If you would like to establish a business or live in Ukraine as an expat, you should have a general comprehension of the country's tax system. Ukraine is one of the EU countries with easy-to-understand tax regiments. This article will provide information that helps you to manage your taxes properly. Proper tax administration helps to minimize unnecessary penalties, which can weigh heavily on your finances.
REPORTING TAXES IN UKRAINE
Businesses operating in Ukraine are expected to report their taxes following the calendar year. The only to be excused from following a calendar year are manufacturers in the agric sector. The reporting year for these producers begins from the first of July to the 30th of June of the coming year (i.e., if they are not on unified tax).
Filing tax returns
Companies are expected to submit tax returns for Corporate Income Tax (CIT) every quarter of the year. However, a specific group of taxpayers (agric producers, new businesses, & taxpayers with a previous annual income of not more than UAH 40 million) can submit their CIT annually.
Filing quarterly returns should be done within 40 days after the last day of the quarter in question. This deadline, however, changes when submitting CIT returns for the last quarter of the calendar year. The submission for the CIT return for the 4th quarter can be made within 60 days after the year-end report.
Ukraine also requires companies to file monthly tax returns such as VAT within 20 calendar days after the reporting month. Whenever tax returns are filed, they should be backed by financial statements. This means taxpayers (both residents & non-residents) should keep records of their business financial activities. These will prove their compliance with the State's tax rules.
The taxes that a company is liable for after assessing the tax returns should be paid within ten days after the deadline for submission of the tax returns.
THE UNIFIED TAX ACCOUNT
From the 1st of January 2021, the government of Ukraine has activated a unified tax account. Taxpayers can use this account to pay Corporate Income Tax (CIT), Personal Income Tax (PIT), and the Universal Social Charge (USC) tax, etc. The only payments that taxpayers cannot use this account for are VAT payment & excise tax on alcohol and fuel. The control of the unified tax account is bestowed in the hands of Ukraine's Tax Service.
When to use the unified tax account?
Taxpayers can use the unified tax account on the business day soon after submitting a notification citing the need to use the account. If the taxpayer would like to stop using the account, it can only be terminated beginning from 1 January of the coming year. It's also important to note that once a year, a taxpayer has the chance to make a notification (electronically) citing the decision to either terminate or continue using the unified tax account.
UKRAINE'S TAX PENALTIES
Businesses operating in Ukraine should fully comply with the tax rules of the State. Failure to do so, they will be met with penalties. The Ukrainian tax authorities do not hesitate to charge penalties on late tax filing, late tax payment, and, or any attempt to understate tax liabilities.
A 10% increment on the underpaid amount will be charged on the late payment of tax (that has a delay reaching 30 calendar days). If the delay exceeds 30 calendar days, the penalty becomes 20%.
The penalty for the understated tax liabilities (CIT, VAT, etc.) depends on the repetitiveness of the violations. Ukraine considers the violations that would have occurred in 1,095 calendar days when declaring the penalty. A first violation will attract a penalty of 25%, while a second violation attracts a 50% penalty, etc. Each of the violations that follow may attract a 50% penalty.
Additionally, late payment interest can be calculated using 100/120 (%) of the Ukrainian National Bank prime rate. To understand the rules for the late payment interest calculation, one needs interpretation. The rules are not straightforward, and they are vaguely worded.
The penalty for failing to withhold tax whenever it is needed is 75%. This is charged on the deficient tax amount.
Penalties on VAT
If a taxpayer has not registered their VAT invoices, the tax authorities charge penalties up to 50%. This percentage is added on top of the amount of VAT they are liable for. If a customer complains, the fine goes up to 100%. Concerning excise tax, the authorities will charge a penalty of up to 40% upon failure to register invoices. The 40% figure is calculated from the excise tax that is due on the excisable merchandise.
When does tax misrepresentation become criminal
A taxpayer is usually charged specific penalties for delays in tax filing, tax payment, or understating tax returns. This can, however, escalate to become a criminal responsibility if the liabilities become very large. For example, a taxpayer's management can be criminally charged if the amount of additional liabilities discovered by the tax authorities during the assessment is more than 3,000x the amount of the statutory subsistence minimum for individuals. The best way to deal with potential criminal investigations and charges is to manage such anomalies from a legal angle.
In the case that a taxpayer has identified and rectified their own mistakes (i.e., their understated tax liabilities), the tax authorities will allow the taxpayer to self-assess their penalties. The penalty that is picked will depend on the adjustments made.
Foreign businesses operating in Ukraine via a separate business unit will be charged a penalty of up to UAH 100,000 for not registering with the tax authorities.
The management of taxes in Ukraine is not complicated. Individuals and legal entities should do everything right to minimize financial burdens from tax penalties. If one does not fully understand what they ought to do, they can seek help from SIGTAX in Ukraine. SIGTAX will offer experts with experience in accounting and taxation.