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VAT for those that are taxed under simplified system of taxation in Ukraine

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Adoption of the Law “On amendments to the Tax Code of Ukraine and some other regulatory acts of Ukraine related to simplified system of taxation, accounting and reporting” which significantly reforms administering of a single tax raised many questions of Clients of law firm “Pravova Dopomoga”. One of the most uncertain, relevant and widely spread questions is one whether it is required for single tax payers that render services to legal entities that are payers of VAT to be registered as VAT payers. We prepared a legal advice on this issue.

After the mentioned Law enters into force, in accordance with Subsection 14.1.139 of the Tax Code of Ukraine the list of persons that comply with purposes of Chapter 5 of the Tax Code of Ukraine which is related to VAT will be added with legal entities and sole traders that are single tax payers and provide services (works) to payers of VAT in the amount that exceeds 300000 UAH (without inclusion of VAT) for the last 12 months. In turn Article 181 of the Tax Code provides that such persons are obligated to be registered as VAT payers if the amount of supplies that are taxed with VAT totally exceeds 300000 UAH for the last year.

But it should be pointed out that Subsection 181.1 of the Tax Code which obligates persons mentioned in Subsection 14.1.139 of the Tax Code to be registered as VAT payers also provides an exception – “except for a person that is a payer of a tax single”.

As the result it is unclear for many people how to interpret Subsection 181.1 of the Tax Code together with Subsection 14.1.139 of the Tax Code: is it an obligation or is it a right of legal entities and sole traders which are taxed under simplifies system of taxation and provide services (works) to VAT payers to be registered as VAT payers?

In our opinion this is the case when a tax payer should use presumption of legality of his actions that is granted by Article 4 of the Tax Code. The mentioned presumption means that if a provision of a law can be interpreted ambiguously (in couple ways) regarding rights of a taxpayer and controlling authorities and it provides grounds for decision to be made in favor of either the taxpayer or the controlling authority than the taxpayer’s decision is a priory correct.

If one is guided by this presumption that is a principle of tax legislation than those persons that are taxed under simplified system of taxation and do not wish to be VAT payers may try to prove voluntary nature of such registration based on the presumption and ambiguous provision of Subsection 181 of the Tax Code of Ukraine. Those who may benefit from such registration (including those for whom such registration is obligatory) may just as well prove the opposite and also be right.

However registration as a VAT payer right after the 1st of January 2012 will be beneficial for not that many persons. According to Clause 4 of Subsection 293.8 of the Tax Code of Ukraine in order to be able to apply 3% rate of single tax a single tax payer is required either to be a VAT payer at the moment or transfer to it from 5% rate of a single tax. But transfer from 5% rate to 3% rate will be possible only since the beginning of next quarter by means of obtainment of this 5% rate after the new year with further registration as VAT payer.

In this regard if you are not in a hurry to be registered as a VAT payer but you do want to do so we would recommend you to transfer to 5% rate of single tax after the 1st of January 2012. Upon this you can voluntarily register yourself as a VAT payer and specify the first day of next quarter as the registration date. And if registration as a VAT payer is more significant to you than 2% difference in single tax then you can register yourself as a VAT payer even while being taxed under 5% rate of a single tax. For a couple of months you will pay both VAT and 5% rate of single tax and since the beginning of next quarter you will be able to transfer to 3% rate of a single tax.

This material was written by legal experts of law firm “Pravova Dopomoga”. It is related to firm’s practice of Taxation.


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