Ukraine Tax & Business Guide - Deloitte

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Basic facts
Population 47.1m Inflation 9.0% (2004)*
Main languages Ukrainian, Russian GDP per head US$1,380*
Currency Hryvnia (UAH) GDP growth 12.1% (2004)*
Economic communities Commonwealth of Independent States (CIS)
GDP sources 18.5% agriculture, 44.5% industry, 37.0% services
*Economist Intelligence Unit estimate.
Political environment

Ukraine is an emerging democracy in which both the president and the parliament (Verkhovna Rada), through the government, exercise significant powers.

Viktor Yushchenko won a re-run presidential election in late 2004, succeeding Leonid Kuchma. After dismissing the government in September 2005, following accusations of corruption and frustration over slowed reforms, Mr Yushchenko chose Yuri Yekhanurov as acting prime minister. The next parliamentary elections are due in March 2006.
Foreign trade and investment
Exports US$33.4bn (2004)* Imports US$29.7bn (2004)*
*Economist Intelligence Unit estimate.

Major exports: Steel and non-precious metals; machinery and equipment; and food, beverages and agricultural products.

Leading export markets: Russia, Germany, Italy and other CIS states.

Ukraine ranks 53rd of 60 countries in the Economist Intelligence UnitÌs business environment rankings.

Changing regulations and strong local industrial lobbies may be a problem for foreign investors.
Business and financing
Business forms Joint-stock companies, limited-liability companies, joint ventures

Foreign investors may operate as joint-stock companies, limited-liability companies or joint ventures, or engage in joint activity without establishment of a legal entity. Joint-stock companies and limited-liability companies are the most popular form of business organisation.

The local banking market remains underdeveloped, but regulations have been tightened recently and access to credit for firms and individuals is improving.
Labour environment
Unemployment rate 3.6% (2004)* Minimum wage UAH 332 (monthly)
*Economist Intelligence Unit estimate.

Professionals with technical and engineering skills are plentiful in Ukraine, and the cost of labour is low. Managers with commercial skills are in short supply, however.

Trade unions are powerful in the public sector but less so in the private sector.

Social insurance and pension contributions are made through a 36.8% (plus contributions to the social accidents fund, which may vary from 0.2% to 13.8%) charge on labour costs paid by the employer. A cap on the amount subject to social security contributions was set at UAH 4,100 (approximately US$812). The labour code is structured to favour employees, so shedding excess labour can be difficult and expensive.
Taxation
Corporate tax
Main rate 25%

Resident companies are taxed on worldwide income; non-resident companies are taxed on Ukrainian-source income only. Companies established under Ukrainian law are considered to be resident for tax purposes. Tax is charged at a rate of 25%. A dividend tax is payable when dividends are distributed, and this is creditable against corporate income tax. Dividends paid between resident companies are therefore effectively not taxed. Special rules apply to the computation of profits of banks and insurers. The Resolution of the Cabinet of Ministers #913, dated September 14th 2005, proposed to reduce the rate of corporate income tax to 23% in 2007, and then by 1% each year until it reaches 20%.
Individual tax
Flat rate of 13%

Resident individuals are taxed on their worldwide income; non-residents pay tax on Ukrainian-source income only. A person who has permanent residence in Ukraine is considered to be resident for tax purposes, and if the person has permanent residence in more than one country, the centre of vital interests is considered to be the place of residence. Where the person does not have permanent residence in any country, presence in Ukraine for 183 days in a tax year determines tax residence. Tax is charged at a flat rate of 13%, which is levied by withholding from dividends from resident companies and some other income. Tax on business income of individuals is collected by self-assessment.
Capital gains
Gains are taxed as income

Capital gains of companies are taxed as income. Capital gains of individuals from shares and securities are generally taxed by withholding at 13%. Gains from the sale of Ukrainian state securities are exempt. Capital gains of individuals in respect of immovable property are exempt from income tax until January 1st 2006.

Starting from January 1st 2006, gains of individuals on immovable property that was acquired after January 1st 2004 are reduced by 10% for each year that the property was held, apart from the first year, and will be taxed at a rate of 13%.

Gains by individuals on immovable property with an area of less than 100 sq metres, that was acquired before January 1st 2004, is taxed at a rate of 1%. However, if the area of immovable property is greater than 100 sq metres, the gain is taxed at a rate of 5%.
Indirect tax
VAT standard rate 20%

Value-added tax (VAT) applies to most transactions at the standard rate of 20%. Registration is compulsory for businesses with annual turnover above UAH 300,000. Exports of goods are zero-rated. Exemptions include educational and insurance services, the sale of land, the sale of residential premises (apart from sales in the primary market), certain baby foods, healthcare and some medicines, supply (subscription) of magazines and books, transportation of passengers and goods via transit through the territory and ports of Ukraine and services rendered outside of Ukraine. Certain legal, consulting and marketing services and transfers of intellectual property, provided from Ukraine to non-residents, are also exempt. A reverse charge applies to certain services supplied by non-residents. There is a proposal to reduce the VAT standard rate to 19% in 2007 and 18% in 2008.
Tax administration and compliance
Tax year Corporations: calendar year; Individuals: calendar year

Companies make quarterly advance payments of tax based on simplified provisional returns, and a final tax payment is due on February 1st following the year-end. A final self-assessment tax return is due within 40 days of the end of the tax year. Employment income of individuals is taxed by withholding. Individuals with business income are required to make quarterly prepayments of tax, each based on 25% of the liability for the previous year. Individuals earning business or other income not subject to deduction of tax at source should file a tax return by April 1st following the tax year-end, and the final tax payment is based on information in the return.
Additional tax information
Withholding taxes Dividends, Interest and Royalties 15%.
Tax treaties Ukraine has concluded more than 45 tax treaties.
Dividends Dividends paid to residential legal entities are exempt of withholding.
Revenue protection There is no transfer-pricing legislation.
Groups There is no provision for group taxation.
Incentives Agricultural enterprises; innovative products.
Other taxes Community tax, Customs and excise duties, Land tax, Natural resources tax, Tax on vehicles.