Lawyers of LF «Dmitrieva & Partners» have prepared the list of top news in the field of taxation for the last two weeks

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1 REVIEW OF THE MAIN EVENTS IN THE SPHERE OF TAXATION Lawyers of LF «Dmitrieva & Partners» have prepared the list of top news in the field of taxation for the last two weeks The State Fiscal Service of Ukraine has provided clarification on the application of tax legislation on taxation of income of transactions in foreign currency For the purpose of unambiguous understanding of the issues of representation in the tax accounting of transactions of settlements in foreign currency by the State Fiscal Service of Ukraine informs as follows. Taxation of transactions of settlements in foreign currency is performed in accordance with p of art. 153 of the Tax Code of Ukraine (hereinafter - the Code) in the wording in force by Determination of exchange rates differences from adjustment of transactions denominated in foreign currency, debt and foreign currency is carried out according to regulations (standards) of accounting. And the profit (positive value of exchange rate differences) is taken into account as a part of the taxpayer's income, and loss (negative value of exchange rate differences) is taken into account as a part of the the taxpayer s expenses (sub-p of p of art. 153 of the Code). Attorney-at-Law, Managing Partner Dmitrieva@dmp.com.ua Accounting of transactions in foreign currency is regulated by the Regulation (Standard) of Accounting 21 "Effect of Changes of Foreign Exchange Rates", approved by Order of the Ministry of Finance of Ukraine of and registered with the Ministry of Justice of Ukraine on under 515/4736 (hereinafter - R(S)A No 21). Paragraph 4 of R(S)A No 21 stipulates that the exchange rate difference is a difference between assessments of the same number of units of foreign currency at different exchange rates. In the tax accounting the positive value of exchange rate differences, determined under p of p of art. 153 of the Code, is included by banking institution in income from operations, by other taxpayers - in other income. Under the provisions of p of art. 137 of the Code the date of receipt of income taken into account for determination of the object of taxation is a reporting period in which such income is recognized under this article, regardless of the actual revenues (accrual basis), determined taking into account the provisions of this paragraph and art. 159 of the Code. Tax expenses of transactions in foreign currency are formed in accordance with requirements of sub-p. «a» of sub-p of p of art. 138 of the Code and are related to other operating expenses that are included in the expenses in the period in which they were made (p of art. 138 of the Code). That is, for the purposes of taxation of income determined under the rules of accounting, exchange rates differences from adjustment of transactions denominated in foreign currency, debt and

2 foreign currency are recognized income and/or expenses in the reporting period of their accrual in accordance with the requirements of the Code (letter of /7/ ). From the Law of Ukraine of April 9, VIII «On Amendments to the Tax Code of Ukraine (hereinafter regarding the exemption from taxation of certain drugs and medical products» (hereinafter the Law 332) Temporarily, until 31 March 2019, the following are exempt from imposition of the value added tax if the following conditions are met: - operations of import into the customs territory of Ukraine of drugs listed in the State Register of Drugs, medical products listed in the State Register of Medical Equipment and Products of Medical Purpose and/or put into circulation in accordance with the legislation in the sphere of technical regulation and conformity assessment, and operations of the first delivery of such drugs, medical products in the customs territory of Ukraine; - operations of the first supply by the manufacturer in the customs territory of Ukraine of drugs listed in the State Register of Drugs, medical products listed in the State Register of Medical Equipment and Products of Medical Purpose and/or put into circulation in accordance with the legislation in the sphere of technical regulation and conformity assessment; Attorney-at-Law Ignatova@dmp.com.ua - operations of supply (transfer) of drugs and medicinal products imported and/or delivered in the customs territory of Ukraine in accordance with this paragraph, in the system of health protection from the central executive body of Ukraine providing formation and implementing the national policy in the sphere of health protection, and/or from public enterprises established under the order of this central executive body, to the final consumer (patient) within the limits of execution of budget programs of provision of medical measures of state programs and/or complex measures of program nature in the field of health protection. At the same time the obligatory conditions for application of the mentioned regime of exemption are: - the existence of a civil contract between a taxpayer and specialized organizations engaged in public procurement. The list of specialized organizations is set by the Law of Ukraine of April 10, VII «On Public Procurement». In this case such a contract should be concluded in pursuance of agreements between the Ministry of Health Protection of Ukraine and relevant specialized organization carrying out procurement within execution of budget programs of provision of medical measures of state programs and/or complex measures of program nature in the field of health protection; - availability of drugs and medical products in the relevant list approved by the Cabinet of Ministers of Ukraine, in accordance with the requirements of paragraph 38 of subsection 2 of section XX of the TCU. Before determination and approval by the Cabinet of Ministers of Ukraine of the relevant list of drugs and medical products, operations of import into the customs territory of Ukraine and supply in the customs territory of Ukraine of drugs and medical products listed in paragraph 38 of subsection 2 of section XX of the TCU are subject to value added tax at rates established by paragraph of the article 193 of the TCU (7 per cent or 20 per cent) (the State Fiscal Service of Ukraine).

3 Explanation of the State Fiscal Service regarding the issue of submission by individuals entrepreneurs of the tax declaration of property status and income in case of absence of return on economic activity during the reporting year The Law of Ukraine of December 28, VIII «On Amendments to the Tax Code of Ukraine and Some Legislative Acts of Ukraine on Tax Reform» has introduced amendments to p of art. 49 of the Tax Code of Ukraine (hereinafter the TCU) in the part of submission by taxpayers of tax returns for each reporting period set by the TCU in which objects of taxation arise, or in the case of presence of indices to be declared, as required by the TCU. But taking into account that under p of art.177 of the TCU individuals entrepreneurs submit to the supervisory authority a tax return at the place of their tax address on the basis of the results of the calendar year in time for the annual reporting period, in which advance payments of income tax are also indicated. Along with income from entrepreneurial activities other income from sources of origin from Ukraine and foreign income should also indicated. At the same time p. 2 of art. 46 of the Law of Ukraine of May 15, «On State Registration of Legal Entities and Individuals Entrepreneurs» provides that failure to submit to the authorities of revenues and duties of tax returns, documents of financial statements within the year is the grounds for the issue of a court decision on the termination of business of an individual entrepreneur. Individuals entrepreneurs are obliged to file the tax return of property status and income, regardless of whether they received return on entrepreneurial activity during the reporting year or not. The State Fiscal Service of Ukraine explained the procedure of payment of VAT to the budget from In view of the changes introduced to the Tax Code of Ukraine of December 02, VI as amended (hereinafter the TCU) by the Law of Ukraine of December 28, VIII On Amendments to the Tax Code of Ukraine and Some Legislative Acts Ukraine on Tax Reform (hereinafter Law number 71), which entered into force on , the system of electronic administration of VAT is introduced by stages (p. 35 of sub-sec. 2 of sec. XX of the TCU): - by 1 July 2015 (or by the date specified in a separate decision of the Verkhovna Rada of Ukraine (hereinafter the decision of the VRU) on reduction of the transitional period in accordance with p. 7 of the Final Provisions of the Law number 71) in test mode; - from 1 July 2015 on a permanent basis. By paragraph 200 of note 1.6 of art. 200 of note 1 of the TCU it is determined that on the basis of the results of the reporting tax period, according to the results declared in the tax return a taxpayer settles up with the budget in the manner prescribed by article 200 of the TCU. Senior lawyer Tropec@dmp.com.ua According to p of art. 200 of the TCU for the transfer of the tax to the budget the central executive body, that provides the implementation of tax and customs policy, sends to the body that provides treasury service of budgetary funds, in which payers accounts are opened in the system of electronic administration of VAT, register of payers stating the payer s name, tax number and individual payer s number, reporting period and the amount of tax payable to the budget. Based on

4 such a register the body providing treasury service of budgetary funds, in which payers accounts are opened in the system of electronic administration of VAT, transfers the amounts of tax to the budget not later than the last day of the deadline set by the TCU for self-payment of tax obligations. Thus, payment of VAT to the budget for December 2014, January 2015 and the fourth quarter of 2014 is made from current accounts of taxpayers to budgetary accounts directly. The transfer of tax amounts to the budget for tax reporting periods, beginning from February 2015 and the first quarter of 2015, is made in the manner specified by p of art. 200 of the TCU, from accounts in the system of electronic administration of VAT. The State Fiscal Service of Ukraine has provided clarification regarding determining the amount of rent for plots of land of state and communal ownership from The Law of Ukraine dated 28 December VIII «On Amendments to the Tax Code of Ukraine and Some Legislative Acts of Ukraine on Tax Reform», which came into force from , has amended the Tax Code of Ukraine of December 02, VI as amended (hereinafter the TCU), in particular the limits of rent for plots of land of state and municipal property (hereinafter the rent) for all categories of plots of land has been set. According to p of art. 288 of the TCU the basis for charge of rent for a plot of land is the contract of leasing of such a plot of land. The amount of rent is set in a leasing contract, but the annual payment: - cannot be less than 3 percent of the normative pecuniary valuation; - cannot exceed 12 percent of the normative pecuniary valuation. Junior lawyer Yulina@dmp.com.ua That is, the rules of art. 288 of the TCU set the minimum and maximum limits of the amount of rent for plots of land of state and municipal ownership in percentage to the normative pecuniary valuation. At the same time if the amount of the annual payment under a land leasing contract is less than the amount of payment determined by p of art. 288 of the TCU, the amount of annual payment to be transferred to the budget cannot be less than 3 percent of the normative pecuniary valuation. If the amount of rent specified in a leasing contract is less than the one set by p of art. 288 of the TCU, the landholder should contact the relevant executive body or local government administration, with which the land leasing contract is concluded, regarding bringing it in conformity (the State Fiscal Service). Explanation of the State Fiscal Service of Ukraine regarding taxation of personal income in the form of dividends According to sub-p of p of art. 164 of the Tax Code of Ukraine of December 2, VI as amended (hereinafter the TCU) the total monthly (annual) taxable income of the taxpayer includes passive income (other than those mentioned in sub-p and of p of art. 165 of the TCU).

5 For the purposes of this section the term «passive income» should be understood in particular as such income as dividends (sub-p of p of art. 167 of the Code). Income in the form of dividends is taxed in accordance with the rules of p of art. 170 of the TCU. Passive income, including the one accrued in the form of dividends on shares and/or investment certificates paid by joint investment institutions, are taxed at the rate of 20 percent. Income in the form of dividends on shares and corporate rights, accrued by residents - payers of corporate income tax (other than income in the form of dividends on shares, investment certificates paid by joint investment institutions), are taxed at a rate of 5 percent. For purposes of taxation dividends, accrued in favour of individuals (including non-residents) on shares or other corporate rights, having the status of preferred ones or the other status that provides for payment of the fixed amount of dividends or the amount which is larger than the amount of payments, calculated on any other share (corporate right), issued by such a taxpayer, are equal to the payment of wages and are taxed at rates of 15 and 20 percent. If the source of payments of any taxable income is foreign, the amount of such income is included in the total annual taxable income of the taxpayer recipient, which is required to file an annual tax return and is taxed at the rates of 15 percent and/or 20 percent.