Legislation I. Accounting and taxation VAT Unified tax Real estate tax Transport tax...

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2 Content Legislation I. Accounting and taxation VAT Unified tax Real estate tax Transport tax Land tax Pension fee at buying foreign currency Import fee Inventory... 6 II. Payroll processing Personal income tax Unified social tax Military fee Minimum wage... 7 III. HR record management The new Labour code

3 Legislation 2015 Within the program for the reform of the taxation system of Ukraine at the end of December 2014 Verkhovna Rada adopted a number of laws that made adjustments to the order of taxation, which was applicable before. The total amount of taxes and fees was reduced from 22 to 9; the mechanism of taxation and unified social tax (UST) was changed substantially. Further a view of the main innovations is given. I. Accounting and taxation 1.1. Tax on profits Starting from the 1 of January 2015, the subject of tax on profit is the profit before tax as reported in the financial statements. The payers, who have an annual income of more than 20 million UAH per year, adjust the financial results according to the data from the financial statements in the amount of differences that arise while charging of depreciation of fixed assets, reserves (securities) and the report of financial operations. These differences increase or decrease the financial result before tax. The relevant changes are made by the Law of Ukraine On Amendments to the Tax Code of Ukraine and some legislative acts of Ukraine on tax reform d.d VIII (hereinafter - the Law No. 71-VIII). Profits tax rate for 2015 is still 18%. Also, the law number 71-VIII cancels: Exemptions for tax on profit, which were set by paragraph 154 and sub-paragraph subsection 4 of section XX of Tax Code of Ukraine; Reduced rate of tax on profit: 5% for the subjects of IT industry and 0% for priority investment projects VAT It is provided by the Law No. 71-VIII that the system of electronic administration of VAT (see. P of the digest) will operate in test mode from the 1 st of February From February 1, 2015 all tax bills and calculations of adjustment to the tax bills regardless of the size of VAT in a tax bill or calculations of adjustment shall be registered in the Unified Register of tax bills (URTB). The period from February 1, 2015 to July 1, 2015 is a transitional period during which the registration of tax bills and calculations of adjustments to the tax bill in Unified Register of tax bills (URTB) is done without limitation by the amount of tax which is calculated according to the formula specified in paragraph Tax Code of Ukraine. Furthermore, the provisions of the Tax Code come into force from , according to which: 3

4 - The company is required to register as a VAT payer in case if the amount of taxable transactions for the past 12 calendar months in aggregate exceeds 1 million UAH., up to this amount was 300 thousand UAH. (Paragraph of Tax Code of Ukraine redrafted); - The tax base of operations for the supply of goods/services cannot be lower than the price of their acquisition, the tax base of operations for the supply of self-made goods/services cannot be lower than their prime cost and the tax base of operations for the supply of non-current assets cannot be lower than their carrying (residual) value at the beginning of the reporting (tax) period based on accounting data (Paragraph Tax Code of Ukraine redrafted) Unified tax From 1 of January 2015 the 4 groups of Unified tax were imposed by the Law No.71-VIII instead of the previously existing 6 groups. Group 1 physical persons referred to in sub-paragraph 1 of the paragraph of Tax Code of Ukraine, with the annual income of up to 300 thousand UAH. The Unified tax rate is 10% of the minimum wage (MW) set on January 1 of the tax year. Previously, the maximum amount of income was 150 thousand UAH., and the tax rate was from 1 to 10% of the minimum wage. Group 2 physical persons referred to in sub-paragraph 2 of the paragraph of Tax Code of Ukraine, with an annual income of up to 1.5 million UAH. The Unified tax rate is 20% of the minimum wage set on January 1 of the year. Previously, the maximum amount of income was 1 million UAH, and the tax rate was from 2 to 20% of the minimum wage. Group 3 physical and legal persons, the annual income of which does not exceed 20 million UAH. Unified tax rate: 2% of income - in the case of payment of VAT; 4% of income - in the case of inclusion of VAT in the Unified tax. Group 4 agricultural producers, whose share of agricultural commodity production in the previous tax (reporting) year equals or exceeds 75 percent. For Unified tax payers of the 4th group the amount of tax rates from one hectare of agricultural land and/or water resource lands depends on the category (type) of the land and its location. The specific amount of the rates is indicated in the new edition of the paragraph of Tax Code of Ukraine Real estate tax The new edition of the Tax Code of Ukraine, which came into force on 1 of January 2015, provides the following procedure for the tax of real estate other than land. Taxpayers are physical and legal persons, including non-residents who are owners of residential and/or non-residential real estate. The subject of taxation is the subject of residential and non-residential real estate, including its part. The tax rates for residential and/or non-residential real estate owned by physical and legal persons are set by a decision of a village, township or city council, depending on the location (zoning) and the types of 4

5 sizes of such subjects of real estate and doesn t exceed 2% of the size the minimum wage set by law as of January 1 of the reporting (tax) year, for 1 square meter. Basic tax (reporting) period is the calendar year Transport tax Transport tax payers are physical and legal persons, including non-residents who own passenger cars registered under the current legislation in Ukraine, which, in accordance with paragraphs of Tax Code of Ukraine are the subjects to taxation (Law number 71-VIII). In this case, the subjects of tax are the passenger cars that were used up to 5 years and have cylinder capacity of engine of more than 3,000 cubic cm. The tax rate is set based on the calendar year in the amount of UAH for each passenger car, which is subject to tax. Basic tax (reporting) period is the calendar year Land tax From by the Law No. 71-VIII was changed the land tax. Thus, The tax rate for the land plots, the normative monetary value of which has been completed, increased from 1 to 3%, for agricultural land - up to 1%; The tax rate for the land plots, which are in constant use of economic entities (except state and municipal ownership), is set at no more than 12% of the normative monetary value Pension fee at buying foreign currency The physical persons, who carry out the purchase of foreign currency in cash, starting from , will pay the pension fee of 2% of the transaction amount. The corresponding changes are made to the Law of Ukraine On fee of the mandatory state pension insurance d.d No. 400/97-BP Law No.71-VIII. When buying cashless currency, both by physical and legal persons, the fee is not paid now Import fee The additional fee on imported goods, except for essential goods and energy, is introduced from temporarily, for a period of 12 months. The rate of import fee will be: For food products (according to product groups 1-24 Ukrainian Classification of Commodities for Foreign Economic Activity) 10%; For the other goods (groups 25-97) 5%. 5

6 Additional import fee is introduced by the Law of Ukraine On measures set to stabilize the balance of payments of Ukraine in accordance with article XII of the General agreement on tariffs and trade 1994 d.d No. 73-VIII Inventory The order of the Ministry of Finance of Ukraine d.d , No. 879 entered into force on 1 January 2015 changed the procedure of conducting of inventory of assets and liabilities. The document is applied by legal persons established in accordance with the legislation of Ukraine, irrespective of their organizational, legal and ownership forms (except for banks), as well as by representative offices of foreign economic entities, and establishes procedures for inventory of: capital assets; intangible assets; uncompleted capital investments; stocks; biological assets; cash and cash equivalents, document blanks of strict accountability; receivables and payables; expenses and deferred income, securities and reserves. II. Payroll processing 2.1. Personal income tax The rate of personal income tax from 1 January 2015 in accordance with the Law No. 71-VIII amounts to: for income, the amount of which does not exceed 10 minimum wages 15%; for income, the amount of which exceeds 10 minimum wages 20% of the excess amount. In addition, passive income (interest, investment income, royalties) is taxed at the rate of 20%. The income in the form of dividends on shares and corporate rights, which are paid by resident taxpayers of the company income tax (other than income in the form of dividends on shares, investment certificates, which are paid by collective investment institutions) are taxed at the rate of 5% Unified social tax Starting with January 1, 2015, at the calculation of wages (income) for physical persons and/or at accrual of remuneration under civil law contracts, the employers apply the rate of single contribution with a coefficient of 0.4, if the payer complies simultaneously with the following conditions: 1) the total base amount of single contribution for the month, for which the wages (income) and/or remuneration is accounted under civil law contracts, is 2.5 times or more higher than the overall average monthly base amount of single contribution of payer for 2014; or if the total base amount of single contribution for the month does not exceed average monthly base amount of single contribution of payer for 2014 in 2.5 times or more, instead of the coefficient of 0.4, the taxpayer applies a coefficient, which is calculated though divining of total average monthly base amount of single contribution of payer for 2014 by 6

7 the total base amount of single contribution for the month, for which the wages (income) and/or remuneration is accounted under civil law contracts (but in any case, the coefficient may not be less than 0,4); 2) the average wage at the enterprise increased by at least 30% compared with the average wage for 2014; 3) the average payment per one insured person after applying the coefficient will be not less than 700 UAH; 4) the average salary at the enterprise will be not less than three minimum wages. Starting with January 1, 2016, at the calculation of wages (income) for physical persons and/or at accrual of remuneration under civil law contracts, the employers apply the rate of single contribution with a coefficient of 0.6. The rate of single contribution is used without using the above coefficients at the calculation of wages (income) for individuals from sources of not principal place of employment. If the base amount of unified social tax is less than the minimum wage (excluding remuneration for civil contracts), the rate of unified social tax is applied to the sum of the minimum wage for the relevant month. These provisions are contained in the Law of Ukraine On amendments to some legislative acts of Ukraine concerning the reform of compulsory state social insurance and legalization of the wage fund d.d No. 77-VIII. This Law also amends part 2 of article 24 of the Code of laws on labour. Now the employee may not be authorized to work without employment contract issued by order of the owner or authorized body and notification of the tax authority about the employment of the employee according to the procedure established by the Cabinet of Ministers of Ukraine Military fee The military fee will be charged until the decision of Verkhovna Rada of Ukraine on the completion of the reform of the Armed Forces of Ukraine will enter into force. This fee is charged from the income specified in article 163 of the Tax Code of Ukraine for the purpose of taxation of personal income tax (Law No. 71-VIII). The rate of the military fee will amount to 1.5%, as it did in Minimum wage The law of Ukraine On state budget for 2015 established the following amount of the minimum wage: monthly amount: 1 January UAH., from 1 December UAH.; at an hourly rate: January 1 7,29 UAH., from 1 December to 8.25 USD. The minimum cost of living per person per month for able-bodied persons equal to the minimum wage and is: from 1 January UAH.; from 1 December UAH. III. HR record management 3.1. The new Labour code Pavlo Rozenko, the social policy Minister informs that the Ministry plans to prepare the final version of the new Labour code of Ukraine by February According to the Minister, the main concept of this document is to make the labour market attractive for foreign investors, and at the same time to preserve the rights of workers. 7