Legal Regime During Martial Law: Tax Benefits
Nataliia Stetsiuk, Accountant at Accountor Ukraine
The Accountor Ukraine experts keep their finger on the pulse of the latest news related to banking and legislation. Today, we are starting a series of articles about the changes in these spheres brought about by the war. However, it is worth noting that a number of things were changed due to other factors: e.g., our country's aspiration to join the European Union and the related obligations.
For more than a year, Ukraine has been living under a special legal regime due to the invasion of Russia and the subsequent threat to national security. The war, which has spread to the entire territory of our country, is causing big financial and economic challenges. Taxation and banking are the two spheres that were the first to "feel" the effects of martial law. It is crucial that the government and the National Bank take effective measures to preserve economic stability, even if these measures are not always getting positive feedback from the public.
Despite the difficulties, our economy is working, and businesses are recovering in the territories liberated by the Armed Forces of Ukraine. Yet, this process is time-consuming, and often, it cannot happen without additional resources, i.e. government support. Due to this, our government has adopted such laws as:
- Law No. 2120-IX on peculiarities of tax legislation during the legal regime of martial law, which entered into force on March 17, 2022);
- Law No. 2142-IX on improving tax legislation - in particular, in terms of customs control and customs clearance, which entered into force on April 5, 2022;
- Law No. 2136-IX, regulating labor relations under martial law, which entered into force on March 24, 2022. On March 28, 2022, the Ministry of Economy of Ukraine issued a number of clarifications regarding the rules for employers.
Certain amendments have already been introduced to these Laws, and today, bills have been registered to cancel many of the benefits. That is why, in this article we are talking about the ones still relevant today.
Benefits for the Simplified Taxation System
From 01.04.2022 until martial law is lifted, the payers of the Single Tax of groups 1 and 2 may not pay the Single Tax. Individual entrepreneurs (FOP) of all groups have the right not to charge and not to pay the UnSC (Unified Social Contribution), and so do persons engaged in independent professional activities as well as farms members from 01.03.2022 until martial law is lifted and for twelve months after that. Besides, during the mobilization periods, the simplified taxation system users (FOP, legal persons) have the right to stop paying USC for their employees who have been conscripted to the Armed Forces of Ukraine.
A special 2% turnover tax rate excluding VAT was introduced for group 3 Single Tax payers and for legal persons (with no limits for number of employees) whose turnover does not exceed UAH 10 billion. The reports must be submitted monthly, and, accordingly, tax liabilities specified in the declaration must be paid on a monthly basis. The obligation to calculate and pay VAT as well as submit VAT reports has been suspended for supply transactions, if the goods, works and services are supplied within the customs territory of Ukraine. However, there is no "automatic transition" to the simplified system, so, you have to submit an application letter to the tax authority at the place of your registration (for new legal persons: within 10 days from the day of registration). Once the martial law is lifted, taxpayers will be "automatically" returned to the tax system they were using before switching to the simplified model on the first day of the month following the end of martial law. However, the implementation of this special tax rate has raised many questions due to a big number of unregulated transition procedures that may lead to tax risks.
WARNING! The benefits related to the simplified taxation system are about to be canceled from August 1, 2023 (bill 8401).
As long as martial law is imposed, the VAT must not be paid for the defence-related goods (according to the list in the Tax Code) imported into the customs territory of Ukraine, supplied within the customs territory of Ukraine, destroyed or transferred to state/municipal property. In addition, the transfer of goods and services to the Armed Forces of Ukraine and other entities for the purpose of defence and public safety is exempt, with the exception of transactions that are taxed at a zero VAT rate.
On June 20, 2023, laws were signed to make importers of components for drones exempt from VAT and customs duties until the martial law is lifted. This should promote domestic production, which is crucial during the war.
From 08.02.2023 onward, the registration deadlines for VAT invoices and Adjustment Calculations have been extended: for VAT invoices/ACs drawn up from the 1st to the 15th calendar day of the calendar month: until the 5th calendar day of the month following the month in which they were drawn up; for VAT invoices/ACs drawn up from the 16th to the last calendar day of the month: until the 18th calendar day of the month following the month in which they were drawn up. The fines for failure to meet deadlines for the VAT invoices/ACs in the Unified REgister of Tax Invoices have been reduced as well. These provisions will remain in effect until martial law is lifted and for 6 months after its termination or repeal.
Penalties are not charged for untimely budget reimbursement of VAT, if this untimeliness arose due to force majeure circumstances related to the introduction of martial law (please note that proof of such circumstances is required).
A reduced (7%) rate for fuel was applicable before July 01. 2023. The Union of Entrepreneurs and Farmers is asking for it to be prolonged due the start of the harvesting season.
Land and Environmental Tax Benefits
Land tax and environmental tax benefits have been introduced for territories where hostilities took place or which were temporarily occupied by the armed forces of the Russian Federation, e.g.:
- Land payment (land tax and rent) exemption for land plots located in such territories, as well as for plots contaminated with explosive objects or having fortification structures. This benefit will be valid from March 2022 till December 31 of the year following the year in which martial law was suspended or lifted;
- General minimum tax obligation exemption for land plots located in such territories, as well as for plots contaminated with explosive objects, or having fortification structures. This benefit will be valid during the 2022 and 2023 tax (reporting) years;
- Environmental tax exemption from January 1, 2022 till December 31 of the year in which martial law was suspended or lifted for territories where active hostilities were (are) conducted, or for temporarily occupied territories.
The Cabinet of Ministers of Ukraine adopted Resolution No. 1364 of 12/06/2022 "Some issues of forming a list of territories where hostilities are (were) conducted or temporarily occupied by the Russian Federation", which entered into force on 12/25/2022, thus determining the territories eligible for benefits.