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Tax Code Changes Reinstate Voluntary VAT Registration
An amendment to Ukraine's Tax Code of 2 December 2010 reinstated the right of business entities to obtain a VAT number on a voluntary basis, which is an important condition for input VAT recovery. This new rule has been effective since 6 August 2011. Taxand Ukraine explains the conditions to be met for voluntary VAT registration.
Conditions for Voluntary VAT Registration
Voluntary (unconditional) VAT registration was available until 31 December 2010 under the previous VAT Law. Rules of the Tax Code were introduced from the 1 January 2011, including the following requirement for voluntary VAT registration: during a 12-month period the entity's supplies to taxable persons should account for at least 50% of the total volume of supplies. The fulfilment of this requirement was difficult or unrealistic. Thus, until 6 August 2011 it was impossible to get a VAT number for newly established business if sales fell short of the threshold for mandatory VAT registration (300,000 Hryvnia, or approximately EUR 27,200).
With effect from 6 August 2011, this obstacle has been removed. A business entity is now entitled to apply for voluntary VAT registration if it meets either of the following conditions:
1. the value of entity's assets (including tangible and intangible assets, and stock) per its balance sheet exceeds 300,000 Hryvnia
2. the entity's registered capital exceeds 300,000 Hryvnia (It is not clear whether this is declared capital or paid-up capital. The tax authorities may require that the capital must be fully paid up at the date of application for VAT registration.)
The application for VAT registration must be submitted in person at the local tax office by the company's director or a duly authorised representative.
If no valid reason exists for rejecting the application, the tax office must issue a VAT registration certificate within 10 business days of the date of receipt of the application.
There is no minimum capital requirement as such for a limited liability company, which is the most common legal form for doing business in Ukraine. For instance, a company can be formed with a capital of 10 Hryvnia.
During the planning process for setting up an entity in Ukraine, investors should consider their strategy for VAT registration. Specifically, if voluntary VAT registration is important to its business, an investor will need to decide on one of the following alternatives:
- to set up a company with a minimal amount of capital initially and increase its capital to meet the 300,000 Hryvnia threshold later
- to set up a company with capital exceeding 300,000 Hryvnia from the outset.
Capital increase is subject to the state registration. Registration paperwork may take several weeks with a minimum cost (no capital duty exists in Ukraine). The latter alternative is preferable where an investor plans considerable expenditures immediately after establishment of the company.
Your Taxand contact for further queries is:
T. +380 44 492 8282
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