Updated rules for collecting taxes under martial law in Ukraine
On May 27, 2022, updated rules for collecting taxes under martial law in Ukraine entered into force (Law No. 2260-IX of May 12, 2022).
Below is a brief summary of the main changes that are expected to remain in effect for at least the next three months (as martial law was recently extended until August 23, 2022).
Compliance with taxpayer obligations
Under the rule in effect since the beginning of martial law, a taxpayer who does not have the opportunity to fulfill his obligation may be exempted from the applicable penalties (the “exemption from liability”) provided that he fulfills his obligation within six months of the lifting of martial law. This rule applied to taxpayer obligations such as the timely filing of tax returns, registration of tax invoices and payment of taxes (the “Obligation(s)”).
From now on, the conditions for exemption from liability will be detailed and will depend on the situation of each taxpayer.
- If a taxpayer does not have the opportunity to fulfill his Obligation during the entire period of martial law, he is exempt from the penalties provided that he fulfills the Obligation within six months of the lifting of martial law.
- If a taxpayer initially did not have the opportunity to fulfill their Obligation, but their ability is restored during the period of martial law, they are exempt from penalties provided they fulfill the Obligation within 60 days of the end of the calendar month in which its possibility was restored. This applies to obligations which became due on any date between February 24, 2022 and the date on which the possibility for the taxpayer to satisfy the obligation was restored (but in any case during the period of martial law) .
- If a taxpayer had the opportunity to fulfill his Obligation (but did not do so for any reason), he is exempt from penalties provided that he fulfills the Obligation until the date specified in the legislation, namely: (1) until July 15, 2022, the obligation to register a tax invoice; (2) until July 20, 2022, the obligation to file a tax declaration; (3) until July 31, 2022, the obligation to pay the tax. This applies to Bonds that become due on any date between February 24 and May 27, 2022.
- If a taxpayer has switched to the 2% Flat Tax System (“2% FTS”), it is exempt from penalties in respect of its Bonds that become due on any date from February 24, 2022 until its switch to 2% FTS, provided that he fulfills the Obligation within 60 days of returning to his “pre-war” tax regime.
The Ministry of Finance of Ukraine determines the procedure and evidence required to confirm whether a taxpayer has or has not had the opportunity to fulfill his obligation.
The moratorium on tax audits imposed since the beginning of martial law will now be somewhat eased. The tax administration can entrust or renew the following types of tax audits:
- chamber audits;
- actual audits;
- unscheduled documentary audits for the following reasons:
- at the request of a taxpayer
- in connection with the reorganization, liquidation or delisting of a taxpayer;
- on the basis of VAT refund applications or VAT returns showing a negative VAT amount exceeding UAH 100,000;
- on the basis of information on the violation of exchange control regulations regarding requirements for the repatriation of foreign currency in export and import transactions.
Tax audits for any other reason cannot be initiated or renewed.
If the “authorized” tax audit identifies relevant tax or monetary audit violations, the taxpayer will be penalized regardless of moratoriums and exemptions introduced during martial law or the COVID-19 quarantine. However, this does not preclude the taxpayer from relying on the general exemptions from liability provided by the tax code (including, for example, a force majeure exemption).
Certain mandates frozen since the beginning of martial law must now be renewed, in particular the following:
- procedures for filing tax declarations, registration of tax invoices;
- terms of payment of taxes;
- the terms of the “authorized” tax audit (see above) and the production of documents related to these audits (tax audit reports, taxpayer objections, tax notices, etc.)
Other terms (including statutes of limitations in tax laws) remain frozen from the start of martial law.