Features of the single tax Group III at 2% rate for the VAT payers

Interest rate for single taxpayers of Group III who use taxation peculiarities, determined by Paragraph 9 Sub-section 8 Section XX "Transitional Provisions" of the Tax Code of Ukraine (hereinafter – Code), is set at 2% of income.

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).

Sub-paragraph 9.9 Paragraph 9 Sub-section 8 Section XX "Transitional Provisions" of the Code stipulates that 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 this Paragraph, 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.

That is, since the single tax regime at the 2% rate has limited (temporary) validity period with subsequent automatic renewal of the VAT calculation procedure, it differs from the "classic" single tax established by Paragraph 291.5 Article 291 of the Code.

Therefore, 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 are the VAT payers are not subject to cancelation of the VAT payer’s registration, according to provisions of Sub-paragraphs 9.5 and 9.9 of Paragraph 9 Sub-section 8 Section XX "Transitional Provisions" of the Code.

Given that during martial law the VAT payers who use taxation peculiarities, determined in Paragraph 9 Sub-section 8 Section XX "Transitional Provisions" of the Code, are exempted from obligation to accrue, pay and submit the value added tax declarations, all transactions for the sale of goods and services, place of supply of which is located in the customs territory of Ukraine, are considered not subject to the VAT and tax invoices for such operations are not compiled.

Consequences for the VAT payers during automatic renewal of rules of accrual and payment of VAT after an end of the martial law

In tax reporting for the first reporting period after an end of the martial law, / state of emergency, the VAT payer, according to Paragraph 198.5 Article 198 of the Code, must accrue tax liabilities from the cost of goods, services, non-current assets used in non-taxable operations during a period of the martial law / state of emergency, amount of tax which were included in tax credit on the date of transition to the simplified taxation system at 2% rate:

for goods / services – based on the purchasing cost of such goods, services,

on non-current assets that are actually used (sold) during the stay of such payer on the simplified taxation system at 2% income rate – based on the book (residual) cost at the beginning of reporting (tax) period during which such operations are performed.

Such operations must be reflected in relevant lines (line 4) “Accrued tax liabilities according to Paragraph 198.5 Article 198 and Paragraph 199.1 Article 199 of the Tax Code of Ukraine for taxable operations” of the VAT tax declaration.

Accordingly, payer is obliged to ensure the compilation of consolidated tax invoice for such goods / services, non-current assets not later than the last day of the first reporting period after an end of the martial law / state of emergency and register in the Unified Register of Tax Invoices.

For example: martial law / state of emergency ends in June 2022, such payer for the first reporting tax period July 2022 submits declaration in which, according to Paragraph 198.5 Article 198 and Sub-paragraph 9.5 Paragraph 9 Sub-section 8 Section XX "Transitional Provisions" of the Code, accrues tax liabilities on goods sold during application of the single tax at 2% income rate and for which on the date of transition to the simplified taxation system (April 1, 2022 ) the VAT amounts were included in tax credit.

Given the procedure for automatic renewal of rules of accrual and payment of the VAT after an end of the martial law, provided for in Sub-paragraph 9.9 Paragraph 9 Sub-section 8 Section XX "Transitional Provisions" of the Code, the VAT payer retains a right to use the VAT amounts included (to be included) in tax credit on the basis of tax invoices registered in the Unified Register of Tax Invoices on the date of transition to the simplified taxation system at 2% rate for goods / services not sold during the martial law period, calculating the VAT liabilities in tax reporting for the first reporting period after an end of the martial law / state of emergency and subsequent reporting periods. That is, data of line 21 of the VAT tax declaration for the last reporting period before transition to the simplified taxation system must be transferred to line 16.1 “Negative value of line 21 of the previous reporting (tax) period"” for the first reporting period after an end of the martial law.

According to procedure for filling in the VAT declaration, amount of tax credit for the first reporting (tax) period after an end of the martial law formed by the value of line 16.1 calculating tax liabilities according to Paragraph 200.1 Article 200 of the Code will reduce amount of accrued tax liabilities in line 4 of the VAT declaration according to Paragraph 198.5 Article 198 of the Code.

Glory to Ukraine!