Tax on withdrawn capital: a chance for a small and medium-sized business or another legislative failure?

The Ukrainian legislation, as well as any, tests permanent changes. Such changes are needed for adjusting of public relations, which develop swiftly, and modernization of the legal system. System of taxation did not become an exception. In a political environment already sufficiently discussions go long time, in relation to introduction cash-flow taxation (farther – CFT). on July, 5, 2018 in Verkhovna Rada was introduced bill ¹8557, what already had  time to cause quite a bit disputes between supporters and opponents of changes. As you understood already, speech would go about advantages and lacks of such legislative update. What changing does it cost to expect on businessmen?
What exactly will be subject levying taxes?  
Operations will be subject taxation related to the leadingout of money from a turn. In a bill, dividing of the noted operations is foreseen into three kinds, namely:  

  1. operations are related directly to the leadingout of capital(by payment of dividends);
  2. operations which are equated with the leadingout of capital;
  3. operations which need independent additional of tax.

The rate of tax tests changes also. Each of three types of operations, which are included in the base of taxation, will get the proper tax rate. Therefore imposed the tax of operation from the leadingout of capital will be after such rates:

  1. 15% – for the operations of the first group;
  2. 20% – for operations which are equated with the leadingout of capital;
  3. 5% – for the operations of the debt obligations related to implementation before CFT persons non-resident.

However, from the last rule there are exceptions. If the sum of obligations in an aggregate before the CFT all persons excels the personal capital of payer in 3,5 times (for financial institutions  and companies which carry out leasing activity exceptionally – in 10 times and anymore) or registration of non-resident took place in the state with law-tax jurisdiction, to these cases will be used 20% tax rate.
Another pleasant change will be become by possibility to reckon overpayments on a tax on the profits of enterprise on account of payment of cash-flow tax.
Changes will take place in the list of taxpayers. CFT will pay residents (legal entities are incorporated in Ukraine, which carry out the activity both on its territory and by a foreign country), except for unprofitable organizations and businessmen, which fall under the mode of the simplified system of taxation, and also properly registered  non-resident, and them permanent representative offices.
An original exception are banks which of own free will can remain the payers of income tax, but only to 2021 year.
Advantages:

  • introduction of CFT will become a stimulus for business and investment activity;
  • an account and reporting will become far simpler. As an exhaustive list of operations, which is assessed taxes, will be foreseen, accordingly there will be an exhaustive list of documents, that it is necessary to represent in accounting;
  • as operations fall only taxation from the leadingout of money, but not incomes, part of incomes can be  invested in development enterprises and modernization of production;
  • it is will not need for a businessman to prepare a document, in support of every operation which will economize his time and will enable more effectively to work on the receipt of income;
  • tax administration`s staff will have less possibilities of pressure on business.

Failings:

  • by a basic problem which is seen in CFT there is violation of equality between the payers of tax, because as profitable enterprises so those which have the accumulated losses will pay a tax;
  • certain inequality is also seen in relation to investments to Ukraine and foreign country, in fact if the Ukrainian company will want to create the «associated» company abroad, such investment will be subject taxation;
  • the object of taxation will narrow, and possibilities to influence on a base will diminish.

How will taxation look in practice and him main differences with an income tax?
While introduction of CFT remains only a draft and an enterprises`s income tax continues to operate in Ukraine. For today, it is calculated on a formula: A Profit – Charges = Income. Therefore will model a situation. For a year, a certain enterprise got a profit in size of 10 million UAH. The costs of enterprise are 7 million UAH. Therefore, applying the above-mentioned formula, get an income in size of 3 million UAH.
From this income, possibly, a proprietor wants to put 1 million UAH to the own pocket, and to expend other money in reorganization of production. Therefore, he, first, pays a 18% income tax. From 3 million UAH of profit sum which will go on taxes will make 540 000 UAH. There are 2 millions 460 000 UAH.  From these money a proprietor destroys 1 million UAH itself, from which pays 5% (a tax is on dividends), that is evened 50 000 UAH. As a result on development of enterprise there is all 1mln 460 000 UAH.
With a new tax a proprietor will be forced to pay three times anymore at the leading out of dividends 15%, that 150 000 UAH. All, that will remain, and it is 2 million UAH, will go on development of production.
Which from taxes all the same more advantageous for Ukrainian business?
This question causes large mass of disputes between opponents and supporters of such innovations. However, it costs to mark that this bill already heaved up a long ago not seen excitement among the representatives of business, which are ready to fight for his acceptance.
At first blush, it seems that a proprietor will lose anymore if will be used CFT. But modernization of production, absence of pressure from the side of tax administration`s staff, the economy growing at national level will result in the increase of profits, and accordingly and to the increase arrived, which would enable proprietors to get considerably anymore already in the near future.
Oleksandr Polishchuk,
junior associate of corporate practice
and compliance practice  
Attorneys at law “Bachynskyy and partners”]]>

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20/01/2022

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