New taxes: What for and how much to pay in 2023
And how fiscal policy will change during the year
The Ministry of Finance reported back on the execution of the state budget for 2022. Its results turned out to be better than expected, at first glance. According to the Ministry, revenues to the state budget pool amounted to UAH 1.49 billion. The Law "On the State Budget for 2022" budgeted UAH 1.21 billion of income to the pool stock. While the state treasury deficit amounted to UAH 911 billion against the forecasted UAH 1497 billion. Inpayments from international partners helped to reduce the "gap" in the budget.
However, taxes are as usual the main source of state budget revenues. And not everything is so good with them. In 2022, domestic VAT brought the treasury UAH 213 billion (118% of the plan), import VAT UAH 253 billion (59% of the plan), personal income tax revenues reached UAH 148.4 billion (99% of the plan), and corporate income tax UAH 117 billion (74% of the plan). These are the key budget-forming taxes which generally reflect the situation with the budget revenues. As for customs payments, their volume in 2022 amounted to UAH 301 billion, or only 57% of the plan.
The issue of filling the state treasury will be very severe in 2023. Businesses are running out of their financial reserves, many enterprises are shutting down their operations, due to damage to the energy infrastructure in particular.
Therefore, money will be "squeezed out" from taxpayers through administrative means (inspections, additional accrual of liabilities, etc.), strengthening control, and cutting benefits. Although the Cabinet of Ministers and MPs have not yet announced a large-scale tax reform, many amendments to tax legislation have already come into force with the onset of 2023. Furthermore, important tax changes are planned for the first half of the year.
Tax rates are tied to the minimum wage. The minimum wage, to which the single tax rate for the 2nd group taxpayers is tied, has not changed since January 1, 2023. The minimum wage was raised back on October 1, 2022, increasing from UAH 6500 to UAH 6700. Therefore, the group II individual entrepreneurs will continue to pay UAH 1340 of the single tax (20% of the minimum wage) next year.
The same applies to the Unified Social Tax (UST) that is paid by entrepreneurs for themselves and for employees. The UST rate is 22% of the minimum wage. Accordingly, the monthly payment for the social fee in 2023 will be at least UAH 1474. A year ago, for comparison, the business paid at least UAH 1430 of UST per month.
Novelties in tax reporting. Since January 1, 2023, changes to the tax return on property and income for individual entrepreneurs have been introduced. They are provided by the order of the Ministry of Finance No. 143 of May 17, 2022. Now the entrepreneurs under general tax regime will:
- file a new application form with the calculation of the amounts payable on personal income tax and military duty, as well as indicate their income from the sale of property – real estate, vehicles, etc;
- calculate the total minimum tax liability, including land tax, tax on the income from the sale of grown crops, personal income tax, military duty on the employee salaries. This requirement applies to those business entities that use agricultural land – owning or leasing it.
Income tax advance payments for exchange offices. In November 2022, the Verkhovna Rada adopted Bill No. 7655 (now Law No. 2720-IX), which provides for the mandatory payment of income tax in advance for exchange offices. And the amount of such payments is fixed.
From January 1, 2023 on, money changer owners will be obliged to make monthly payments for each outlet in the amount of:
- three minimum wages (UAH 20,100), if the exchange office is located in a settlement with more than 50,000 residents
- one minimum wage (UAH 6,700), if the exchange office is located in a settlement with less than 50,000 residents.
At the same time, special coefficients are going to be applied to these payments during 2023, making the advance payments somewhat lower. From January 1 to June 30, the adjustment coefficient will be 0.33, and from July 1 to December 31 inclusive 0.66.
All advance payments made during the year will be credited for the final income tax that the money exchangers will get.
Taxation of CFCs. As part of the struggle against the erosion of capital from Ukraine to low-tax jurisdictions (offshores), the taxation rules for profits of controlled foreign companies (CFCs) are in force from 2022. These are legal entities registered outside our country, but controlled by residents of Ukraine.
Starting from 2023, the CFC beneficiaries are obliged to submit annual reports to the tax authorities on their foreign structures and profits.
The CFC report is to be submitted along with the annual property and income tax return (if the controller is an individual) or with the corporate income tax return (if the beneficiary is a legal entity). In 2023, such a report must be submitted for 2022. In this case, penalties and fines for inaccurate data on CFCs will not be applied in 2023.
Cancellation of some tax benefits. Starting from 1 January 2023, tax privileges for several sectors of the economy were abolished. Specifically, the term of exemption from VAT has expired on transactions:
- on the import of certain goods into Ukraine used in the cinematography;
- on the import of certain goods into Ukraine by space industry entities;
- research and development works for the needs of the space industry;
- on the supply of software products.
New rules for blocking VAT invoices. The Cabinet of Ministers has again amended the procedure for registration of VAT invoices/adjustment calculations. The corresponding amendments are enshrined in the Government Resolution No. 1428, which comes into force on January 11.
The main innovations are as follows:
- registration of all invoices blocked since October 14, 2022 is fully resumed, provided that the taxpayer submits a filled-in data table indicating the codes of goods or services in accordance with the Ukrainian Classification of Foreign Economic Activity and the Ukrainian Classification of Goods and Services, respectively;
- all VAT invoices are excluded from monitoring if the amount of supply of goods/services specified in them does not exceed UAH 5000. In other words, transactions for small amounts will no longer be subject to blocking.
As a reminder, the Cabinet of Ministers adopted Resolution No. 1154 in October 2022 changing the procedure for registering VAT invoices. After that, taxpayers began to complain en masse that the State Tax Service (STS) was blocking tax invoices for no apparent reason.
Tax incentives for the rebirth of the energy industry. Just recently, on January 3, Law No. 2836-IX came into effect; its provisions are aimed at accelerating the restoration of the destroyed and damaged energy infrastructure.
This law introduced amendments to the Tax Code, which, in particular, provide for:
- exemption from VAT on the import of electric generator sets, transformers, generators, equipment and components to Ukraine
- exemption from VAT on the import of goods that are donated free of charge by the Energy Community to enterprises engaged in the generation and distribution of electricity to Ukraine;
- exemption from excise tax on the import of vehicles to Ukraine intended for the transportation of 10 or more people, cars and lorries, if these vehicles will be later transferred to law enforcement agencies (Armed Forces, border guards, police, etc.)
- exemption of corporate income tax payers from responsibility for late submitting financial statements, provided that all necessary reports are going to be submitted within three months after the lifting of martial law.
Tax initiatives for the upcoming months. Along with the changes that have already entered into force, the MPs and the Government have designed other innovations to the tax legislation. By the way, Ukraine undertook to implement some of them under the updated cooperation programme with the International Monetary Fund.
First, by July 1, 2023, a special regime will be cancelled for the Single Tax Group III payers, who pay tax at the rate of 2% instead of 5%. The argument for the abolition of such a privilege is the decline in revenues to the state budget from the companies that pay only 2% of their turnover instead of 18% of income tax.
Second, the oversight over the use of payment transaction registers (cash registers) will be strengthened, for which purpose the Verkhovna Rada should return fines for violations during the use of cash registers by summer.
Third, the Parliament will completely lift the current moratorium on tax audits by July 1, 2023. As of today, the powers of inspectors are limited and tax authorities check mainly businesses applying for VAT refunds.
Moreover, the Parliamentary Committee on Taxes has already initiated the complete "digitisation" of the STS operations. To implement this project, electronic services are going to be developed that will allow tracking the turnover of excisable goods, enable individual taxpayers to file income tax returns from their smartphones and significantly simplify the VAT refund process. The main goal is to reduce the role of the human factor in the tax administration process and to entirely remove corruption risks.
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