Regarding changes to the Tax Code of Ukraine regarding collection of rent for the subsoil use for extraction of certain types of minerals

Press service of the State Tax Service of Ukraine, published 31 December 2024 at 14:33 Chapter: News

Changes made by the Law of Ukraine № 4113-IX as of 04.12.2024 “On amendments to the Tax Code of Ukraine and other laws of Ukraine on stimulating development of digital economy in Ukraine” (hereinafter – Law), which come into force on January 1, 2025, particularly relate to collection of rent for the subsoil use for extraction of minerals (hereinafter – Rent) by mining enterprises that sell extracted minerals (mineral raw materials), commodity products of a mining enterprise (hereinafter – Commodity products) from rocks, which, according to Section V “Mineral Products” of the Law of Ukraine № 2697-IX as of 19.10.2022 “On the customs tariff of Ukraine” is classified by codes according to Ukrainian Classification of the Foreign Economic Activity Products code:

2517 – pebbles, gravel, crushed stone or crushed stone;

2505 – natural sands of all kinds;

250700 – kaolin and other kaolin clays.

Actual sales price for the aforementioned Commodity products is determined by the weighted average (by sales volume) in the reporting period of sales price of relevant type of mineral (mineral raw material) under supply contracts, but not less than for:

Ukrainian Classification of the Foreign Economic Activity Products 2517 – 6.5 USD per 1 ton;

Ukrainian Classification of the Foreign Economic Activity Products – 5.00 USD per 1 ton;

Ukrainian Classification of the Foreign Economic Activity Products 250700, which, depending on its properties, is recognized as a mineral raw material for the subsoil area object under approved conditions:

not suitable for primary processing (enrichment) – 40 USD per 1 ton;

suitable for primary processing (enrichment) – 120 USD per 1 ton.

Conversion into UAH is carried out at the exchange rate of the National Bank of Ukraine as of the first day of month following the tax (reporting) period.

That is, if the rocks classified under Ukrainian Classification of the Foreign Economic Activity Products code 250700 are recognized as mineral raw materials according to their properties in the approved conditions:

suitable for primary processing (enrichment) in the production of kaolin and are sold without enrichment (primary processing), then the Rent amount is calculated taking into account actual volume of the extracted Commodity products, the Rent rate is 5% of the actual sales price/estimated value of such products, but not less than 120 USD;

unsuitable for primary processing (enrichment), then the Rent is calculated taking into account actual volume of the extracted kaolin, as Commodity product of the Company, the Rent rate is 5% of the actual sales price/estimate value of such products, but not less than 40 USD.

Therefore, Rent for rocks classified under Ukrainian Classification of the Foreign Economic Activity Producode 250700 cannot be less than 6 or 2 USD, depending on the suitability of rocks for primary processing (enrichment).

In a current version of the Tax Code of Ukraine, similar mechanisms for fixing the minimum level of tax base are already applied for hydrocarbons and commodity iron ores and ensure determination of Rent based on tax base protected from the influence of redistribution of production processes for production of Commodity products of mining enterprises.

Changes to the Tax Code of Ukraine are temporary and transitional during the martial law and incompleteness of reform of relations in the extractive industry, ensuring their proper transparency and openness of economic and technical industry information, as provided for by the Code of Ukraine on subsoil and the Law of Ukraine № 2545-VIII as of 18.09.2018 “On ensuring transparency in the extractive industries”.

It should be noted that such legislative changes will not significantly affect majority of mining enterprises that have organized extraction and primary processing of mineral raw materials, production of marketable products of mining enterprises in compliance with standards and all requirements of the subsoil use, market principles of pricing and competitiveness of economic activity.