Changes to the Tax Code of Ukraine 2020: Analysis of Innovations for Business and FOP

 

Recent changes to the Tax Code of Ukraine in 2020 reflect a large-scale tax reform aimed at harmonizing legislation with EU requirements. For stable business operations and effective financial planning, it is crucial to adapt timely to new reporting and administration requirements.

In this consultation, experts from the Law Business Association (LBA) law firm will reveal key aspects of the updated Tax Code and provide practical recommendations for minimizing tax risks.

Legislative Basis of Changes: Law №466-ХІ

The basis for current tax administration remains Law №466-ХІ “On Amendments to the Tax Code of Ukraine Regarding the Improvement of Tax Administration, Elimination of Technical and Logical Inconsistencies in Tax Legislation.” This document introduced significant adjustments to the Tax Code of Ukraine (hereinafter — TCU), directly affecting the activities of entrepreneurs in the current year.

New Expense Rules for FOPs on the General System

One of the key changes was the clarification of the list of expenses for individual entrepreneurs (FOP). According to the updated para. 177.4 of the TCU, the following are now clearly classified as expenses:

• Expenses for the payment of real estate tax other than land plots (exclusively for non-residential real estate objects);
• Expenses for reconstruction, modernization, and other types of improvement of fixed assets.

Important: Tax paid for residential real estate objects is not included in FOP expenses and does not reduce taxable income.

Depreciation of Fixed Assets: What Has Changed?

Opportunities for the depreciation of assets for entrepreneurs on the general tax system have been expanded (in accordance with subpara. 177.4.6 of the TCU). Now, the following are subject to depreciation:

1. Trucks of individual entrepreneurs;
2. Expenses for reconstruction, modernization, and other types of improvement of fixed assets.

Please note that expenses for current repairs are not subject to depreciation — they are accounted for under different rules.

Deadlines for Filing Tax Returns When Changing Tax Systems

Changes also affected reporting. According to para. 177.5.2 of the TCU, a new reporting period has been established for specific categories of FOPs. This applies to entrepreneurs who:

• Registered during the year;
• Switch to the simplified tax system;
• Switched from the simplified system to the general system.

What has changed: Previously, the declaration was submitted based on the results of the reporting quarter. Now, such entrepreneurs must submit a tax declaration based on the results of the reporting year in which the activity began or the transition between systems occurred.

Payments to Non-residents: Obligations of FOPs and Independent Professionals

Control over payments of income to non-residents has been strengthened. If an FOP makes payments to a non-resident (a legal entity or its authorized person) with a source of funds in Ukraine, additional tax obligations arise.

Entrepreneurs are obliged to calculate and pay corporate income tax on such income in the manner prescribed by para. 177.13 of Sec. III of the TCU.

“The same requirement for calculating income tax from non-resident income is now provided for persons engaged in independent professional activity (according to the new para. 178.8 of the TCU).”

Dual Status: FOP and Independent Professional Activity

The legislator has regulated the issue of accounting for persons with “dual” status. According to para. 65.9 of the TCU, special accounting for individual entrepreneurs with a sign of conducting “independent professional activity” is provided.

This applies in cases where an individual is registered as an entrepreneur but simultaneously carries out independent professional activities (e.g., lawyers, notaries, insolvency practitioners).

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