Government benefits for business during quarantine in Ukraine

By Resolution No. 211, the Cabinet of Ministers of Ukraine introduced since March 12, 2020 quarantine measures to counteract the spread of the disease, including the suspension or restriction of the activities of certain economic entities.

Observing the global financial markets fever with the sharp decline in the Dow Jones Industrial Average (Asian markets also plummeted: the Nikkei, Hong Kong’s Hang Seng and Australia’s ASX 200 declined), monitoring the 30% fall in oil prices, which has become the biggest fall since the collapse of the Soviet Union, and other world and domestic economic indicators, one does not need to be an economic expert to understand: the economic consequences of quarantine bode well neither for the world nor for Ukraine. The world is at the very beginning of the “economic pique”.

Therefore, on March 17, Ukrainian legislators urgently adopted a number of bills aimed at preventing the emergence and spread of the coronavirus disease (COVID-19) as well as at preventing the future consequences of the same decisions.

The adoption by the Verkhovna Rada of Ukraine of the draft Law of Ukraine “On amendments to the Tax Code of Ukraine and other laws of Ukraine as to assistance of taxpayers during the period of implementation of measures aimed at prevention the outbreak and spread of coronavirus disease (COVID-19)” has been due to the acute need in support from the state for taxpayers during the quarantine period.

Adoption of the bill

Regarding the promptness of its adoption, it should be emphasized that on March 16, 2020, the initiators of the bill submitted it to the Verkhovna Rada of Ukraine and on the same day the Committee on Finance, Tax and Customs Policy at its meeting considered the bill and recommended to adopt it under registration number 3220 as the basis and in the whole.

At 9 A.M on March 17, 2020, the required number of votes, namely of 359 people’s deputies, was given in favor of adopting as a whole the draft Law of Ukraine “On amendments to the Tax Code of Ukraine and other laws of Ukraine as to assistance of taxpayers during the period of implementation of measures aimed at prevention the outbreak and spread of coronavirus disease (COVID-19)”.

On the same day, the bill was signed by the Chairman of the Verkhovna Rada of Ukraine and submitted for signature to the President of Ukraine, who returned it with his signature to the Verkhovna Rada on March 18, 2020. On the same day, the bill was officially published and the Law came into force.

The stated purpose of Law No. 533-IX is to introduce tax and non-tax benefits related to the term of payment of taxes, payroll for the days of forced downtime, deadlines for filing tax returns, conducting inspections, imposing fines and penalties, etc.

As the authors of the Law note in Explanatory Note to Bill No. 3220, the spread of the disease will primarily lead to a decline in economic activity in the country and in the world, resulting in the suspension of activities of some economic entities caused by the lack of organizational or technical conditions necessary to perform the work in the circumstances of irreversible force.

Major changes

The main changes introduced by the Law No. 533-IX concern the Tax Code of Ukraine . In particular, these changes include:

• lifting of penalties for violations of tax law committed during the period from March 1 to April 30, 2020;
• establishing a moratorium on documentary and factual audits from 18 March to 18 May 2020;
• postponement of the deadline for submission of an annual personal income tax return to 1 July 2020; 
• cancellation of assessment and payment between March 1 and April 30, 2020, of the fee for land used in business activities and of taxes on non-residential real estate owned by individuals or legal entities.

So let’s try to figure out if the Law outlined above is really aimed at protecting both small and large businesses from the negative effects of quarantine and other measures to combat the coronavirus disease (COVID-19).

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Amendments have also been made to the Law of Ukraine “On the collection and accounting of the unified social security contribution to the compulsory state social insurance”, the Law of Ukraine “On compulsory state pension insurance”, the Law of Ukraine “On compulsory state social insurance”, and the Law of Ukraine “On amendments to the Law of Ukraine “On the use of Payment Transactions Recorders in the sphere of trade, public catering and services” and other laws of Ukraine on the unshadowing of settlements in the sphere of trade and services”, the Law of Ukraine “On amendments to the Tax Code of Ukraine on the unshadowing of payments in trade and services”.

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Time frames of benefits

The first thing that should be paid attention to is the time frames of introducing benefits for business. In most cases, deputies have indicated the end of April 2020, so it is not worth hoping that the quarantine will end on April 3, 2020, as set by the Government in the Resolution No. 211. In my opinion, even the lawmakers’ forecast is optimistic.

Regarding the tax benefits themselves, the lawmakers should be commended: a lot of important and necessary for the business areas have been covered by amending the Tax Code.

Lifting of penalties

Firstly, the fines for tax violations committed during the period from 1 March to 31 May 2020 have been lifted. During the specified period, taxpayers are not charged with a penalty, and if charged, it is not paid for this period and must be written off.

The only exceptions are violations of requirements for long-term life insurance or non-state pensions insurance agreements, in particular:

• additional pension insurance; alienation without consent of the controlling body of the property, which is under tax lien;
• violations of the rules of recording, production, and turnover of the patrol or ethyl spirit; 
• violations of accrual, declarations, and payment of VAT, excise duty and rent payments.

Lifting of land tax and real estate tax

Secondly, in anticipation of stagnation in the field of development, other real estate activities and possible disruptions in the agricultural sector, the legislator abolished the accrual and payment of land tax, namely land tax and lease payments for state and communal property, between

March 1 and  April 30, 2020, for landowners and users. A prerequisite is the use of these land plots in business activity.

In addition, lawmakers have not forgotten about non-residential real estate as well: from March 1 to April 30, 2020, they are also not subject to the real estate tax.

Taxpayers, with the exception of individuals who have already submitted an annual personal tax return, have the right to submit an annual personal tax return and to reflect changes in their tax liability. Individuals are being transferred by the controlling body.

A moratorium on documentary and factual tax audits

Thirdly, the Law establishes a moratorium on documentary and factual tax audits for the period from March 18 to May 31, 2020. This does not apply to documentary tax audits on the legality of VAT refund claims and/or their negative value of more than one hundred thousand hryvnias.

At the same time, the legislator obliged the State Tax Service of Ukraine to update the schedule of the scheduled documentary audits that were planned for the period between March 18 and May 31, 2020, and have not been commenced, and publish it on the official website by March 30, 2020.And those being already commenced by March 18, 2020, and the incomplete documentary and factual audits are temporarily suspended until May 31, 2020. The suspension interrupts the inspection period and does not require any additional decisions by the supervisory authority.

The deadline for submission of the annual personal income tax return has been postponed

The deadlines for submission for 2019 annual personal income tax return are extended until July 1, 2020, and the deadline for payment of such tax obligations is extended until October 1, 2020.It is important that for the period from March 18 to May 31, 2020, the period of limitation provided by Article 102 of the Tax Code is ceased.

Cancellation of the Unified Social Security Contribution (hereinafter – USSC)

Regarding the changes to other laws, it is important to note that all private entrepreneurs and people engaged in an independent professional activity are temporarily exempt from payment of the USSC in respect of the amounts payable by such persons for themselves between March 1 and April 30, 2020. 

Temporarily:

1. appropriate penalties and fines do not apply;
2. a moratorium on documentary audits on the correctness of the calculation and payment of the USSC for the period from 18 March to 18 May 2020 is established.

Changes to the pension legislation

Regarding pension legislation, it is also provided that persons who have not paid premiums for the period from March 1 to April 30, 2020, are considered to have paid the minimum amount of insurance premiums.

Change of PTR input deadlines

Additionally, the mandatory introduction of Payment Transactions Recorders for all categories of business entities using the simplified tax system is postponed for three months.

Late payment of credits

Regarding consumer credits, here the legislator also decided to except consumers from the default penalty (fine, interest) to the creditors for the delay from March 1 to April 30, 2020, of the fulfillment of obligations under the consumer credit agreement.

Moratorium on audits in the field of economic activity

By May 31, 2020, a moratorium on planned arrangements for conducting audits in the field of economic activity by the state supervisory and controlling authorities was also implemented. This does not apply to the activities of economic entities that are classified as high-risk enterprises in the area of compliance with the requirements for the formation, establishment, and application of government-regulated prices, and in the field of sanitary and epidemiological security of the public.

Conclusions

As we can see, the legislator, aware of the severity of the problem of coronavirus disease (COVID-19) and the need to ensure a systematic approach to its solution, tried to cover all spheres of economic activities by listening to different subjects. For example, the overwhelming majority of business support proposals during the quarantine made by the Chamber of Commerce and Industry of Ukraine, which is well-informed in the circumstances of force majeure, are taken into account.

Thus, the proposals on the exemption from payment of the USSC for the period from March 1 to April 30, the introduction of a temporary moratorium on new documentary and factual tax audits, the moratorium on scheduled inspections by other state supervisory authorities, and the quarantine itself were included in the list of force majeure cases, which creates the legal basis for issuing certificates of force majeure.

Unfortunately, the lawmaker had not taken into account the proposals of the Chamber of Commerce and Industry of Ukraine to reduce the time frames for considering applications on VAT refunds to exporters, which is very important for Ukrainian producers. But there is a hope that this issue will be considered in the near future.

The draft of the Bill No. 3220 and explanatory notes accompanying the Bill lack appropriate justification for different extension frames for the legal provisions which concern the same event – the spread of COVID-19.

However, the proposal not to charge rent for land (land tax and rent for public and municipal land) and real estate tax would reduce local budget revenues. Therefore, it would be advisable to provide additional subsidies from the state budget to local budgets to compensate for the corresponding losses for local budget revenues.

But it shall be taken into account that inclusion of non-payment periods of insurance premiums within the respective insurance periods will entail a violation of the principles of equality of insured persons to receive pensions, as well as to pay compulsory state pension contributions.

In addition, the lawmaker should focus its attention that provision of the social services and payment of financial support to insured persons, if an insured event occurs, relies wholly on the fees generated from the unified social security contribution. Therefore, another source of funding shall be found in order to ensure the smooth and proper functioning of the system.

Take care and stay safe!