The first incentives for implementing energy efficiency measures were introduced in 2008 by amendments to the Law on Energy Efficiency and the Law on the Unified Customs Tariff, which granted a number of tax privileges to companies involved in the development and use of energy-efficient technology and alternative energy sources. The recently adopted Tax Code provides significant incentives for companies and transactions in these areas.
Corporate profit tax
The code provides that 80% of an eligible company's profit from sales of its own goods within the Ukrainian customs territory is exempt from charged at 23% corporate profit tax, provided that the goods are on a list approved by the government. The code generally identifies the following types of goods as being subject to this exemption: equipment for working on renewable energy sources; raw materials, equipment and components for renewable energy generation; energy-efficient equipment and materials, and goods whose use results in a more efficient and controlled use of fuel and energy resources; devices for measuring, controlling and operating fuel and energy resources; and equipment for producing alternative fuels.
The code also exempts 50% of all profits derived from the implementation of measures and projects relating to energy efficiency. In order to qualify for the exemption, a company that conducts such activities must be registered with the special state registry of companies, agencies and organisations that are involved in the use, development and implementation of energy efficiency measures and projects.
These incentives are effective for five years from the first year in which a profit is made from the manufacturing processes related to energy efficiency.
In addition, a general tax exemption to January 1 2020 will apply to: biofuel producers' profits from sales of such fuel; profits from the generation of electrical and heat energy with the help of biofuels; and manufacturers' profits from sales of machinery and equipment produced in Ukraine for manufacturing and converting vehicles powered by biofuel.
Energy companies are exempt from corporate profit tax on the sale of electricity from renewable energy sources for 10 years from January 1 2011.
Imports of the following goods are generally exempt from charged at 20% VAT: equipment for work on renewable energy sources; energy-efficient equipment and materials; devices for measuring, monitoring and operating fuel and energy resources; equipment and materials for producing alternative fuels or generating energy from alternative sources; and materials, equipment and components required for the production of: equipment that runs on renewable energy; raw materials, equipment and components for producing alternative fuels or generating energy from renewable sources; energy-efficient equipment and materials; goods whose use results in a more efficient and controlled use of fuel and energy resources; and devices for measuring, controlling and operating fuel and energy resources.
The code also provides a temporary VAT exemption, effective until January 1 2019, for: the supply on Ukrainian territory of machinery and equipment specified in the Law on Alternative Fuels; imports of equipment and machinery for the construction and reconstruction of enterprises producing biofuel and biofuel vehicles; and imports of biofuel-powered vehicles.
However, these import exemptions apply only if identical goods are not produced in Ukraine.
Generators of electricity from renewable sources enjoy a 75% discount on land tax.
It is too early to say whether the incentives will help Ukraine to become more energy efficient and less reliant on conventional fuels in the long term. However, green tariffs, customs and tax incentives should encourage foreign investors to consider Ukraine's investment potential.
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