Ukraine: Salans Kyiv Tax Newsletter July 2009, Second Issue

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IN THIS ISSUE:

1. Ukrainian Parliament Passes new Law with a View to Overcoming the Impact of the Financial Crisis

2. Ukrainian Parliament Regulates VAT Regime for International Transportation Services

3. Ukrainian Law "On Amending Certain Legislative Acts with a View to Minimising the Impact of the Financial Crisis on the Development of National Industry" is Declared Unconstitutional

4. Cabinet of Ministers Passes Order on Certain Tax Administration

Issues

1. Ukrainian Parliament Passes new Law with a View to Overcoming the Impact of the Financial Crisis

On 23 June 2009, the Ukrainian parliament passed the law "On Amending Certain Legislative Acts of Ukraine with a View to Overcoming the Impact of the Financial Crisis." In particular, the law introduces the following amendments to the tax legislation:

1. VAT exemption for supplies (sales, transfers of title) by banks and financial institutions of residential property mortgaged by individuals, if enforcement of a debt under a facility agreement is made against such property.

2. New terms in the Corporate Profit Tax Law, such as "arm's length credit interest rate", "arm's length interest rate for the use of money remaining in current accounts of legal entities and individuals by a financial institution" and "client of financial institution."

3. The National Bank of Ukraine ("NBU") is entitled to approve a list of tax deductible expenses for banks related to the provision of employees with special clothes, footwear for professional activities and special diet products.

4. New corporate profit tax accounting rules for transactions for the sale (transfer) or purchase of rights to receive the cash payments for goods supplied or services rendered by a third party or of obligations under financial loans.

5. 80% tax deductibility of insurance reserves held by financial institutions (100% deductibility for banks until 1 January 2010).

6. The recognition of interest under financial loans as a tax deductible expense, upon the actual payment (and not accrual) of the interest. 7. An individual taxpayer is entitled to include within their tax credit interest paid under a residential mortgage loan provided either in UAH or in a foreign currency. If such interest is paid in a foreign currency, it must be recalculated in UAH, according to the official NBU exchange rate effective at the date of payment. 8. Taxation of interest received by individuals on bank deposits, starting from 1 January 2011 (instead of 1 January 2010).

To become effective the law must be signed by the President.

2. Ukrainian Parliament Regulates VAT Regime for International Transportation Services

On 4 June 2009, the Ukrainian parliament passed the law "On Amending Certain Legislative Acts of Ukraine on the Taxation of International Passenger, Luggage and Cargo Transportation Services, International Shipping Services, International Lease Services and International Goods Repair Services."

In particular, the law addresses the VAT regime for international transportation services. The law "On Value Added Tax" was amended to include new terms, such as "international transportation services", "international goods transportation services by motor transport", "single (inseparable) international passenger, luggage and cargo transportation services and international shipping services", "international express shipping", "international post shipping", "vehicle" and "repair".

The law provides three VAT regimes for international transportation services:

1. 20% VAT (for supplies of international passenger, luggage and cargo transportation services and international shipping services in the customs territory of Ukraine);

2. VAT exemption (for supplies of passenger, luggage and cargo transportation services and international shipping services under the customs transit regime in Ukrainian territory); and

3. 0% VAT (for supplies of international passenger, luggage and cargo transportation services and international shipping services outside the state borders of Ukraine).

The amendments to the law "On Value Added Tax" will become effective from 1 September 2009.

3. Ukrainian Law "On Amending Certain Legislative Acts with a View to Minimising the Impact of the Financial Crisis on the Development of National Industry" is Declared Unconstitutional

On 14 July 2009, the Ukrainian Constitutional Court declared the law "On Amending Certain Legislative Acts with a View to Minimising the Impact of the Financial Crisis on the Development of National Industry" unconstitutional, owing to a breach of the procedure for the law to take effect. The law became ineffective on 14 July 2009.

By way of reminder, the law set out certain tax incentives, in particular, an accelerated depreciation rate for industrial enterprises and an exemption from import customs duty and VAT for certain equipment and tools imported by industrial enterprises in Ukraine.

4. Cabinet of Ministers Passes Order on Certain Tax Administration Issues

On 1 July 2009, the Ukrainian Cabinet of Ministers passed Order No. 757 "Certain Issues Regarding the Administration of Taxes and Duties (Obligatory Payments)". The order, in particular, provides that VAT payers may only recognize VAT credit in the period in which VAT liability arises.

On the basis of this order, the State Tax Administration of Ukraine issued Letter No. 14927/7/16-1517, dated 15 June 2009. The letter provides that VAT payers cannot recognize a VAT credit on the basis of tax invoices received in the next tax period.

The order appears to be questionable vis-àvis the law "On Value Added Tax", which provides that a taxpayer may recognize VAT credit under the "first-event rule". Furthermore, the passing of such provisions by order of the Cabinet of Ministers also appears questionable.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.