Month: February 2025

Author: Maryna Pokotylo, Partner at F&P

Individuals who have chosen the simplified taxation system have defined rules regarding income formation. In particular, their income is considered to be any profit received in monetary (cash or non-cash) form, as well as in material or intangible forms.

If a third group taxpayer works under a commercial agency contract, their income is the remuneration they receive for intermediary services, not the total amount of funds that pass through them. Intermediary activity implies that the entrepreneur acts in the interest of another person (the principal), helping to conclude agreements, fulfill assignments, or sell goods.

The legislation clearly states that such individuals cannot be compensated for their services in kind (non-monetary form). All payments must be made exclusively in money – cash or through bank accounts.

However, in practice, questions often arise regarding the ability of such individuals to conduct offsetting in settlements.

Mutual offset is a method of settlement where two parties offset reciprocal obligations to each other without transferring real money.

Cash settlements are payments made in cash by business entities and individuals for sold products (goods, completed works, provided services), as well as for transactions that are not directly related to the sale of products (goods, works, services) and other property. In turn, cashless settlements are the transfer of funds from the accounts of payers to the accounts of recipients, as well as the transfer by payment service providers of funds deposited by payers in cash to the accounts of recipients.

Considering the legal norms provided, it can be concluded that the offset of monetary claims conducted through banking institutions is a cashless transaction, which is considered a monetary transaction.

A similar position was established by the Supreme Court in the ruling dated 20.10.2020 No. 822/2972/13-a, according to which: “calculations carried out by the plaintiff through mutual settlement are considered to be conducted in monetary form.”

Thus, legal entities and individual entrepreneurs who are single tax payers of the third group do not have the right to engage in barter transactions, including settling debts in any way other than monetary.

In turn, withholding the commission of a commercial intermediary and/or conducting a mutual settlement is a monetary form of payment that is not prohibited by the Tax Code.

Author: Anastasia Holovatyuk, Lawyer at F&P

During the period of martial law, the reservation of conscripted employees has become particularly relevant. Diia City resident companies, as part of the IT sector critical to the state, can exercise the right to reserve employees in accordance with legislative norms. However, to do this, it is necessary to undergo a complex procedure to obtain the appropriate status and be included in the Unified Register of Enterprises, Institutions, and Organizations entitled to reserve employees.

Before reserving employees, a Diia City resident company must obtain the status of a critically important enterprise. To do this, it must meet at least three of the following criteria:

1. The amount of paid taxes and fees exceeds the equivalent of 1.5 million euros per year.
2. Foreign currency receipts exceed 32 million euros per year.
3. The company is of strategic importance for the economy and security of the state. Confirmation of the status of importance for the industry can be achieved through the enterprise’s activities defined in the Law of Ukraine “On Stimulating the Development of the Digital Economy in Ukraine.”
4. The enterprise is key to the national economy or the territorial community.
5. Absence of debt to the budget and social insurance funds.
6. The enterprise is a resident of Diia City.
7. The enterprise is a provider of electronic communication services using mobile communication networks, with an average monthly net income exceeding 200 million hryvnias, or a provider of electronic communication services using fixed communication networks, with an average monthly net income exceeding 20 million hryvnias.

An application for obtaining the status of a critical enterprise is submitted to the Ministry of Digital Transformation of Ukraine or to the relevant military administration at the company’s place of registration. Inclusion in the Unified Register of Enterprises, Institutions, and Organizations entitled to employee reservation is carried out based on a notification submitted by the Ministry of Economy or a state body about inclusion in the Unified Register, which is formed using the Diia Portal.

Therefore, the confirmation of the recognition of a Diia City resident as a critical infrastructure enterprise will be the corresponding decision of the competent authority and inclusion in the Unified Register of Enterprises, Institutions, and Organizations entitled to employee reservation.

After the company is recognized as critical, it can apply for employee reservation. The process consists of the following stages:

1. Formation of the list of employees to be reserved.
2. Submission of the list to the relevant ministry or military administration for approval.
3. Transfer of the approved list through the Diia Portal to the Ministry of Economy.
4. Submission of the list to the Territorial Center for Recruitment and Social Support (TCRC and SS) for registration in the database of military personnel.

It is worth emphasizing that no more than 50% of the company’s military personnel can be reserved. At the same time, gig contractors and individuals providing services to the enterprise as sole proprietors are not subject to reservation.

The reservation is made for a period of 6 months with the possibility of extension after submitting an updated list.

Overall, the reservation of employees for Diia City residents is an effective mechanism for retaining key personnel in critically important sectors of the economy during martial law.

At the same time, the procedure requires careful legal support and the company’s compliance with clearly defined criteria. Adhering to all requirements allows Diia City residents to reserve employees, ensuring the continuous operation in the digital economy sector.

Author: Aliona Yevtushenko, lawyer at F&P

Foreign economic activity of Ukrainian business entities and foreign business entities, as well as the activity of state customers for defence procurement in cases specified by the laws of Ukraine, is based on the relationship between them, which takes place both in Ukraine and abroad.

The Law of Ukraine ‘On Currency and Currency Transactions’ No. 2473-VIII dated 21.06.2018 (hereinafter – the Law No. 2473-VIII) defines the legal basis for currency transactions, currency regulation and currency supervision, the rights and obligations of currency transactions and authorised institutions and establishes liability for violation of currency legislation.

Currency control in the field of foreign economic activity requires strict compliance with the deadlines for settlements under export and import transactions. Violation of these deadlines may result in the imposition of penalties in accordance with Article 13 of Law No. 2473-VIII.

However, in a number of cases, a taxpayer may avoid liability or appeal against the accrued penalty. Such cases will be discussed in this article.

According to the Law No. 2473-VIII, the National Bank of Ukraine exercises currency supervision over authorised institutions in accordance with the procedure established by it. The National Bank of Ukraine has the right to set deadlines for settlements under export and import transactions.

In accordance with clause 21 of the NBU Board Resolution No. 5 dated 02.01.2019, the deadline for settlements under export and import transactions is 180 calendar days.

The control over compliance with the settlement deadlines is vested in:

• banks that carry out currency supervision of clients’ transactions (in accordance with NBU Instruction No. 7);
• the State Tax Service of Ukraine (STSU), which conducts inspections and levies penalties in case of violations.

The Bank carries out currency supervision over the resident’s compliance with the deadlines for settlements for:

• a resident’s export of goods, if the settlement of such transaction is not completed (funds from the sale of goods to a non-resident have not been received on the resident’s current account or have not been received in full) or the bank has no information on the completion of settlements under such transaction;
• a resident’s import transaction, if on the date of payment by the resident for the goods, the non-resident has not delivered the goods under the import transaction;
• an import transaction of a resident, if on the date of payment by the resident for the goods, the import transaction was not completed without importation of the goods into the territory of Ukraine.

Pursuant to Article 13(5) of Law No. 2473-VIII, in case of violation of the payment deadline, the tax authorities shall charge a penalty of 0.3% for each day of delay. However, the total amount of the penalty cannot exceed the amount of the debt under the contract.

In case of objective impossibility to execute the contract within 180 days, the law provides for the possibility of extending the payment deadlines. The decision to extend or refuse such an extension falls within the competence of the Ministry of Economy of Ukraine and is regulated by the Resolution of the Cabinet of Ministers of Ukraine No. 104 dated 13.02.2019.

The Ministry of Economy of Ukraine issues an opinion on certain export and import transactions carried out by residents. This applies to transactions arising from the following types of foreign trade contracts:

• Production cooperation – the supply of raw materials, parts, and components necessary for the manufacture of final products.
• Consignment – the sale of goods through a consignor who sells them from a warehouse on his own behalf for a fee.
• Construction – the supply of construction materials, equipment, and machinery for construction works.
• Tender supply—supply of goods ordered as a result of international tenders.
• Warranty service – export of goods with phased payment after inspection, installation, and expiry of the warranty period.
• Supply of complex equipment – import of equipment in parts that requires installation, adjustment and warranty service, as well as goods with a long production and delivery time (more than 180 days).
• Supply of special purpose goods – international supplies of military goods, natural gas and its transit with final payments made after signing the relevant acts.

An application for an extension of time must be submitted no later than 10 business days before the expiry of the deadlines for settlements for export and import transactions. The period for the extension of settlements is calculated from the date of expiry of the deadline or the deadline set in accordance with the opinion of the Ministry of Economy issued earlier in respect of the transaction.

Despite the existence of a mechanism for extending the settlement deadlines, in practice, in the vast majority of cases, the Ministry of Economy refuses to extend the settlement deadlines.

In this case, a business entity has the option to stop the accrual of penalties in two ways:

• providing the supervisory authority with a confirmation of the impossibility of fulfilling the foreign trade contract due to force majeure.

Part two of Art. 14-1 of the Law of Ukraine ‘On Chambers of Commerce and Industry in Ukraine’ stipulates that force majeure (force majeure circumstances) are extraordinary and unavoidable circumstances that objectively make it impossible to fulfil obligations under the terms of the agreement (contract, agreement, etc.), obligations under legislative and other regulatory acts, namely threat of war, armed conflict or a serious threat of such conflict, including but not limited to enemy attacks, blockades, military embargoes, actions of a foreign enemy, general military mobilisation, military operations, declared and undeclared war, actions of a public enemy, riots, acts of terrorism, sabotage, piracy, riots, invasion, blockade, revolution, rebellion, insurrection, mass riots, curfew, quarantine, established by the Cabinet of Ministers of Ukraine, expropriation, compulsory seizure, seizure of enterprises, requisition, public demonstration, blockade, strike, accident, illegal actions of third parties, fire, explosion, long interruptions in transport operations regulated by the terms of relevant decisions and acts of state authorities, closure of sea straits, embargo, prohibition (restriction) of export/import, etc., as well as those caused by exceptional weather conditions and natural disasters, namely epidemic, severe storm, cyclone, hurricane, tornado, storm, flood, snow accumulation, ice, hail, frost, freezing of the sea, straits, ports, passes, earthquake, lightning, fire, drought, subsidence and landslide, other natural disasters, etc.

The existence of force majeure must be confirmed by a certificate of the authorised organisation (body) of the country of location of the party to the foreign economic agreement (contract) or a third country in accordance with the terms of the agreement (contract).

• Providing the supervisory authority with evidence that a court has accepted a resident’s claim for consideration to recover from a non-resident a debt arising from the non-resident’s failure to comply with the deadline.

If a court or international commercial arbitration decides to dismiss the claim in whole or in part as to property claims or to refuse to initiate proceedings or to leave the claim without consideration, as well as if a document on debt collection from a non-resident debtor is declared unenforceable, invalid, illegal, etc., and/or if the proceedings are closed (terminated) without crediting funds to residents’ accounts in Ukrainian banks under such a document, the term established in accordance with this Article shall be renewed.

Thus, in order to suspend the accrual of penalties for violation of the deadlines for settlements under a foreign economic contract, it is not enough to provide documents relating to the opening of proceedings, but also to obtain a court decision to satisfy the claims and recover the debt from the non-resident.

Appealing against penalties for late currency payments is an important mechanism for protecting the interests of foreign economic operators. A decision to impose a penalty may be appealed administratively (by filing a complaint with the State Tax Service) or in court. It is important to file timely objections with proper evidence to prove the validity of the taxpayer’s claims.

Thus, taxpayers engaged in cross-border transactions should not only closely monitor compliance with the deadlines for currency settlements but also be aware of their rights in case of unjustified penalties. The use of legal protection mechanisms available to FEDORYSHYN&PARTNERS allows for the reduction of financial risks and the avoidance of unjustified sanctions from regulatory authorities.

Author: Viktoriia Staryk, lawyer at F&P

Recognition as a critical organization gives the organization the opportunity to obtain an official status that will allow it to retain key personnel in their jobs even in emergency circumstances, including during mobilization. In order to book employees of a charitable organization that provides assistance to the Armed Forces of Ukraine and other military formations, it is necessary to successfully pass the procedure for recognizing a charitable organization as a critical one and be included in the relevant register.

A positive decision can be obtained if the charitable organisation has produced/purchased goods, performed works, and provided services necessary to meet the needs of the Armed Forces of Ukraine and other military formations for the previous period, not less than 12 months prior to the date of application, at the rate of UAH 10,000,000 of assistance per 1 (one) person liable for military service, which is proposed for reservation for the period of mobilisation and martial law.

In accordance with the mechanism of inclusion in the list of enterprises, institutions and organisations that are critical to the needs of the Armed Forces of Ukraine and other military formations during a special period, in order to optimise the procedure for consideration of applications, enterprises, institutions and organisations are recommended to submit applications to the Ministry of Defence of Ukraine in accordance with the approved template.

In the content of the application, enterprises, institutions, organisations should indicate compliance with the criteria set out in the Order of the Ministry of Defence of Ukraine dated 10.07.2024 No. 463 ‘On Determining Enterprises, Institutions, Organisations, as well as Legal Entities of Private Law, which are Critical to Meeting the Needs of the Armed Forces of Ukraine and Other Military Formations in a Special Period’.

Documents to be prepared by the organisation for submission:

1. Application to the relevant authorised body.
2. List of employees to be reserved
3. Certificate of the number of persons liable for military service employed by the organisation.
4. An explanatory note justifying the importance of each employee for the organisation’s functioning.

To confirm that the organisation produces/purchases goods, performs works and provides services necessary to meet the needs of the Armed Forces of Ukraine and other military formations, supporting documents must be provided. Failure to provide such documents may result in a refusal to recognise the organisation as a critical one.

Enterprises, institutions and organisations, as well as legal entities of private law, are recognised as critical to the needs of the Armed Forces of Ukraine and other military formations during a special period if they meet one or more criteria and if the share of the state in the authorised capital of such enterprises, institutions or organisations, as well as legal entities of private law, is not held by the state, which is designated by the Verkhovna Rada of Ukraine as the aggressor and/or occupying state.

Incorrect execution or failure to provide the necessary evidence may result in a refusal to grant a non-profit organisation the status of a critical mass organisation. FEDORYSHYN&PARTNERS has the necessary skills and experience to support the process of recognising a non-profit organisation as a critical one.

Author: Olena Andriyko, lawyer at F&P

Actual audits are one of the methods of tax control carried out by the controlling authorities to verify compliance with tax legislation, cash discipline, payment transactions and licensing conditions. However, in many cases, the results of such audits may be challenged by business entities due to violations of the audit procedure or unreasonable conclusions of the tax authorities.

Actual audits are carried out without prior notice to the taxpayer and may be initiated by the controlling authority in cases provided for in Article 80 of the Tax Code of Ukraine (the ‘TCU’), in particular in the following cases

• violation of the procedure for conducting settlement transactions, use of cash registers or cash discipline;
• inspection of licence conditions (for example, in the field of retail trade in excisable goods);
• failure to submit reports related to the payment of taxes or fees;
• detection of violations in labour relations.

One of the most common grounds for conducting an actual audit is clause 80.2.5 of the Tax Code of Ukraine, namely, conducting an audit in case of availability and/or receipt of information in accordance with the procedure established by law on violations of the law in terms of production, accounting, storage and transportation of alcohol, alcoholic beverages, tobacco products and liquids used in electronic cigarettes and fuel, and the intended use of alcohol by taxpayers, equipment of excise warehouses with flow meters and/or equalisers.

Further, within the framework of this article, we propose to analyse the mistakes made by the tax authorities when issuing orders for conducting an audit and which are the grounds for cancellation of the results of such audits.

First of all, it is worth noting that the correctness of the order to conduct an actual audit and its completeness is one of the most important prerequisites for the controlling authority to proceed with the audit. The legal and factual grounds set out in the order define the subject of the inspection, the period – its limits, and the indication of the subject to be inspected indicates compliance with other requirements regarding the procedure for its conduct.

In the decisions of 12 August 2021 (case No. 140/14625/20), 10 April 2020 (case No. 815/1978/18), 25 January 2019 (case No. 812/1112/16), 5 November 2018 (case No. 803/988/17), 22 May 2018 (case No. 810/1394/16), 20 March 2018 (case No. 820/4766/17), etc., the conclusion of which was taken into account by the court of appeal in this case, the Supreme Court stated that subpara. 2.5 of para. 80.2 of Article 80 of the TC of Ukraine provides for alternative grounds for conducting a factual audit, which can be applied both in aggregate and separately, namely

– availability and/or receipt of information in accordance with the procedure established by law on violation by the taxpayer of the requirements of the legislation in terms of production, accounting, storage and transportation of alcohol, alcoholic beverages and tobacco products and the intended use of alcohol by taxpayers, equipment of excise warehouses with flow meters and/or level meters;

– performing the functions defined by law in the field of production and circulation of alcohol, alcoholic beverages, tobacco products and fuel.

At the same time, in its resolutions dated 08 September 2020 in case No. 640/21536/19, 19 November 2020 in case No. 160/7971/19, 17 December 2020 in case No. 520/12028/18, the Supreme Court stated that the order to conduct a factual audit pursuant to subparagraph 80.2.5 of paragraph 80.2 of Article 80 of the Tax Code of Ukraine, in addition to the usual reference to the provision governing its appointment, should also specify the specific factual grounds for its appointment. In these cases, it was concluded that when appointing a tax audit, the controlling authority must specify one of the grounds set out in subparagraph 80.2.5 of paragraph 80.2 of Article 80 of the Tax Code, and if such ground is the availability and/or receipt of information about the taxpayer’s violation of the law, the latter must be specified.

In addition, the Supreme Court in its resolutions dated 11 July 2022 in case No. 120/5728/20-a and 21 December 2022 in case No. 500/1331/21, noted that the wording of the specific content of the order is at the discretion of the controlling authority, however, with mandatory compliance with the requirements of the third paragraph of Article 81.1 of the Tax Code regarding the content of the order to conduct an audit. If several independent grounds for conducting an audit are established in one subparagraph of the article, each of them does not necessarily have to be formulated identically to the content of the legal provision that establishes this ground, but must be clearly defined and comply with the legal provision.

Fulfilment of this requirement ensures that the business entity understands the reasons for the audit, as well as the range of issues that may be the subject of the audit, depending on the grounds for the audit.

Thus, if the order does not contain any references to the specific grounds for the audit, defined by subparagraph 80.2.5 of paragraph 80.5 of Article 80 of the TC of Ukraine, namely, whether the audit is appointed due to the availability of information on violation of the law or in connection with the performance by the controlling authority of functions defined by law in the field of production and circulation of alcohol, alcoholic beverages and tobacco products, fuel, such an order contradicts the requirements of the law. In this case, it can be argued that the controlling authority did not comply with the requirements of paragraph 81.1 of Article 81 of the Tax Code of Ukraine, according to which its officials have the right to proceed with a documentary on-site inspection, an actual inspection if there are grounds for their conduct as defined by this Code.

According to the conclusions of the Supreme Court set out in its decision of 26.03.2024 in case No. 420/9909/23, each violation alleged in a particular case is assessed by the court for its ‘materiality’ or ‘immateriality’. The Supreme Court has concluded that if the controlling authority finds that the tax authorities have committed material violations of tax legislation (for example, establishing that there are no legal grounds for the appointment of an audit), this may result in the cancellation of the order to appoint an audit and/or decisions made as a result of the audit.

Therefore, even if the tax authority’s representatives are actually admitted to the audit, the taxpayer is not deprived of the opportunity to refer to the shortcomings of the audit order when challenging the tax assessment notices issued as a result of such audit.

Taxpayers may use both administrative and judicial means of appealing tax assessment notices. The main thing is to build a competent defence strategy, and FEDORYSHYN&PARTNERS’ specialists can help.

Author: Uliana Luchkevych, lawyer at F&P

Investment profit is a key indicator of the efficiency of financial investments, especially when it comes to the sale of corporate rights. In a dynamic market, corporate rights become an important asset that can bring significant income to investors and business owners.

This article examines the main aspects of determining investment income from the sale of corporate rights, the specifics of its taxation, as well as the factors influencing its amount. Special attention is given to the legal and economic aspects of such transactions, which will help investors make informed decisions and minimize risks.

Corporate rights are a set of rights of a participant (founder) of a legal entity, which include the right to participate in management, receive a share of the profit (dividends), and distribute assets in the event of the company’s liquidation. Ownership of corporate rights is a means of controlling the enterprise and can serve as both a strategic and a financial asset.

The sale of corporate rights can be carried out through the transfer of a share in the charter capital of a limited liability company (LLC) or through the alienation of shares in the case of joint-stock companies (JSC).

One of the issues that arises when selling corporate rights is the question of taxing the amount received from the conducted sale transaction, as the need for taxation does not always arise.

The Tax Code of Ukraine stipulates that investment income is calculated as the positive difference between the income received by the taxpayer from the sale of a specific investment asset, taking into account the exchange rate difference (if any), and its cost, which is determined from the amount of documented expenses for acquiring such an asset.

That is, investment income arises only if the sale price of corporate rights (taking into account documented expenses) is higher than the price at which these corporate rights were previously acquired through their purchase or the contribution of the corresponding amount to the company’s charter capital.

In the event of a positive difference between the sale price and the acquisition price, an individual is obligated to pay personal income tax and military levy. At the same time, if the positive difference is less than the amount of the tax social benefit (note: in 2025 – 1514 UAH), then such income is exempt from taxation.

If a person sells corporate rights in a non-resident legal entity in foreign currency, the value of the corporate rights is determined in hryvnias at the exchange rate of the National Bank of Ukraine that is in effect on the date of receiving income from the sale of such an investment asset.

In this case, if a person’s expenses for acquiring corporate rights or forming the charter capital of an enterprise are equal to or greater than the received income, the investment profit does not arise and, accordingly, the received amount is not taxed.

Investment profit plays an important role in the process of selling corporate rights, as it determines the financial result of such an operation and its tax implications.

To minimize tax risks and optimize the profitability of corporate rights transactions, investors need to carefully analyze financial indicators, maintain documented records of expenses and income, and consider current legislative changes. The specialists at FEDORYSHYN&PARTNERS will help assess the potential risks of selling corporate rights and offer the most optimal options for such sales, taking into account the requirements of the legislation.