Recently, the Ukrainian parliament adopted new legislation introducing certain amendments to the Tax Code of Ukraine and other laws and regulations. The draft laws ("Laws") are specifically aimed to support Ukrainian IT-industry, granting certain tax benefits to IT-companies. If the Laws are finally adopted, the tax benefits shall become effective from 1 January 2013 and remain valid for a 10-year period.
The Laws grant preferential tax regime to IT companies involved in software development, database and software designing, data-center services, management and administration of computer systems, IT consulting, etc.
Although, the Laws have yet to be signed by Ukrainian President to become effective, the chances of being ultimately approved seem to be very high.
Corporate Profit Tax
The Laws reduce the general corporate profit tax ("CPT") rate from 21% down to 5%. To enjoy this special CPT benefit, the company should, inter alia, obtain a relevant conclusion of the State Agency for Science, Innovation and Informatization, evidencing that the company's business meets the statutory criteria (e.g., good tax standing, proper value of the company's assets, etc.)
Value Added Tax
A 10-year VAT exemption applies to domestic supply (i.e., software sale to Ukrainian customers) of software developed by eligible IT companies. Currently, the domestic supply of software is taxable at 20% tax rate in Ukraine.
Personal Income Tax
Employees of eligible IT companies may enjoy a reduced 5% personal income tax rate (the tax rate is currently 15/17%). The reduced tax rate applies to salary and other similar payments, received from the employer. However, the list of job positions eligible for the reduced personal income tax rate shall be further developed and approved by the Ukrainian government.
The Laws also stipulate certain benefits regarding social tax. In particular, the lawmakers left the tax rate unchanged (i.e., 36.76% payable by the employer and 3.6% payable by the employee), but reduced the amount of taxable cap, i.e., in contrast to general cap (which is UAH 18,598 (approx. USD 2,325)), the Laws envisage maximum taxable base for unified social tax of UAH 2,188 (approx. USD 274). This means that amounts of salary exceeding the latter amount will to not be subject to 36.76% and 3.6% social tax respectively.
For further information please contact counsel Alexey Khomyakov
and senior tax associate Constantin Solyar.