Questions – answers regarding the single tax of Group IV (legal entities) and the minimum tax liability

1. Farm uses in its activities land plots that are owned, leased or permanently used by the farm member on the basis of Article 12 of the Law of Ukraine "On farming", i.e. without concluding lease agreement. Purpose of the plot: for farming. Who should pay the minimum tax liability for this land plot: the farm as a legal entity or the farm member as an individual?

 Since there is no state registration of lease agreement between the farm and its member, the minimum tax liability arises precisely for the farm member – individual as owner of the agricultural land plot.

In the absence of state registration of the transfer of ownership or usage right, including lease, emphyteussis, sublease, to the land plot classified as agricultural land, from one owner, lessee, user on other terms (including emphyteusis terms) to another owner, lessee, user on other terms (including emphytheusis terms) during calendar year the minimum tax liability for such land plot is determined for the previous owner, lessee, user on other terms (including emphyteusis terms) on a general basis for tax (reporting) year (note 1).

[1]. Paragraph 38¹.4 Article 38¹ of the Tax Code of Ukraine.

 

2. Do the amounts of personal income tax and military levy paid from income from labor participation and dividends of the farm members are taken into account in reducing the minimum tax liability?

Amount of paid taxes, levies, payments and expenses for the lease of land plots includes, in particular, the personal income tax and military levy on income of individuals who are with the taxpayer in labor or civil law relations (except for income paid for purchase of products from individuals), from income under lease, sublease, emphyteussis of agricultural land plots (notes 2 and 3).

Article 27 of the Law of Ukraine "On farming" stipulates that labor relations in farm are based on the labor of its members. In case of production needs, the farm has a right to involve other citizens to work in it under employment agreement (contract).

Labor relations of farm members are regulated by the Statute and persons involved in work under employment agreement (contract) are regulated by the labor legislation of Ukraine.

Farm members cannot be persons who work in it under employment agreement (contract).

Amount of the personal income tax and military levy tax paid from income paid to the farm member in proportion to labor participation in the farm’s activity is taken into account determining the minimum tax liability.

Receiving other income (including from dividends) by individual who is not in employment or civil law relations with the taxpayer, amount of the personal income tax and military levy paid on such income is not taken into account determining the minimum tax liability.

[2] Sub-paragraph 141.9.2 Paragraph 141.9 Article 141 of the Tax Code of Ukraine;

[3] Paragraphs 297¹.2 - 297¹.5 Article 297¹ of the Tax Code of Ukraine.

 

3. For year 2022, rent for the land plot was calculated and paid to the individual in 2023. Can the one include personal income tax and military levy withheld from such rent in reduction of the minimum tax liability for 2023?

Since the personal income tax, military levy and rent for the land plot were paid in 2023, the business entity has a right to include such amount of the personal income tax and military levy in calculation of the minimum tax liability for 2023.

Calculating the minimum tax liability, amount of paid personal income tax and military levy on income of individuals under contracts of lease, sublease, emphyteussis of land plots classified as the agricultural land for tax (reporting) year are included in calculation of the minimum tax liability (note 4).

[4]. Paragraph 297¹.1 Article 297¹ of the Tax Code of Ukraine.

 

4. Agricultural enterprise is the single tax payer of Group III, whose land plots in 2022 were located in territory of active hostilities. Land plots are leased both from individuals and from territorial communities. How to determine period during which enterprise is exempted from calculating the minimum tax liability: from January 1 to December 31, 2022 (for individuals) or from March 1 to December 31 (for legal entities)?

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

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

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

Amount of the minimum tax liability for land plots (land shares (units), defined in Sub-paragraph 69.15 Paragraph 69 Sub-section 10 Section XX of the Tax Code of Ukraine, is determined proportionally to the number of months when such land plots (land shares (units) were subject to land tax or single tax of Group IV.

Taxpayers who, before the date of entry into force of the Law of Ukraine "On amendments to the Tax Code of Ukraine and other legislative acts of Ukraine regarding exemption from payment of the environmental tax, land tax and tax on immovable property other than land plot, for destroyed or damaged real estate" determined and declared in tax reporting the minimum tax liability for years 2022-2023 for land plots located in territories defined by Clause 1 of Sub-paragraph 69.15 Paragraph 69 Sub-section 10 Section XX of the Tax Code of Ukraine, have a right to adjust accrued for years 2022-2023 amount of the total minimum tax liability by submitting clarifying tax declarations according to procedure specified by the Code (note 5).

[5]. Sub-paragraph 69.15 Paragraph 69 Sub-section 10 Section ХХ of the Tax Code of Ukraine.

 

5. Emphytheusis contract was concluded in 2019. The entire amount under the contract was paid in 2019. Starting in 2022, can amount of the personal income tax and military levy withheld and paid in 2019 be taken into account annually to reduce the minimum tax liability, in proportion to amount of accumulated depreciation?

In case of using land plot with the emphyteussis right, the personal income tax and the military levy paid during execution of payments under such emphyteussis contract are annually taken into account in proportion calculated in proportion to the annual amount of accrued depreciation on intangible asset in the form of a right to use land plot under the emphytheusis contract (note 6).

As follows, it is possible to take into account.

[6]. Paragraph 297¹.6 Article 297¹ of the Tax Code of Ukraine.

 

6. Taxes (single tax, income tax) for the last reporting period of 2022 are paid in 2023 (according to the due date determined by the Tax Code of Ukraine). For which year should such taxes be included in reduction of the minimum tax liability: for 2022 or for 2023?

For 2023.

 

7. Legal entity leases land plot classified as the agricultural land, which is owned by individual and located within the settlement. Should legal entity determine the minimum tax liability for such a plot?

Since the plot is owned by individual and in absence of state registration of the transfer of ownership or right of use, the legal entity does not determine the minimum tax liability for such land plot.

At the same time, it should be noted that the minimum tax liability is also not determined, in particular, in relation to land plots classified as the agricultural land, which belong to individuals on of ownership right and/or on the usage right and as of January 1, 2022 were within settlements (note 7).

[7]. Paragraph 38¹.2 Article 38¹ of the Tax Code of Ukraine.

 

8. Land plot of the agricultural enterprise in 2022 was located in territory of active hostilities, that is, it is exempted from paying the minimum tax liability for a period from March 1 to December 31, 2022. Determining the minimum tax liability for January – February 2022, what taxes should be taken into account in reducing the minimum tax liability: paid only in January – February or paid throughout 2022?

Calculating the minimum tax liability, the total amount of taxes, levies and payments paid by the single tax payer is included, control over the payment of which is entrusted to the controlling bodies related to production and sale of own agricultural products and/or with ownership and/or use (lease, sublease, emphyteussis, permanent use) of land plots classified as the agricultural land and expenses for lease of land plots (total amount of paid taxes, levies, payments and expenses for lease of land plots) during the tax (reporting) year determined according to Paragraphs 297¹.2, 297¹.3, 297¹.4 or 297¹.5 Article 297¹ (note 8).

[8]. Paragraph 297¹.1 Article 297¹ of the Tax Code of Ukraine.

 

9. Can the taxpayer be fined for understating the minimum tax liability for 2022 if error is discovered during tax audit – documentary or in-place?

Financial sanctions provided for by Article 123 of the Tax Code of Ukraine determining the taxpayers’ tax liabilities of taking into account the minimum tax liability for 2022, as well as fines provided for by Article 124 of the Tax Code of Ukraine for late payment of agreed personal income tax liability, calculated by the controlling body taking into account the total minimum tax liability for 2022, do not apply (note 9).

[9]. Paragraph 65 Sub-section 10 Section ХХ of the Tax Code of Ukraine.

 

10. Rent is 8 percent of the normative monetary value of the land plot according to the lease agreement. By the manager’s order in 2023 it was decided to pay rent to landlords in the amount of 12 normative monetary values. Will the full amount of personal income tax and military levy paid on such rent count towards reducing the minimum tax liability?

In case that according to order the enterprise pays rent to lessors – individuals for land plots transferred by them to payer of the minimum tax liability in amount greater than that provided for in relevant lease agreement, and at the same time all such payment is reflected in the accounting registers, taxed and reflected in reporting according to rules established for rent, then amounts of the personal income tax and military levy paid thereon may be taken into account determining the minimum tax liability.

 

11. Enterprise in 2022 was the single tax payer of Group IV. From April 1, 2022 made a transition to the single tax payer of Group III with 2 percent rate. From August 1, 2023, according to the Law of Ukraine № 3219 as of 30.06.2023 "On amendments to the Tax Code of Ukraine and other laws of Ukraine regarding taxation peculiarities during the martial law", there should be automatic return to paying single tax of Group IV. Lands used by the enterprise are located in the temporarily occupied territory. In this connection, a question arises regarding mechanism of automatic transition:

should the enterprise submit tax declaration for year 2023 general and reporting, and then clarified with zero accrual of tax?

whether the obligatory 75 percent share of own agricultural production based on results of year 2022 is taken into account with such automatic return. And if there is not 75 percent of the share, then do is it needed to make a transition to the general taxation system?

Transition specifics for business entities that used taxation peculiarities of the simplified taxation system during the war period, state of emergency in Ukraine, on which such taxpayers were before selection of taxation peculiarities, is provided for in Paragraph 9¹ Sub-section 8 Section XX of the Tax Code of Ukraine.

Single tax payers of Group III who, as of July 31, 2023 used special taxation peculiarities established by Paragraph 9 Sub-section 8 Section XX of the Tax Code of Ukraine, and did not renounce their use on their own, from August 1, 2023 are automatically considered to be using taxation system on which such taxpayers were registered before selection of special taxation peculiarities provided for in Paragraph 9 Sub-section 8 Section XX of the Tax Code of Ukraine (note 10).

Therefore, since before the transition to taxation peculiarities (in the 1st quarter of 2022), payer was in Group IV of the single tax, the payer is automatically considered being the single tax payer of Group IV from August 1, 2023 (in 2023). At the same time, in order to timely declare tax liabilities, the taxpayer must:

submit by October 30, 2023 (inclusively) the general and reporting tax declaration(s) of the single tax payer of Group IV for the current year 2023 (for a period from 01.08.2023 to 31.12.2023) to the controlling body at own location and location of the land(s) plot(s). As a part of such Declarations for the current year 2023, Annex 3 "Calculation of the total minimum tax liability for the tax (reporting) year" (hereinafter – Annex 3) is submitted as an integral part of tax declaration of the single tax payer of Group IV. At the same time, if calculation of the total minimum tax liability for the tax (reporting) year 2022 was carried out as a part of tax declaration of the single tax payer of Group III for a period of war, state of emergency in Ukraine for December 2022, then indicators of Annex 3 to tax declaration of the single tax payer of Group IV is not filled out (dashes are inserted in a paper form);

pay single tax for the III quarter of 2023 – until October 30, 2023 (inclusively) and the IV quarter of 2023 – until January 30, 2024 (inclusively).

[10]. Sub-paragraph 9¹.1 Paragraph 9¹ Sub-section 8 Section XX of the of the Tax Code of Ukraine.

 

12. Enterprise – single tax payer of Group IV is located in territory of active hostilities. When clarifying declaration for 2022 should be submitted; how to calculate the single tax amount for January – February:

based on the proportion of payment provided for by Sub-paragraph 295.9.2 Paragraph 295.9 Article 295 of the Tax Code of Ukraine, i.e. 10 percent of the annual amount is divided by 3 months and multiplied by 2 months;

should the annual amount of the single tax be divided by 365 days and multiplied by the number of days for January – February?

Single tax payers of Group IV independently calculate amount of tax every year as of January 1 and not later than February 20 of the current year, submit tax declaration for the current year to relevant controlling body based on the taxpayer’s location and location of the land plot (note 11).

Tax is paid quarterly within 30 calendar days following the last calendar day of the tax (reporting) quarter, in the following amounts:

in the first quarter – 10 percent;

 in the II quarter – 10 percent;

 in the III quarter – 50 percent;

in the IV quarter – 30 percent (note 12).

Taking into account above specified, in case of submitting clarifying calculation for 2022, in order to calculate the single tax for January – February 2022, the entire annual amount of the single tax must be divided by 12 months and multiplied by 2 months.

[11]. Sub-paragraph 295.9.1 Paragraph 295.9 Article 295 of the Tax Code of Ukraine;

[12]. Sub-paragraph 295.9.2 Paragraph 295.9 Article 295 of the Tax Code of Ukraine.

 

13. Submitting clarifying declaration of the taxpayer of Group IV during the reporting year (2023) in connection with increase or decrease of taxation object, how to fill out Annex 3 for 2022 to such declaration: submit with the same data that were specified in general (reporting) declaration, or should empty Annex be submitted?

Clarifying declaration of the single tax payer of Group IV specifies correct indicators in full, that is, to submit with the same data.

 

14. How to fill in lines 02-03 of Annex 3 to reporting declaration of the single tax payer of Group IV? That is, should only taxes paid in relevant territorial community be taken into account, or should the total amount of taxes paid by the enterprise be distributed in proportion to area of the agricultural land located in relevant community?

Reporting declarations indicate the total amount of taxes paid, distributed in proportion to area of the agricultural land located in relevant community.  

Single tax payers of Group IV are owners, tenants, users under other conditions (including emphyteusis conditions) of land plots classified as the agricultural land, as well as heads of farms, including in relation to land plots belonging to members of such farms and used by such farm, are required to submit annex with calculation of the total minimum tax liability as a part of tax declaration for the tax (reporting) year (note 13).

Such annex particularly specified the following:

cadastral numbers of land plots used by such payers for entrepreneurial activities and for which the minimum tax liability is determined, their normative monetary value and area of such land plots;

the amount of the total minimum tax liability, amount of the minimum tax liability for each land plot.

If there is a positive value of difference between the total minimum tax liability and the total amount of paid taxes, levies, payments and expenses for renting land plots, the single tax payer of Group IV is obliged to increase amount specified in tax declaration for the following tax (reporting) year of the single tax payable to the budget for amount of such positive value.

For the single tax payers of Group IV, amount of such increase is distributed among relevant local budgets and is recalculated in proportion to share of the agricultural land plots located in territory of relevant territorial community, in the total area of such land plots, owner or user of which is the taxpayer (note 14).

That is, the single tax payers of Group IV (legal entities) calculate the minimum tax liability as a whole for the payer and, in case of a positive value, distribute amount of such increase between relevant local budgets and transfer it in proportion to share of the agricultural land plots located in territory of relevant territorial community in the total area such land plots.

[13] Paragraph 297¹.1 Article 297¹ of the Tax Code of Ukraine

[14] Paragraph 297¹.7 Article 297¹ of the Tax Code of Ukraine.