Taxation of Enterprises

General principles of enterprise taxation in Ukraine

The new Tax Code adopted in Ukraine has become the sole law intended to regulate the field of enterprise taxation in the country. Although the main task of the Code was supposed to be ensuring the stability of the tax system, immediately after its entry into force it began to be actively supplemented and amended, and more than ten changes were introduced in the first year alone. Thus, with the adoption of the new TC, stability of the tax system for enterprises in Ukraine has still not been achieved.

Changes made to the taxation system

In essence, changes to taxation in Ukraine have globally affected the system that existed until now. First of all, it is worth noting the convergence of accounting standards and taxation; changes have also touched on the taxation rules for non-residents, the work of enterprises with non-residents and other no less important aspects. At the outset, it should be noted that the enterprise taxation system is now divided into two main types:

The choice of taxation system is especially important in the process of registering an enterprise due to its further impact on its activities.

SIMPLIFIED TAXATION SYSTEM

The simplified taxation system differs from the general one in that enterprises using it pay tax based on total turnover without taking expense items into account. Thanks to this, enterprises on the simplified tax system have the opportunity to maintain simplified tax and accounting records, which results in lower resource costs associated with accounting.

When you can be a single tax payer

The simplified taxation system in Ukraine provides for various rate options. To clearly determine the single tax rate, taxpayers were divided into special groups:

The choice of the simplified taxation system is made based on criteria established at the legislative level:

Use of the single tax is not possible for enterprises engaged in the following types of activities:

Also the application of the simplified taxation system is restricted for the following companies:

The rates of the single tax are defined by the Tax Code of Ukraine:

1. For enterprises that belong to the 3rd group of single tax payers, the following single tax rate options are established:

Determination of enterprise income is carried out on the basis of:

The following are not included in the income of a single tax payer:

Features: 

Value Added Tax

If an enterprise chooses the 3% (group 3) single tax rate, it must register as a VAT payer. In this case, VAT rules applicable under the general taxation system apply to such enterprises.

Procedure for reporting and paying taxes

Deductions from employees’ salaries

Regarding payment of deductions from employees’ salaries – enterprises using the single taxation system fall under the rules applicable to the general system.

GENERAL TAXATION SYSTEM FOR ENTERPRISES

To understand the principles of the general taxation system, one should consider the main taxes provided by it:

Corporate profit tax – the main tax paid from the profit earned by the enterprise.

Tax base. The tax base is determined based on the difference between gross income and gross expenses (operating expenses).

Tax rate. The tax rate according to the Tax Code is 18%.

Dividend tax. Depending on the type of dividends and the taxation system on which the issuer of corporate rights is located, the following personal income tax rates are applied: 5%, 9% and 18%.

At the 5% rate are taxed:

• Dividends on shares and corporate rights accrued by residents – payers of corporate profit tax (except income in the form of dividends on shares, investment certificates paid by collective investment institutions) (ст. 167.5.2 167 НКУ).

At the 9% rate are taxed:

• Dividends on shares and/or investment certificates, corporate rights that were accrued (ст. 167.5.4 НКУ):
  • non-residents;
  • collective investment institutions;
  • economic entities that are not payers of corporate profit tax (i.e. single tax payers).

At the 18% rate are taxed:

• Dividends in favor of individuals (including non-residents) on shares or corporate rights that have privileged status or another status providing their payment in a fixed amount or in an amount greater than the amount of payments calculated per any other share (corporate right) issued by such a taxpayer (ст. 167.1, 170.5.3 НКУ) Personal income tax is not withheld from the amount of accrued dividends in the case of their reinvestment, when the amount of dividends is not paid but directed to increase the authorized capital (ст. 165.1. 18 НКУ).

Reporting and tax payment. Deadlines for filing reports and paying the tax depend on the amount of annual revenue:

If in the first case the profit tax is paid once a year based on the declaration, then in the second case the system is more complex, as it provides for advance payments. The advance payment system provides for monthly payment in the amount of 1/12 of the declared profit tax for the previous tax year. Thus, in a situation where the enterprise calculated 24 thousand of profit tax for the previous year, in the current year it will be obliged to pay 2,000 each month. This rule operates by default and in some nuances, such as enterprise losses, additional rules come into force, for clarification of which it is best to consult an accountant.

Value Added Tax – provides for payment of the tax by the seller from the markup included in the price of a good or service.

Tax base. The VAT base is calculated based on the difference between the amount of added value charged to the buyer and the amount of added value paid to the seller of the goods.

Tax rate. The main rate is 20% (except for types of activities where the rate may be 7% and 0%).

The Tax Code establishes 2 ways to register as a VAT payer:

Reporting and payment of VAT: VAT reporting is submitted monthly in electronic form, and the tax itself is paid in the same manner. For some enterprises quarterly accounting is possible.

Taxes on employees’ salaries – enterprises that have hired employees are obliged to pay salaries and, accordingly, all contributions and taxes associated with this.

Unified Social Contribution. The rate depends on the category of workers; the main rate is 22% of the accrued salary.

Some exceptions that companies most often encounter:

Payment to the budget is made at the same time as the salary payment.

Personal income tax. From the employee’s salary the company withholds 18% personal income tax. Payment to the budget is made at the same time as the salary payment; PIT reporting is filed once per quarter.