Commentary to the Law of Ukraine as of June 18, 2024 № 3813-ХХ "On amendments to the Tax Code of Ukraine on the tax administration peculiarities during the martial law ...
Commentary to the Law of Ukraine as of June 18, 2024 № 3813-ХХ "On amendments to the Tax Code of Ukraine on the tax administration peculiarities during the martial law for taxpayers with a high level of voluntary compliance with tax legislation" in the corporate income taxation
Verkhovna Rada of Ukraine adopted the Law of Ukraine № 3813-IX as of 18.06.2024 "On amendments to the Tax Code of Ukraine regarding the tax administration peculiarities during the martial law for taxpayers with a high level of voluntary compliance with tax legislation" (hereinafter – Law).
Editorial corrections of individual provisions
In addition to others, amendments were made to provisions of the Tax Code of Ukraine (hereinafter – Code) regarding operations with non-residents registered in states (territories) included in the list of states (territories) approved by the Cabinet of Ministers of Ukraine according to Sub-paragraph 39.2.1.2 of Sub-paragraph 39.2. 1 Paragraph 39.2 Article 39 of this Code, or who are residents of these states (territories), as well as with non-residents whose organizational and legal forms are included in the list of organizational and legal forms approved by the Cabinet of Ministers of Ukraine according to Sub-paragraph 39.2.1.21 of Sub-paragraph 39.2.1 Paragraph 39.2 Article 39 of this Code, which are purely editorial.
Such changes relate to provisions of Sub-paragraph 135.2.1.5, Sub-paragraph 135.2.1.9.2, Sub-paragraph 135.2.1.13, Sub-paragraph 135.2.1, Sub-paragraph 135.2, Sub-paragraph 140.4.3, Paragraph 140.4, Sub-paragraph 140.5.4, Sub-paragraph 140.5.5-1, Sub-paragraph 140.5 .6 Paragraph 140.5 Article 140 of the Code and related to changes made to Article 39 of the Code.
These changes will come into force on January 1, 2025.
"New" accelerated depreciation
Important changes that entered into force on the first day of month following the month of publication of the Law (i.e. from 01.08.2024) are introduction of certain peculiarities for accelerated depreciation of fixed assets during the martial law in Ukraine and until the end of calendar year in which martial law will be terminated or cancelled (new Clauses were added to Paragraph 431 Sub-section 4 Section ХХ "Transitional provisions" of the Code), in particular, that requirements regarding their non-use do not apply to fixed assets put into operation after entry into force of this Law.
In addition, for a period of the martial law in Ukraine and until the end of calendar year in which martial law will be suspended or canceled, to individual income tax payers, namely: manufacturers/suppliers of defense products under state contracts (agreements) on defense procurement, executors of defense works and services or co-executors of the specified contracts (agreements) within meaning of the Law of Ukraine "On defense procurements" are given a right to apply accelerated depreciation to fixed assets that were in use and put into operation during the martial law in Ukraine until the date of entry into force of the Law.
Such taxpayers are obliged to conduct inventory of such objects of fixed assets on the first day of tax (reporting) period in which decision to apply provisions of this Paragraph was made. Balance (residual) value of such fixed assets, calculated according to requirements of Section III of this Code as of the first day of such tax (reporting) period according to the conducted inventory, is subject to depreciation within the minimum allowable periods of accelerated depreciation of the corresponding group of fixed assets.
| For reference In the Law of Ukraine "On Defense Procurement" terms are used in the following sense: executor of the state contract (agreement) on defense procurement (hereinafter – executor of the state contract (agreement)) is a business entity regardless of the organizational and legal form and ownership form or a foreign business entity (another foreign legal entity) or association of legal entities with which the state contract (agreement) has been concluded based on results of procurement specified by this Law (Paragraph 2 Part 1 Article 1); co-executors / subcontractors are business entities regardless of their ownership form, foreign business entities that are involved by executors of the state contracts (agreements) on the basis of contracts, including foreign economic agreements (contracts) for performance of the state contracts concluded with the state customer (contracts) (Paragraph 28 Part 1 Article 1); defense products – weapons, military and special equipment, weapons and ammunition, special components for their production and operation, materials and equipment specially intended for their development, production or use, special technical means, technical intelligence means, means of technical and cryptographic protection of information, means of special communication, military and dual purpose space equipment, means of personal protection (body armor of all classes of protection, impact-resistant, bullet-proof helmets, impact protection kits, etc.), special means (handcuffs, batons, means equipped with substances of tear-repellent, light-noise effect, etc.), special (specialized) vehicles; computer, optical, measuring and other equipment; special uniforms required for the performance of tasks by law enforcement agencies, structural subdivisions of executive authorities implementing state policy in areas of ensuring protection of human rights and freedoms, interests of society and the state, countering crime, maintaining public safety and order, military formations with the law enforcement functions, dual-use products for the guaranteed provision of security and defense needs, development of the state's defense capability and system of national stability, as well as any other products that are purchased by state customers, determined according to Paragraph 10 Part 1 of this Article, for the guaranteed provision of security and defense needs (Paragraph 29 Part 1 Article 1). |
Question: enterprise manufactures military equipment under a state order and purchased used equipment for use in production (fourth group of fixed assets). What are requirements for the enterprise to apply accelerated depreciation of such equipment, which was put into operation in 2023 and was depreciated in tax accounting according to provisions of Article 138 of the Code on the non-accelerated depreciation period?
Answer: for purposes of applying accelerated depreciation of fixed assets according to provisions of Paragraph 431 Sub-section 4 Section ХХ "Transitional Provisions" of the Code, corporate income tax payers that are manufacturers/suppliers of defense products under the state contracts (agreements) on defense procurement, executors of defense works and services or co-executing enterprises of the specified contracts (agreements) within the meaning of the Law of Ukraine "On defense procurement" should take into account such requirements:
for fixed assets of the fourth group (machines and equipment) and the fifth group, the minimum allowable depreciation period is two years, for the third group (transmission devices) and the ninth group, the minimum allowable depreciation period is five years;
put into operation during the martial law in Ukraine;
have been used (requirement that they are new does not apply);
decision was made to apply accelerated depreciation and inventory of these fixed assets was carried out on the first day of tax (reporting) period;
balance (residual) value of such fixed assets is calculated based on results of conducted inventory according to requirements of Section III of this Code;
subject to amortization during the minimum allowable periods established by Paragraph 431 Sub-section 4 Section ХХ "Transitional provisions" of the Code for relevant group of fixed assets, from the beginning of tax (reporting) period in which decision to apply provisions of this Paragraph was made.
Question: how to correctly determine balance (residual) value of fixed asset for purposes of accelerated depreciation, if decision to apply such depreciation was made on August 1, 2024? Is period of operation of such equipment, for which depreciation was accrued in 2023 according to provisions of Paragraph 138.3 Article 138 of the Code, taken into account for calculation of accelerated depreciation according to Paragraph 431 Sub-section 4 Section XX "Transitional provisions" of the Code?
Answer: first of all, the taxpayer is obliged to conduct inventory of fixed assets on the first day of tax (reporting) period in which decision to apply accelerated depreciation was made.
At the same time, the taxpayer, calculating depreciation of the balance sheet (residual) value of such fixed assets, calculated according to requirements of Section III of this Code for the first day of such tax (reporting) period (in conditions of question as of 01.01.2024), applies the minimum allowable depreciation terms of the corresponding group of fixed assets, defined in Paragraph 431 Sub-section 4 Section ХХ "Transitional provisions" of the Code, without taking into account terms of operation in previous reporting periods.
If such equipment is put into operation in 2024, for depreciation purposes, the cost of such equipment, recognized in accounting, is taken into account, and accelerated depreciation periods are applied, starting from month following the month in which such equipment is put into operation.
Tax depreciation of newly built (purchased) housing for employees
New Paragraph 69 was added to Subsection 4 Section ХХ "Transitional Provisions" of the Code, according to which fixed assets in the form of residential buildings (separate apartments, rooms, etc.), located on the territory of Ukraine, purchased or built by the corporate income tax payer (including on his order) during the martial law are equated to those intended for use in the economic activity of the corporate income tax payer for purposes of tax depreciation, provided that such objects were purchased or constructed by such payer in connection with relocation of enterprise or its employees who have status of internally displaced persons, from territories where hostilities are (were) conducted or temporarily occupied, in order to provide housing for employees of such enterprise and their family members.
Question: In connection with hostilities in territory where production facilities are located, the company moved them and employees who worked at these facilities to the territory of another region of Ukraine in 2022 and continues its business activities. Does the Company have a right to tax depreciation of residential apartments purchased for accommodation of its employees who continue to work in production?
Answer: Yes, it has. But one of requirements for the Company to apply such right is that its employees who live in these apartments have status of internally displaced persons.
| For reference According to Ukrainian legislation, internally displaced person is a citizen of Ukraine, foreigner or stateless person who is in the territory of Ukraine on legal grounds and has a right to permanent residence in Ukraine, who was forced to leave or leave residence place as a result of or in order to avoid negative consequences of armed conflict, occupation, widespread manifestations of violence, violations of human rights and emergency situations of a natural or man-made nature[1]. |
Question: from which period right to tax depreciation of fixed assets in the form of residential buildings (separate apartments, rooms, etc.) that the taxpayer purchased for accommodation of evacuated (displaced) employees in 2023 applies? Can this right be exercised in 2023?
Answer: Such payer determines tax depreciation of the specified objects of fixed assets (group 3) according to requirements of Paragraph 138.3 Article 138 of the Code with the minimum allowable depreciation period of 20 years, as those intended for use in economic activity, starting from August 2024, since provisions the Law establishing the specified peculiarities shall enter into force on August 1, 2024.
[1] Instruction on the procedure for implementation of norms of international humanitarian law in the Armed Forces of Ukraine, approved by order of the Ministry of Defence of Ukraine № 164 as of 23.03.2017.
