National Revenue Strategy of Ukraine: Brief review of potential tax developments

The Strategy envisages, in particular, the cancellation of the simplified taxation system, revision of current investment incentives, a progressive personal income tax scale, and unification of passive income taxation and cross-border reorganization with the EU approach.

One of the most significant proposed steps is to harmonize the VAT system with the EU VAT directive along with the cancellation of rates and incentives not envisaged by it. Ukraine will integrate into the EU VAT system, including for VAT refund. This means that EU companies will be entitled to input VAT (VAT credit) and refund when interacting with UA counterparties, which had not been an option before.

The Strategy asserts the further integration of Ukraine into the worldwide system of exchange of fiscal and financial information, as well as international control in the transfer pricing area. Considering that significant progress has already been made, we can expect that Ukrainian fiscal authorities will effectively receive financial and fiscal information from other countries and will use it when auditing taxpayers in Ukraine. This underscores the importance of consistent tax and transfer pricing compliance in Ukraine, especially where cross-border transactions are concerned.

Specific regulatory attention will be paid to prevent the use of private entrepreneurs rather than employment. Also, the tax authorities will add more powers to prevent tax evasion and collect tax debts (i.e., to collect tax debts under the resolution of the tax officials and not the court, to freeze assets without referring to the court, to gain access to the information on the debtor’s bank accounts, etc.).

The Strategy should be subject to regular updates and revisions. Accordingly, it is hard to predict the exact legislative changes that will be finally introduced based on this Strategy. This will depend on the speed of the legislative process.