Income Tax: new rules of the old game

The law №466 on “The amendment to the Tax Code of Ukraine concerning the enhancement of tax administrating, eliminating the technical and logical inconsistencies in the Tax legislation”, which came into force on May 23, 2020, became the most discussed bit of news and the most important change in a field of Tax legislation during the first half of 2020. Accountor Ukraine would like to emphasize several of the main changes in Tax legislation, specifically, income tax, since part of the changes is already to be used in reporting on the first half 2020.

The annual income cost criteria is increased for applying in financial differences. 

The income tax payer has the right not to apply financial differences during identifying the object of taxation of income tax for the tax payers whose income of the last accounting period does not exceed 40,0 million UAH (before tax reform – 20 million UAH) (§ 134.1.1 TCU).

Please, pay attention that changing the decision on applying financial differences annually is not allowed and in the letter, tax authorities explained (https://tax.gov.ua/zakonodavstvo/podatkove-zakonodavstvo/listi-dps/print-74588.html), that applying the new 40,0 million UAH limit can be permitted  only concerning the income for 2020. It means, that based on 2020 income results only, it is possible to make a decision on applying or not applying financial differences considering the obtained income.

Additionally, the annual tax period is set for the tax payers whose income for the last accounting period does not exceed 40,0 million UAH, but this regulation comes into force on January 1, 2021 (§ 137.5 TCU).

The income taxpayers’ list is supplemented:

• at the time of income payment to the non-resident with the origin (source of origin) from Ukraine: business entities – legal entities, who chose the simplified taxation system; as well as individual entrepreneurs including those, who preferred the simplified taxation system and individuals, who lead an independent professional activity (§ 133.1 TCU);
• at the time of receiving the income from the controlled foreign company, business entities – legal entities, who chose the simplified taxation system are identified (§ 133.1 TCU);
• legal entities, which are created according to legislation of other countries (foreign companies) and have the place of effective management on the premises of Ukraine (starting from January 1, 2021) (§ 133.1.5 TCU).

The new objects of income tax taxation are included: 

• income received from gambling with the use of slot machines (§ 134.1.6 TCU);
• the adjusted income of controlled foreign company – the given regulation will come into force on January 1, 2021 (§ 134.1.7. TCU).

The changes in the fixed assets of tax accounting:

• the object of the fixed assets at a cost of more than 20,0 thousand UAH, which will be put into the exploitation on May 23, 2020 is meant to be for the tax accounting targets (§ 14.1.138 TCU); 
• the depreciation for the period of non-usage (exploitation) of the fixed assets in economic activity in relation to their modernization, reconstruction, completion, additional equipment and conservation, is not incurred (§ 138.3.1 TCU);
• the accelerated depreciation of the fixed assets on the period of 2020-2030, but with the bunch of criteria for applying, is additionally introduced (§ 431TCU).

The list of tax differences is extended.

The tax differences, which increase the financial result before taxation:

•  on the amount of 30 % of the products’ cost including non-negotiable assets and services, implemented in non-residents’ favor, organizational legal form of which is added to the list approved by the Ukrainian Cabinet of the Ministers (§ 140.5.4. TCU);
• on the amount of fines, penalties, charged by the controlling authorities and other state government bodies for violating the legal requirements Ministers (§ 140.5.11. TCU);
• on the amount of expenses incurred by the taxpayer during implementing the operations with non-residents, if such kind of operations do not have a business purpose (the ‘business purpose’ term is described in more detail in the previous article (https://eba.com.ua/rozshyrennya-ponyattya-dilova-meta-vidteper-dovodymo-dotsilnist-provedennya-operatsiyi/) (§ 140.5.15 TCU);
• on the sum of accrual of the expected credit loss reserve (§ 139.2.1 TCU).

The financial result before the taxation is decreasing:

• by the taxpayer – assignee on the sum of negative value of the taxpayer’s object of taxation, which is re-organized by:  joining, merging, transformation, division, allocating, if such payers were bonded for more than 18 sequent months up to the date of completion of joining (merging) (§ 140.4.5. TCU);
• on the sum of incurred income in a form of dividends in payer’s favor from the controlled foreign company (§ 140.4.2. TCU);
• on the amount of incurred income in payer’s favor in a form of dividends as well as of the non-residents’ ownership participation (no less that 10%), which are not included into the list of low-tax jurisdictions states (§ 140.4.3. TCU).

The amendment to the ‘tax on repatriation’:

It is added, that at the time of income payment to the non-resident in any form, different from the monetary one, such tax is a subject to accrual and payment by the separate formula (§ 141.4.2. TCU).

Drastic changes in income tax taxation, which are mentioned in the Law №466, require a serious revision by each of the companies and apply not only those, who are direct payers of this particular tax.  Accountor recommends analyzing each of the changes, which apply to enterprises and make amendment into accounting policy to comply with the current law.