Legal Regime During Martial Law After August 01, 2023
Nataliia Stetsiuk, Accountant at Accountor Ukraine
Accountor Ukraine keeps you updated about the legislative changes brought about by the war in Ukraine. In our previous article about legislative changes under martial law, we wrote about tax benefits valid until July 30, 2023.
On August 1, 2023, Bill 8401, which had been the subject of numerous debates, was enacted into Law 3219.
The simplified taxation system is undergoing big changes:
- The special group of the simplified taxation system with a 2% rate (hereinafter referred to as "special group") is abolished.
- Procedures for transitioning/returning from the special group to other groups of the simplified taxation system or to the general taxation system are established.
- Matters concerning newly established companies that have chosen the special group are regulated.
- The rights and obligations of VAT payers automatically revert for those who transitioned to the special group.
- The right not to pay the Single Tax for individual entrepreneurs (FOP) of groups 1 and 2 whose tax address is located in areas of hostilities or Ukrainian territories temporarily occupied by the Russian Federation, is retained. For all others, obligations are reinstated.
The State Tax Service (STS) has issued Information Letter No. 4/2023, outlining certain tax aspects for companies during the period of martial law, particularly regarding taxpayers reverting from the simplified taxation system with a 2% rate to the taxation system they had before transitioning to the 2% rate system. The Letter can be found here (in Ukrainian).
A Pain in the Neck for Businesses: Inspections During Martial Law
When the war started, moratorium on inspections was imposed. As of today, unscheduled inspections in the sphere of Labor Law (State Labor Service) and other spheres have been reinstated (State Consumer Protection Service, State Environmental Inspection of Ukraine, State Emergency Service, State Audit Service, etc.)
Apart from the factual inspections and office audits, which were reinstated in May 2022, documentary inspections by the State Tax Service (STS) have also been partially restored:
Scheduled inspections: from August 01, 2023 until martial law is lifted/canceled, for taxpayers engaged in:
- Producing and/or selling excisable goods
- Organizing and maintaining gambling activities in Ukraine (gambling business)
- Providing financial and payment services.
- Upon the taxpayer's request.
- Based on the provisions of Article 78.1 of the Tax Code of Ukraine (inspections related to taxation of non-residents, producing and/or selling of excisable goods, providing financial and payment services, organizing and maintaining gambling activities in Ukraine, control over transfer pricing, reorganization (except transformation) or liquidation of a legal entity / its structural unit or termination of individual entrepreneurial activity (FOP), budget VAT refund and/or declaration of negative VAT exceeding UAH 100 000, business activities by a non-resident through a permanent establishment in Ukraine without having it registered with the tax bodies, in case of a buyer's complaint about non-registration of a tax invoice/excise invoice or errors in mandatory details).
- Upon receiving tax data indicating that the taxpayer broke currency laws by non-compliance with deadlines for receiving goods for import operations and/or receiving currency from export operations.
For all other taxpayers, the moratorium on documentary inspections remains in effect. As long as martial law continues, changes to the inspection schedule may be made on a monthly basis, taking into account force majeure circumstances and the presence/absence of safe conditions for conducting inspections.
Tax Inspections: Fines & Penalties
Fines and penalties will be imposed if inspections detect law violations, if companies fail to meet the deadlines for submitting tax reports and/or fail to pay their taxes. However, if a taxpayer pays the unpaid taxes based on the findings of a document inspection no later than within 30 calendar days from the day they received the taxpayer's notification, they shall be exempted from penalty sanctions and fines from August 01, 2023, until martial law is lifted/canceled. However, it should be noted that the amount of tax liabilities paid in this manner cannot be appealed.
Besides, during this period, if taxpayers independently correct mistakes that resulted in an understatement of tax liabilities, they are exempted from penalties.
Let's comment on the interaction between taxpayers and the State Tax Service (STS). Of course, it would be great if the tax service's transformation into a service-oriented entity could be characterized by greater dynamism and a tangible positive impact on businesses. It is important that tax management be more transparent and the inspection procedures be more liberal. Consistency and stability in tax law (ca. 40 laws amending the Tax Code of Ukraine were adopted in 2022-2023) and a logical structure would help prevent misunderstandings regarding the tax authority's interpretation of tax norms.
Tax Benefits: Supporting the Armed Forces of Ukraine
Since marial law was imposed, a range of tax benefits was implemented to make donations to the Armed Forces of Ukraine and to charities easier. This is crucial as Ukraine's volunteer movement has gained significant momentum: people have been raising funds for nearly all sorts of equipment for the Armed Forces. Therefore, the possibility for individuals to register as a volunteers with the STS and to be exempted from filing tax returns and paying taxes simplifies this process.
Charitable donations are tax exempt if the payment is made in favor of:
- Combatants, employees of enterprises, institutions, organizations directly involved in repelling armed aggression and ensuring national security during the martial law period that are located in the areas of said actions
- Individuals residing (or having resided) in combat zones, and/or individuals who have been forced to leave their place of residence due to combat operations happening there.
Legal entities (Corporate Income Tax payers) can recognize expenses if they voluntarily transferred money to the Armed Forces of Ukraine and other entities specified by law via special accounts of the National Bank of Ukraine. If a taxpayer applies tax differences when calculating the taxable base and provides goods, works/services free of charge to the army or similar institutions, no adjustments need to be made.
Taxpayers who are unable to fulfill their tax obligations (upon confirmation and notification to the STS) are exempt for the time being. However, they must fulfill the obligations within six months after martial law is lifted/canceled.
Suspension of the TCU Deadlines
In early March 2022, transitional provisions of the Tax Code of Ukraine were amended with a new clause on suspension of the deadlines specified by tax laws and other legislation, with tax authorities being in control over that.
However, this clause has been revised, and currently, the suspension of deadlines does not apply to the following cases:
- Deadlines for registering tax invoices, filing declarations, and paying taxes.
- Deadlines for conducting desk audits, factual and document inspections (to which the moratorium does not apply), and appealing their results.
- Deadlines for taking measures to settle tax debt and/or determining monetary obligations under Article 116 of the Tax Code of Ukraine (disposal of property held as tax collateral).
- Deadlines for submitting and reviewing complaints against decisions to reject registration of tax invoices/adjustment calculations in the Unified Register of Tax Invoices.
Limitation periods established by the Civil Code of Ukraine, are extended for the period of martial law. As for credit agreements, as long as martial law continues in Ukraine and within thirty days after it is lifted/canceled, the borrowers are relieved of liabilities for overdue monetary obligations under such an agreement and also exempt from the obligation to pay penalties (fines, interest) for such delay.