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Ukrainian Corporate Tax Reform Plans Shelved

Friday, December 14, 2018

Ukraine has reportedly postponed consideration of a bill that would reform the country's corporate tax system to shift the burden of tax from company profits to distributions.

Bill 8557, Draft Law on Amendments to the Tax Code of Ukraine as regards the tax on the withdrawn capital, was tabled in parliament, the Rada, on July 5, 2018. Both the text of the bill and an explanatory memorandum have been released, in Ukrainian.

Proposals for the "new model of taxation" were announced in March 2018 by Ukraine's President, Petro Poroshenko, who described them as a "new philosophy" in taxation that would simplify tax for small businesses and lead to higher rates of investment, noting such had been effective also in Georgia and Estonia. "What does it mean? Every investment you make in Ukraine is free from taxation. Every penny you withdraw from business - pay a tax for it," Poroshenko said in May. "It simplifies the taxation system. It stimulates investments in Ukraine, which we urgently need."

The bill was reportedly been shelved in response to concerns raised by lawmakers and committees concerning massive revenue losses in the first year of implementation. This was despite amendments to introduce the regime gradually, and initially only for the largest businesses, with turnover of UAH200m or more. Ukraine's Chamber of Commerce had urged the Rada to support the reform, even supporting a plan to require companies to pay a minimum of 50 percent of the tax that would otherwise have been due under the previous system.

The regime was proposed to be in place from January 1, 2019. Banks were to be allowed to operate under the current regime voluntarily until December 31, 2021. Transitional arrangements were to be put in place to ensure companies are not doubly taxed, such as for distributions from profits already subject to the current tax on corporate profits.

Ukraine is due to hold presidential elections on March 31, 2019.