service of Ukraine;
- Other state-funded military formations, institutions or organizations founded to oppose the military aggression of the Russian Federation against Ukraine.
Second condition: if the company donates:
- Special personal protective equipment (helmets, body armor manufactured according to military standards);
- Surveillance equipment;
- Medicines and medical products;
- Personal care products;
- Material supplies;
- Other goods and provided services.
The next aspect you have been probably thinking about is VAT. Does VAT apply to donations? According to Clause 32-1 subsection 2 of Article XX of the Tax Code of Ukraine, providing goods and services free of charge (without any monetary, material or other compensation) to the Armed Forces of Ukraine, the National Guard of Ukraine, the Security Service of Ukraine, the Foreign Intelligence Service of Ukraine, the State Border Guard Service of Ukraine, the Ministry of Internal Affairs of Ukraine, the State Emergency Service of Ukraine, Department of the State Guard of Ukraine, the State Special Communications and Information Protection Service of Ukraine, volunteer formations of territorial communities and other formations founded in accordance with the laws of Ukraine, military formations, their units, subdivisions, institutions or organizations funded by the state is not regarded as supply of goods and services.
We at Accountor Ukraine would also like to remind you that importing defense-related goods into Ukraine and supplying them within the customs territory of Ukraine is also VAT exempt as long as the martial law remains effective, according to Clause 29 of Part 1 of Art. 1 of the Law of Ukraine "On Defense Procurement".
We hope that this information will help you donate to the Armed Forces of Ukraine and account for these transactions faster and easier. If you have any questions, the Accountor Ukraine team of Financial Professionals and Legal Experts will be happy to help!