To the attention of taxpayers who are required to determine the minimum tax liability!

Law of Ukraine No. 3050-ХХ as of 11.04.2023 "On amendments to the Tax Code of Ukraine and other legislative acts of Ukraine regarding exemption from the environmental tax payment, land payment and tax on immovable property other than land for destroyed or damaged immovable property" entered into force on May 6, 2023 (hereinafter – Law No. 3050).   

According to the Law No. 3050, list of territories where hostilities are (were) conducted or temporarily occupied by the russian federation (hereinafter – List of territories) is determined according to procedure established by the Cabinet of Ministers of Ukraine.

Resolution No. 1364 of the Cabinet of Ministers of Ukraine as of 06.12.2022 (hereinafter – Resolution No. 1364) defines some issues of forming list of territories where hostilities are (were) being conducted or temporarily occupied by the russian federation. In particular, Paragraph 1 of Resolution No. 1364 defines the executive authority (Ministry for Reintegration of Temporarily Occupied Territories) that gets delegated authority to approve list of territories and also defines components of the list of territories, requirements for the format of territories by which these territories are reflected in the list, and approved form of the list of territories.

In this regard, the List of territories, approved by Order of the Ministry for Reintegration of Temporarily Occupied Territories of Ukraine No. 309 as of 22.12.2022, registered in the Ministry of Justice of Ukraine on 23.12.2022 under No. 1668/39004, can be used for determining specifics of payment of taxes and levies in relevant territories defined by the Tax Code of Ukraine (hereinafter – Code).

Law No. 3050 amended Sub-paragraph 381.2 Article 381 of the Code, according to which it was established that the minimum tax liability is not determined for land plots, land shares (parts) for which land payments were not calculated and paid or the single tax of Group IV, which are in conservation, or contaminated with explosive objects, or in respect of which decision has been made to provide tax benefits for payment of local taxes and/or levies based on the taxpayers' applications to declare land plots unsuitable for use in connection with potential threat of their contamination by explosive objects. Minimum tax liability for such land plots is not determined for a period for which land payment or the single tax of Group IV is not determined.

Determining the minimum tax liability, it should be taken into account that according to Sub-paragraph 14.1.1142 Paragraph 14.1 Article 14 of the Code, the minimum tax liability is the minimum amount of tax liability for payment of taxes, levies, payments, control over execution of which is entrusted to the controlling bodies, related to production and sale of own agricultural products and/or ownership and/or use (rent, sublease, emphytheusis, permanent use) of land plots classified as agricultural land, calculated according to the Code. Amount of the minimum tax liability determined for each of land plots, right of use of which belongs to one legal entity or individual, including individual-entrepreneur, is the total minimum tax liability.

According to changes made to Sub-paragraph 69.15 Paragraph 69 Sub-section 10 Section XX "Transitional provisions" of the Code, it is provided that general minimum tax liability is not calculated and paid for land plots, land shares (parts) located in territories of active hostilities or temporarily occupied territories of Ukraine by the russian federation:

for 2022 – in part of land plots, land shares (parts) owned or used by individuals;

from March 1, 2022 to December 31, 2022 – in part of land plots, land shares (parts) owned or used by legal entities.

Amount of the minimum tax liability for land plots (land shares (parts)) located in territories of active hostilities or temporarily occupied by the russian federation is determined in proportion to the number of months when such land plots, land shares (parts) were subject to the land payment or single tax of Group IV.

As follows, general minimum tax liability is not calculated and paid for land plots, land shares (parts) located in territories of active hostilities or in territories of Ukraine temporarily occupied by the russian federation, for 2022:

Procedure for determining the minimum tax liability in tax (reporting) periods starting from January 1, 2023 is regulated by Clauses 7 and 8 of Paragraph 38¹.2 Article 38¹ of the Code, namely: the minimum tax liability is not determined for land plots, land shares (parts) for which no land payment or the single tax of Group IV was charged or paid, which are in conservation, or contaminated with explosive objects, or in respect of which decision was made to grant tax benefits from payment of local taxes and/or levies on the basis of taxpayers' applications on declaring land plots unsuitable for use due to the potential threat of their contamination by explosive objects. Minimum tax liability for the above-specified land plots, land shares (parts) is not determined for a period for which land payment or the single tax of Group IV is not determined.

Taxpayers who, before the date of entry into force of the Law No. 3050, determined and declared in their tax declarations the minimum tax liability for 2022-2023 for land plots located in territories of active hostilities or in territories temporarily occupied by the russian federation, have a right to adjust amounts calculated for 2022 - 2023 of amount of the total minimum tax liability by submitting clarifying tax declarations according to procedure specified by the Code.

Attention! Requirements of Sub-paragraph 69.33 Paragraph 69 Sub-section 10 Section XX "Transitional provisions" of the Code regarding the possibility not to charge and pay single tax of Group IV on area of agricultural land and/or land of the water fund, which are owned by agricultural producer or provided to him/her for use (including on the lease terms) do not apply to land plots located in territories where active hostilities or temporary occupation by the russian federation have been completed by May 1, 2022.

Land plots are subject to the single tax of Group IV in 2022 and, accordingly, subject to calculation of the minimum tax liability for 2022, in case of simultaneous presence of the following two circumstances:

- land plots are located in territories where active hostilities or temporary occupation by the russian federation have ended by May 1, 2022;

- land plots are not under conservation, not recognized as contaminated by explosive objects or unsuitable for use in connection with potential threat of their contamination by explosive objects, which according to Paragraph 292¹.1 Article 292¹ of the Code is a reason for not charging and not paying the single tax of Group IV.

Please note that the single tax of Group IV on area of agricultural land and/or land of the water fund, where hostilities are taking place or territories temporarily occupied by armed formations of the russian federation, is not calculated and paid for a period from March 1, 2022 until the end date of active hostilities or temporary occupation on such territories by the russian federation (annual amount of tax obligations from the single tax of Group IV, which is subject to calculation and payment for 2022, is calculated in total for periods from 01.01.2022 to 28.02.2022 and from the following day, according to the end date of active hostilities or temporary occupation by the russian federation to 31.12.2022).

Minimum tax liability is determined in proportion to the number of months when such land plots (land parts) were subject to the single taxation of Group IV.

Taking into account above specified, if the end date of active hostilities or temporary occupation does not fall on the last calendar day of a month (that is, there is no full calendar month), such month is not included in a period of exemption from calculation of the minimum tax liability.

Law No. 3050 defines possibility of clarifying the minimum tax liability for land plots located in territories of active hostilities or temporarily occupied by the russian federation, declared before entry into force of the Law No. 3050, by submitting clarifying calculations to previously submitted tax declarations, depending on taxation system for 2022 and 2023.

Period of adjustment of accrued minimum tax liability is determined in proportion to the number of months when such land plots (land shares (parts)) were subject to taxation with land payment or the single tax of Group IV.

Calculating the minimum tax liability, taxpayers use one of formulas specified in Sub-paragraph 38¹.1.1 Paragraph 38¹.1 Article 38¹ of the Code, depending on the fact of carrying out/not carrying out a normative monetary assessment of the land plot.

For calculating the total minimum tax liability, one of the indicators of formulas is a number of calendar months during which land plot is owned, leased, used on other terms (including emphytheusis terms) by the taxpayer.

Taxpayers, for a purpose of clarifying previously declared amount of minimum tax liability in a "Number of calendar months" column of Annex with calculation of the total minimum tax liability for 2022, fill in the number of months for which, according to requirements of the Code, it is necessary to determine the minimum tax liability, namely in proportion to the number of months when such land plots (land shares (parts)) were subject to taxation with land payment or the single tax of Group IV.

Sub-paragraphs 141.9.2 – 141.9.3 Paragraph 141.9 Article 141, Paragraph 177.15 Article 177, Sub-paragraphs 297¹.2 – 297¹.5 Article 297¹ of the Code stipulate that difference between amount of the total minimum tax liability and total amount of paid taxes, levies, payments and expenses for lease of land plots is calculated by subtracting total amount of taxes, levies, payments and expenses for lease of land plots from the total tax liability during the tax (reporting) year.

Calculating difference between amount of the total minimum tax liability and total amount of paid taxes, levies, payments and expenses for renting land plots in order to adjust calculated amount of the total minimum tax liability for 2022, the taxpayer uses total amount paid during the tax (reporting) year of taxes, levies, payments, which, according to requirements of tax legislation, are used to calculate the minimum tax liability.

Law No. 3050 defines taxation specifics with land payment (land tax and/or rent payment) and the single tax of Group IV. In case of adjustment to reduction of tax liability from the land payment and/or the single tax of Group IV for 2022, amounts of such taxes paid during 2022, which exceed amount of adjusted tax liability, will be considered overpaid and cannot be used during calculation of the minimum tax liability.

At the same time, in case that the taxpayer specifies reduction in amount of previously declared rent payment for plots of land classified as agricultural land that are in state or communal ownership, such taxpayer must also adjust amount of rent payment expenses (20 percent) in Annex to the clarifying declaration with calculation of the total minimum tax liability for 2022.

This is due to the fact that in case of reduction of previously declared tax liabilities from rent payment for land plots classified as agricultural land, difference between amount of rent actually paid for land plots of state and communal ownership for 2022 and amount of specified tax liabilities will be considered overpaid, therefore the minimum tax liability cannot be taken into account in calculation.

Please also note that according to Clause 4 of Sub-paragraph 69.15 Paragraph 69 Sub-section 10 Section XX "Transitional provisions" of the Code, amount of the minimum tax liability for land plots (land shares (parts)) is determined in proportion to the number of months when such land plots (land shares (parts)) were subject to land payment or the single tax of Group IV.

Therefore, if land plots (land shares (parts)), regardless of the taxation system on which business entity is (legal entity or individual-entrepreneur on the general taxation system, the single tax payer of Groups I – IV), were not subject to taxation with land payment or the single tax of Group IV according to requirements of the Code, taking into account changes made by the Law No. 3050, the taxpayer has a right to adjust previously declared minimum tax liability for such land plots (land shares (parts)).

In clarifying declaration, the business entity reflects calculation of the minimum tax liability only for those months in which such land plots (land shares (shares)) were subject to taxation with land payment or the single tax of Group IV.

Application of fines and penalties.

Procedure for payer to fulfill obligations during the martial law, in particular, regarding compliance with deadlines for payment of taxes and levies, submission of reporting, is established by Sub-paragraph 69.1 Paragraph 69 Sub-section 10 Section XX "Transitional provisions" of the Code.

Clause 14 of Paragraph 69 Sub-section 10 Section "Transitional Provisions" of the Code stipulates that in case of the taxpayer’s self-correction, in compliance with procedure, requirements and restrictions specified in Article 50 of the Code, of errors that led to understatement of tax liability in the reporting (tax) periods falling during the martial law, such taxpayers are exempted from accrual and payment of fines and penalty provided for in Paragraph 50.1 Article 50 of the Code.

Sub-paragraph 141.9.5 Paragraph 141.9 Article 141, Paragraph 177.17 Article 177, Paragraph 297¹.8 Article 297¹ of the Code stipulate that positive value of difference between amount of the total tax liability and total amount of paid taxes, levies and payments is a part of tax liability, depending on the taxation system on which the payer is registered.

That is, taxpayers who will submit clarifying tax declarations to the controlling bodies for adjustment to reduce previously declared amount of positive tax liability for the reporting (tax) periods falling during the martial law will not be charged with fines and penalties.

Law No. 3050 defines taxation specifics with land payment (land tax and/or rent payment) and the single tax of Group IV for land plots that are:

- under conservation (regarding which relevant executive authority or local self-government body has made a decision to approve land management work plan for conservation, i.e. those lands that are contaminated with chemical substances as a result of emergency situations and/or armed aggression and hostilities during the martial law, as well as where military engineering and/or fortification facilities are located) (Sub-paragraph 283.1.2 Paragraph 283.1 Article 283, Paragraph 288.8 Article 288, Paragraph 292¹.1 Article 292¹ of the Code);

- contaminated with explosive objects (Sub-paragraph 283.1.9 Paragraph 283.1 Article 283, Paragraph 288.8 Article 288 Paragraph 292¹.1 Article 292¹ of the Code);

- unsuitable for use due to the potential threat of their contamination by explosive objects (Paragraph283.2 Article 283, Paragraph 288.8 Article 288, Paragraph 292¹.1 Article 292¹ of the Code).

Along with this, conditions for exemption from taxation with land payment (land tax and/or rent payment) and the single tax of Group IV, which is the basis for non-calculation and non-payment of the minimum tax liability, are reflected in explanations that are posted on web portal of the State Tax Service at the following links:

- https://tax.gov.ua/en/mass-media/news/677727.html   (land payment)

- https://tax.gov.ua/en/mass-media/news/678935.html   (single tax of Group IV)

Regarding reflection in the corporate income tax accounting of reduction amounts of tax obligations from the environmental tax, land payment and real estate tax other than a land plot in connection with adoption of the Law No. 3050.

Procedure for the taxpayer’s correction of self-identified errors contained in previously submitted tax declaration is determined by norms of Article 50 of the Code.

Paragraph 50.1 Article 50 of the Code stipulates that in case that in future tax periods (taking into account statute of limitations specified in Article 102 of the Code) the taxpayer independently (including through results of electronic verification) discovers errors contained in previously submitted tax declaration (except for restrictions specified in this Article), he/she is obliged to send clarifying calculation to such tax declaration in form valid at the time of submission of the clarifying calculation.

Taxpayer has a right not to submit such calculation, if the corresponding specified indicators are indicated by the taxpayer in tax declaration for any subsequent tax period, during which such errors were independently detected (including as a result of electronic verification).

Paragraph 46.2 Article 46 of the Code stipulates that income tax payer (except for income tax payers who, according to the Law of Ukraine "On accounting and financial reporting in Ukraine" are required to publish annual financial reporting and annual consolidated financial reporting together with the auditor's report) submits together with relevant tax declaration quarterly or annual financial reporting in manner prescribed for submitting tax declaration, taking into account requirements of Article 137 of the Code.

Financial reporting or reporting of financial position (balance sheet) and reporting of profit and loss and other comprehensive income (report of financial results), submitted according to Clauses 1 and 2 of this Paragraph, is annex to the corporate income tax declaration (report on the use of income (profits) of non-profit organization, calculation of the net profit part (income), dividends on the state share) and its integral part.

Income tax payers who, according to the Law of Ukraine "On accounting and financial reporting in Ukraine", are required to publish annual financial reporting and annual consolidated financial reporting together with the audit report, submit to the controlling body annual financial reporting, which are subject to publication together with the audit report not later than June 10 of year following the reporting year.

Corporate income tax declaration form was approved by Order of the Ministry of Finance of Ukraine No. 897 as of 10.20.2015, with changes and additions (hereinafter - Declaration).

Therefore, financial reporting is annex to the Declaration.

In the case of correction of indicators in financial reporting, which is annex to Declaration, the taxpayer must submit corrected financial reporting together with the revised Declaration.

Sub-paragraph 134.1.1 Paragraph 134.1 Article 134 of the Code stipulates that subject of the corporate income taxation is income with a source of origin in Ukraine and beyond, which is determined by adjusting (increasing or decreasing) financial result before taxation (profit or loss) determined in financial reporting of enterprise according to national provisions (standards) of accounting or international financial reporting standards, on the difference that is determined by relevant provisions of the Code.

Provisions of the Code do not provide for adjustment of financial result before taxation for amount of expenses for payment of the environmental tax, land payment and real estate tax other than a land plot. Such expenses are reflected in formation of financial result before taxation according to the accounting rules.

Procedure for correcting errors and changes in the enterprise’s financial reporting is determined by the Accounting regulation (standard) 6 "Correction of errors and changes in financial reporting", approved by Order of the Ministry of Finance of Ukraine No. 137 as of 28.05.1999 (with changes and additions).

Therefore, the taxpayer who is exempted from paying environmental tax, land payment and real estate tax other than land plot, according to amendments made by the Law of Ukraine No. 3050-ХХ, must recalculate (reduce) incurred expenses from their payment for 2022 and to adjust (increase) financial result before taxation by the amount of excessively recognized expenses according to accounting rules and to:

submit revised financial reporting for 2022 together with the clarifying Declaration for this year, indicating in the addendum to it explanation of the essence of changes made in case of adjustment of over-recognized expenses by increasing financial result before taxation in the report on financial results for 2022

or

reflect adjusted (increased) financial result in the Declaration for a half year of 2023 (in case the taxpayer uses quarterly reporting period for corporate income tax in 2023) or in the Declaration for 2023 (in case that the taxpayer uses annual reporting period for corporate income tax in 2023) in case of adjustment of over-recognized expenses by increasing financial result before taxation in report on financial results for the reporting periods of 2023.

Herewith, Paragraph 69.1 Sub-section 10 Section XX of the Code stipulates that in case of the taxpayer’s self-correction, in compliance with procedure, requirements and restrictions specified in Article 50 of the Code, errors that led to understatement of tax liability in reporting (tax) periods falling within the martial law (including for the reporting period of 2022), such taxpayers are exempted from calculation and payment of fines and a penalty provided Paragraph 50.1 Article 50 of the Code.