Legal Regime During Martial Law After August 01, 2023

• The special group of the simplified taxation system with a 2% rate (hereinafter referred to as "special group") is abolished.
• Procedures for transitioning/returning from the special group to other groups of the simplified taxation system or to the general taxation system are established.
• Matters concerning newly established companies that have chosen the special group are regulated.
• The rights and obligations of VAT payers automatically revert for those who transitioned to the special group.
• The right not to pay the Single Tax for individual entrepreneurs (FOP) of groups 1 and 2 whose tax address is located in areas of hostilities or Ukrainian territories temporarily occupied by the Russian Federation, is retained. For all others, obligations are reinstated.

The State Tax Service (STS) has issued Information Letter No. 4/2023, outlining certain tax aspects for companies during the period of martial law, particularly regarding taxpayers reverting from the simplified taxation system with a 2% rate to the taxation system they had before transitioning to the 2% rate system. The Letter can be found here (in Ukrainian). 

Scheduled inspections:  from August 01, 2023 until martial law is lifted/canceled, for taxpayers engaged in:

• Producing and/or selling excisable goods
• Organizing and maintaining gambling activities in Ukraine (gambling business)
• Providing financial and payment services.

• Upon the taxpayer's request.
• Based on the provisions of Article 78.1 of the Tax Code of Ukraine (inspections related to taxation of non-residents, producing and/or selling of excisable goods, providing financial and payment services, organizing and maintaining gambling activities in Ukraine, control over transfer pricing, reorganization (except transformation) or liquidation of a legal entity / its structural unit or termination of individual entrepreneurial activity (FOP), budget VAT refund and/or declaration of negative VAT exceeding UAH 100 000, business activities by a non-resident through a permanent establishment in Ukraine without having it registered with the tax bodies, in case of a buyer's complaint about non-registration of a tax invoice/excise invoice or errors in mandatory details).

For all other taxpayers, the moratorium on documentary inspections remains in effect. As long as martial law continues, changes to the inspection schedule may be made on a monthly basis, taking into account force majeure circumstances and the presence/absence of safe conditions for conducting inspections.

Besides, during this period, if taxpayers independently correct mistakes that resulted in an understatement of tax liabilities, they are exempted from penalties.

Let's comment on the interaction between taxpayers and the State Tax Service (STS). Of course, it would be great if the tax service's transformation into a service-oriented entity could be characterized by greater dynamism and a tangible positive impact on businesses. It is important that tax management be more transparent and the inspection procedures be more liberal. Consistency and stability in tax law (ca. 40 laws amending the Tax Code of Ukraine were adopted in 2022-2023) and a logical structure would help prevent misunderstandings regarding the tax authority's interpretation of tax norms.

Charitable donations are tax exempt if the payment is made in favor of:

• Combatants, employees of enterprises, institutions, organizations directly involved in repelling armed aggression and ensuring national security during the martial law period that are located in the areas of said actions
• Individuals residing (or having resided) in combat zones, and/or individuals who have been forced to leave their place of residence due to combat operations happening there.

Legal entities (Corporate Income Tax payers) can recognize expenses if they voluntarily transferred money to the Armed Forces of Ukraine and other entities specified by law via special accounts of the National Bank of Ukraine. If a taxpayer applies tax differences when calculating the taxable base and provides goods, works/services free of charge to the army or similar institutions, no adjustments need to be made.

Taxpayers who are unable to fulfill their tax obligations (upon confirmation and notification to the STS) are exempt for the time being. However, they must fulfill the obligations within six months after martial law is lifted/canceled.

• Deadlines for registering tax invoices, filing declarations, and paying taxes.
• Deadlines for conducting desk audits, factual and document inspections (to which the moratorium does not apply), and appealing their results.
• Deadlines for taking measures to settle tax debt and/or determining monetary obligations under Article 116 of the Tax Code of Ukraine (disposal of property held as tax collateral).
• Deadlines for submitting and reviewing complaints against decisions to reject registration of tax invoices/adjustment calculations in the Unified Register of Tax Invoices.

Limitation periods established by the Civil Code of Ukraine, are extended for the period of martial law. As for credit agreements, as long as martial law continues in Ukraine and within thirty days after it is lifted/canceled, the borrowers are relieved of liabilities for overdue monetary obligations under such an agreement and also exempt from the obligation to pay penalties (fines, interest) for such delay.