ACCOUNTOR KYIV NEWS. Newsletter for 08-09/2013. Dear Clients, Partners and Friends!

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1 Newsletter for 08-09/2013 Dear Clients, Partners and Friends! We hereby would like to inform You of the latest legislation news including the most significant changes in tax regulation. Content: 1. Company s changes 2. Tax and accounting legislation news 2.1. Profit Tax 2.2. Value Added Tax 2.3. Other changes of tax legislation and statutory reporting 3. General legislation news 3.1. Land Law 3.2. Banking Law 3.3. Customs Law 3.4. State control 3.5. Labor Law 3.6. Other 1. Company s changes Accountor Kyiv LLC, a trusted provider of accounting, legal and consulting services for many non-resident companies in Ukraine, is pleased to announce several big changes in its operations in Ukraine. On 22 July 2013 the company has changed its legal name from Konsu Kyiv LLC to Accountor Kyiv LLC, as a part of restructuring at a Group level aimed at bringing company s operations in Sweden, Norway, Denmark, Finland, the Netherlands, Russia and Ukraine under one unifying brand of Accountor. On 1 July 2013 the Group has also appointed a new CEO Mr. Timo Matinpalo, MSc (eng.) to act as a General Director of Konsu Accountor Group which covers operations of Saint-Petersburg, Moscow and Kyiv offices. Mr. Matinpalo has a long experience of working in Germany and Russia for such known firms as Kone, Fortum, Neste Oil, Tammet dealing with finance, merges, line responsibility and sales. Mr. Matinpalo speaks Finnish, Russian, Swedish, English and German. Starting from August 2013 Deputy Director Ms. Oksana Kochmarska has been appointed to the position of Executive Director of Accountor Kyiv LLC. She has been working for Kyiv s branch since 2009 and has been successfully managing the business for the last 3 years. Ms. Oksana Kochmarska is a finance professional with more than ten years of experience in accounting, tax consulting and auditing, financial reporting and analysis dealing with a big number of international companies. Also in July 2013 Accountor Kyiv LLC has hired an experienced manager Mr. Egor Paanukoski MSc (pol. and soc.) to lead company s business development in Ukraine. Mr. Egor Paanukoski holds a Master Degree from University of Helsinki; he has worked for such well-established European and global companies as Berlitz Corp., Montel Powernews and Thomson Reuters. Egor speaks fluent Russian, Ukrainian, English, Finnish, Swedish and German.

2 2. Tax legislation news 2.1. Profit Tax As for profit tax accounting of non-resident s representation The Ministry of Finance has approved a revised Procedure of the Calculation of Tax Liabilities on Profit Tax of Non-residents Exercising Business within the territory of Ukraine via a Permanent Representation used by permanent representation. Besides that, abovementioned order has approved new forms of the Calculation of taxable profit and profit tax of non-resident exercising business within the territory of Ukraine via a permanent representation based on preparation of separate balance sheet of financial and economic activity and Calculation of taxed profit and profit tax of permanent representation, carried out by state tax service authority (Order of the Ministry of Finance No.610 dated ). As for taxation of activities subject to patenting In the letter of the Head Directorate of the Ministry of Revenue and Duties of Ukraine, it is stated that in case of exercising activities subject to patenting it is necessary to calculate tax for each kind of such activities and tax for other activities separately. Total amount of tax payable to the budget shall consist of separate amount of profit tax for each kind of activities subject to patenting and for other kinds of activities, which are not subject to patenting (Letter of the Head Directorate of the Ministry of Revenue and Duties of Ukraine No.348/4/ dated ) Value Added Tax As for VAT in case of substitution of the original lessor under financial lease agreement In its letter, the Ministry of Revenue and Duties of Ukraine has considered value added tax in case of substitution of the original lender under financial lease agreement. It is stated that, if original lessor (original lender) accrued and reflected VAT liabilities upon transfer of objects of financial lease, then in case of assignment of right of claim under financial lease agreement, repeated VAT liabilities will occur neither for original lessor (original lender) under the object of financial lease, nor for new lessor (new lender) under the lease payments (Letter of the Ministry of Revenue and Duties of Ukraine No.3645/6/ dated ) As for issuing by a taxpayer of tax invoices on the date of cancellation of VAT payer certificate In its letter, the Ministry of Revenue and Duties of Ukraine has provided clarification that a VAT payer has a right to issue tax invoices on the date of cancelation of VAT payer certificate (Letter of the Ministry of Revenue and Duties of Ukraine No.10030/7/ dated ) As for completion of tax invoices in case of change of the name of legal entity In its letter, the Ministry of Revenue and Duties of Ukraine has provided clarification that tax invoices issued by a VAT payer during the period of reregistration in case of change of the name of legal entity (from the date of change of the name of the enterprise till obtaining of a new VAT payer certificate) shall state both previous as well as new name of such enterprise (Letter of the Ministry of Revenue and Duties of Ukraine No.12232/7/ dated ).

3 On completion of commodity code according to UCG FEA in tax invoices In its letter, the Head Directorate of the Ministry of Revenue and Duties of Ukraine in Kyiv City has provided clarification concerning completion of one of obligatory requisites of tax invoices, namely a commodity code according to UCG FEA (for excisable goods and goods imported on the Ukraine s customs territory). Thus, it is stated that if tax invoice issued for the first event under the transaction of supply of imported goods contains UCG FEA codes, which were ascertained after execution of FCD, then after change of the UCG FEA code in fact commodity classification is being changed. Therefore, in such an event, seller must issue calculation of adjustment of quantity and value indicators in the tax invoice issued for the first event under the transaction of supply of imported goods and containing UCG FEA codes, which were ascertained after execution of FCD, and decrease quantity (value) of goods stated in such tax invoice, and compete row 8.1 and row 16.1 of the VAT declaration, form and procedure of completion and submission of which has been approved by the Order of the Ministry of Finance of Ukraine No.1492 dated After that, such seller shall issue another tax invoice on imported goods indicating correct UCG FEA codes stated in duly executed FCD (Head Directorate of the Ministry of Revenue and Duties of Ukraine in Kyiv City, No.2387/10/ dated ). As for new method of VAT refund Before 1 January 2014, a VAT payer may choose new method of the VAT refund from the budget, by receiving a treasury financial bill. This method should be treated as payment of budget refund by transferring funds from the budget account to a tax payer s account (Law of Ukraine On amendment of the Tax Code of Ukraine and other laws of Ukraine regarding the financial bills of exchange No.407-VII dated ) 2.3. Other changes of tax legislation and statutory reporting As for derivation of ordinary price and notion of transfer pricing The Law of Ukraine «On amendment of the Tax Code of Ukraine regarding the transfer pricing No.408-VII dated has introduced new term transfer pricing described in the art.39 of the Tax Code of Ukraine. The article defines: - principles of transfer pricing and term controlled transactions - list of transactions considered as controlled ones - methods of derivation of price in controlled transactions - documents for tax control of controlled transactions - coordination of prices in controlled transactions and inspection by authorities Let us note that controlled transactions are business transactions of purchase (sale) of goods (works, services) performed by taxpayers with: - non-resident related parties, - resident related parties having negative value of object of taxation on tax profit for a previous tax year; or as of the beginning of a year: applying special taxation regimes; not being profit tax and/or VAT payers; or using rates other than the base (main) rate of profit tax and/or VAT. At that, common condition for previous two points is the fact that total value of transactions performed by a taxpayer with each counteragent during respective calendar year shall be equal to or exceed UAH 50 million (value added tax excluded). Otherwise, ordinary, i.e. contractual prices shall be applied. Let us remind the updated term of ordinary price, namely the price of goods (works, services) set by parties of the contract, unless otherwise stipulated by the Code.

4 As for use of waybills In the letter of the State Statistics Service of Ukraine, it is stated that enterprises exploiting motor vehicles have a right not to issue waybills to drivers. Enterprises may use them independently in their business activities, if necessary. At the same time, the letter refers to opinion of the Department of Motor Transport of the Ministry of Infrastructure of Ukraine on expediency of use of а waybill of a truck under the standard form No.2 approved by the Order of the Ministry of Transport of Ukraine and the Ministry of Statistics of Ukraine No.2488/346 dated This form satisfies the requirements of enterprises concerning accounting of driver working time, costs and fuel write-off (Letter of the State Statistics Service of Ukraine No /107 dated ). As for division and use of leaves in parts. In the letter of the Ministry of Social Policy of Ukraine, it is stated that main indivisible part of leave of at least 14 calendar days is one of the parts of annual leave, which may be given to an employee at his/her request. At the same time, this part of leave shall not necessarily be the first, second or other its part. However, additional social leave given to employees having children stipulated by art.19 of the Law of Ukraine On Leaves is not subject to division into parts. At the same time, if social leave is granted based on two grounds, it may be first used based on one ground, and later - based on another one (Letter of the Ministry of Social Policy of Ukraine No.290/13/ dated ). As for reimbursement of costs for purchase of electronic ticket The Ministry of Finance of Ukraine has amended Instruction on business trips within Ukraine and abroad. It is noted that ground for reimbursement of costs for purchase of electronic travel/transport document on train is a boarding document printed out on a paper medium (in case of luggage transportation boarding document printed out on a paper medium; in case of a separate order of service (in particular, bedding use service, places reservation) service document printed out on a paper medium). In case of return of electronic travel/transport document on train, report shall be accompanied by return document printed out on a paper medium (Order of the Ministry of Finance of Ukraine No.667 dated ). As for Single Social Contribution accrual for persons on maternity leave The Board of the Pension Fund of Ukraine has amended some resolutions of the Board of the Pension Fund of Ukraine concerning accrual and payment of single contribution on maternity aid. In particular, provision defining the accrual of single contribution for persons on maternity leave receiving maternity aid has been supplemented. (Resolution of the Board of the Pension Fund of Ukraine No.11-1 dated ). In addition, the Board of the Pension Fund of Ukraine has introduced Amendments to the Procedure of preparation and submission by insurers of report on amounts of accrued single contribution for mandatory government social insurance. In particular, new editions of Annex 4 to the report on amounts of accrued single contribution for mandatory government social insurance has been approved (Resolution of the Board of the Pension Fund of Ukraine No.12-1 dated ). As for utilization of vehicles on the territory of Ukraine The Law of Ukraine On utilization of vehicles defining legal, organizational and economic basis of activities connected with utilization of vehicles on the territory of Ukraine or the purpose of ensuring environmental safety, protection of environment, life and health of citizens has been adopted (Supreme Council of Ukraine, the Law of Ukraine On utilization of vehicles No.421-VII dated ).

5 As for restrictions for performance by individuals of cash settlements exceeding UAH 150,000. Resolution of the Board of the National Bank of Ukraine dated has imposed restrictions on cash settlements performed by individuals under purchase and sale contracts for amounts exceeding UAH 150,000. Thus, in its Letter No /10879 dated , the National Bank of Ukraine clarifies law provisions concerning cashless settlements by individuals under purchase and sale contracts subject to notarial certification for amount exceeding UAH 150,000. In other words, if amount of a purchase and sale contract concluded by individual exceeds UAH , such contract shall have notarial certificate. A notary shall carry out such certification if there is a confirmation that settlement was made in cashless form. Let us remind that restriction for cash settlements performed by individuals under purchase and sale contracts for amounts exceeding UAH 150,000 has entered into force on (Resolution of the Board of the National Bank of Ukraine On establishment of limit for cash settlements No.210 dated ). 3. General legislation news 3.1. Land Law The Cabinet of Ministers of Ukraine, by its Resolution On amendments to point 2 of the Resolution of the Cabinet of Ministers of Ukraine No.231 dated March 4, 2013 No.501 dated August 1, 2013, has postponed application of new rules of evaluation for three months and permitted the use of evaluation reports already obtained by citizens during the period, for which they were issued, but not exceeding six months. Let us remind that on August 1, 2013, new rules of performing transactions on real estate market due to implementation of new approaches to evaluation for taxation purposes have entered into force. Now, citizens of Ukraine may conclude any agreements on real estate, including land, only if there is a special evaluation for taxation purposes. Without such evaluation, notaries shall refuse citizens in certification of purchase and sale, exchange, donation contracts, issue of legacy certificate, etc. Date of entry into force: Banking Law The National Bank of Ukraine, by its Resolution On regulation of monetary and credit market No.315 dated , has reduced the NBU s interest rate from 7.0 % to 6.5 %. Let us remind that on June 10, 2013, pursuant to the Resolution of the Board of the National Bank of Ukraine dated interest rate was reduced from 7.5 % to 7.0 % Customs Law Ministry of Revenue and Duties of Ukraine has analyzed courts practice on issues of appealing against decisions on determination (adjustment) of the customs value and noted, in particular, the following (Letter No.12884/7/ /2580 dated ): The customs value of goods imported into Ukraine may be determined by the following methods: 1) the contract price of the imported goods (transaction value); 2) the contract price of the identical goods; 3) the contract price of the similar (analogous) goods; 4) based on subtraction value; 5) based on adding value (calculated value);

6 6) reserve. Each following method applies only if the customs value of goods cannot be determined by applying the previous method. In decision on determination of the customs value of the goods, customs authorities are obliged to substantiate impossibility of application of each of the previous methods, including impossibility of accepting the customs value declared by the declarant. However, above mentioned does not mean that the fact of application of reserve method for determining the customs value of the goods is unconditional ground for reversal of the decision of the customs authority. Especially that the Supreme Court of Ukraine has no authority to check correctness of established circumstances of a case. Consequently, if courts of lower instances establish that customs authority has consistently applied methods for determining the customs value of the goods and proved impossibility of application of each of them, and also if a declarant refused to submit additional documents, then such actions of customs authority will be found justified State control The Ministry of Revenue of Ukraine has reminded that the Law No.357 has postponed the date of entry into force of novelties defining responsibility for failure to submit to tax authorities electronic reporting connected with the application of payment transactions recorder (hereinafter referred to as the PPO ), pay books and copies of spreadsheets and РРО fiscal receipts from to However, obligation to submit electronic reporting has not been reversed. At the same time, on obligation to submit to tax authorities electronic copies of spreadsheets and РРО fiscal receipts by the NBU technology entered into force. Thus, starting from economic agents, which use РРО and do not submit the reporting information to tax authorities, violate requirements of the Law on РРО. In this connection, fiscal administration will inspect economic agents having five or more РРО (sales networks) and violating abovementioned requirements (Letter No.12036/7/ /800 dated ). On September 6, 2013, Resolution of the Cabinet of Ministers of Ukraine On approval of Sample regulations of administrative services center No.588 dated August 1, 2013 has entered into force. These Sample regulations defines rules for organization of work of administrative services center (hereinafter referred to as the Center ), actions of administrators of the Center and their interaction with subjects of rendering of administrative services. In particular, they define principles of rendering of administrative services, requirement to premises, in which centers will be located, procedure for acceptance of applications and other documents, procedure for processing of received documents, etc. Regulations also describe in detail procedure for submission of documents and requirements to them, actions of authorized persons concerning rendering of administrative services, sequence and deadlines of their rendering Labor Law On August 10, 2013, the Procedure for imposing fines for violation of legislation on employment of population No.509 dated July 17, 2013 entered into force. It defines the mechanism of imposing fines on economic agents and employers for violation of legislation on employment of population stipulated by parts 2-7 of article 53 of the Law of Ukraine "On employment of population". The Head of State Inspection on Labour Issues, his/her deputies, heads of directorates and branches of the State Inspection on Labour Issues and their deputies (on issues within their competencies), heads of territorial bodies of the State Inspection on Labour Issues and their deputies, shall impose fines. Should during an inspection of economic agent or employer sign of violation of legislation on employment of population be detected, inspector shall draw an act and an authorized official within 10 days after its drawing shall take a decision on consideration of case on imposition of fine. The case shall be considered within fifteen days after taking decision on its

7 consideration. State Inspection on Labour Issues and its territorial bodies shall notify economic agents and employers on consideration of the case in written not later than five days before the date of consideration via registered letter or telegram, telefax, telephone message or by service of notice to their representatives, which shall be confirmed on a copy of message, which remains in the State Inspection on Labour Issues or its territorial body, with respective mark certified by a signature of such representative. The fine shall be paid within one month from the date of adoption of a resolution on its imposition, about which economic agent or employer shall notify the State Inspection on Labour Issues or its territorial body. Resolution on imposition of fine may be appealed against judicially. The State Statistics Service of Ukraine, by its Order No.239 dated , has approved the following forms of statistical observation on labor statistics: 1) 6-ПВ (annual) «Report on number of employees, their qualitative composition and occupational training» - from the report for 2013; 2) 1-ПВ (quarterly) «Labor report» - from report for the 1 st quarter 2014; 3) 1-ПВ (monthly) «Labor report» - from report for January Abovementioned reports shall be filed by legal entities and their separated units according to the list approved by the State Statistics Service of Ukraine. Considered null and void: - Form of state statistical observation 6 - ПВ (annual) «Report on number of employees, their qualitative composition and occupational training», approved by the Order of the State Statistics Service of Ukraine No.355 On approval of forms of state statistical observations on labor statistics dated starting from ; - Order of the State Statistics Service of Ukraine No.355 On approval of forms of state statistical observations on labor statistics dated starting from ; - Order of the State Statistics Service of Ukraine No.163 On approval of forms of state statistical observations on labor statistics dated starting from The Order has entered into force on Other Resolution of the Cabinet of Ministers of Ukraine No.627 On amendments to some resolution of the Cabinet of Ministers of Ukraine dated entered into force. This Resolution provides for reduction of validity period of driving license from 50 to 30 years. At the same time, exams required for obtaining driving license can be passed in centers of the State Traffic Police irrespective of registration at the place of residence or sojourn. Besides that, persons deprived of the right to drive vehicles for driving while intoxicated by alcohol, narcotics or otherwise, or under the influence of medicines reducing concentration and reaction, driving license shall be returned only after mandatory passing medical check-up and theoretical and practical exams. Withdrawn driving licenses shall be kept in a center of the State Traffic Police at the place of residence of a person deprived of the right to drive vehicles. The State Traffic Police shall also execute and issue new driving license in place of lost or stolen license after checking of the fact of issue of such license to a person claiming its loss or theft. It is also worth noting that this resolution regulates activities of branches of institutions involved in training, retraining and advanced training of vehicles drivers.

8 Contacts: If you have any further questions regarding this review, please do not hesitate to contact us: Irina Prisyazhna, Accounting and Tax advisor Maryna Slobodyanuk, Legal advisor Oksana Kochmarska Executive Director mob Our address: Accountor Kyiv LLC Chervonoarmiyska 9/2, of , Kyiv, Ukraine Tel Fax