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Privatisation
in Ukraine
The privatisation process in Ukraine has developed from leasing
with buyout options to investment tenders. Numerous state-owned
businesses have been successfully privatised since 1992, the
majority small and medium-sized. The privatisation of assets
and companies which are the most attractive for investors
and strategically important for Ukraine has begun.
Since
the middle of April 1996 the shares of privatised companies
have been offered for cash. The expansion of this process
should encourage the creation of real market prices for assets
being privatised; these prices were distorted because of imperfect
methods of valuing an enterprise's property. Foreign investments
play a very important role in Ukrainian privatisation.
The Savings
Bank (Oschadnybank) distributed more than 34 million privatisation
certificates on 1 October 1996. 4,281,375 compensation certificates
with a nominal value of UAH 10 were issued together with 15,422,275
compensation certificates with a nominal value of UAH 20.
On 18
May 2000 the Verkhovna Rada adopted the Law on the State Privatisation
Programme. The main aims of this Programme are to create the
necessary conditions for successful privatisation and to provide
the State Budget with revenues.
According to this programme the main tasks of privatisation
in Ukraine are:
to create conditions for the development of the stocks exchange
market;
to implement marketing strategies for the objects o privatisation;
to assist the development and restructuring of the Ukrainian
economy;
to develop international investors’ interest in Ukraine legal
entities.
Six hundred
new companies were to be included on the privatisation list
for 2000- 2002 - mostly large and strategically important
ones. The program offers the compromise of leaving only 25%
or 50% (plus one share) of the authorised capital of strategic
companies in state ownership, while the rest is proposed for
sale in large share packages (mainly controlling share blocks).
One of the most important innovations in the program is the
article about pre-sale restructuring of mega- enterprises
with the pre- privatisation liquidation of certain enterprises'
debts.
In January-April
2001, privatisation proceeds amounted to700 million UAH, which
is 800 million UAH less than the targeted amount. Three major
factors caused this failure:
the postponement of the sales of share packages in electricity
distribution companies (oblenergos) and Rivneazot.
Political instability, which peaked with the Cabinet of Ministers’
dismissal. Under these conditions, investors preferred to
withdraw from privatisation in Ukraine. In addition, the State
Property Fund and the cabinet have largely lost their capacity
to ensure the quality preparation of enterprises for privatisation
and the conduct of tenders.
stagnation of the Ukraine stock market.
The latest and very useful information about privatisation
and investment opportunities in Ukraine you can obtain from
the site of the State Property Fund of Ukraine. (on the top)
Foreign Investment
Foreign Investors' Participation
Foreign investors, either in the form of a legal entity or
an individual may generally acquire up to 100% participation
in a Ukrainian business. Virtually no restrictions are made
on the form of the contemplated investment in Ukraine. Capital
contributions can be in cash or in kind (either tangible or
intangible assets). However, government licensing and administrative
bodies may restrict the business areas of investment. Foreign
investment in armaments, explosives, drugs and other areas
of national interest are prohibited. There are as well some
restrictions on the amount of the participation of foreign
entities in Ukrainian insurance, telecommunications, banking
and some other businesses.
Legal
Regime of Foreign Investments
The Law extends a relatively minimal favourable treatment
and guarantees to all types of foreign investments. The Ukrainian
Law 'On foreign investment regime' defines 'foreign investment'
as investment by foreign investors in compliance with Ukrainian
law with the aim to gain profit or achieve a social benefit.
A Ukrainian legal entity is recognised as a company with foreign
investment if it has at least 10% foreign ownership in its
charter capital (i.e. share capital); no minimum/maximum foreign
capitalisation requirements are stated. Registration of foreign
investment with the local authorities is required. Unregistered
foreign investments do not enjoy the rights and privileges
granted by the Law.
Types
of Investments
The Law recognises that foreign investment can take place
in a variety of forms, which amongst others are:
formation of a joint-venture company;
acquisition of stock (shares) in existing enterprises;
buying movable or immovable property;
creation of a company, wholly- owned by a foreign investor;
acquisition of property rights by purchasing securities;
buying the right to use land and concessions to exploit natural
resources.
Foreign
investors have the right to invest by using the following
forms:
hard currency
Ukrainian currency as a re- investment into the existing or
a newly established enterprise;
any movable or immovable property and property rights connected
with it;
shares, bonds, other securities and other corporate rights;
monetary claims and claims under contracts, valued in a hard
currency and guaranteed by first rank banks;
any intellectual property rights with confirmed estimation
in hard currency according to the laws of the investor's country
of residence, including copyrights, trademarks, firm names,
know- how, and others;
rights in respect of economic activities, including exploration
and utilisation of natural resources valued in hard currency
and conferred and valued under the laws of the investor's
resident country.
Foreign investment can be executed in the form of contribution
of fixed assets in return for a share in the equity capital
of a Ukrainian company. These assets shall be valued in both
foreign convertible and Ukrainian currency by agreement between
the parties, based on International or Ukrainian market prices
and using the applicable exchange rate of the National Bank
of Ukraine. Currency transfer can be easily executed whilst
the contribution in kind demands some special procedures be
undertaken by the foreign investor. Please note that under
current Ukrainian legislation foreign investment in kind is
exempted from VAT and import duties. However, if the goods
contributed are subject to excise duties, the exemption from
VAT and import duties does not apply. If the investment is
disposed of within 3 years from the moment of registering
a foreign investment in the books of the Ukrainian entity,
all the relevant import duties will be due.
Guarantees
Some guarantees for investors are set out in legislation as
follows:
10 year grandfathering clause permitting any qualified investor
to enjoy favourable treatment and guarantees contained in
the Law in the event of a subsequent change in legislation;
foreign investment is exempted from nationalisation, except
for cases of natural disaster;
foreign investors may seek damages (losses of profit and moral
injury) resulting from the negligent acts or failure to perform
an act by the state organs (if confirmed, compensation is
payable in hard currency);
when terminating its activity, an investor has 6 months to
return its investment in kind or in cash without payment of
customs duties, as well as any profits earned in kind or cash
at their real market value;
foreign investors are guaranteed unhindered and immediate
right to repatriate the profit abroad after the investor complies
with the withholding tax regulations.
State
Protection of Foreign Investment
Ukrainian legislation on foreign investments sets out protection
for foreign investment in Ukraine against state confiscation
except for cases of national emergency. Such cases include
evacuation / rescue measures in connection with disasters,
accidents or epidemics. Foreign investors are eligible for
compensation of losses caused by government bodies with respect
to the above cases.
General
economic growth will create favourable conditions for investments.
The main stimulus to increase investments will be the need
to extend production capacities in order to capture new market
segments, while the main condition will be increased corporate
profits.
Anti-monopoly
Regulations
In order to protect businesses from unfair competition and
trade practices the Antimonopoly Committee of Ukraine (AMC)
requires that approval be obtained for a transaction if that
transaction may or will lead to a “concentration” in a specific
segment of the Ukrainian market For example, approval of the
AMC may be required in respect of mergers, acquisitions of
shares and incorporation of a new company, in cases where:
the parties' combined assets or turnover exceeds EURO 12 million
for the last financial year; and
both of the parties have assets or turnover exceeding EURO
1 million as at the last day of financial year; and
at least one party has assets or turnover in Ukraine exceeding
EURO 1 million as at the last day of financial year.
The anti-monopoly
regulations may be subject to rapid changes, but is important
to consider the potential application of such regulations
to a merger/acquisition transaction. (on the top)
Legal
Entities in Ukraine
Under the Soviet system, legal entities were owned by the
state and controlled centrally. As reforms in Ukraine have
progressed, these entities have been replaced by and integrated
with various types of market- oriented entities. As a result
of legislation designed to encourage market reform, Ukraine
has seen a substantial growth in the number of newly established
legal entities.
Joint
Stock Companies
A joint stock company (JSC) is a common form of legal entity
used in Ukrainian business. It is a limited liability company
in which the shareholders are responsible for the liabilities
of the entity only up to the nominal value of their shares.
The minimum capital of a JSC must be at least 1,250 times
the minimum wage amount. As of 1 February 2002, the minimum
monthly wage amounts to UAH 140, which implies a minimum capital
of VAH 175,500 (approximate1y USD 33,000 at I. February 2002).
From 1 July 2002, the minimum wage will increase to UAH 165,
thus the corresponding minimum capital will increase to UAH
206,250 (or USD 39,000).
A joint
stock company may be either 'open' (publicly held) or 'closed'
(privately held). The shares of an 'open' joint stock company
can be distributed through open subscription on the stock
exchange. The shares of a 'closed' joint stock company are
divided among the founders and cannot be distributed through
subscription on the stock exchange. A closed joint stock company
can be converted into a public joint stock company by registering
its shares in accordance with the legislation on securities
and the stock exchange and amending its Articles of Association.
Any legal
entity and/or individuals can be founders of the JSC. At least
two founding shareholders are necessary to create a joint
stock company, although the two founding shareholders are
free to determine among themselves the share distribution
that each will have in the legal entity. Generally, a shareholder
should pay 30% (for a public JSC) or 50% (for a private JSC)
of its nominal share value to the temporary bank account of
the JSC before registration with the state agency.
All joint
stock companies, including those entirely held by foreign
owners, are Ukrainian legal entities. They may enter into
agreements, take on legal obligations, acquire property, and
sue and be sued in their own names. Furthermore, these entities
may engage in any commercial activity envisaged by their Articles
of Association. Accounting records must be kept in UAH and
comply with the Ukrainian National Accounting Standards, although
accounts may also additionally be compiled according to any
applicable international standards.
Limited
Companies
Limited liability companies (Ltd.) are also a popular form
of corporate organisation. They are a good option through
which foreign companies can conduct business in Ukraine. An
Ltd.has similarities to both a US corporation and a US partnership.
It is similar to a corporation in that it is a limited liability
company in which the interest holders are liable only to the
extent of their capital contributions. However, it is similar
to a partnership in that ownership interests are expressed
in terms of contractual rights arising from the statutory
documents.
There
is a lower initial capital requirement of 100 minimum monthly
wages in UAH (UAH 14,000 or approximately USD 2640, as at
1 February 2002). Again, from July 1 2002, with the minimum
wage to UAH 165, this capital requirement will increase to
UAH 16,500 (or USD 3,000). At least two founding participants
are necessary to create an Ltd.. Each partner should pay 30%
of their interest in the authorised capital to the temporary
bank account of the Ltd. before registration with the state
agency. Transfer of ownership rights is conducted through
an assignment of contractual rights. A Ltd. has two governing
bodies: the participants' assembly and the directorate (management).
Ltd.s have
a slightly simpler registration process than joint stock companies
and compared to a JSC require a less complex structure as
regards increase of capital and management.
Joint
Ventures
Joint ventures in Ukraine are generally established in the
forms of a joint stock company or limited liability company.
Joint ventures enjoy the status of a Ukrainian legal entity
and do not have to comply with additional special requirements.
Joint
Activity Without Establishment of a Legal Entity
Ukrainian legislation provides a foreign investor with the
right to invest in Ukraine without creating a legal entity
by entering into a joint production or joint co-operation
agreement with Ukrainian partners. Such investment is subject
to state guarantees and should be registered as discussed
above. A foreign investor is granted a right to get back their
investment and repatriate the profit from it. (on the top)
Representative Offices of Foreign Companies in Ukraine
A Representative office of a non- resident in Ukraine is a
place of the non- resident's business activity in the territory
of Ukraine. Non-resident legal entities which carry out their
activities via a Representative office in Ukraine do not exercise
the status of the legal entity in Ukraine and are subject
to the legislation of the country of their permanent establishment.
Representative off ice execute accounting and reporting in
accordance with the Ukrainian law.
The registration of the Representative offices is carried
out by the Ministry of Economy of Ukraine. Business activities
of Representative offices are regulated by the relevant Laws
of Ukraine. Foreign investment activities of Representative
Offices are regulated by the Ukrainian legislation on foreign
investment. On 26 February 1993 the Cabinet of Minister issued
a resolution which provides the Procedure for Accreditation
of a Representative offices of Ukraine.
Procedure
for Accreditation of a Representative Office
Foreign legal entities that intend to start a Representative
office in the territory of Ukraine should submit the following
documents to the Ministry of Economy of Ukraine:
1. An application letter addressed to the Ministry of Economy
of Ukraine for registration of the Representative office.
The letter, printed on the official letterhead of the company,
should contain the following information:
the official name of the company;
the name of the country where the head office operates;
its legal and postal addresses (if they differ), telephone
and fax numbers;
the name of the city where the Representative office is planned
to be started with the indication of its future address and
the number of any Representative office's branches within
Ukraine;
in case offices are planned to be opened in other cities in
Ukraine, these cities should be indicated;
the number of employees of the company;
the date of incorporation of the company;
the name of the bank where the company has its account and
the account's number;
information about the spheres of the company's activities;
number of foreign citizens that intend to be employed in the
Representative office (not more than three persons);
the purpose of establishment of the Representative office
and the scope of its activities and the information about
business contacts with Ukrainian partners.
2. Power
of attorney in accordance with the law of the country of the
company's residence, issued to a specific person to perform
representative functions in Ukraine with an indication of
the powers/authorities granted to the representative (including
authorisation to open bank accounts of the Representative
Office in a Ukrainian bank);
3. Extract from the trade or banking register of the country
where the company is resident attesting its registration (including
the date of registration and registration number of the company);
4. Letter of good standing from the bank in which the company
operates its official account with identification of the account
number;
5. Articles of incorporation of the company;
6. If different, the by-laws of the company;
7. A copy of the resolution of the company's management to
open a representative office in Ukraine and to appoint a representative.
All the above documents should be notarised at the place of
issue, duly legalised at the Consulate of Ukraine in the country
of residence of the company, and translated into Ukrainian
with the translation attested by the notary (if translation
into Ukrainian is done outside Ukraine, the stamp and signature
of the translator/notary- translator should be also confirmed
by the Consulate of Ukraine). All these documents should be
submitted to the Ministry of Economy of Ukraine not later
than six months from the date of the issue.
The state registration fee is currently USD 2,530 and is to
be transferred upon receipt of the application for registration
of the Representative Office by the Ministry of Economy. The
term of registration in Ministry of Economy is 60 working
days from the moment of crediting the above mentioned state
fee to the account of state treasury fund.
Contact information:
Ministry of Economy and European Intagration of Ukraine
01008, Grushevsky street, 12/2, Kyiv, Ukraine
tel: 00380-044-212-50-52, fax: 00380-044- 212-02-41
e-mail: ustanov@mfert.gov.ua
(on the top)
Bankruptcy
Bankruptcy cases are initiated exclusively against legal entices
and not against separate structural units such as representative
offices, departments or branches. An individual is not entitled
to be a debtor under Ukrainian insolvency law. Under current
Ukrainian insolvency legislation, bankruptcy is defined as
the failure of any legal entity or individual entrepreneur
to meet, within a set period of time (three months), its tax
liabilities and creditors’ claims, due to its lack of assets.
Another requirement for bankruptcy proceedings is that the
debtor owes debts of no less than 300 minimum monthly wages
in UAH (UAH 42,000 or currently about USD 7,600, as of 1 February
2002).
Creditors have the right to initiate insolvency procedures
only in the Ukrainian Arbitration Court. Bankruptcy proceedings
can be instigated by submitting a written demand to the Arbitration
Court. Any creditor may initiate bankruptcy proceedings when
a legal entity or individual entrepreneur fails to meet its
obligations within three months of a demand being recognised
by this legal entity or individual entrepreneur. A debtor
may apply to the Arbitration Court on its own initiative if
it is financially insolvent. (on the top)
Mergers, Liquidation, Reorganisation
In accordance with Ukrainian legislation the termination of
the activity of a company takes place by means of its reorganisation
(merging, acquisition, split, separation, or conversion) or
liquidation. The highest body of the company makes a decision
on reorganisation. Current legislation also provides for a
compulsory split of a company, which is abusing its monopoly
position in the market. As a result of a reorganisation all
rights and liabilities of the company transfer to its successors.
A Company
may be terminated:
by a decision of its highest governing body (i.e. shareholders);
upon expiration of the term for which it was established;
by a court decision if the company has become insolvent.
The liquidation of a company is conducted by the liquidation
committee, established by the company's owners or an authorised
body (e.g. the Arbitration Court). The liquidation committee
estimates the asset value of the company, it pays creditors,
prepares the liquidation balance sheet and submits it to the
owners or the body the appointed the liquidation committee.
(on the top)
BUSINESS ENVIRONMENT
Since independence in 1991 until 1999, there has been a steady
decline of official GDP, and growth of the black economy.
The volume of barter transactions is high, (more than 50%)
but it has been decreasing over the past few years. High creditor
and debtor balances and delays in salary and other social
security payments are characteristic. Ukraine has had a large
budget deficit, although attempts have been made to address
this issue under strong pressure from the IMF.
As mentioned
in the previous Chapters, the last two years have been witness
to a number of positive trends in the Ukrainian economy. Ukraine's
economy is expected to grow over the next few years. However,
this growth will be particularly sensitive to political instability
in the run up to the parliamentary elections, which may to
push government policy off course.
Growth
rates in the food and textile sectors remained high, due to
buoyant consumer demand. A stable positive growth rate was
recorded in the machine-building sector. In particular, due
to capital replacements and renovations in metallurgy, output
growth in metallurgy machine building was substantial. However,
the ferrous metal sector lost its leading position after conditions
in export markets deteriorated.
Companies
have started to develop long term business strategies, investing
their profits in production and broadening and deepening their
markets. Economic growth will determine new patterns of strategic
behaviour in the business sector. Business will allocate more
efforts to searching for new business contacts and partners.
(on the top)
The Banking System
Under the centrally planned Soviet regime, the banking system
provided only accounting and verification functions. Financing
decisions and project assessments were conducted by the planning
and party hierarchies. Funds were allocated according to an
agreed budget. In 1987 the banking system was subdivided into
sectors: separate organisations existed for agriculture, manufacturing,
foreign trade, housing and social services, and one bank served
the public.
After
independence, Ukraine had to establish its own banking system.
The National Bank of Ukraine (NBU) was created to control
the national currency, supervise the banking system and enable
the creation of the current banking regulations.
The current
banking system is two- tiered, comprising the NBU and 189
commercial banks. Five of the commercial banks are the former
specialised state banks: one is a savings bank (Oschadnybank),
two are specialised lending banks (Prominvestbank and Ukrsotsbank),
and one is the Export- Import Bank of Ukraine (Ukreximbank).
Oschadnybank and Ukreximbank are still state owned. Prominvestbank
and Ukrsotsbank receive concessionary treatment from the NBU
and are responsible for the vast majority of corporate lending.
There are also 'new banks'. Most of these are based in the
major industrial centres. They were generally formed by groups
of companies to manage their treasury and payment systems.
Some of these banks have grown significantly (e.g. Pravexbank,
Privatbank and Aval). There are currently six main banking
companies in Ukraine with foreign ownership: Credit Lyonnais,
Citibank, Bank Austria Creditanstalt, ING, Raiffeisenbank
and First Ukrainian International Bank.
Notwithstanding
the banking sector's difficulties, the procedures for settlements,
particularly relating to domestic transfers, have proven efficient.
Foreign investors no longer encounter delays in converting
currency and remitting profits in foreign currency as a result
of the banking system.
Numerous
Ukrainian commercial banks have joined the Society for Worldwide
Interbank Financial Telecommunications (SWIFT). SWIFT provides
financial data communication and processing services supporting
the business activities of banks around the world. Participating
Ukrainian banks can instantly settle transactions with other
banks on-line with SWIFT. Western Union also has a funds transfer
service between Ukraine and other countries. Currently the
banking system of Ukraine is demonstrating signs of stabilisation
after the 1998 financial crisis (following on from that in
Russia). Since January 1999 the NBU has decreased its prime
rate from 82% to 15%. (on the top)
Exchange Controls and Currency Regulation
In 1992 Ukraine introduced the Karbovanets as its temporary
currency. Consequently, Ukraine was effectively no longer
a member of the rouble zone of the former Soviet Union. In
September 1996 the Hryvnta replaced the Karbovanets as the
official currency. The Hryvnia is the only legal form of payment
within the territory of Ukraine.
The Ukrainian
currency control regulations underwent dramatic changes during
1998/99. The National Bank of Ukraine introduced new currency
controls as a temporary anti- crisis measure, which was expected
to have some short- term negative impact on foreign investment
into Ukraine. Most of these measures have since been lifted
or relaxed.
Foreign
currency can be purchased for the following main purposes:
payment to overseas suppliers of goods/services;
payment of dividends, interest, royalty;
repayment of a hard currency loan registered with the NBU
both to a resident and non- resident.
A Ukrainian entity is required to obtain a licence from the
National Bank of Ukraine (NBU) in respect of the following
transactions:
establishment of a subsidiary company in another country and
transferring capital to fund its operations;
purchase of foreign securities;
opening bank accounts with foreign banks.
A Ukrainian legal entity engaged in a legal agreement with
a foreign supplier should comply with the following requirements:
Ukrainian legislation sets out a so- called 90 days rule for
payments made abroad by Ukrainian companies to foreign suppliers
of goods/services. In compliance with this rule goods/services
purchased from abroad have to be actually delivered to a Ukrainian
counterpart within 90 calendar days of payment. Any delays
in delivery of goods/services in excess of 90 days without
authorisation from the NBU may result in penalties for the
Ukrainian company of 0.3% of the customs value of goods or
value of services for each day of delay. (on the top)
Accounting
Since independence in 1991 the Ukrainian accounting system
has been developing. It was based on that of the former USSR
where the domestic accounting standards suited the planned
economy. Until 1997 the changes were rather limited. Prior
to 1998 income was recognised on a cash basis, while now it
is recognised on an accrual basis. A new chart of accounts
has been introduced, but it is not completely international
and additional changes will be needed.
With effect
from 1 January 2001, Ukraine has been implementing National
Accounting Standards, which are primarily based on international
Accounting Standards, but with a number of differences and
omissions. Currently 22 of these new Standards have been implemented.
Background
Since 1991 the newly independent countries have taken significant
steps to develop market economies. However, this has not been
followed by development in their accounting practices. The
nature of the economic system m the Soviet Union required
a different set of accounting principles Soviet management
did not require all information that market-oriented management
requires and in the Soviet Union, accounting focused on:
the implementation of production objectives at the calculated
cost price;
the preparation of reports in a specific form (monthly, quarterly
and annually) for the authorities monitoring a company's operations;
and
the use of unified systems of accounts, which were intended
to provide statistical information required by the national
economy.
Accounting
was organised so that reporting to authorities was more important
than the enterprise’s own management information needs. Ukrainian
accounting remains: primarily a means for computing tax liabilities.
The principal
features of the present Ukrainian accounting system are:
financial statements, with itemised schedules, are prepared
on state approved forms;
the chief accountant manages the accounting and preparation
of financial statements;
foreign-owned Ukrainian entities must adopt and follow the
Ukrainian chart of accounts and accounting principles (but
simultaneously may use their own system);
the accounts must be prepared in compliance with the chart
of accounts and directions for making entries according to
National Accounting Standards promulgated by the government
as law;
all “local” accounting material must be in Ukrainian;
the Hryvnia is the basic accounting currency unit. Any transactions
denominated in foreign currency must also be recorded separately
in Hryvnia (generally at the rate of exchange on the date
of the transaction) for official accounting purposes; and;
the financial year of a Ukrainian enterprise is the calendar
year.
Manual accounting is still in widespread use and the system
is built around prepared forms. These printed forms are journalising
sheets on which individual business transactions are recorded.
In addition, there are memorandum sheets to combine one or
more forms and for subsequent entries into the ledger. With
its numerous forms and summaries, Ukrainian accounting is
administratively burdensome and time consuming from an external
observer's viewpoint.
Format
of Accounts
Previously Ukrainian financial statements focused on the balance
sheet. A number of items were grossed up in the balance sheet.
External readers often initially found this difficult to understand.
The-volume of transactions through various equity accounts
in the balance sheet also led to confusion.
The most
obvious difference between International and Ukrainian accounting
was the calculation of net profit or loss. Since calculation
of profit or loss occurred primarily through balance sheet
accounts, the Ukrainian income statement constituted merely
additional information appended to the balance sheet. Even
with its notes, the income statement does not contain the
detailed information external readers require.
Under
National Accounting Standards financial statements consist
of balance sheet, income statement and cash flow statement.
These are now more in line with internationally recognisable
formats however, they are still on pre- printed forms and
based on a specified chart of accounts.
Accounting
Principles
The most important Ukrainian accounting principles are:
the accounting directives ensure certain uniformity and continuity;
the prescribed form of the accounts is established in National
Accounting Standards;
the form of a transaction, rather than its substance, dictates
its accounting;
accounting rules are defined by National Accounting Standards
which are law.
Audit and Filing Requirements
With the exception of financial institutions and Open Joint
Stock Companies, statutory audit reports are generally not
required by Ukrainian companies. Companies must file on a
quarterly basis their commercial financial statements with
the Ministry of Statistics and with the Commission on Securities
and Stock Exchange (if it is a Joint Stock Company). Quarterly
taxation reports should be filed before the 25th of the month
following the reporting quarter. The taxation reports for
the financial year to 31 December must be filed with the tax
inspectorate by 15 February.
Qualified statutory auditors can be either an individual with
the appropriate qualification or a company or firm employing
registered auditors. Auditors should be appointed by the director
or the key shareholder of the company. They normally conclude
a separate agreement for each set of financial statements
audited.(on the top)
Insurance
Although the state no longer has a monopoly in the insurance
industry, there are currently only a few private insurance
companies. The insurance industry in Ukraine is in its infancy
and at present insurance policies available are medical insurance,
mortgage insurance, real estate insurance, medical insurance
for travel abroad and insurance for transport of goods.
According
to the Law on Insurance, insurance activities may be conducted
only by resident entities. Insurance agents and brokers may
not act as intermediaries of foreign insurers in Ukraine,
except for re-insurance activity.(on the top)
Labour
The main body of laws covering the Ukrainian labour rules
is the Labour Code of Ukraine (Code). According to the relevant
provisions of the Code a Ukrainian employee can conclude only
one employment agreement with the same employer.
The Ukrainian
labour legislation is inherited from Soviet times and therefore
the emphasis is made on protecting the rights of the employees
rather than of the employers. An illustration is article 9
of the Code, which states that the provisions of the individual
labour agreements which worsen the working conditions of the
employees compared to those which are stipulated by the Ukrainian
labour legislation are considered ineffective in Ukraine.
Under
Ukrainian law, all business documentation in Ukraine is required
to be made in the Ukrainian language. Accordingly, it is advisable
to ensure that employment agreements are prepared both in
English and Ukrainian. This is especially important in view
of the fact that all disputes under these agreements are envisaged
to be settled in the Ukrainian courts.
The laws relating to employment matters in the count may be
expected to change frequently to reflect shift in the social
and economic arrangements. Currently, the principal laws applicable
to employment arrangements are provided by the Code.
Ukrainian
legislation introduced in 199J allows individuals to choose
their place of work and enter into direct labour agreements
with employers. Additionally, Ukrainian foreign investment
law allows enterprises with foreign investment to hire Ukrainian
employees and enter into collective agreements or individual
labour agreements.
Currently
the minimum official gross monthly salary is set at UAH 140
(approximately USD 26). From 1 July 2002, the minimum gross
monthly salary will increase to UAH 165 (approximately USD
31).
Labour
Agreements
The Ukrainian labour legislation provides a typical form of
a labour agreement and provisions to be included in such an
agreement, although, failure to comply with this form does
not give rise to sanctions. According to Ukrainian legislation,
any enterprise may be required to honour its employees' request
to conclude a collective agreement, even if there is no trade
unison presence at the enterprise.
An employment
relationship is subject to labour legislation in Ukraine,
internal employer regulations, the collective agreement of
the employer and direct employment agreements. The employee
is entitled, as a minimum, to the rights and benefits afforded
under Ukrainian labour laws. In addition to these rights,
Ukrainian labour legislation also governs such areas as duration
and termination of agreements.
Rights
of Employees
Ukrainian labour legislation provides certain guarantees for
employees, including the following:
right to reinstatement in a prior job upon the expiration
of the term of an elected office;
wages for time spent away from work for performing the functions
of a trade union officer, appearing in court, going to vote
and fulfilling other state or social responsibilities;
the right to keep one’s job when on a training programme;
wages while hospitalised;
compensation for the depreciation in value of their own tools,
when used far the employer's work;
severance pay in certain situations;
certain social benefits: maternity leave, paid holidays and
vacation time;
minimum pay guidelines.
In addition, the following is provided by the labour legislation:
The length of a working week is not to exceed 40 hours.
Overtime may not exceed two hours per day or 120 hours per
year. In practice, many employees of foreign firms work more
or less than the normal working week prescribes, subject to
their voluntary individual agreements with the employer, work
during weekends is not officially allowed. Exceptions could
be for natural catastrophes or emergency occasions.
An employer is not permitted to demand work from an employee
beyond that included m the labour agreement, without the consent
of the employee except in certain circumstances. These include
temporary transfers of one month in the event of an industrial
emergency and transfers ensuing from disciplinary proceedings;
In general, employees are entitled to annual leave of 24 calendar
days. Some employees, such as those involved m training, research
or investigation, may be entitled to more than 24 day’s annual
leave.
Employees are generally entitled to sick leave benefits. Such
benefits are based on the employee’s wages and vary between
60% and 100%.
Women
are entitled to paid maternity leave for the 70 days prior
to and 56 (sometimes 70) days after childbirth. A woman will
be entitled to partially paid leave until the child reaches
the age of three. Employees have the right to organise trade
unions and participate in the management of production. The
local committee of the trade union at the enterprise represents
the interests of the employees, manages social funds, oversees,
compliance with the terms of the collective agreement between
the enterprise and the local trade union committee and participates
in resolving labour disputes according to Ukrainian law.
Labour
Book
Ukrainian labour legislation requires that a labour book be
kept for each employee working for an enterprise longer than
five days. This is the basic document concerning the activities
of the employee, reasons for dismissal, etc. As the labour
book is a legal requirement, all enterprises are generally
required to sign, stamp and hold such labour books for their
employees. In order to hire a Ukrainian citizen, an employer
should receive the employee's labour book and passport.
Duration
of Agreements
A labour agreement may be concluded for an indefinite period
of time, a specific term which is settled through mutual consent
of the parties, or for the amount of time necessary to perform
the work.
Generally,
the probation period of an employee may not exceed three months
but depending on the classification of such a worker the time
may be reduced to one month. If the employee continues to
work after such period has expired, the employee is considered
to have 'passed the test' and is entitled to all rights and
protection under Ukrainian law.
Termination
of Agreements
Grounds for termination of employment under Ukrainian Labour
Law include:
agreement of the parties;
expiry of the term of the employment agreement;
drafting or enlistment of a manual or office worker into military
service;
criminal conviction and confinement of the employee which
prevents the worker from continuing his work;
the transfer of a worker, with the worker's consent, to other
work, or a switch to another positron;
refusal of the worker to be transferred to work in another
location together with the enterprise, institution or organisation
upon its relocation;
cancellation of the labour agreement at the initiative of
the worker (as set forth below);
cancellation of the labour agreement at the initiative of
management.
In general, an employee may terminate an agreement concluded
for an indefinite term by giving two weeks' notice in writing.
A labour agreement for a definite term may be terminated by
an employee under the following conditions: if he/she is injured
or disabled and unable to perform the required work, management
violates labour legislation, the collective agreement or labour
agreement, or if the employee has any other good cause.
In general,
an employer may terminate an agreement under the following
circumstances: dissolution of the enterprise or reduction
m personnel; reinstatement of a worker who previously performed
the job; systematic non-fulfilment of work duties without
good cause; absence without good reason; absence from work
for more than four months as a result of a temporary disablement
(not including maternity leave), unless a longer period of
time for retaining the position is established by applicable
legislation in the case of a specific illness. This list of
specific reasons for termination is not complete. The agreement
may specify additional reasons for termination, such as disclosure
of confidential information. Dismissals cannot be arbitrary
(e.g., for pregnancy or personal reasons unrelated to employment).
In addition,
an employee must be warned of essential changes in work terms
no less than two months in advance. If the former terms cannot
be maintained and the employee disagrees with the new terms,
the labour agreement can be discontinued. In this case, the
employee shall receive severance pay.
Upon being
dismissed from a job as a result of redundancy ensuing from
changes in the organisation of the work, the employer shall
continue to pay a salary to the dismissed employee until the
latter finds new employment, or for a maximum period of three
months.
An employee
can be transferred to a temporary job only with his consent.
No consent is required in the following cases:
safety reasons (to prevent accidents or industrial disasters);
substitution of an absent employee (duration of transfer cannot
exceed one month);
termination of activities;
health reasons.
Compensation Issues
Salaries of employees are determined in accordance with the
employment agreement. Such salaries cannot be lower than a
minimum salary set by the Ukrainian government (UAH 140 or
USD 26 at 1 January 2002). The Ukrainian Labour Code provides
for additional compensation for overtime, holidays, as well
as night-time work. Salary must be paid at least once every
two weeks. There is a criminal liability for groundless salary
underpayment. (on the top)
TAXATION
Corporate Residence
Ukrainian corporate income tax law distinguishes between domestic
companies and foreign companies based on their place of incorporation.
Domestic companies those incorporated in Ukraine) are taxed
on their world-wide income whilst foreign companies are subject
to corporate income tax on profits from business activities
performed via a permanent establishment in Ukraine. (on the
top)
Profits Tax
Permanent Establishment of Foreign Legal Entities
Non-residents engaging in business activities via a Permanent
Establishment (PE) in Ukraine are subject to Ukrainian corporate
profit tax. However, there are several methods of tax treatment
for the PE. If a non- resident derives profit through a permanent
establishment in Ukraine, the taxable profit in Ukraine is
determined based on an allocation of profit to the PE via
a split of business activity. To obtain this, a non-resident
company should use exact figures from its internal accounting
records, if available or can allocate the profit on the basis
of revenues/expenditure. If it is impossible to determine
profit allocated to the PE by this so called direct method,
the taxable profit is determined as the difference between
gross income and tax deductible expenses by implying a 30%
profit margin based on sales, if known, or by grossing up
expenses. The net effect of this calculation is a tax liability
based on sales of 9% or a tax liability based on expenses
of approximately 13%.
For corporate
income tax purposes a tax year coincides with the calendar
year.
Taxable
Base
Taxable profit is determined based on adjusted gross income
reduced by deductible costs and tax depreciation. For corporate
income tax purposes, adjusted gross income means gross income
(i.e. a company's world-wide income) received (accrued) during
the reporting period either in cash, in kind or in intangible
form. Gross income includes total income from the sale of
goods (work, services), fixed assets and gratuitous transfers.
Ukraine uses an accrual and cash method to record expenses,
although there are some anomalies which should be looked at
closely. Revenues are recognised at the earlier of the goods
or services being provided or cash being received (e.g. if
there is a prepayment).
Deductions
The existing law generally allows reasonable business expenses
as tax deductible, with the exception of expenses explicitly
disallowed or restricted by the law in a detailed list.
Among
the disallowed or restricted expenses the following are:
fuel, repairs of company cars (except where the company's
business is transportation);
contractual penalties;
expenses associated with warranty repairs (deductibility is
restricted to 10% of the total price of such goods sold and
still under warranty);
expenses incurred in connection with receptions, celebrations
and similar events held for advertising purposes and connected
with business activity (deductibility is limited to 2% of
the taxpayer's taxable profit for the respective period);
other expenses not connected with business activity.
Tax Rates and Payment Dates
The basic corporate tax rate is 30%. Special tax rates apply
to certain types of income (e.g. income earned from Ukrainian
sources by non- residents not engaged in business activities
in Ukraine through a permanent establishment).
Corporate
tax liabilities are self- assessed by taxpayers. Tax is payable
on a quarterly basis. Quarterly tax returns are due within
40 days from the reporting quarter.
Tax Rates
and Payments to Related Parties
In order to be deductible, expenses should be supported by
documentary evidence. In respect of payments to individuals
or entities associated with the taxpayer, the law explicitly
states that the absence of documentary evidence concerning
payments for services rendered can lead to disallowance. In
practice this requirement becomes important in respect of
management fees, payments under secondment contracts and other
inter- group cost re-allocations. Transactions between related
parties should be executed on the basis of 'fair market' prices,
which would be paid under similar conditions to third (non-
related) parties.
Payments
to Non-residents in Deemed Tax Havens
A restriction applies to the deductibility of payments made
to non-residents in deemed tax haven locations. Such payments
provided that they are allowable deductions in the first place,
can only be deducted at 85% of their total amount. The tax
haven locations are referred to as those, which are to be
listed in a relevant resolution of the Cabinet of Ministers
of Ukraine.
Interest
Interest payments on loans required for the taxpayer's business
are deductible. Specifically for companies with 50% or more
foreign investment, the law contains a restriction which in
essence provides that such companies in a reporting period
cannot reduce their taxable income by more than 50% through
the deduction of interest. Interest expenses thus disallowed
can be carried forward to subsequent periods indefinitely.
Some double taxation treaties, however, attempt to override
this domestic provision in the way they are drafted but the
practical examples of when such provisions have been invoked
are very limited to date.
Exemptions
The following are not included in taxable profit:
capital contributions in return for a share in the equity
(i.e. in return for corporate rights);
contributions in cash or in kind under joint activity agreements
in Ukraine without creation of a legal entity;
share premium received by a share issuer (difference between
the price of a share and its nominal value);
dividends received provided they were taxed upon distribution
in accordance with the Corporate Income Tax Law.
Tax Holidays
Under the current corporate profit tax legislation, with one
exception, no tax holidays or exemptions are provided to foreign
investments. 5-year tax holidays used to be provided to foreign
investors in previous years but these have been cancelled
and are no longer applicable. There is a tax holiday available,
however, for an investment of USD 150 million or more in the
automotive industry.
Foreign
Tax Credit
A tax credit system is effective to avoid double taxation
of income derived from abroad. A credit is allowed for foreign
taxes paid up to the amount of Ukrainian tax due on such income,
provided there is a tax treaty with the state in which the
tax was paid and proof of taxes paid can be obtained.
Ukrainian
Repatriation Tax
Under current Ukrainian tax legislation Ukrainian source income,
such as dividends, interest or royalties payable to non-Ukrainian
residents is subject to 15% withholding tax upon repatriation.
However, the rate of 15% can be reduced based on the provisions
of a relevant double tax treaty.
Grouping/Consolidated
Tax Returns and Loss Relief
Grouping/consolidated tax returns are allowed for resident
taxpayers and their branches or other units without legal
entity status. There is no group relief for losses and profits
of separate Ukrainian legal entities. There is a requirement
that a branch should be located in a different region from
the head office. An application to switch to payment of tax
on a consolidated basis should be filed before the new reporting
year. The detailed procedure for paying consolidated tax is
established by the State Tax Administration of Ukraine.
Resident
taxpayers carry forwards are granted to resident taxpayers.
The term is limited to 5 years from the moment the loss is
recorded in the accounting records.
(on the top)
Dividends & Other Payments
Tax Withholdings on Dividends Distributed to Ukrainian Resident
Dividends payable by a Ukrainian domestic company to its Ukrainian
resident shareholders are subject to 30% withholdings due
from the dividends. The tax on dividends should be paid prior
to or simultaneously with the payment of dividends. However,
the tax can be offset against corporate income tax liabilities
of the entity distributing the dividends.
Repatriation
Tax
As indicated above, dividends distributed by a Ukrainian company
to its non- resident shareholders are classified as income
derived from Ukrainian sources. Repatriation of dividends
abroad is subject to 15% withholding tax due from the dividends
paid. However, the 15% tax rate can be reduced based on provisions
of a relevant double tax treaty concluded with Ukraine. (on
the top)
Value Added Tax (VAT)
Scope of VAT
The VAT law provides for the uniform treatment of both production
and merchandising entities: under the VAT law VAT due to the
State is assessed as the difference between VAT collected
from customers and VAT paid to suppliers. All turnover from
the sale of goods and services in Ukraine is within the scope
of the tax (but subject to specific exemptions or exclusions
as noted below), as are imports of goods and services.
VAT
Rates
For VAT purposes the law distinguishes between four types
of transactions. These transactions are those which are:
1. subject
to VAT and are taxed at the standard rate of 20%. This applies
to all goods and services apart from the exceptions set out
below.
2. subject to Zero-rate VAT. The list of transactions primarily
includes:
Sales of goods outside Ukraine (export of goods);
Sales of services which are intended to be used or consumed
outside Ukraine.
Whilst the criteria for defining exported services are not
really clear at the moment, the law provides for the list
of services that are a priori considered as exported. This
list includes services on transfer of copyrights, licences,
patents, and a right for non-residents to use trademarks.
3. Non-VATable
transactions. Some of these transactions are:
Fixed assets contributed in exchange for a share of enterprises
with foreign investment;
Transfer of property for leasing from a Ukrainian lessor to
a lessee and its return to the lessor on the termination of
the lease;
Rent payments under financial leases;
Insurance and reinsurance transactions;
Most banking services.
4. VAT exempt transactions. These include:
Education services;
Artistic and cultural services;
Healthcare services;
Certain mass media services;
Privatisation services.
Registration
In general, VAT is payable by:
An entity with a volume of VATable transactions in excess
of 3,600 non- taxable allowances (i.e. UAH 61,200 currently
approximately USD 11,500) for any preceding 12 months of operation;
An importer of goods, services or works;
An entity that is engaged in trade for cash regardless of
the volume of sales.
Any entity qualified as a VAT payer is required to register
for VAT purposes.
VAT registration is compulsory for all Ukrainian companies
which qualify as VAT payers. Foreign legal entities engaged
in production or other commercial activity in the territory
of Ukraine are considered to be VAT payers and required to
register for VAT purpose. Foreign legal entities registered
as VAT in the same manner as Ukrainian enterprises.
Foreign
companies terminating their activities in Ukraine are obliged
to file a final tax declaration with the relevant tax authorities.
VAT
Recovery
Under Ukrainian law, VAT is recoverable provided that the
goods (works, services) are deductible for corporate profits
tax purposes or, in the case of fixed assets, are subject
to depreciation. VAT incurred on business expenses may normally
be recovered as a credit against output VAT or as a refund,
with the following exceptions:
VAT on inputs corresponding to exempt supplies;
VAT on certain expenses, which by virtue of the corporate
tax legislation, are not deductible for corporate profits
tax purposes.
Generally, an input tax credit can only be claimed if the
VAT has been paid to the supplier although there are some
exceptions. VAT paid (accrued) by a taxpayer during the reporting
period in relation to acquisition (construction) of fixed
assets subject to tax depreciation are included as a tax credit
for that reporting period regardless of the time the fixed
assets are put into operation.
There
is no clear or effective mechanism for VAT refund by foreign
entities that are not registered as VAT payers in Ukraine.
Partial
Exemption
There are no specific partial exemption rules. Companies making
wholly taxable supplies can recover the VAT element of their
expenses whilst those making wholly exempt supplies do not
enjoy recovery. Partly exempt companies which make both taxable
and exempt supplies are required to make a calculation as
to what proportion of the input tax they should recover. Any
exempt supplies will trigger a partial disallowance of input
tax.
Cross-Border
Transactions
To qualify as export and consequently to be Zero-rated, goods
should be physically exported outside the customs territory
of Ukraine. Documentary evidence of export is important (i.e.
supply contract, proof of payment, export customs declarations).
Imports
of Goods
The transfer of goods into the customs territory of Ukraine
is chargeable to VAT.
Exported
Services (Zero-rated)
Under the VAT law, sales of services in the customs territory
of Ukraine and import of services from a non-resident service
provider are subject to VAT.
In order
for a zero VAT rate to be applicable for the export of services
from Ukraine two conditions should be satisfied:
Services should be consumed by a non-resident entity;
Services should be used or consumed outside Ukraine.
The services to be used abroad are taxed at a Zero rate. The
zero-rated services inter alia include:
Services provided in relation to lease, charter and freight
of aircraft, ships, shuttles, etc.;
Export of royalties, patents, trade marks, licences, etc.;
Advertising services to be used outside the territory of Ukraine;
International communication services;
Sales of goods in duty free shops.
Imports of Services
Under the VAT law the provision of services by non-residents
to Ukrainian resident entities is subject to VAT. VAT is to
be self- assessed by the Ukrainian payer and is due on the
service fee payable to a non-resident. If the service provider
is regarded as being related to the Ukrainian entity, VAT
is collected based on the contract price but not less than
the so- called 'usual price'. The usual price is defined as
a price that can be obtained by a seller from the selling
of services to non- related entities in the normal course
of the seller's business.
Inter
CIS Supplies
Ukraine, unlike certain other member states of the CIS, does
not operate within an integrated VAT system whereby inter-CIS
sales are taxed at the point of origin, with input VAT claimed
in the country of destination.
Time
of Supply
The VAT liability arises either at the date of the goods'
shipment or at the date of receiving the payment from the
customer depending on which event occurs first.
Gifts,
Donations, Internal Consumption
Donations of goods and services are taxable in the same way
as sales. The output VAT is due on an imputed market value.
Leasing
Under the Ukrainian legislation the transfer of property for
leasing from a lessor to a lessee is not subject to VAT. Lease
payments under financial lease agreements are not liable to
VAT. Operational lease payments attract 20% VAT.
VAT
Returns
For VAT payers whose reporting period is one month VAT returns
are required to be filed no later than the 20th day of the
following month. VAT payers whose reporting period is quarter,
must file their returns within 40 days of the end previous
quarter.
VAT
Invoices
Under VAT legislation all VAT liable transactions are to be
properly documented with tax invoices. The legislation provides
for an explicit list of items to be included in a tax invoice,
primarily selling price, VAT amount, registration number of
the tax payer, etc. To be treated as a deductible, VAT paid
to suppliers should be properly supported with tax invoices.
The tax invoices can only be issued by entities or individuals
registered as taxpayers for VAT purposes.
Interest
Interest is charged based on 120% of the National Bank of
Ukraine prime rate (currently 12.5%). The interest charged
on late VAT payments is, therefore, 15 % per annum at present.
Customs
Duties
Generally the following customs duties are payable by the
importer upon importation of goods into Ukraine:
customs fees at the rate of 2% of the customs value of the
goods but not more than USD 1000 (for goods customs value
of which exceed USD 1,000);
customs duty in accordance with the Unified Customs Tariff;
excise duty levied on a limited list of goods, mainly consumer
and luxury items (for instance cars, alcohol and tobacco products,
jewellery, etc.). The basis for calculation constitutes the
customs value of goods inclusive of customs fees and import
duty paid.
Customs value is defined as the invoice value increased by
the following items:
actual costs of transportation, loading, unloading and insurance
incurred up to the moment of crossing the Ukrainian border;
amounts of commissions and broker's fees paid;
fees for intellectual property rights relating to goods which
must be paid as a condition of their importation.
Under Ukrainian law, there are relieved and full rates applied
depending on the country of manufacture or origin.
The relieved
duty rates apply to goods manufactured in the countries that
signed trade agreements with Ukraine for the most-favoured-nation
status. Countries which qualify for this favourable trade
regime include Austria, Belgium, Canada, China, Denmark, Egypt,
Estonia, Finland, France, Germany, the United Kingdom, Greece,
Hungary, Italy, Japan, the Netherlands, Switzerland, Sweden,
Turkey, and the USA. Relieved import duty rates may also apply
to goods manufactured in countries which have entered into
free trade agreements with Ukraine (e.g. Belarus, Russia).
Full rates
are applied to goods from a limited list of countries with
whom trading is not specifically encouraged or when the origin
of goods cannot be defined.
Import duty is payable in local currency and may be deferred
for the period of one month by way of a bank guarantee.
Exemptions
An exemptions from import duty for a very limited number of
items (Ukrainian and foreign currency, securities, goods exempt
from import duty under international agreement concluding
by Ukraine, etc.)
The Unified Customs Tariff is based on the Ukrainian Nomenclature
of Foreign Trade compiled in accordance with the Harmonised
Commodity Description and Coding System accepted in the EU.
Excise
Duties
Excise duty is an indirect tax levied on certain profitable
and monopolised goods (products) which is included in the
price of these goods (products). All business entities producing
or importing excisable goods (products) are the payers of
excise duty.
The list of excisable goods currently includes the following
items: alcoholic beverages, tobacco and tobacco products,
imported cars, fuel, tyres, jewellery.
Rates of excise duty are uniform for the whole territory of
Ukraine. For example, alcoholic drinks' excise duty ranges
from ECU 0.15 (on a sold item) / ECU 0.6 (for import) for
1 litre of grape wine and up to ECU 3 (on a sold item) / ECU
7.5 for 1 litre for vodka and 100% spirits. The amounts of
excise duty levied on transport vehicles depend on their engine
capacity.
Excise duties are not levied when excisable goods are exported
for foreign currency. (on the top)
Taxation of Individuals
Individuals are subject to personal income tax in Ukraine.
Non-residents are taxed in Ukraine in the cases stipulated
below.
The income
tax rates range from 0% to 40%. The tax year for individuals
is a calendar year. Non-residents are subject to a fixed withholding
tax of 20% on their incomes from Ukraine unless another rate
is mentioned in the relevant double tax treaty.
Residence
In Ukraine, foreign individuals are considered as residents
for personal income tax purposes by using, a '183- day' test.
An individual is deemed to be a permanent resident in Ukraine
if he or she is physically present in Ukraine for not less
than 183 days in a calendar year. If this rule is applicable,
such foreign individuals are obliged to pay tax in Ukraine
on their worldwide income.
Taxable
Income
Taxable income includes any income received in cash or in
kind (in local or foreign currency). Income received in foreign
currency must be converted into Hryvnias at the rate of the
National Bank of Ukraine on the date of its receipt. Income
received in kind is valued at fair market prices except for
income received from agricultural companies which is valued
at state controlled prices.
Taxable
income, in particular, includes the following:
Wages, bonuses;
Profits from stock options;
Annual (additional) paid vacation;
Reimbursement in cash of unused vacation;
Student and other fellowships;
Cost of company products handed over to an employee as remuneration
in kind;
Use of company car for personal purposes;
Moving allowances for unsubstantiated purposes;
Tax-exempt Income
Housing allowances for foreign nationals (i.e. up to the rent
actually paid);
Amounts contributed on behalf of the employee to Ukrainian
state pension or social insurance funds;
Use of car for business purposes;
Business trip costs;
Income from deposits maintained with banks in Ukraine;
Dividends received from Ukrainian legal entities;
Financial aid to an employee on condition that such aid is
provided once per year and does not exceed the living minimum
(i.e. currently UAH 342, approximately USD 65)
Foreign Tax Relief
In Ukraine, relief for foreign income tax is usually recognised
in the form of a foreign tax credit up to the amount of tax
that would have been suffered in respect of the same income
in Ukraine. As a rule, a foreign tax credit is recognised
by the Ukrainian tax authorities if written confirmation is
available from the foreign tax authorities of the country
where the tax was paid.
Currently,
Ukraine has a broad network of double tax treaties, including
former USSR agreements which are still recognised by Ukraine.
Where an individual is a resident for treaty purposes of another
state an exemption or reduced rate in respect of Ukrainian
income tax can be obtained.
Payroll
Taxes
An employer, whether a Ukrainian business entity or a permanent
establishment of a foreign entity, is generally required to
make monthly contributions to the State Pension Fund, Employment
Fund, Disease Security Fund and Accident Insurance Fund.
The statutory
payments are made in one lump sum payment for all employee’s
and are calculated as a percentage of the employee's gross
monthly salary as follows:
Pension Fund contributions 32%
Employment Fund contributions 2.5%
Disease Security Fund contributions 2.5%
Accident Insurance Fund contributions 0.84-13.8%
Additionally, an employer is obliged to withhold from an employee’s
salary the following (the rates are applied to the gross salary):
Pension Fund contributions 1- 2%
Employment Fund contributions 0.5%
Disease Security Fund contributions 0.25-0.5%
The taxable base for the above employer’s and employee’s contributions
to social funds is currently capped at UAH 1,600 per month.
For salaries exceeding UAH 1,600 per month deductions are
based on UAH 1,600 rather than on the actual gross amount.
The above payments must be made by made by an employer directly
to the tax authorities at the same time or before payment
of the salary.
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