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Tax exemptions for hotels in Ukraine – new opportunities commented by lawyer of the firm

  • Author: Andriy Buzynnyi
  • Practice areas: Taxation
  • Date of publication: 11/07/12

Andriy Buzynnyi, lawyer of law firm “Pravova Dopomoga”, provided his opinion for UBR.UA about amendments to the Tax Code of Ukraine related to taxation of hotel business.

The article is available through the following the link -

Text of the article (translation from Russian):

“The Parliament decided to show that it is ready to assert rights of hotel business not only on the eve of European football championship but also in an everyday life. The bill number 10724 adopted on the 6th of July changing the Tax Code of Ukraine provisions pursued the purpose.

One and a half year of tax preference that allows one not to pay tax on income of hotel if in compliance with some requirements with further use of this money for personal development have not brought the slightest results: only few hotels used the provided opportunity at their own fear and risk. The thing is that paragraph “a” of subsection 17 of subchapter 4 of “Transitional provisions” of the Tax Code is worded in such way that firstly it leaves more questions than provides answers and secondly it includes such criteria that very few can comply with.

We will pay closer attention to the latter aspect since the bill is related to the criteria. Hotels with 3, 4 and 5 “stars” had an obligatory part of income which was to be obtained by providing services for clients in the form of provision of room for temporary stay in the amount of 75% of total (or to be exact “sukupnyi” since the Code uses Ukrainian term “sukupnyi”) income of a business entity for a tax period but it turned out to be “unaffordable” for majority of hotels.

In practice “high star” hotels get more than a quarter of their incomes from related services (conference services, restaurants, etc.). In this regard legislator decided to lower share of income obtained form provision of rooms from 75% to 50%.

Majority of hoteliers have positive opinions about these changes and are intended to use the tax exemption in the nearest future. But there is still number of points to consider. First of all in order to achieve greater benefits one must obtain positive answer of the Tax Service whether this rule can be applied since the 1st of January 2011 (since it is beneficial for business entities) and secondly it would do well to receive generalizing tax clarification about application of this exemption.

The thing is that it contains a number of provisions that may become a “time bomb”. Such aspects in particular were discussed by representatives of hotel business at the meeting of Committee of law and finance of Hoteliers and Restaurateurs Club “Hoteliero”. They pointed out that terminology remains unclear (term of “sukupnyi dohid” (total income) is not defined in the Tax Code of Ukraine), there is no legal regulation which contains list of “main services” of hotels as well as there are issues related to reports on use of released money.

Thus, decrease of obligatory income share which is obtained from rooms to 50% will increase the amount of those who would like to use the provided exemption. However the amount of those who will actually use it depends on how fast and unambiguously the State Tax Service of Ukraine will provide clarifications about its application. So all we can do now is to wait for some news from the State Tax Service.”

The material was prepared within practice of Taxation.

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