The end of winter 2021 “made a present” to representatives of Ukrainian business in form of four draft laws under which it is proposed to introduce amendments into Tax code and some other laws aimed at establishment of tax amnesty. However, what is the main aim of amnesty execution? According to research of shadow economy in Ukraine almost 25 per cents of the market is carried out in the shadow. Consequently, the budget does not receive at least a quarter of taxes and levies that must be paid in accordance with legislation.
Tax amnesty foresees the possibility to pay a one-time levy at rates that are lower than those established by law for income taxation, and for which tax payment deadlines have already expired. At the same time, such payers should not be held liable for undue payment of taxes. In order to implement such possibility, it is proposed to introduce a one-time (special) voluntary declaration (or as it is commonly called “zero declaration”). This is a special procedure for the voluntary declaration of assets that belong to a person if they were obtained from income that had to be taxable in Ukraine and from which taxes were not paid during any of the tax periods before January 01, 2021.
The declaration can be submitted both in electronic form and in simple written form. The declaration can be submitted both personally and through an authorized representative (notary) in the form of an impersonal one-time declaration. In case of submission of an impersonal declaration, the declarant draws up and submits personally a declaration in writing and provides it to a notary together with certified copies of documents that confirm that the person has assets from which taxes have not been paid. In this case, an agreement on the submission of an impersonal declaration is concluded between the declarant and the notary, where a special code-identifier of the declarant provided to the notary by the State Tax Service is indicated.
In accordance with draft laws, it is proposed to carry out declaring from July 01, 2021 to July 01, 2022. During this period, declarants can submit declarations, as well as clarifications and amendments to them, if necessary.
Given that the declaration indicates the assets owned by the person, a logical question arises: what will be considered the basis for calculating the levy from a one-time (special) voluntary declaration? The monetary value of the corresponding object of declaration or the nominal value of the monetary claim will be considered as the base. The declarant has to provide documentary evidence of the monetary evaluation of such objects. In the case of submission of an impersonal declaration, documents confirming the value are submitted together with the original declaration and in the future are kept only by a notary. It is important to note that the evaluation has to be carried out in accordance with the laws of the country in which the asset is located. The amount of the levy depends on the location of the asset, and for government bonds the special rate is fixed. Thus, it is proposed to establish the following rates:
- 5 % – for objects located in Ukraine;
- 9 % – for objects located abroad;
- 2,5 % – of nominal value of governmental Ukrainian bonds with a turnover period of more than 365 days without the right of early redemption, and which were acquired by the declarant during the period from January 01, 2021 to June 20, 2022 prior to submission of declaration.
For the purpose of a special declaration, the declarant must place funds in national and foreign currencies in cash and/or in the form of bank metals on current accounts with a special regime of use in banks of Ukraine prior submission a declaration. The bank ensures the placement of funds in a special account after verification of the identity of the declarant and establishment of the source of origin of such assets, which generally contradicts the norm, which states that the declaration does not indicate information about the sources of receipt by the declarant of the objects of declaration.
However, not all assets will be subject to declaration. So, if a person does not use his/her right to submit a one-time (special) voluntary declaration, objects are considered as such for which taxes and levies have been paid in full, if it is:
- assets, the total value of which does not exceed UAH 400,000 as of the date of the end of the voluntary declaration period;
- immovable property, the owner of which was the declarant as of the end date of the voluntary declaration period, that does not exceed the following parameters:
- residential real estate objects – an apartment or property rights to an apartment up to 120 m2, a residential building up to 240 m2;
- non-residential real estate objects – up to 60 m2;
- land plots, the size of which does not exceed the free transfer rate in accordance with Article 121 of the Land Code of Ukraine.
- one vehicle for personal use and transportation of less than 10 persons, the ownership of which was registered in accordance with the legislation of Ukraine as of the date of the end of the declaration period.
The specified assets are not subject to a one-time (special) voluntary declaration fee.
Thus, the above mentioned draft laws offer a sort of compromise option between the state and business representatives regarding filling the budget by returning unpaid taxes at a reduced rate to the state treasury. However, the experience of foreign countries was not always positive, and in some countries, after the tax amnesty, declarants were still held accountable for taxes that were not paid on time.
If you are a business representative or an individual and you are not completely sure on how a tax amnesty can potentially affect your condition, our specialists are always ready to conduct an appropriate analysis and determine the risks that may arise in connection with a tax amnesty and suggest ways to minimize them.
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