Legislation overview (April 2021)

Taxes

VAT

The Ministry of Finance of Ukraine has approved the relevant consultation by Order “On approval of the General Tax Consultation on Certain Issues of Value Added Tax Taxation” No. 238 of April 27, 2021.

In it, the Ministry has answered two questions concerning the application of item 26¹ of section 2 chapter XX of the Tax Code of Ukraine (hereinafter – the Tax Code). According to it, software supply transactions are temporarily exempt from value added tax (hereinafter – VAT) from January 1, 2013 to January 1, 2023.

1. Are transactions for the supply of software products, the cost of which includes services for its technical support, exempt from VAT?

Software products that are exempt from VAT include any changes, updates, applications, additions and/or extensions to the functionality of computer programs, the right to receive such updates, changes, applications, additions for a certain period of time.

If the transactions of providing technical support services for software products, in particular the installation, configuration, testing, detection and elimination of defects, are included (is part of the supply of such products) to the cost of software products, including the cost of changes, updates, additions and/or extension of the functionality of computer programs, the right to receive such updates, changes, applications, additions for a certain period of time, such transactions are exempt from VAT.

2. Are transactions for the supply of technical support for software products that are not part of the cost of such products exempt from VAT?

If the software support transactions include any changes, updates, applications, additions, including troubleshooting and error correction, and/or extension of the functionality of computer programs, the right to receive such updates, changes, applications, additions during a certain period time, with the simultaneous supply for one cost of services for installation, configuration, testing, detection and elimination of deficiencies, advice on the use of software products, such transactions are exempt from VAT.

Software technical support services, which provide exclusively the provision of services for installation, configuration, testing, detection and elimination of deficiencies, advice on the use of software, which do not involve any changes to the software, and the cost of which does not include changes, updates, applications, additions and/or extensions of computer programs, as well as the right(s) to receive such changes, updates, applications, additions and/or extensions of computer programs for a certain period of time, are subject to VAT on general grounds.

Unified Social Contribution

The State Tax Service of Ukraine has reported that the amount of accrued salary paid to a foreigner under an employment contract is the basis for calculating the single social contribution (hereinafter – SSC).

Peculiarities of regulation of labor relations of foreigners and stateless persons working in Ukraine are defined in Art. 54 of Law of Ukraine “On Private International Law” No. 2709-ІV of June 23, 2005, according to which the employment relations of foreigners and stateless persons working in Ukraine are not regulated by the law of Ukraine if:

1) foreigners and stateless persons work as part of diplomatic missions of foreign states or missions of international organizations in Ukraine, unless otherwise provided by an international treaty of Ukraine;

2) foreigners and stateless persons outside Ukraine have concluded employment contracts with foreign employers – natural or legal entities for the performance of work in Ukraine, unless otherwise provided by agreements or an international treaty of Ukraine.

According to Art. 253 of Labor Code of Ukraine No. 322-VIII of December 10, 1971, persons working under an employment agreement (contract) at enterprises, institutions, organizations, regardless of ownership, type of activity and management or an individual, are subject to obligatory state social insurance.

According to para. 2 item 1 part 1 of Art. 4 of Law of Ukraine “On the collection and accounting of a single contribution to the obligatory state social insurance” No. 2464-VI of July 8, 2010 (hereinafter – Law No. 2464), payers of SSC are employers, including enterprises, institutions, organizations, other legal entities who use the hired labor of individuals on the terms of an employment agreement (contract) or on other terms provided by law or under civil law agreements.

Insurers are employers and other persons who, in accordance with Law No. 2464, are obliged to pay SSC (item 10, part 1 of Art. 1 of Law No. 2464).

According to item 3, part 1 of Art. 1 of Law No. 2464, the insured person is a natural person who, in accordance with the legislation, is subject to obligatory state social insurance and pays (paid) and/or for which the SSC is paid or has been paid in accordance with the procedure established by law.

The basis for accrual of SSC for these payers is the amount of salary accrued to each insured person by types of payments, which include basic and additional salaries, other incentive and compensation payments, including in kind, determined in accordance with the Law of Ukraine “On Remuneration”, and the amount of remuneration to individuals for the performance of works (provision of services) under civil law contracts (Art. 7 of Law No. 2464).

Payers of SSC are obliged to accrue and pay SSC in a timely manner and in full (item 1, part 2, Art. 6 of Law No. 2464).

Therefore, the amount of accrued salary (income) paid by a legal entity to an insured natural person – a foreigner in accordance with the employment contract, is the basis for accrual of SSC.

Simplified Tax System

The State Tax Service of Ukraine in the category 107.01.06 “ZIR” gas answered the question “What are the actions of sole proprietor – ST payer (first – third groups) in case of loss of the book of income (book of income and expenses), which was kept until January 1, 2021?”

In case of loss of the book of income (book of income and expenses), which was kept until January 1, 2021 (hereinafter – the Book), which was kept until 01.01.2021, a sole proprietor – single tax payer is obliged within five days from the date of such event to notify in writing the controlling body at the place of registration and to restore the lost Book within 90 calendar days from the day following the day of receipt of the notification by the controlling body.

And in case of non-renewal of the Book it is considered that such payer hasn’t have it at the time of drawing up of the tax return of the single tax payer – sole proprietor.

In addition, the Book is stored for at least 1095 days from the date of submission of the tax return for which it is used, and in case of liquidation of the taxpayer documents for the period of its activity are stored for at least 1095 days preceding the date of its liquidation.

Other Taxes and Fees

The State Tax Service of Ukraine, through the Office of Large Taxpayers, has explained the peculiarities of royalty taxation in favor of non-residents.

In accordance with item 140.5.6 of the Tax Code of Ukraine (hereinafter – the Tax Code), the financial result of the tax (reporting) period is increased by the amount of royalties (except for transactions recognized as controlled in accordance with Art. 39 of the Tax Code) in favor of non-residents (including non-residents registered in the states (in the territories) specified in item 39.2.1.2 of the Tax Code), which exceeds the amount of income from royalties, increased by 4% of net income from sales of products (goods, works, services) according to the financial statements for the year preceding the reporting year (except business entities operating in the field of television and radio broadcasting in accordance with the Law of Ukraine “On Television and Radio Broadcasting”), and for banks – in the amount that exceeds 4% of operating income (net of value added tax) for the year preceding the reporting.

Requirements of item 140.5.6 of the Tax Code are not applied by the taxpayer if:

• the transaction is not controlled and the amount of such costs is confirmed by the taxpayer at prices determined by the arm’s length principle in accordance with the procedure established by Art. 39 of the Tax Code, but without submitting a report.

Rules of item 140.5.6 of the Tax Code are applied based on the results of the tax (reporting) year.

According to item 140.5.7 of the Tax Code, the financial result of the tax (reporting) period is increased by the amount of costs for accrual of royalties in full, if the royalty is accrued in favor of:

• a non-resident who is not the beneficial (actual) recipient (owner) of the royalty, except in cases when the beneficiary (beneficial owner) has granted the right to receive royalties to other persons.

For the purposes of applying this sub-item in cases when residents – subjects of cinematography of Ukraine pay royalties to non-residents under sublicense agreements for the use or granting of the right to use audiovisual works (including films), as well as objects of copyright and/or related rights used in the production (creation) of audiovisual works (including films), such non-residents are considered to be the beneficial (actual) recipients (owners) of such royalties;

• a non-resident in respect of objects, intellectual property rights for which first arose in a resident of Ukraine.

In case of discrepancies between the controlling body and the taxpayer regarding the determination of the person who first acquired intellectual property rights to the intellectual property object, such controlling bodies are obliged to apply to the central executive body implementing state policy in the field of intellectual property, to obtain the appropriate conclusion.

Requirements of item 140.5.7 of the Tax Code does not apply to cases of accrual of royalties by the subject of cinematography for the use of intellectual property rights (films, literary works, musical works, works of fine arts, photographic works, phonograms, videograms), except when the resident of Ukraine a subject of cinematography who has property copyright and related rights as a result of the creation (production) of the specified works, if he/she has subsequently transferred or alienated property copyrights or related rights to a non-resident and accrues royalties for the use of this object;

• a non-resident who is not subject to royalty taxation in respect of royalties in the state of which he/she is a resident;
• a person who pays tax as part of other taxes, except for individuals who are taxed in the manner prescribed by Chapter IV of the Tax Code;
• a legal entity that, in accordance with the Tax Code, is exempt from paying this tax or pays this tax at a rate other than that established in item 136.1 of the Tax Code (18%).

Accounting and Reporting

The State Tax Service of Ukraine in category 103.25 “ZIR” has answered the question: “Is it necessary to fill line 032 of the Calculation and line 032 of Annex 4DF to the Calculation by sole proprietor or legal entity, which do not have separate units?”

Order of the Ministry of Finance No. 4 of January 13, 2015 (as amended by Order of the Ministry of Finance No. 773 of December 15, 2020) has approved the form of Tax calculation of income accrued (paid) in favor of taxpayers – individuals, and the amount of tax withheld from them, as well as the amounts of accrued single contribution (hereinafter – Calculation) and the Procedure for filling in and submitting by tax agents Tax calculation of the amounts of income accrued (paid) in favor of taxpayers – individuals, and the amounts of tax withheld from them, as well as accrued single contribution (hereinafter – Procedure).

Item 1 of chapter III of the Procedure stipulates that, in particular, line 032 “Codifier of administrative units and territories of territorial communities” of the title part of the Calculation indicates the code of the Codifier of administrative units and territories of territorial communities at the location of the individual income taxpayer or its separate unit, if the Calculation is submitted by the tax agent for separate unit.

In addition, line 032 is contained in Annex 4 “Information on the amounts of accrued income, withheld and paid personal income tax and military levy” (hereinafter – Annex 4DF) to the Calculation, which indicates the Codifier of administrative units and territories of territorial communities at the location of the tax agent or a separate unit, if the Calculation is submitted for a separate unit.

Thus, a sole proprietor or legal entity that does not have separate units, when submitting the Calculation fills in line 032 of the Calculation and line 032 of Annex 4DF to the Calculation, which indicates the code of the self-government body, which is the administrative center of the territorial community (under the Codifier of administrative units and territories of territorial communities) at their location.

Control and Responsibility

The President of Ukraine has signed Law of Ukraine “On Amendments to the Code of Ukraine on Administrative Offenses and the Criminal Code of Ukraine on Strengthening Liability for Violation of Fire and Technogenic Safety Requirements” No. 1366-ІХ, adopted by the Verkhovna Rada on March 30, 2021 at the initiative of the Cabinet of Ministers.

Over the past five years, more than 352,000 fires have occurred in Ukraine, causing direct damage of more than UAH 6 billion. The fire killed more than 11,000 people, including 359 children, and injured more than 7,000 people.

In order to protect people's lives and property, national wealth and the environment, the parliament has passed and the President signed a law that increases the liability for violating the requirements of fire and technogenic safety.

According to the document, such violations will now be punished by a fine of 100 to 300 non-taxable minimum incomes (hereinafter – NTMI).

In addition, for violation of fire and technogenic safety requirements that have caused accidents and caused damage to human health or property, the criminal liability in the form of a fine of 1,000 to 4,020 NTMI or community service for up to two years or restriction or imprisonment for up to three years is provided.

If such actions cause the death of people or damage to property in a particularly large amount, the liability will include imprisonment for a term of three to eight years.

The law also strengthens administrative liability for knowingly false calls to special services – fire and rescue units, police, ambulance crews or other rescue teams (fines from 50 to 200 NTMI against fines of three to seven NTMI, as before); for non-compliance with the instructions of officials on fire and technogenic safety (fines from 100 to 300 NTMI).

In addition, the President has signed the interconnected Law of Ukraine “On Amendments to the Code of Administrative Offenses of Ukraine to establish liability for obstruction of fire and technogenic safety inspections” 1367-ІХ, which was adopted by the Parliament on March 30.

This document complements the previous one and establishes administrative liability for obstruction of fire and technogenic safety inspections.

Thus, the creation of obstacles in the activities of authorized officials in the field of fire and technogenic safety related to inspections will be punishable by a fine of 100 to 300 NTMI.

Financial Markets

The National Bank of Ukraine has answered the question on its Facebook page: “Can the bank forcibly issue a credit card to the salary card?”. The answer is no, it can’t. Banks have the right to offer their customers related services, but cannot require the purchase of them.

Therefore, if a person really needs a credit card, of course, it may be issued, but if not, then a person has a right to refuse an offer.

This right is confirmed by Art. 55 of the Law of Ukraine “On Banks and Banking”: banks are prohibited from requiring the customer to purchase any goods or services from the bank or from a related person of the bank as a mandatory condition for the provision of banking services.

If the bank denies a person a card without buying a credit card, you must:

• write an appeal to the bank's management;
• if the situation is not resolved and the bank does not terminate the services that the person refused in writing, you should contact the National Bank.

Labor and Salaries

The State Labor Service of Ukraine has reported that recently the number of questions regarding the dismissal of employees in case of reduction of the number or personnel has increased in citizens' appeals to the State Labor Service. Such questions are asked by both employees and employers.

In accordance with item 1 Art. 40 of the Labor Code of Ukraine (hereinafter – the Labor Code), an employment contract concluded for an indefinite period, as well as a fixed-term employment contract before its expiration may be terminated by the employer, in particular in case of changes in production and labor, including liquidation, reorganization, bankruptcy or business process re-engineering, reduction of the number or staff.

Such dismissal in accordance with Part 2 of Art. 40 of the Labor Code is allowed if it is impossible to transfer the employees with their consent to another job.

The dismissal will be lawful if the owner or authorized body has complied with the following actions:

• actually reduced the number or personnel;
• took into account the preemptive right to keep the employee at work;
• offered the employee to move to another job at the same company;
• provided the employee with the guarantees provided by the current legislation;
• obtained the consent of the trade union body (trade union representative) to dismiss the employee.

In the case of a decision to dismiss employees, it should be borne in mind that in the event of a reduction in the number or personnel, the preemptive right to stay at work is granted to employees with higher qualifications and productivity (Art. 42 of the Labor Code).

If the conditions of labor productivity and qualifications of employees are equal, the advantage of keeping the job is given to employees who fall into the categories listed in Art. 42 of the Labor Code.

To reduce the number or personnel due to changes in the organization of production and labor, the employer must:

• justify the need for personnel redundancies and dismissals;
• draw up and approve a new staff list, which does not include reduced positions;
• warn employees whose positions are being reduced personally about the next dismissal no later than two months (Art. 49² of the Labor Code);
• simultaneously with the notice of redundancy, offer the employee another job at the same company. In the absence of work in the relevant profession or specialty, as well as in case of refusal of the employee to transfer to another job at the same company, the employee at own discretion seeks help from the state employment service or self-employs (Art. 49² of the Labor Code);
• notify the state employment service of the subsequent dismissal of employees, indicating their professions, specialties, qualifications and salaries (Art. 49² of the Labor Code);
• obtain the consent of the trade union committee to dismiss the employee (Art. 43 of the Labor Code);
• issue a dismissal order after the two-month notice period;
• on the day of dismissal to issue the employee a properly executed employment record book, a copy of the dismissal order and make a settlement within the statutory period (Art. 47 of the Labor Code);
• at the request of the employee to issue a certificate of work at the enterprise indicating the specialty, qualification, position, working hours and salary (Art. 49 of the Labor Code);
• on the day of dismissal to pay the employees all amounts due to them from the company (salary, severance pay in the amount of not less than the average monthly salary (Art. 44 of the Labor Code), compensation for unused leave (Art. 83 of the Labor Code).

If the employee does not work on the day of dismissal, these amounts must be paid no later than the next day after the dismissed employee submits a request for payment. The employer must notify the subordinate in writing of the accrued amounts due to the employee upon dismissal before the payment of these amounts (Art. 116 of the Labor Code).

In case of illegal dismissal, the employee has the undisputed right to apply to the court to resolve the labor dispute within a month from the date of delivery of a copy of the dismissal order or from the date of issuance of the employment record (Art. 232 of the Labor Code).

The Other Things

The Ministry of Health of Ukraine, through the Center for Public Health of the Ministry of Health of Ukraine, has informed that the companies with more than 50 people willing to be vaccinated can register for vaccination against COVID-19.

You can submit an application for the mobile immunization team to visit the company at the call-center number 0 800 60 20 19. The organized teams must appoint a person responsible for the preparation and organization of the vaccination process in advance.

To vaccinate, the management of the team needs to make a list of employees who want to be vaccinated. There should be at least 50 willing people. However, keep in mind that one mobile team can do about 100 vaccinations a day.

Vaccination of organized groups will take place only if there is a sufficient amount of vaccine and in accordance with the stages of vaccination. The arrival date of the mobile teams will depend on the schedule of vaccine delivery.

Upon receipt of the application, when it is time to vaccinate the team, the regional vaccination coordinator will call the responsible person and provide all the necessary information for the preparation and vaccination.

The management of the organization must provide the necessary conditions:

1) room for vaccination, which must:

• be prepared in advance, hygienically clean, well lit;
• be separated from any production areas or open spaces with workplaces;
• have ventilation to supply fresh air (supply ventilation, window, etc.);
• have sufficient space for the comfortable work of a mobile vaccination team consisting of at least three people;
• be equipped with a couch for patients, chairs and tables for the mobile team;
• have a table that can hold one small cooler bag (thermal container), injection materials and a box for safe disposal of syringes;
• have access to a hand hygiene area (access to a washbasin), a dispenser with an alcohol-containing antiseptic and a disinfectant to treat the table, where the vaccine preparation site is deployed;
• have access to the Internet (WiFi);

2) a room for medical observation within 30 minutes after vaccinations, which can accommodate 5-10 people;

3) during vaccination it is necessary to use personal protective equipment – masks that cover the mouth and nose (one for each employee every two hours).

If there are less than 50 people who want to be vaccinated, the Ministry of Health advises them to sign up for the waiting list for vaccination individually on the website or in the mobile application “Action” (“Diia”) or by contacting the number 0 800 60 20 19.