Single tax of Group III and its taxation peculiarities

In connection with military aggression of the Russian Federation against Ukraine, the Verkhovna Rada of Ukraine adopted the Law of Ukraine "On amendments to the Tax Code of Ukraine and other legislative acts of Ukraine regarding validity of norms for a period of the martial law”, which introduced a number of amendments to the Tax Code of Ukraine (hereinafter – Code).

Sub-section 8 of Section XX "Transitional Provisions" of the Code is amended with Paragraph 9, which defines peculiarities of single tax during the martial law / state of emergency in Ukraine.

Paragraph 9 Sub-section 8 Section XX of the Code stipulates that temporarily from 01.04.2022 until termination or abolition of the martial law / state of emergency in Ukraine provisions defined in Section XIV of the Code are applicable taking into account peculiarities, subsequently the single tax payers of Group III may be individuals-entrepreneurs and legal entities of any organizational and legal form, in which during the calendar year amount of income does not exceed 10 billion UAH.

Such individuals are not subject to restrictions on the number of persons in employment with them.

At the same time, for business entities that plan to register as the single taxpayers of Group III with 2% income rate, the list of restrictions was reduced compared to Paragraph 291.5 Article 291 of the Code for choosing the simplified taxation system.

It is impossible to choose the simplified taxation system with payment of single tax at 2% income rate for:

--business entities (legal entities and individuals-entrepreneurs) that carry out:

organization of activities, gambling, lotteries (except lottery distribution), bets (bookmaker bets, betting bets);

foreign currency exchange;

production, export, import, sale of excisable products (except for retail sale of fuels and lubricants in containers up to 20 liters and activities of individuals related to the retail sale of beer, cider, peri (non-alcohol) and table wines);

mining, sale of mineral resources;

-- insurance (reinsurance) brokers, banks, credit unions, pawnshops, leasing companies, trust companies, insurance companies, funded pension institutions, investment funds and companies, other financial institutions specified by law; securities registrars;

-- representative offices, branches, offices and other separate subdivisions of a legal entity that is not a single tax payer;

-- individuals and legal entities – non-residents.

Application form for the simplified taxation system was approved by Order of the Ministry of Finance of Ukraine as of 16.07.2019 № 308 (hereinafter – Application).

For newly created business entities registered according to procedure established by law, the deadline for submitting Application is 10 days from the date of state registration. Such entities will be considered as the single tax payers of Group III from the date of their state registration.

For operating business entities that have a right to switch to the simplified taxation system with 2% income single tax rate, the deadlines for submitting Applications were changed.

Such business entities may submit Application to the supervisory authority for choosing the simplified taxation system with 2% income rate.

2% of the single tax is indicated in a special field "interest rate before income" of line 5.1.1 "Selected single tax rate during transition to the simplified taxation system".

Registration of business entity as the single tax payer with 2% income rate is carried out by entering it into the Register of Single Taxpayers. On the official web portal of the State Tax Service at the link http://cabinet.tax.gov.ua, the opportunity to check the affiliation of the business entity to the payers of the single tax at a rate of 2 percent of income has been implemented. Ability to verify the business entity’s affiliation to the single taxpayer at 2% income rate is implemented on the official web portal of the State Tax Service at the link http://cabinet.tax.gov.ua.

Interest rate for single taxpayers of Group III who use taxation peculiarities, defined in Paragraph 9 Sub-section 8 Section XX "Transitional Provisions" of the Code, is set at 2% of income.

Based on provisions of Paragraph 297.1 Article 297 of the Code, taking into account the single taxation peculiarities of Group III, introduced during the martial law / state of emergency in Ukraine, the single taxpayers with 2% income rate are exempted from accrual, payment and submission of tax declarations from the following taxes and levies:

1) corporate income tax, except for cases provided for in the Second and third clauses of Sub-paragraphs 133.1.1 and 133.1.4 of Paragraph 133.1 Article 133 of the Code;

2) personal income tax in respect of income (taxation object) received as a result of economic activity of the single taxpayer (individual) and is taxed according to Chapter 1 Section XIV of the Code;

3) value added tax (hereinafter – VAT) on the supply of goods, works and services, place of supply of which is located in the customs territory of Ukraine;

4) land tax for land plots used by single taxpayers of Group III with 2% income rate for economic activities (except for provision of land and / or real estate located on such land plots for rent), loan, other right of use).

In addition, Sub-paragraph 69.14 Paragraph 69 Sub-section10 Section XX "Transitional provisions" of the Code stipulates that taxpayers, including single taxpayers of Group III with 2% income rate, temporarily, for a period from 01.03.2022 to 31.12 of the year following the year when the martial law was terminated or abolished, do not accrue and do not pay land fees (land tax and rent for land plots of state and communal property) for land plots (land shares (parts)) located in territories where the hostilities are (were) conducted or in territories temporarily occupied by the armed forces of the Russian Federation, as well as which and are owned or used, including on lease of individuals or legal entities, as well as land shares (pats)), defined by the regional military administrations as littered with explosive objects and / or on which there are fortifications.

Land plots are determined within territories where hostilities are being ongoing (conducted) or temporarily occupied by the armed forces of the Russian Federation; their list was approved by the Cabinet of Ministers of Ukraine.

Herewith, according to Sub-paragraphs 69.15 – 69.16 of Paragraph 69 Sub-section 10 Section XX "Transitional Provisions" of the Code for taxpayers, including taxpayers of Group III with 2% income rate, there is exemption from accrual and payment of:

- the general minimum tax liability for land located in territories where hostilities are (were) conducted or in territories temporarily occupied by the armed forces of the Russian Federation, and / or for land identified by regional military administrations as contaminated with explosives objects and / or on which there are fortifications for 2022 and 2023 tax (reporting) years;

- the environmental tax for taxation objects located in territories where hostilities are (were) conducted or in territories temporarily occupied by the armed forces of the Russian Federation.

List of territories where hostilities are (were) conducted or temporarily occupied by the armed forces of the Russian Federation is determined by the Cabinet of Ministers of Ukraine.

Sub-paragraph 9.5 Paragraph 9 Sub-section 8 Section XX "Transitional Provisions" of the Code stipulates that single taxpayers of Group III, who use taxation peculiarities established by this Paragraph, are exempted from obligation to accrue, pay and submit the value added tax declarations on the supply of goods, works and services located in the customs territory of Ukraine.

Application 2% of income tax rate involves inclusion of the VAT in the single tax (as in the case of single tax rate of 5% of income).

Business entities that choose Group III of the single tax with 2% income rate and at the time of transition to the simplified taxation system will be in status of the VAT payer, the VAT’s registration is not canceled but is suspended for a period of stay of such business entity in Group III of the single tax at rate 2% income rate.

In this case, such taxpayers are deprived of the right to draw up tax invoices and adjustment calculations for operations for which the date of tax liability falls (accounted for) for a period of stay of such business entity in Group III of the single tax at 2% income rate.

As the business entity being in Group III of the single tax with 2% income rate has no objects undergoing the value added taxation and subject to Paragraph 9.5 Sub-section 8 Section XX "Transitional Provisions" of the Code and Paragraph 49.2 Section II of the Code – such business entity does not have an obligation to accrue, pay and submit value added tax reporting on the supply of goods, works and services with place of supply in the customs territory of Ukraine.

After cessation or abolition of the martial law / state of emergency on the territory of Ukraine, the single tax payers of Group III, who on the day of cessation or abolition of the martial law / state of emergency on the territory of Ukraine used taxation peculiarities, determined in Paragraph 9 Sub-section 8 Section XX "Transitional Provisions" of the Code, from the first day of a month following the month of termination or abolition of the martial law / state of emergency in Ukraine, lose a right to use taxation peculiarities provided for in this Paragraph and are automatically considered as those who apply taxation system on which such taxpayers were before the choice of taxation peculiarities provided for in this Paragraph.

In addition, the single taxpayers have a right to refuse to use taxation peculiarities, provided for in Paragraph 9 Sub-section 8 Section XX "Transitional Provisions" of the Code, from the first day of a month following the month when such decision was made or lose a right to use such taxation peculiarities on the first day of a month following the month when the Code’s maximum income limit (10 billion UAH) was exceeded.

Glory to Ukraine!