The so-called BEPS Law (No. 466-IX) changed corporate profit taxation rules in Ukraine. The majority of its provisions entered into force on May 23, 2020. Others will become effective later on.
What major changes are there to know?
Increase of financial criteria
The income threshold of UAH 40 million (previously UAH 20 million) now applies in order:
- To determine the possibility of applying 1-year reporting period
- Not to apply tax adjustments
- Tangible assets are qualified as fixed assets if their value exceeds UAH 20 thousand (previously – UAH 6 thousand)
“Thin capitalization” rules have been updated (effective from January 01, 2021)
- “Thin capitalization” rules are applicable to interest payments under loans, credits and other debt obligations from unrelated non-residents (previously – only from related non-residents)
- The financial result before tax shall be increased by the amount of excess of accrued interest over 30 % (previously – 50 %) of the amount of the taxation object (previously – the amount of financial result before tax), increased by the amount of financial expenses and depreciation deductions;
- If the amount of the excess is negative, the financial result shall be increased by full amount of the accrued interest
- Separate accounting of capitalized interest which increased the prime cost of non-current assets is required
- “Thin capitalization” adjustments shall not apply in respect of interest which does not comply with the arm's length principle
Some other rules for adjusting the financial result have been changed
The financial result shall be decreased, inter alia, by the amount of:
- Dividends accrued from the controlled foreign company and income derived from the ownership of equity in non-residents and accrued dividends from such non-residents (subject to some conditions) (effective from January 01, 2021)
- Negative value of taxation object of a taxpayer in the process of reorganization – by the successor (subject to some conditions)
The financial result shall be increased, inter alia, by the amount of:
- 30% of the value of goods, works, and services which were supplied to non-residents from the list of territories and organizational forms adopted for transfer pricing purposes (exceptions – controlled transactions, or if sale prices are determined under the arm`s length principle) (previously 30 % tax adjustment applied only to purchase of goods / works / services from such non-residents)
- Fines, late fee accrued by controlling or other state authorities
- Expenses under transactions with non-residents in case such transactions had no business purpose
Accrual of depreciation
- The Production Method may apply (subject to some exceptions)
- Depreciation shall not be accrued for the period of non-use of fixed assets in economic activities in connection with their modernization, reconstruction, further construction, further equipping and conservation
- The following minimum allowable depreciation periods may apply in respect of fixed assets put into the operation from 01 January 2020 until 31 December 2030:
4th group (machinery and equipment) and 5th group – two years;
3d group (transmitting devices) and 9th group – five years.
Taxpayers who are required to publish financial statements along with the auditor’s report shall submit to the tax authority (in year 2021 for year 2020):
- Annual financial statements alongside with the auditor’s report for the preceding year– until 10 June of each year
- A report on financial position (balance sheet) and a report on profit, loss and other gross income (report on financial results) – along with the tax returns.
By Viktoriya Fomenko, Partner, Integrites