Dеntons has prepared a brief overview of the key tax laws that came into force on January 1, 2022.
1. 20 percent VAT on е-services provided by nonresidents
A nonresident must register as a VAT payer in Ukraine if it supplies electronic services on the territory of Ukraine to individuals/individual entrepreneurs that are not VAT payers and if such transactions exceed UAH 1 million (approx. US$36,100) per year. “Supply of electronic services” includes such services as electronic magazines and paid subscriptions, installation of paid mobile applications, downloading of paid software updates, provision of advertising services on the Internet, downloading and watching online movies, streaming services, books, and websites, photos, videos, databases, delivery of software, online games, cloud storage services, search engine services, etc.
A service is considered to be supplied on the territory of Ukraine if any of the following is true:
- The telecommunications provider is located in Ukraine
- The customer’s mobile SIM card is the code of a Ukrainian telecom operator (+380)
- The means of communication are located in Ukraine
- A Ukrainian payment address, details of a Ukrainian bank account, etc. are indicated.
The fine for providing electronic services in Ukraine without registration as a VAT payer is UAH 195,000, or about US$7,100.
For more details, please see our previous alert (in English).
2. Diia City—preferential tax regime for the IT sector
Ukrainian companies that are Diia City residents may opt for the standard income tax system at the rate of 18 percent or apply the special withdrawal capital tax regime at the rate of 9 percent.
ІТ specialists may work for Diia City resident companies under an employment agreement or so-called a gig-contract. The following preferential rates of income tax will be applied to such IT specialists: 5 percent personal income tax; 1.5 percent military tax, and 22 percent single social contribution (SSC) of the minimum wage (in 2022, the SSC amounts to UAH 1,430 per month or US$52).
Dividends received by an individual from a Diia City resident company are exempt from taxation, provided that dividends are paid no more than once every two years. For more details please see our previous alert (in English).
3. Controlled Foreign Company (CFC) Rules
As of January 1, 2022, CFC rules are mandatory for residents of Ukraine who hold 25 percent or more, or control (directly or indirectly) foreign companies or establishments without the status of a legal entity (trusts, funds, partnerships, etc.). The CFC rules require a Ukrainian shareholder and/or controlling person to the submit annual CFC reports and, in some cases, pay taxes in Ukraine on incomes derived by a CFC.
For more details please see our previous alert (in English).
4. Carry forward of losses is limited for large taxpayers
Large taxpayers (including companies, whose revenues from all activities exceed €50 million) may reduce their tax base by no more than 50 percent of the outstanding amount of the tax losses for the previours years. It is allowed to take into account “outstanding” tax losses of past years in full, provided only that such losses do not exceed 10 percent of the income received by the large taxpayer in the current tax period.
5. Administration of taxes
A tax authority may, by filing the appropriate application with the court, temporarily restrict the right of the chief executive officer of a Ukrainian legal entity (or permanent establishment of a nonresident in Ukraine) to leave Ukraine if the tax debt of such legal entity or permanent establishment exceeds UAH 1 million and the delay in payment exceeds 239 days from the date of service of the relevant tax demand.
This restriction can be applied to both Ukrainian citizens as well as foreign nationals, if they are chief executive officers of a Ukrainian legal entity or a permanent establishment in Ukraine.
In addition, the tax authority will publish on its website information about business entities and individuals who have outstanding tax debts, indicating the tax debt amount.
6. Taxation of personal income derived from sale of real estate
The rate of income tax received from the sale by an individual of the third and subsequent residential immovable properties in the current year has been increased from 5 percent to 18 percent. The sale of a second residential property during the year is taxed at the rate of 5 percent, as before, and the first sale is tax exempt. Income tax on the sale of the second and subsequent nonresidential immovable properties is 18 percent, while tax on the sale of the first nonresidential immovable property is 5 percent.
The 5 percent (or 18 percent) tax will be applied only to the difference between the sale price of an immovable property and documented costs related to acquisition of this an immovable property.
7. The “place of effective management” can result in foreign companies being classified as Ukrainian tax residents
A tax authority may recognize a foreign company as a tax resident of Ukraine if one or more of the following activities are found to be carried out primarily from Ukraine:
- Personnel management
- Accounting or management accounting
- Bank account management
- Regular meetings of the executive body
- Making managerial decisions and other current activities
- The actual management of activities.
8. Registrars of settlement transactions (RST) for private entrepreneurs (PE)
From January 1, 2022, PEs (second through fourth groups) must use RST (software) when making cash settlements with individuals. This means all entrepreneurs engaged in the restaurant business, tour operators and agencies, hotels, beaty studious, online stores, textile sellers, retail stores, etc. are obliged to use RST for trade operations.
9. Amendments to tax Convention with Austria
From 2022, Ukrainian taxpayers that pay passive income to residents of Austria are obliged to apply the following repatriation tax rates:
- Dividends: 5 percent if the beneficiary owner of such dividends is a Dutch company holding at least 10 percent of the capital; 15 percent in other cases.
- Interest: A single rate of 5 percent applies (instead of 2 percent) if interest is paid to a beneficial owner.
- Royalties: The previous rates of 0 percent and 5 percent apply to royalty payments in 2022. From January 1, 2023 the rates will be 5 percent and 10 percent.
In addition, the “business purpose” test for the application of tax benefits under the Convention with Austria is now enshrined at the level of the Convention; as a result Ukrainian tax authorities may prohibit the enjoyment of tax benefits under the Convention if it is reasonably proven that such benefits are the main purpose of the relevant agreement or transaction with an Austrian resident.
10. Amendments to tax Convention with the Netherlands
From 2022, Ukrainian taxpayers that pay passive income to residents of the Netherlands are obliged to apply the following repatriation tax rates:
- Dividends: The 0 percent rate on dividends has been completely abolished, and a 5 percent rate has been set if the beneficial owner of such dividends is a company holding at least 20 percent of the capital. In all other cases the rate is 15 percent.
- Royalties: The 0 percent rate has been completely abolished and the 5 percent rate has been set when paying royalties for the use of or the right to use any copyright to scientific works and patents, trademarks, designs or models, secret formulas or processes, or for information relating to industrial, commercial or scientific experience. Royalties for the use of or right to use any copyright in works of literature or art is taxed at 10 percent.
- Interest: The single tax rate is set at 5 percent (instead of 2 percent and 10 percent as before).
In addition, the procedure for crediting taxes paid in Ukraine on income paid to a resident of the Netherlands has been clarified.
Also, procedures for exchanging information between the control authorities of the Netherlands and Ukraine, for providing information at the request of a control authority of another country, as well as for assisting in the collection of any tax debts have been described in detail.
The requirement of a “business purpose” test for the application of tax benefits under the Convention with the Netherlands is now enshrined at the level of the Convention. This means that Ukrainian tax authorities may prohibit the enjoyment of tax benefits under the Convention if it is reasonably proven that such benefits are the main purpose of the relevant agreement or transaction with a resident of the Netherlands.
11. Tax amnesty
The campaign for a one-time voluntary declaration of income and assets that are received by individuals resident in Ukraine before December 31, 2020 and on which taxes are not paid or not fully paid, will last until September 1, 2022.
In fact, every citizen of Ukraine may legalize their assets received (and/or located) both in Ukraine and abroad by paying a special fee at the following rates:
- 5 percent for funds and assets located on the territory of Ukraine
- 7 percent for funds and assets located abroad, if the fee is paid before March 1, 2022
- 9 percent for funds and assets located abroad, if the fee is paid after March 1, 2022.
This fee is calculated based on the amount of cash funds in bank accounts both in Ukraine and abroad, and for tangible assets—based on the amount of confirmed costs of acquisition of such assets or their assessed value.
Cash funds can be declared only by depositing them in advance into a special use account with a Ukrainian bank.
In addition, the law allows for optimizing the amount of the fee. This is achieved by the declarant purchasing medium-term and/or long-term government bonds of Ukraine without the right of early redemption from September 1, 2021 to August 31, 2022. In this case, the fee is paid at the rate of 2.5 percent of the nominal value of the bonds.
12. Tax-free liquidation of CFCs
If the procedure for liquidation of a CFC was commenced before January 1, 2022 but has not been completed yet due to the relevant legal requirements of the jurisdiction of the CFC or due to any pending litigation, Ukrainian beneficiaries may still have time to benefit from tax-free liquidation of CFCs in 2022. If a Ukrainian beneficiary manages to liquidate his/her CFC by the end of 2022, all funds and assets received by such a Ukrainian beneficiary as a result of the CFC’s liquidation will be completely exempt from taxation, even from the 1.5 percent military tax in Ukraine.
However, under the new CFC rules, which entered into force on January 1, 2022, such beneficiaries will be obliged to notify the tax authorities of the liquidation of the CFC within 60 days from the date of the liquidation is completed.
13. COVID moratorium
Until relevant changes are introduced in the tax laws, the COVID moratorium on (і) unscheduled inspections of taxpayers, and (іі) levying of financial sanctions (fines and penalties) for violations of tax legislation remains in effect in 2022. The moratorium still does not apply to tax audits and violations related to assessments of VAT liabilities, VAT credits, budget refunds and other indirect taxes (including excise taxes and rent charges).
For the rules on the application of international conventions on the elimination of double taxation and CFCs, please ask our chatbot at by clicking here (in Ukrainian).