Ukraine: Salans KyivTax Newsletter - January 2009

Contents

1. Change in Social Security Contribution Rates
2. VAT on Services Provided to Non-Residents
3. Change in Excise Duty Rates on Certain Products
4. Change in Vehicle Tax Rates
5. Increase in Gas Rent Payments
6. Parliament Passes Law to Minimise Impact of Financial Crisis on Industrial Development

1. Change In Social Security Contribution Rates

The Verkhovna Rada of Ukraine changed the rates for some social security contributions. Such changes became effective on 13 January 2009. The current rates for social security contributions are summarized in the table below (altered rates are in bold)

Notably, from 13 January 2009 mandatory unemployment security payments extend to the following categories of individuals: (1) individuals who provide "work and services" under civil law agreements; (2) foreigners working in Ukraine on a temporary basis (until 1 January 2011); and (3) persons of pensionable age still in employment (until 1 January 2011).

2. VAT On Services Provided To Non- Residents

In letter No. 26903/7/16-1517 dated 23 December 2008 the State Tax Administration of Ukraine ("STA") set out its opinion on the taxation of certain types of services provided to non-residents according to Article 6.5(d) of the Ukrainian Law "On Value Added Tax" (the "VAT Law").

The STA confirms that the place of supply for services specified in Article 6.5(d) of the VAT Law (in particular, advertising services; services of consultants, lawyers, auditors, accountants and engineers; and data processing and information-provision services [IT services]) will be deemed to be outside of the customs territory of Ukraine when such services are provided by Ukrainian residents (VAT payers) to non-residents. An exception to this rule is where a non-resident has a permanent establishment in Ukraine.

Consequently, if such services are provided by Ukrainian residents to non-residents, they will not be subject to Ukrainian VAT (provided that such non-residents do not have permanent establishment in Ukraine).

It is worth mentioning that this STA letter appears to be more favourable for taxpayers vis-à-vis its previous letters as regards the application of Article 6.5(d) of the VAT Law.

3. Change In Excise Duty Rates On Certain Products

The Verkhovna Rada of Ukraine changed the excise duty rates on ethyl spirit, alcoholic drinks, tobacco products, fuel and cars.

Excise duty on ethyl spirit and alcoholic drinks. The excise duty rate on ethyl spirit will be increased gradually: until 30 June 2009 – UAH 21.5 per litre of 100% spirit, from 1 July to 31 December 2009 – UAH 23, in 2010 – UAH 27 and from 1 January 2011 – UAH 34. The excise duty rate on cognac will also be increased: until 30 June 2009 – UAH 10 per litre of 100% spirit, from 1 July to 31 December 2009 – UAH 14, in 2010 – UAH 20 and from 1 January 2011 – UAH 27. The excise duty rate on natural wine will be reduced gradually: from 1 January to 30 June 2009 – UAH 0.25 per litre of 100% spirit and from 1 July 2009 – UAH 0.01 per litre of 100% spirit.

Excise duty on tobacco products. In particular, the excise duty rate on filter cigarettes will be increased gradually: from 1 February to 30 June 2009 – UAH 37.5 per 1000 items, from 1 July to 31 December 2009 – UAH 45, in 2010 – UAH 52 and from 1 January 2011 – UAH 60.

Excise duties on certain types of fuel and vehicles. In particular, the excise duty rate on engine fuels increased from EUR 60 to EUR 110 per 1,000 kg. It is worth mentioning the dramatic (tenfold) increase in the excise duty rate on new cars with an engine volume of more than 3 litres (from EUR 0.1 to EUR 1 per cubic centimetre). The excise duty rate on new cars with an engine volume of 1.5-3 litres increased to EUR 0.12 per cubic centimetre. The excise duty rate on new cars with an engine volume of 1-1.5 litres increased from EUR 0.02 to EUR 0.03.

4. Change In Vehicle Tax Rates

The Verkhovna Rada of Ukraine has changed certain vehicle tax rates for cars. Whereas tax rates for cars with an engine volume of less than 2,200 cubic centimetres have increased slightly, there has been a sharp increase in tax rates for cars with an engine volume of more than 2,200 cubic centimetres (except for cars that have been used for more than 8 years with respect to tax payable for first registration).

Notably, the vehicle tax rate on new cars with an engine volume from 2,201 to 3,000 cubic centimetres which are subject to first registration in Ukraine increased to UAH 75 per 100 cubic centimetres. For cars with an engine volume from 2,201 to 3,000 cubic centimetres which are subject to re-registration or technical inspection, the tax rate has also increased to UAH 75 per 100 cubic centimetres.

5. Increase In Gas Rent Payments

The Verkhovna Rada of Ukraine passed a law which provides for an increase in rent payments for natural gas by an adjustment coefficient. The adjustment coefficient applies to applicable rent payment rates in every tax period. The adjustment coefficient is calculated and approved by the Ukrainian Ministry of Finance.

6. Parliament Passes Law To Minimise Impact Of Financial Crisis On Industrial Development

The Verkhovna Rada of Ukraine passed, and then overruled the Ukrainian President's veto of, the law "On Amending Certain Legislative Acts with a view to Minimising the Impact of the Financial Crisis on the Development of National Industry" (the "Law"). The Law is effective as of the date of its publication. The following provisions of the Law are of particular note:

1. Industrial enterprises are entitled to apply an accelerated 25% annual depreciation rate (instead of 6% rate per tax quarter) for assets in group 3 (i.e., other fixed assets).
2. A temporary (until 1 January 2011) exemption from customs duties for certain categories of equipment and assembly parts that are not manufactured in Ukraine (in particular, nuclear reactors, boilers, equipment for sound recording and sound reproduction, cinematographic and medical equipment) and are imported into Ukraine by industrial enterprises. This exemption also extends to fixed assets, materials, equipment, tools and assembly parts (except for excisable goods) that are imported into Ukraine by industrial enterprises with the purpose of establishing new production facilities by implementing energy-saving technology, including the import of such goods as contributions to the charter capital of such enterprises. The list of such enterprises and the permitted amounts of such goods is set by the Cabinet of Ministers of Ukraine.
3. A temporary (until 1 January 2011) VAT exemption on the import of fixed assets, materials, equipment, tools and assembly parts (except for excisable goods) by industrial enterprises that are establishing new production facilities by implementing energy-saving technology, including the import of such goods as contributions to the charter capital of such enterprises. The list of such enterprises and goods is set by the Cabinet of Ministers of Ukraine.

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