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Company’s Tax Strategy – Understanding the Nuances - S&P Agency

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Company’s Tax Strategy – Understanding the Nuances


Introduction

Studying the tax system of Ukraine and its tax legislation can initially evoke a sense of confusion. It’s not so much about what tax rates will be set for your business, but about the complexity of understanding what needs to be complied with according to tax law.

This is particularly challenging for foreign entrepreneurs who aim to smoothly expand their business in Ukraine while maintaining financial stability.

Many have heard about the possibilities of tax optimization in Ukraine and the attractive tax rates for various types of activities. Naturally, one would want to take advantage of these favorable conditions for business. The only thing left is to figure out how to do it.

It’s impossible to cover all the nuances of business taxation or create a universal tax scheme for all types of enterprises. However, we will try to highlight key aspects and describe the most common situations that will help you form a basic understanding of business taxation in Ukraine.

If you have specific questions about your business’s tax obligations in Ukraine, please contact our specialists for personalized consultation.

General and Simplified Taxation Systems in Ukraine for Business

The general taxation system is the most common choice for many legal entities registered in Ukraine.

The following tax rates apply to legal entities under this taxation system:

  • Corporate income tax – 18%;
  • Value Added Tax (VAT) – 20%.

Additionally, depending on your field of activity, additional levies and taxes such as excise duty, environmental taxes, customs duties, land tax, and vehicle registration fees in Ukraine may apply.

It is also important to consider taxes related to employee salaries:

  • Personal Income Tax (PIT) – 18%;
  • Military levy – 1.5%;

Unified social contribution to mandatory state social insurance (USC) – 22% of the minimum wage.

By default, when registering a company, it falls under the general taxation system. However, under certain conditions and upon your request, you can switch the company to the simplified taxation system – the payment of a Unified Tax.

Choosing the 3rd or 4th group of the Unified Tax is available for legal entities. It should be noted that the 4th group is only possible for narrowly specialized types of activities. Therefore, we will focus on the 3rd group and its rates:

  • 3% + 20% of VAT;
  • 5% without VAT registration.

It’s important to remember that the choice of the taxation system may be limited by Ukrainian laws for certain types of activities, which must use only the general taxation system. For example, this may apply to enterprises involved in gambling, certain types of financial services, antiques, etc.

Also, it’s worth considering that when working with the simplified system, each group has its own annual profit limit. Exceeding this limit will force the company to switch to another taxation system and in some cases be subject to penalty sanctions.

To avoid such a situation, it is necessary to calculate the expected income in advance, plan a profitable business scheme and taxation.

The main taxes that have to be paid in Ukraine

When registering a business in Ukraine, you should be prepared to pay certain blocks or groups of taxes:

Corporate Income Tax.

The basic rate is 18%. However, for certain types of activities, the rate can be higher. For example, activities related to lotteries have a rate of 30%.

The tax is calculated not on the entire amount of income but on the so-called “net income”, i.e., minus the company’s expenses. The total amount of income subject to taxation is determined based on financial reporting according to accounting standards.

Taxes for Employing Staff

We have already discussed these earlier:

  • Personal Income Tax – 18%;
  • Military levy – 1.5%;
  • Unified social contribution – 22% of the minimum wage.
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However, certain categories of individuals are eligible for personal income tax (PIT) incentives, which should also be considered when forming staff and paying wage taxes.

Important: The amount of the minimum and maximum unified social contribution depends on the established minimum wage for the period of calculation. How to correctly calculate the amount of the unified social contribution? Let’s give an example with the minimum wages set for autumn 2021.

– Minimum unified social contribution – minimum wage x 22% (for example: 6000 UAH x 22% = 1320 UAH.)

– Maximum unified social contribution – maximum wage x 15 times x 22% (for example: 6000 UAH x 15 x 22% = 19800 UAH.)

Therefore, the maximum unified social contribution will always be calculated from the minimum wage, multiplied by 15 times. Even if the employee’s salary is 150,000 UAH, the unified social contribution will be 19,800 UAH.

However, it is necessary to constantly monitor changes in the minimum wages set in Ukraine.

VAT.

VAT is not always a mandatory tax to pay. Companies typically become VAT payers if their counterparts are VAT payers.

Also, you will have to switch to paying VAT if you exceed the annual income limit (over 1 million UAH in 12 months).

You can switch to VAT voluntarily. The VAT rate can be:

  • 20% – base rate;
  • 7% – for transactions with certain types of goods, for example, medical purposes.

Tax rates are not the only issue to clarify before entering the Ukrainian market. Here are the most common issues faced by foreign businesses when operating in Ukraine:

  • Double taxation when working with foreign counterparts
  • Payment of wage taxes for employed staff
  • Payment of corporate income taxes
  • Issues regarding the necessity to switch to VAT and compulsory transition to VAT
  • Repatriation of income from a Ukrainian company to a foreign one.

Conclusions

Choosing the correct and optimal system and scheme of taxation will allow for tax burden optimization and profitable operation in Ukraine.

Don’t risk your business – contact us for tax optimization and assistance in registering your activity in Ukraine.

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