Value Added Tax (VAT) changes

From 1 January 2018, the following changes were introduced to VAT rules in Ukraine:

• As of 1 July 2017, the tax authorities were entitled to block the registration of VAT invoices if they qualified under the risk criteria. Blocking the registration of VAT invoices has been postponed until the Government approves the new blocking procedure (no later than 1 March 2018).
• In addition to the supply of software, the VAT exemption will be available to any transactions with software products where the underlying payments do not qualify as royalties (e.g., sale to end-users, sale of data media with software). Also, the scope of software products has been extended to include internet sites and/or online services using material and electronic copies of software including codes and/or links for the download of software, any changes, updates, additions and/or extensions of such software.
• VAT at a reduced 7% rate applies to the supply and import of medical devices, either listed in the state register or certified under technical regulations. Previously the 7% VAT rate applied to a limited range of medical devices based on the Government's listing.
• Customs may allow payment of VAT by installments for a period of up to 24 months during the import of certain equipment for one's own manufacturing needs under the procedure yet to be approved by the Government. The VAT amount payable should be guaranteed to customs through a financial/banking guarantee or pledge of the equipment.
• The VAT exemption without credit will be applied to the export of soya beans (from 1 September 2018 until 31 December 2021), rapeseed and colza seeds (from 1 January 2020 until 31 December 2021).
• The amended law tightened the taxation of goods imported by individuals by hand carried/accompanied luggage, post and express deliveries.

Excise tax changes

From 1 January 2018, the following changes were introduced to Ukraine's excise tax rules:

• Specific rates of excise tax for tobacco goods, as well as minimum excise duty for cigarettes shall be gradually increased within the eight-year period (2018–2025). For example, in 2018 the tax rate for cigarettes with filter (tariff code 2402 20 90 20) has increased by 29.7% and equals to UAH577.98 (approx. €16.9) per 1,000 sticks of cigarettes. In 2025, excise tax for cigarettes would be further increased up to UAH1725.84 (approx. €50.5) per 1,000 sticks of cigarettes. In 2018 minimum excise duty for cigarettes equals to UAH773.2 (approx. €17.43) per 1,000 sticks. In 2025, the minimum excise duty would increase up to UAH2770.5 (approx. €81.05) per 1,000 sticks.
• The overall annual amount of excise tax for cigarettes (tariff codes 2402 20 90 10, 2402 20 90 20) sold in Ukraine shall not be less than 60% of the weighted average retail selling price of cigarettes. If a 60% target has not been achieved, starting from 2025 the minimum excise tax liability for cigarettes would be increased by a coefficient of 1.1 for the period from 1 April until 31 December of current year.
• The excise tax rate for brandy has increased by 12% and equals to UAH126.96 (approx. €3.7) per 1 liter of alcohol.

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CONTACTS

For additional information with respect to this Alert, please contact the following:

Ernst & Young LLC, Kyiv

• Vladimir Kotenko, Head of Tax and Law
  vladimir.kotenko@ua.ey.com
• Igor Dankov, Indirect Tax Leader
  igor.dankov@ua.ey.com

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ATTACHMENT

PDF version of this Tax Alert