Law of Ukraine “On Amendments to the Tax Code of Ukraine on Improving Tax Administration, Elimination of Technical and Logical Inconsistencies in Tax Legislation” No. 466-IX of January 16, 2020 (hereinafter – Law No. 466) amends the corporate income tax. Let’s consider who will pay this tax, what to expect for non-profit and high-income organizations.
New payers
Law No. 466 expends the circle of income tax payers. The amended Tax Code of Ukraine (hereinafter – Tax Code) will indicate that the following are considered as income tax payers (subitem 133.1.1 of the Tax Code):
- legal entities that are single tax payers if they pay income (profit) to non-resident with a source of origin from Ukraine or in case of receiving adjusted income of controlled foreign company:
At the same time income tax payers of IV group are not payers of income tax when the payment of income with its source of origin from Ukraine which is equated to dividends;
- sole proprietors, including those that chose simplified tax system and natural entities who carry out independent professional activity in respect of income (profit) with its source of origin from Ukraine.
These persons have previously paid income tax, in particular, withheld repatriation tax when paying income (profits) to non-resident with its source of origin from Ukraine. Now they do it legally without coercion by the tax officials.
At the same time, they will report on payment of such income and withholding of income tax (repatriation tax) on annual basis not for a quarter when such payment is made as tax officials demanded.
In addition, there will be the new payer of income tax which is a legal entity that is set up in accordance with the legislation of other countries (foreign companies) and has an effective management in Ukraine. Such legal entities will become income tax payers as of January 1, 2021.
Non-profit organization
Law No. 466 allows housing cooperatives to be a non-profit organization (subitem 133.4.1 of the Tax Code) without reflecting in their constituent documents (or constituent documents of a higher-level organization which are basis for non-profit organization activity according to law) the possibility of transferring assets to one or several non-profit organization of the relevant type, other legal entities that carry out non-state pension provision in accordance with law (for non-state pension funds) or crediting to the budget revenue in case of termination of legal entity (as a result of its termination, merger, division, accession or transformation).
Thus, for housing cooperatives all obstacles to obtaining non-profit status have been removed.
What should high-income organizations expect
The criterion for determining business entities that are high-income organizations has been changed. They include the enterprises whose annual income from any activity exceeds UAH 40 million, not UAH 20 million (subitem 134.1.1. of the Tax Code). These changes indicate that:
1) number of high-income organizations must be reduced several times. Thus, there will be more low-income organizations (as of May 23, 2020);
2) all payers of income tax who till May 23, 2020 had been high-income as they had income that exceeded UAH 20 million in 2019, and since May 23, 2020 have become low-income (their income is under UAH 40 million) can no longer apply tax differences when reporting for II quarter.
3) those enterprises that since May 23, 2020 has become low-income can report on the annual basis, not quarterly. They can do that when reporting in 2021. However, it is unclear how to abandon tax differences in the middle of the year.it is possible that the tax authorities will allow to do that next year, if theses enterprises do not receive income that exceeds UAH 40 million. It is difficult to discuss anything before their explanations are ready.
Item 137.5 of the Tax Code states that only payers with an income of no more than UAH 40 million can report not quarterly, but once a year. However, this rule will appear only from the beginning of 2021. Therefore, those income taxpayers whose income in 2019 exceeded UAH 20 million will report quarterly by 2020 by the end of the year. And according to the results of work in 2020 and in case of non-excess of income of UAH 40 million, they will become low-income organizations who report once a year.
