Tax Regime During Martial Law: Current State and Potential Changes
Nataliia Stetsiuk, Accountant at Accountor Ukraine
More tax news from Accountor Ukraine! In our previous article, we talked about Law 3219 (aka bill 8401) and the changes implemented on August 01, 2023. Today, we are going to take a look at licenses for excisable goods in Ukraine and some changes in the banking sector.
Licenses for Excisable Goods in Ukraine
Ukraine has a state licensing system for manufacturing and selling excisable goods. Excise licenses are mandatory for anyone engaging in these activities.
The licenses remain valid during martial law, state of emergency, or/and in the event of force majeure. Licenses related to the production and circulation of alcohol, alcoholic beverages, tobacco products, and liquids used in electronic cigarettes, as well as licenses for the production, storage, wholesale, and retail trade of fuel, are deemed valid if the required payments are made and their validity is extended within thirty days after the termination of martial law.
The validity period of fixed-term licenses and permits is automatically extended for the duration of martial law and an additional three months after its termination or cancellation. Periodic payments for such licenses are deferred for the specified period (except for licenses related to organizing and conducting gambling activities).
Economic entities engaging in new types of activities that require licensing may obtain the right to conduct such activities under marial law by filing a declaration in electronic or paper form to authorized state agencies, regardless of their place of registration or activity,(the Ministry of Economy; or Ministry of Internal Affairs for businesses involved in security services). This right is stipulated by the Resolution of the Cabinet of Ministers of Ukraine dated March 18, 2022, No. 314, titled "Some Issues Regarding Ensuring Economic Activities During a State of War" (Resolution No. 314). The declaration form can be of any type, but it must provide the data specified in Appendix 1 to Resolution No. 314, i.e.: details about the company, its business address, the type of economic activities, the permit document that the declaration is supposed to replace as long as the martial law is in effect).
However, this rule does not apply to certain types of businesses, listed in Appendix 2 to Resolution No. 314. For such entities, obtaining a license or the relevant permit is still mandatory.
Entities that have filed declarations while martial law is in effect must apply to the respective licensing authorities, permitting bodies, and public service providers no later than three months after martial law is lifted/canceled to obtain the required permits in accordance with the applicable laws.
It should be noted is that there are no tax liabilities for excisable goods (products) if they were forcibly alienated or confiscated for the needs of the state without compensation, handed over to the Armed Forces of Ukraine or other entities stipulated by law without reimbursement or provided as humanitarian aid.
When importing and selling tobacco products without the the required labeling, it is permissible to use labeling in accordance with the EU requirements if the relevant authority is unable to provide any excise tax stamps for sale.
Law of Ukraine No. 3219-IX, dated June 30, 2023, introduced amendments to Law No. 265 - e.g., by exempting legal persons from liability for violating the financial transactions procedure from January 1, 2022, until October 1, 2023, and after this date. Such entities are exempt from liability for violations related to selling goods in temporarily occupied territories or combat zones.
Besides, the fines for violations related to using cash registers (car machines) from August 1, 2023, to July 31, 2025 were changed. Individual entrepreneurs who pay the Single Tax and do not pay VAT, may specify the name of one product or service in the payment document, which conveys the characteristics and affiliation to a product group or service group (clarifications on this matter from the Tax Authority can be found here). Please also note that it is prohibited to use transaction managenent software if there is no connection to the fiscal server and if you did not obtain your range of fiscal codes from the supervisory authority.
Restrictions in the Banking Sector of Ukraine
The imposition of martial law posed a big challenge for the banking sector. The National Bank of Ukraine (NBU) has implemented a series of measures to preserve stability by introducing economic and financial instruments, new regulations, and financial monitoring procedures. All the restrictions implemented by the regulator (i.e., the NBU) are outlined in Resolution 18 dated February 24, 2022.
While adhering to the core principles of the monetary policy and the credit policy under martial law, as the economy is recovering, the NBU is gradually returning to the principles and instruments of the traditional monetary policy by softening the restrictions.
Basic NBU Restrictions:
- Fixed foreign currency exchange rate (return to floating exchange rate is planned in the near future)
- Limited cash withdrawals in foreign currency
- Prohibition of cross-border currency transfers for goods and services provided before February 23, 2021
- Replenishing digital wallets with digital money as well as distribution of digital money suspended
- When making payments in foreign currency, legal entities must first use their available foreign currency, and then, if necessary, they can purchase it on the Ukrainian foreign exchange market
- The concept of "critical imports" applies to a range of services approved by the Cabinet of Ministers of Ukraine, i.e., importers cannot purchase currency for these payments
- The maximum settlement period for exports and imports of goods is 180 calendar days for the transactions made from April 5, 2022 onward. For the transations made before April 5, 2022, a period of 365 days applies
- Suspension of cooperation with counterparties from the Russian Federation and the Republic of Belarus.
