MainPublications of our law firmPublications in mediaRight to pay VAT in Ukraine is to be earned. Lawyer and Law. Issue number 39

Right to pay VAT in Ukraine is to be earned. Lawyer and Law. Issue number 39

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When the new Tax Code of Ukraine entered into force on the 1st of January 2011 the entrepreneurs could see new state attitude related to registration of VAT payers. Let’s examine the new attitude. The Tax Code provides that in order to be registered as VAT payer a company has to complete taxed provision of goods (works, services) in the amount of at least 300 000 UAH during 12 months (in this case registration is obligatory). In case when the mentioned level is not reached the registration right will be granted only after the first year of activities if supplies to other VAT payers are equal to at least 50% of all supplies. Simply speaking newly established companies lost their right to obtain the Certificate right after their state registration.

In practice entrepreneurs faced this problem in 2011: tax inspections began to refuse issuing of Certificates due to different formal grounds (not all the accounts of an enterprise were enlisted, new forms were filled out “incorrectly” despite the fact that tax inspectors did not know how to fill them “correctly”), documents that were submitted for the Certificate obtainment would “get lost” despite the fact whether companies had turnovers which were required by the tax Code or not. At that time in January very few could understand that it was a problem of national scale but when the Certificates would not be issued after endless documents submissions it became clear that that the problem is with something else and documents are appropriate.

This immediately gave start to a number of schemes (in most cases half-legal) which actually allowed one to register a company as a VAT payer despite existing limitation by means of some additional and unofficial expenses. Thus, there appeared prerequisites for establishment of new Ukrainian market – market of VAT payers. An average price of a company with VAT on this market as of today equals to 3 000 USD.

It is worth mentioning that at the stage of Tax Code discussions in the Parliament some lawyers managed to see a potential problem related to issuance of the Certificates for newly created companies without funds turnover. This is why they advised their clients who wanted to work with VAT to register new companies and obtain the Certificates or to obtain the Certificates for already existing companies until the end of 2010. And these lawyers were right.

Entrepreneurs and some initiative groups in the Parliament that were outraged by the situation since the beginning of 2011 strived to lobby a bill which would amend the provisions of the Tax Code related to obtainment of the Certificate. On the 1st of August the President signed a law which brought some amendments to the Tax Code. In particular it simplified conditions required for VAT payer status obtainment by companies which have not reported their turnovers. From now on it is possible to register a company as VAT payer if charter capital or balance cost of assets of such company is larger than 300 000 UAH.

At the same time there are no requirements for presence of taxed transactions and their amount. Special attention should be paid to the fact that the Tax Code of Ukraine does not stipulate that charter capital of a company must be completely paid at the moment of registration as VAT payer.

It would be logical to conclude that an enterprise with charter capital of the declared amount which is larger than 300 000 UAH is entitled for registration as VAT payer. And even though the Tax Code does not stipulate that charter capital is to be paid at the moment of registration of company as VAT payer communication with representatives of the State Tax Service of Ukraine provides understanding that Tax Inspection will use old methods so confirmation of actual payments to the charter capital will be required. According to information which is available to us the Ministry of Justice of Ukraine is already planning to issue an instruction about practical application of the abovementioned innovations.

It is also worth mentioning that the described legal innovations do not have any requirements for net assets. It is important because amounts included into charter capital can be immediately released from the company. The law does not provide any special requirements for evaluation of assets which can comprise charter capital.

We would like to point out that innovations of the Tax Code allow one to use the right of voluntary registration. However at the same time the Tax Code includes a special condition of VAT payer registration revocation: if the amount of supplies of goods/services completed by a tax payer that was registered voluntary to other tax payers is less than 50% of total amount of supplies. It looks like this condition was a reflection of condition that was required to receive the right for voluntary registration which was originally included in the Tax Code.

Based on all abovementioned things it is possible to conclude that the state is working towards the drastic decrease of number of VAT payers. Among other things such actions resulted in the following:

First of all – emerging of different and mostly half-legal schemes of the Certificates obtainment;

Secondly – emerge of a new Ukrainian market which deals with sales of VAT payer companies;

Thirdly – provision of right (or rather a chance) to obtain the Certificate when in compliance with some conditions including for newly established companies.

All we can do is to hope that practice of the Certificates issuance will be able to return to its previous course like it was until 2011 and entrepreneurs will not have to think about the price of such a desirable status of VAT payer.

The article was published in periodical “Lawyer and Law” issue number 39, in “Legal realities” column. 

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