Expense Reports: Tax Changes
The figure "8" is a symbol of infinity, harmony and stability. Despite all the inconsistencies in our legislation, we believe that this symbol applies to the Law of Ukraine # 2888-IX "On Amendments to the Tax Code of Ukraine (TCU) and other legislative acts of Ukraine regarding payment services" dated January 12, 2023, and we hope that this law ,which entered into force on April 1, 2023, will be one of the first steps towards a more smooth relationship between businesses and state institutions.
The Law provides for some updates in tax accounting to settlements with accountable persons and implies transition to electronic document management in this area. Besides, as of now, the TCU applies not only to the "regular" money, but to electronic money as well. The difference between electronic money and "regular" money is only that the electronic money exists in virtual format and is stored in digital wallets, whereas the "regular" money is kept on bank accounts and in "physical" wallets. Hence, when planning and organizing business trips for employees from April 1, 2023 onward, one should keep these innovations in mind. Let us take a closer look on what exactly has been changed.
Documents to Prove Business Travel and Accountable Transactions
First of all, the rules for proving that the employee has been on a business trip for the Personal Income Tax and Military Fee calculation purposes have changed. The factual number of days spent on a business trip is determined, as it used to be, by the Director's order on the business trip. However, the order alone is not enough, as travel documents and documents confirming accommodation are required. In case of their absence, even a report on a domestic business trip will not help. A business trip certificate with departure and arrival dates may come in handy here. Although not a mandatory document now, it can be used to confirm the fact that the employee did go on the business trip as planned.
So, the option when the employees received their per diems but did not spend any of their own funds and thus do not require any compensation (the so-called "empty" expense reports), is no longer applicable. Meanwhile, the per diem amount limits remain unchanged: up to 670 UAH for domestic travel in 2023, and no more than 80 EUR for trips outside Ukraine.
In addition, from April 1, 2023 onward, documents confirming travel expenses are to be divided into categories:
- Transportation passes/tickets or transportation invoices and baggage receipts (including electronic tickets);
- Documents received from persons who provide accommodation and residence services for an individual, insurance documents;
- Documents (statements/data of the account) containing legally defined information about the completed payment transactions on the account to which the payment instruments were emitted;
- Documents proving that the transaction was completed by means of payment instruments;
- Other documents certifying the cost of expenses.
If the payment was cashless, a statement and/or information from the relevant account may be used to confirm such expenses. However, other documents - i.e., invoices, tickets, receipts, etc., will come in handy, as we are waiting for more clarifications from the tax authorities on this matter.
Deadlines for Submitting Expense Reports
Having returned from a business trip, employees must prove the amounts of actual travel expenses by submitting the relevant documents. This must be done before the end of the month following the month in which the employee has completed:
- The business trip;
- Performance of a separate civil legal action on behalf of and at the expense of the person who gave the imprest.
The reporting period may be extended for another month if, after a card or other means of payment is used, the funds are debited after the end of the business trip.
However, be careful! If the amount for business needs was given in cash, the Regulation on conducting cash operations in the national currency in Ukraine stipulates that the employee must report on them within a period of no more than two working days, including the day of receipt of cash. The accountable person has the right to extend the period of using the imprest, if the funds are issued both for the business trip and for solving some production-related or business-related issues during the trip. The period of use is then extended until the end of the business trip. Another imprest can be given to an accountable person on the condition that they have reported on the previously received amounts in the prescribed manner.
Please also note that according to the Tax Code of Ukraine, if the taxable income (additional benefit) is provided in non-monetary form or is paid in cash from the company's cash register, the personal income tax (PIT) and the military fee (MF) are to be paid to state budget within three operating days from the day following the day of such payment, whether the employee received it during a business trip or not. If the taxable income has been accrued by the company, but the compensation/reimbursement money has not been paid to the employee yet, the taxes from such accrued income must be transferred to state budget within the time limits set by the TCU for the monthly tax period.
The report on how the funds were used may be submitted either in printed form or in electronic form according to the template of an expense report approved by the Order of the Ministry of Finance # 841 on September, 28, 2015: "On approval of the Form of the Report on funds for a business trip or on an imprest, and on the Procedure for its preparation".
To submit expense reports electronically, companies must comply with the requirements of the laws of Ukraine "On electronic documents and electronic document management" and "On electronic trust services". For example, you can use one of the electronic document management service like “Vchasno” or “M.E.Doc” where you can upload a document very quickly and sign it with a qualified electronic signature (QES). Personal QES can now be generated with your bank's app (PrivatBank, Mono, etc.) or with the help of the Diia service.
When Do You Need to Submit Expense Reports?
A report on the use of cash, non-cash or electronic money given for a business trip or for other expenses must be submitted by the taxpayer within the time limits mentioned above:
- when there is a taxable income in order to calculate the amount of tax;
- if the taxpayer uses more cash than the amount of per diems (including the money received with the use of payment instruments).
If, during a business trip or while performing certain civil legal actions, the taxpayer uses electronic money to make cashless payments and/or to receive cash within the amount of daily expenses and in the absence of taxable income, there is no need to file an expense report! If companies wants to control these funds, they should establish an internal procedure for accepting the documents, and make a relevant template for internal expense reports.
So, a real revolution happened on April 1, 2023, which led to changes in the taxation of funds for business trips and imprests, namely:
- From now on, there is no need to file an expense report in certain situations;
- Expense reports may be filed electronically;
- A clear list of supporting documents has been established, whereas the possibility of using personal cards along with the corporate ones has been simplified.
Will these innovations help companies deal with accountable transactions and imprests? Will it be easier for companies to control them?
We at Accountor Ukraine believe that companies can make their reporting process easier by optimizing the procedures related to business travel and accountable transactions. With our 15-year experience in outsourced accounting, we are always here to help you implement the changes properly and adjust them to your company's specifics.