Changes in the VAT taxation introduced in connection with amendments to the Tax Code of Ukraine by the Law of Ukraine “On amendments to the Tax Code of Ukraine and other legislative acts concerning validity of norms for the martial law period”
1. Regarding the supply of defense products.
Amendments to Paragraph 32 Sub-section 2 Section XX of the Tax Code of Ukraine (hereinafter – TCU) provide for regime of the VAT exemption for import and supply of certain products in the customs territory of Ukraine to implement measures to ensure national security and defense.
Particularly:
- validity of the privilege specified in this Paragraph is extended to operations for the supply of products for national security and defense, repulse and deterrence of armed aggression of the Russian Federation throughout Ukraine, not only in Donetsk and Luhansk regions (as during the Joint Forces Operation (JFO);
- term “defense goods” was changed to “defense products”, bringing the terminology (titles of products) in line with the Law of Ukraine “On defense procurement”. Herewith, the same changes in terminology were made to Paragraph 197.23 Article 197 of the TCU (term “defense products” is defined by the expired law, which did not contribute to the effective use of rule by taxpayers);
- VAT exemption regime specified in this Paragraph also applies to import and supply in the customs territory of Ukraine of special personal protective equipment and bulletproof vests for voluntary formations of territorial communities formed according to the laws of Ukraine.
2. Introduction of 7% rate on import and supply of fuel and oil products.
For the martial law period and state of emergency, in accordance with Paragraph 82 Sub-section 2 Section XX of the TCU, at the 7% VAT rate there are taxed operations of import to the customs territory of Ukraine and supply in the customs territory of Ukraine (including those produced in the customs territory of Ukraine ) of such products:
- gasolines of motor, heavy distillates and liquefied gas, classified according to the Ukrainian classification of the FEA codes specified in Sub- paragraph 215.3.4 of Paragraph 215.3 Article 215 of the TCU, for which the excise tax rate is set in the amount of 0.00 euros per 1000 liters according to Paragraph 41 Sub-section 5 of this Section;
- crude oil or crude oil products obtained from bituminous rocks (minerals), classified according to Ukrainian classification of the FEA codes 2709 00 10 00 and 2709 00 90 00.
Formation of tax credit for the purchase of products and services, as well as for import of products to the customs territory of Ukraine for their use in operations subject to taxation at 7% rate is carried out in the general order (based on the amount of paid (accrued) VAT on the purchase / import of such products / services). Also, tax credit formed in previous tax periods purchasing products and services, as well as when importing products to the customs territory of Ukraine used in operations subject to the 7% VAT rate is not subject to adjustment in connection with this VAT rate.
At the same time, if taxpayer who during the reporting period carried out operations for the supply of fuel and petroleum products specified in Paragraph 82 Sub-section 2 Section XX of the TCU, as a result of such reporting period, the VAT amount specified in the VAT declaration according to Paragraph 200.1 Article 200 of the TCU, is negative – such an amount of tax cannot be declared (neither in the current reporting period nor in subsequent reporting periods) for budgetary reimbursement, including repayment of the VAT tax debt or other tax (not can be declared in the VAT tax declaration in lines 20.1, 20.2, 20.2.1 and 20.2.2) and is subject only to enrollment in tax credit of the next reporting period (reflected only in line 20.3 of the VAT tax declaration).
3. Peculiarities of filling in the VAT reporting during the martial law.
Paragraph 322 Sub-section 2 Section XX of the TCU stipulates that for the martial law period there are definite peculiarities for the tax credit formation.
Taxpayers, during the martial law regime, for the purchase of products / services for which tax invoices and / or adjustment calculations to them are not registered by suppliers in the Unified Register of Tax Invoices, must include in tax credit of the reporting period amount of the VAT paid (accrued) in the value of purchased products / services on the basis of primary (settlement) documents available to payer, drawn up (received) by the taxpayer for the purchase of products / services according to the Law of Ukraine “On accounting and financial reporting in Ukraine”.
At the same time, within 6 months after the termination or abolition of the martial law regime, the payers:
are obliged to ensure registration of all tax invoices and adjustment calculations in the Unified Register of Tax Invoices, registration of which is postponed for the duration of the martial law regime, tax credit declared by payers during the latter on the basis of primary (settlement) documents available to payer is subject to obligatory specification (adjustment) taking into account data of tax invoices and adjustment calculations (second clause of Paragraph 322 Sub-section 2 Section XX of the TCU).
Therefore, taking into account the fact that value added taxpayers do not have opportunity to register tax invoices and adjustment calculations to them in the Unified Register of Tax Invoices, formation of tax credit in the VAT tax reporting is carried out taking into account the following:
-- tax credit is formed on the basis of tax invoices registered in the Unified Register of Tax Invoices (which were registered in the Unified Register of Tax Invoices by suppliers before 24.02.2022) and available to the taxpayer primary accounting documents prepared according to the Law of Ukraine “On accounting and financial reporting in Ukraine” (for operations not confirmed by tax invoices / adjustment calculations to them registered in the Unified Register of Tax Invoices) (hereinafter – primary (settlement) document) for the reporting period of February 2022;
-- tax credit must be formed on the basis of primary (settlement) documents available to payer for the following reporting periods during the martial law period.
Amounts of the VAT tax credit formed on the basis of primary (settlement) documents received from suppliers of products / services must be reflected by the VAT payers in Table 2.1. “Information on the value added tax operations subject to the basic rate and rates of 7% and 14%” of Annex 1 to the VAT tax declaration and at the same time, if possible, be included in the Statement of errors by the seller of products / services indicating obligatory requisites of tax invoice and / or violation of deadlines for registration of tax invoice and / or adjustment calculation by the seller (Annex 7 to the VAT tax declaration) submission of which has no consequences on prosecution.
At the same time, within 6 months from the termination or abolition of the martial law, suppliers of products / services are obliged to ensure registration of all tax invoices and adjustment calculations to them in the Unified Register of Tax Invoices for the supply of products / services that were carried out during actions of the martial law regime.
Herewith, buyers of such products / services are obliged to clarify (bring into compliance) indicators of tax credit within the same period (6 months) taking into account data of tax invoices registered in the Unified Register of Tax Invoices and adjustment calculations to them.
4. Destruction (loss) of products during the martial law regime, state of emergency and transfer of products to state or municipal ownership.
Starting from 24.02.2022 and during the martial law regime / state of emergency the following are not considered used by taxpayer in the non-taxable VAT operations or in operations that are not the taxpayer’s economic activities, as well as norms of Paragraph 198.5 Article 198 of the TCU does not apply if products purchased with the VAT (both before introduction of the martial law regime, state of emergency and during its validity):
- destroyed (lost) during the martial law regime / state of emergency;
- transferred to state or communal ownership, including in favor of voluntary formations of territorial communities, as well as provided for the benefit of others for needs of ensuring defense of Ukraine during the martial law regime / state of emergency*.
Therefore, in case of destruction (loss) during the martial law regime / state of emergency of products purchased with the VAT, both before introduction of the martial law regime / state of emergency and during its validity, as well as transfer to state or municipal ownership, including in favor of voluntary formations of territorial communities and provided for the benefit of others for needs of Ukraine’s defense, tax liabilities are not accrued and tax credit formed upon their purchase is not adjusted.
* First – third and fifth clauses of Paragraph 321 Sub-section 2 Section XX of the TCU
5. Transfer of products (services) for needs of Ukraine’s defense, protection of public safety and interests of the state.
In cases of transfer / provision of products and services to institutions or organizations maintained at the state budget’s expense for needs of Ukraine’s defense, protection of public safety and interests of the state, such operations are not considered as supply of products / services and, accordingly, tax liabilities according to Paragraph 198.5 Article 198 of the TCU are not accrued (Clauses four to five of Paragraph 321 Sub-section 2 Section XX of the TCU).
Such institutions and organizations include: the Armed Forces of Ukraine, National Guard of Ukraine, Security Service of Ukraine, the Foreign Intelligence Service of Ukraine, State Border Guard Service of Ukraine, Ministry of Internal Affairs of Ukraine, State Emergency Service of Ukraine, State Service for Special Communications and Information Protection of Ukraine, voluntary formations of territorial communities, other entities in accordance with the laws of Ukraine, military formations, their associations, military units, subdivisions, institutions or organizations maintained at the expense of the state budget, as well as the central body of executive power, which ensures the formation and implementation of state policy in the field of civil protection, civil defense forces and / or health care institutions of state and / or communal property, and / or structural units of regional health, Kyiv and Sevastopol city state administrations.
Herewith, provisions of the Fourth clause of Paragraph 321 Sub-section 2 Section XX of the TCU are not applicable to supply of products / services subject to the % VAT rate. In particular, operations on supply of products for refueling of land military transport or other special contingent of the Armed Forces of Ukraine and other institutions specified by Resolution of the Cabinet of Ministers of Ukraine as of 02.03.2022 №178 “Some issues of the value added taxation at a zero rate during introduction of the martial law regime in Ukraine” (hereinafter – Resolution №178) are taxed at a zero VAT rate.
At the same time, for transfer / provision of products and services, which according to the Fourth clause of Paragraph 321 Sub-section 2 Section XX of the TCU, are not considered supplies of products / services and individuals carrying out such transfer / provision and individuals receiving such products / services must prepare primary accounting documents for confirmation according to the Law of Ukraine “On accounting and financial reporting in Ukraine”.
6. Failure to take into account products / services supplied by taxpayers as charitable assistance in calculating the maximum amount for purposes of registration as the VAT payers.
Sub-paragraph 69.12 Paragraph 69 Sub-section 10 Section XX of the TCU stipulate that operations provided for in Sub-paragraph 197.1.15 Paragraph 197.1 Article 197 of the TCU carried out during 2022 by public associations and / or charitable organizations are not included in such public associations or amounts for mandatory registration as the value added tax payer according to Article 181 of this Code.
Sub-paragraph 197.1.15 Paragraph 197.1 Article 197 of the TCU provides for the VAT exemption regime for gratuitous (without any monetary, material or other compensation) supply of products / services to charitable organizations established and registered according to the law, as well as providing such assistance charitable organizations to recipients (subjects) of charitable assistance according to legislation on charitable activities and charitable organizations.
Therefore, operations of public associations and / or charitable organizations on free (without any monetary, material or other types of compensation) supply of products / services to charitable organizations established and registered according to the law, as well as providing such assistance to charitable organizations (subjects) of charitable assistance according to legislation on charitable activities and charitable organizations are not taken into account by taxpayers who carry out such operations calculating the total amount of supply of products / services to determine the need for VAT registration.
