Ukraine takes steps towards balancing its budget revenues and introduces budget subsidies for agricultural companies

On 30 December 2016 the President of Ukraine signed the Law No. 1791 On Amendments to the Tax Code of Ukraine Regarding the Balancing of Budget Revenues in 2017 (hereinafter the “Law No. 1791”). The Law No. 1791 was passed by the Parliament in its final reading on 20 December 2016.

The Law No. 1791 introduces changes to VAT administration for agricultural companies which previously enjoyed a special VAT regime and increases the rates of ecological tax, rent payments (for subsoil use, use of water and forest resources) and excise tax.

Due to the fact that the special VAT regime for agricultural companies was terminated as of 1 January 2017, the deadline for the registration of VAT invoices issued under the special VAT regime for 2016 expires on 15 January 2017. It will then no longer be possible to register VAT invoices or change previously registered VAT invoices after 15 January 2017.

However, in order to continue state support for agricultural companies, the Law No. 1791 introduces budget subsidies for agricultural companies by amending the Law of Ukraine On State Support of Agriculture of Ukraine, which in its previous wording only declared that it was possible to receive state support, without giving further details. From 2017 onwards, budget subsidies will be provided for 5 consecutive calendar years, until 1 January 2022. Tax authorities will maintain a separate register of agricultural companies qualifying for budget subsidies (hereinafter the “Subsidies Register”). Agricultural companies which enjoyed a special VAT regime before 2017 will not be automatically included in the Subsidies Register and it will therefore be necessary for them to make a separate application to the tax office in order to be included in said register. The Law No. 1791 provides no limitations on the amounts of subsidies in 2017. However, starting from 1 January 2018 budget subsidies will be capped at UAH 150 million a year for each agricultural company and its related parties. The Cabinet of Ministers of Ukraine shall separately approve the order on how budget subsidies will be distributed.

The Law No. 1791 increases the excise tax rate for wine and beer by 12%, by 20% for other alcoholic beverages, and by 40% for tobacco products.

Furthermore, the Law No. 1791 increases the ecological tax rate and the tax rate for the leasing of Ukrainian radio frequencies (does not affect the rates for mobile operators) by 12%.

The tax rates for subsoil use (other than mining), rent payments for the special use of water resources and special use of forest resources has been increased by 10.4%.

Starting from 1 January 2017, the sale of “technically complex household goods, subject to guarantee service” shall only be carried out using cash registers. Such changes aim to increase consumer rights protection during the guarantee period for household goods. The current list of “technically complex household goods subject to guarantee service” was approved by the Cabinet of Ministers Decree No. 506 on 11 April 2002. The list includes, among others, telephones, household appliances, musical instruments and watches. It is expected that either this list will be reviewed or a new one will be adopted. As a result, starting from 1 January 2017 private entrepreneurs selling such goods will have to use cash registers. Purchasing and registering the cash register takes some time, so shortages in the supply of household appliances in early 2017 can reasonably be expected.

The Law No. 1791 also cancelled a 2% fee payable to the Pension Fund of Ukraine, which was applicable to all foreign currency purchases made by individuals.

The Law No. 1791 came into effect on 1 January 2017.

Laws: Law No. 1791 “On Amendments to the Tax Code of Ukraine Regarding the Balancing of Budget Revenues in 2017”