Peculiarities of the simplified taxation system: questions and answers

In connection with entry into force on 16.04.2022 of the Law of Ukraine as of 01.04.2022 № 2173-IX "On amendments to the Tax Code of Ukraine and other legislative acts of Ukraine regarding administration of certain taxes during the martial law, state of emergency" there are additional and clarifying answers to topical taxpayers’ questions regarding peculiarities of the simplified taxation system, which are posted on the web portals of the State Tax Service (https://tax.gov.ua/en/mass-media/news/579024.html).

1. How to report on the single tax at 2% rate (terms and forms)?

Tax (reporting) period for single tax payers of Group III at 2% income rate is a calendar month.

Single tax payers of Group III at 2% income rate submit the single taxpayer’s declaration to the controlling body within the time limits set for monthly tax (reporting) period.

Currently, taking into account amendments to the Tax Code of Ukraine (hereinafter – Code), there is new developed form of single taxpayer’s declaration of Group III for a period of the martial law, state of emergency, approved by Order № 124 of the Ministry of Finance of Ukraine as of 26.04.2022.

2. What are the grounds for refusal to register as the single tax payer of Group III at 2% income rate in case of business entity’s non-compliance, if internal audits are prohibited?

Registration as the single tax payer of Group III at 2% income rate is carried out basing on the processing results of Application for the simplified taxation system.

Processing of Application for the simplified taxation system is not subject to internal audit according to provisions of Article 75 of the Code.

Herewith, grounds for refusal to register as the single tax payer of Group III at 2% income rate are the business entities’ activities, defined in Sub-paragraph 9.3 Paragraph 9 Sub-section 8 Section XX "Transitional Provisions" of the Code.

3. Can the business entity that produce or sell water make a transition to the simplified taxation system?

Sub-clause 1 of Sub-paragraph 9.3 Paragraph 9 Sub-section 8 Section XX "Transitional Provisions" of the Code stipulates that the single tax payers of Group III at 2% income rate may not be business entities involved in extraction, sale of minerals (except for extraction of groundwater and surface water by enterprises that provide centralized water supply and sewerage services).

4. If payer chose the single tax at 2% rate, will such payer be able to choose the single tax at a different rate during a year?

Yes, the single tax payers of Group III at 2% income rate are not limited in right to change rate of the single tax of Group III at 3 or 5% of income by submitting Application to the controlling body to change the rate.

In this case, the business entities in Application for the rate change:

- do not fill in Section 5.1 "Election or transition to the simplified taxation system";

- indicate the current 2% rate in Section 5.2 "Change of rate and group" in the field "from the rate" and chosen 3 or 5% of income rate in the field "on the rate".

Such single tax payers have a right to change the 2% income rate to the single tax rate, which was used before transition to the simplified system with special taxation peculiarities.

5. Is it obligatory to submit the single tax application at 2% rate if the payer has submitted application at 5% rate before March 16?

If the taxpayer is registered at 5% income rate on the basis of previously submitted application for the simplified taxation system and wishes to make a transition to the single tax of Group III at 2% income rate, such taxpayer must apply to the controlling body to change the rate.

6. Amount of income for a calendar year not exceeding 10 billion UAH is calculated from 01.01.2022 or from the date of transition to the single tax of Group III at 2% income rate?

Sub-paragraph 9.2 Paragraph 9 Sub-section 8 Section XX "Transitional Provisions" of the Code stipulates that the single tax payers of Group III may be individuals-entrepreneurs and legal entities-business entities of any organizational and legal form.

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

7. How will the annual income tax declaration be formed and expenses be taken into account if there are only 2 quarters on the single tax at 2% rate?

Sub-paragraph 9.12 Paragraph 9 Sub-section 8 Section XX "Transitional Provisions" of the Code stipulates that the taxpayer who has switched to payment of the single tax at 2% rate during a calendar year, if such taxpayer resumes the corporate income tax payment in the same year, prepares and submits the corporate income tax declaration on a cumulative basis from the beginning of such calendar year. In this case, results of activities for periods of payment of the single tax at 2% rate are not taken into account determining the corporate income taxation object specified in Sub-paragraph 134.1.1 Paragraph 134.1 Article 134 of this Code, subject to provisions of Sub-section 4 of this Section for income tax payers who made a transition from the simplified system of taxation to the general one.

As follows, for single tax payers who during a calendar year used the simplified taxation system with payment of the single tax at 2% rate, for example, in the second and third quarters and from the fourth quarter make a transition to the general taxation system, the reporting tax period is a calendar year, which for them begins at the beginning of such calendar year and ends on December 31 of that year.

Expenses recognized by such taxpayers as a part of the pre-tax financial result for periods of single tax at 2% rate are not taken into account determining the corporate income taxation object for the reporting period – year.

The pre-tax financial result for reporting tax period is increased by the amount of income received as a payment during the stay on the general taxation system for products, services shipped (provided) during the stay on the simplified taxation system (Paragraph 4¹ Sub-section 4 Section XX "Transitional provisions of the Code) regardless of whether the income tax payer applies corrective differences or not.

8. Will the loss of past periods on the declaration remain after abolition of the martial law and temporary transition to the single tax?

Sub-paragraph 9.12 Paragraph 9 Sub-section 8 Section XX "Transitional Provisions" of the Code stipulates that the negative value of the corporate income taxation object, which existed on the date of transition to the single tax, may be credited to reduction of the corporate income taxation object, which will occur after resumption of payment of this tax, in the manner prescribed in Paragraph 140.4 Article 140 of this Code.

9. Regarding the income tax declaration, please comment on what reporting to submit if, for example, the payer made a transition to the single tax not in April, but in May? And how to report after the war?

If the income tax payer makes a transition to payment of the single tax from May, such payer is obliged to submit the corporate income tax declaration for the reporting period of six months. This declaration will contain the cumulative results of activities from January 1 of the reporting year to the date of transition to the single tax in May and, accordingly, the payer must submit financial reporting prepared for the period as a part of such declaration.

If the taxpayer, who during the calendar year made a transition to payment of the single tax at 2% rate and in the same year resumes the corporate income tax payment, such taxpayer prepares and submits the corporate income tax declaration cumulatively from the beginning of such calendar year.

If the payer uses annual reporting period in 2022, such payer submits the first corporate income tax declaration after resumption of payment of this tax for the reporting period 2022. Otherwise in case of the payer in 2022 is in the quarterly reporting period and returns to the general taxation system, for example, from the third quarter, such payer submits the corporate income tax declaration after resumption of payment of this tax for results of 9 months of 2022 and for 2022.