Peculiarities of the VAT liabilities determining by taxpayers who use the tax accounting cash method in their transition to the simplified taxation system at 2 rate and return from the simplified system taxation to the general?

Press service of the State Tax Service of Ukraine, published 18 April 2022 at 13:43 Chapter: News

Sub-paragraph 14.1.266 Paragraph 14.1 Article 14 as of the Tax Code of Ukraine as of 02.12.2010 № 2755-VI as amended (hereinafter - TCU) stipulates that the cash method for tax purposes, in accordance with Section V of the TCU, is a method of tax accounting, according to which the date of occurrence of tax liabilities is defined as the date of crediting (receipt) of funds to the taxpayer's accounts opened in banks and / or bodies providing treasury servicing of budget funds to the taxpayer's cash desk or the date of receipt of other types of for value of goods (services) supplied (or subject to delivery) and the date of attribution of tax amounts to tax credit is defined as the date of debiting of the taxpayer, opened in institutions of banks and / or in bodies involved in treasury servicing of budget funds, date of issuance from taxpayer's cash desk or date of other types of compensation for value of goods (services) supplied to the taxpayer (or to be delivered).

Sub-paragraph 9.5 Paragraph 9 Sub-section 8 of Section XX of the TCU stipulates that single tax payers of Group III, who use taxation peculiarities established by Paragraph 9 Sub-section 8 of Section XX of Group III the TCU, are exempted from an obligation to charge and pay the VAT on supply of goods, works and services located in the customs territory of Ukraine and for  import of goods to the customs territory of Ukraine, as well as from the submission of the VAT declarations and their registration as the VAT payer is suspended.

Suspension of registration as the VAT payer for purposes of Sub-paragraph 9.5 Paragraph 9 Sub-section 8 of Section XX of the TCU means that for single tax payers of Group III, who use taxation peculiarities established by Sub-paragraph 9.5 Paragraph 9 Sub-section 8 of Section XX of the TCU, there is an is ongoing suspension of rights and obligations, established by Section V and Sub-section 2 Section XX of the TCU, (including of tax credit formation) for a period of use of tax peculiarities established by Sub-paragraph 9.5 Paragraph 9 Sub-section 8 of Section XX of the TCU.

After termination or abolition of the martial law, state of emergency of Group III, who on the day of termination or abolition of the martial law in Ukraine used taxation peculiarities established by Paragraph 9 Sub-section 8 Section XX of the TCU, 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 the taxation peculiarities provided for in this Paragraph and are automatically considered to apply the tax system on which such taxpayers were before choosing the taxation peculiarities provided for in this Paragraph (Sub-paragraph 9.9 Paragraph 9 Sub-section 8  Section XX of the TCU).

For goods / services, the non-current assets acquired / manufactured with value added tax before application of taxation peculiarities established by Paragraph 9 Sub-section 8 Section XX of the TCU, which are used (supplied, sold) by the single tax payer of Group III in operations that are not subject to taxation, the value added tax payer is obliged not later than the last day of the reporting period in which the resumption of its registration as the value added tax payer, to accrue tax liabilities in accordance with Paragraph 198.5 Article 198  Section V of the Code (Sub-paragraph Paragraph 9 Sub-section 8 Section XX of the TCU).]

Regarding operations on the supply of goods / services, which were carried out before transition to the simplified taxation system at 2% rate, payment for which was received during a period of the simplified taxation system

If shipment of goods / provision of services was carried out during the taxpayer-supplier’s stay on the general taxation system, application in this period of cash method of the VAT accounting, and funds for such shipped goods / services received by such supplier during the simplified taxation system at 2% rate, such funds are included in income taxable at a single tax 2% rate and VAT liabilities, respectively, are not accrued

Herewith, after transition from the simplified taxation system tax 2% of income rate  for general taxation system and renewal of registration as the VAT payer, such VAT payer in tax reporting for a first reporting period of renewal of registration as the VAT payer must, in accordance with Paragraph 198.5 Article 198 of Section V of the TCU, accrue the VAT liabilities on the value of goods, services used (supplied, sold) in non-taxable operations, amount of tax on which was included in tax credit before the date of transition to the simplified taxation system at 2% rateб based on the purchase such of goods and services.

Regarding supply of goods / services, which were carried out during the stay on the simplified taxation system at 2% rate, payment for which was received during application of the simplified taxation system

If shipment of goods / provision of services and payment for such goods / services was made during a period of application of the simplified taxation system at 2% rate, such funds are included in income taxable at the single tax rate of 2%; VAT liabilities, respectively, are not charged.

At the same time, purchasing goods / services during a period of application of the simplified taxation system at 2 % rate, the tax credit for such acquisition is not formed and VAT liabilities, in accordance with Paragraph 198.5 Article 198 of Section V of the TCU, after transition to the general taxation system and renewal of registration as the VAT payer are not accrued.

After transition from the simplified s taxation system at 2% income rate to the general taxation system and renewal of registration as the VAT payer such the VAT payer in tax reporting for the first reporting period of renewal of registration as the VAT payer must, in accordance with Paragraph 198.5 Article 198 of Section V of the TCU, accrue the VAT liabilities only for those goods (supplied, sold) in non-taxable operations that were purchased during a stay on the general taxation system and amount of tax that was subject to inclusion in tax credit on the date of transition to the simplified taxation system at 2% rate, based on the cost of purchasing such goods / services.

Regarding the supply of goods / services that were carried out during a stay on the simplified taxation system at 2% rate, payment for which was received after transition to the general taxation system (renewal of the VAT registration)

If the shipment of goods / provision of services was carried out during a period of application of the simplified taxation system at 2% rate and funds for such shipped goods / services received by such supplier during a period of application of the general taxation system (after resumption of the VAT registration) is obliged to determine the VAT tax liabilities on such operations by the cash method.

In this case, for goods / services that were purchased:

- before transition to the simplified taxation system and used in operations for the supply of goods / services, payment for which was made in a period after transition to the general taxation system – the VAT liabilities in accordance with Paragraph 198.5 Article 198 of Section V of the TCU are not accrued;

during application of the simplified taxation system at 2% rate - tax credit is not formed.

Regarding the supply of goods / services that were carried out before transition to the simplified system of taxation at 2% rate, payment for which was received after transition to the general taxation system (renewal of the VAT registration)

If shipment of goods / provision of services was carried out during a stay of taxpayer - supplier in the general taxation system and application in this period of a cash method of the VAT accounting and funds for such shipped goods / services received by such supplier during a period of application of the general taxation system (after resumption of registration of the VAT payer), such taxpayer is obliged to determine the VT tax liabilities for such operations by cash.

In this case, for goods / services purchased for use in such operations before the date of transition to the simplified taxation system and used in operations for the supply of goods / services, payment for which was made in a period after transition to the general taxation system, the VAT liabilities are not charged according to Paragraph 198.5 of Article 198 of Section V of the TCU.