New taxation rules for agribusiness in Ukraine

On 1 January 2015 Law No. 71-VIII “On Amendments to the Tax Code of Ukraine and Certain Legislative Acts of Ukraine on Tax Reform” (the “Law”) entered into force. The Law makes various changes; most notably it substantially changes the taxation rules in the sphere of agribusiness in Ukraine.

Firstly, the Law has kept the special value added tax (“VAT”) regime for agriculture (this means that VAT is accumulated in special accounts).

Under the Law, the fixed agricultural tax regime has been transformed by means of introducing a separate (4th) group of single taxpayers – agricultural manufacturers. Agricultural manufacturers are eligible to apply for a single tax if they meet both the following two requirements:

i. the share of the company’s income from agricultural production (i.e., sale of the company’s cultivated and processed products) to the total share of its income equals or exceeds 75 per cent; and

ii. these agriproducts were cultivated on land which such agricultural manufacturers own or lease, and the ownership title and leases has been duly registered.

Thus, under the amended Law, the registration of land leases on which agricultural manufacturers produce 75% of their agriproducts is obligatory if those agricultural manufacturers are to be eligible to apply for the single tax.

The tax rates calculated as percent of the target-ratio based monetary valuation per hectare of agricultural land and were increased threefold as follows:

• 0.45 for arable land, hayfields and pastures (except for arable land, hayfields and pastures located in mountainous areas and marshy woodland areas, and arable land, hayfields and pasture, as owned by agricultural producers that specialise in producing (growing) and processing crop products in greenhouses);
• 0.27 for arable land, hayfields and pastures located in mountainous areas and marshy woodland areas;
• 0.27 for perennial plantations (except for perennial plantations located in mountainous areas and marshy woodland areas);
• 0.09 for perennial plantations located in mountainous areas and marshy woodland areas;
• 1.35 for lands of water fund (lands of water fund include land occupied by: rivers, lakes, reservoirs and other water objects, swamps; coastal protection strips along the rivers; hydraulic water facilities and other channels, as well as land allocated for the easement for them).

Until 31 December 2017 the supplies of grain crops (wheat, rye, barley, oats, maize, rice, sorghum, buckwheat, and millet) and industrial crops (seeds of rape and seeds of sunflower) will be exempt from VAT, except for (i) an agricultural manufacturer’s first supply of these crops, and (ii) the supply of these crops by a business entity that has bought the crops directly in the agricultural manufacturers in the territory of Ukraine. Thus, agricultural producers and first intermediaries will supply products subject to VAT.

Under the Law the export of grain and industrial crops will be exempt from VAT.

This innovation has provoked sharp discussions. In particular, participants in the Ukrainian grain market are concerned about applying such provisions and predict that they will have a negative effect on agribusiness and generally on the investment climate in Ukraine.

Law: Law No. 71-VIII “On Amendments to the Tax Code of Ukraine and Certain Legislative Acts of Ukraine on Tax Reform”