1.4. BRIEF REVIEW OF TAX SYSTEM OF UKRAINE

1. Income taxes

1.1. Personal income tax

(Decree No.13-92 of the Cabinet of Ministers of Ukraine, On Income Tax On Citizens, dated 26 December 1992; Decree No.43-93 of the Cabinet of Ministers of Ukraine, On Amendments and Additions to Certain Tax-Related Decrees of the Cabinet of Ministers, dated April 1993; Law No.366-96-ВР, dated September 1996)

Ukrainian residents are subject to personal income tax on their world-wide income.

Foreign nationals are subject to tax only on their Ukrainian source income. The taxable income includes gross income (monetary or in-kind) irrespective of source, except for dividends (these are deducted from taxable income and are taxed separately) and capital gains.

Tax deductions and exemptions

General exemptions from personal income tax are:

(і) receipts from social security and social insurance, except for temporary disablement aid;

(іі) maintenance;

(ііі) public and private pensions;

(іv) indemnity of losses in case of disablement caused by mutilation or disease, or in case of loss of a breadwinner;

(v) income received for execution of duties by servicemen and members of police and prosecution services;

(vі) capital gains from disposal of personal property if a state duty or notary fee is paid for notary registration or alienation of such property, except for revenues received from entrepreneurial transactions in goods and other property;

(vіі) inheritance, legacy and gifts, except for royalty payments transferred to heirs;

(vііі) wins under state premium debenture bonds and in state lotteries;

(іх) interest income on deposits with banks, premium bonds, certificates of deposit and T-bills;

(х) income reinvested into construction of new company property, as well as dividends transferred to purchase shares in the joint ventures that had paid out that dividend. (After disposal of such property or shares, the once tax-exempted income becomes subject to tax.)

Tax allowances and deductions:

(і) general deduction of one non-taxable minimum from personal income per month;

(іі) one non-taxable minimum allowance for one of the parents of every child under the age of 16 (the allowance applies only to parents with personal income of less than 10 minimum monthly wages per annum);

(ііі) up to 10 non-taxable minima for Chernobyl victims, Categories I and II, as well as for war disabled veterans, Group 1;

(іv) up to 5 non-taxable minima from personal income of World War II veterans, Afghanistan war veterans and servicemen who served in military operations of Soviet troops in other countries; parents or one of the spouses of deceased or escaped servicemen; one of the parents of a disabled from childhood or parents of two or more disabled from childhood; rehabilitated victims of political repression; disabled from childhood; disabled, Groups 1 and 2; Chernobyl victims, Categories III and IV;

(v) charitable contributions transferred to non-profit-making organisations (e.g. foundations, institutions, social, religious, environmental and health care organisations, sports, cultural, educational, scientific establishments and others) are treated as tax-deductible expenses in the amount up to 12 minimum monthly wages.

Tax allowances for entrepreneurial income:

Tax-deductible expenses include material costs, depreciation and amortisation, salaries and wages paid to contractual employees, interest on short-term loans (including interest on outstanding or prolonged loans), social security contributions, property insurance premiums, costs of repair.

Rates

Monthly income tax rates

A non-taxable minimum (hereinafter, ntm) equals UAH 17 per month.

Less than 1 ntm 0%;

1 to 5 ntm's 10% of amount exceeding one ntm;

5 to 10 ntm's UAH 6.8 + 15% of amount exceeding 5 ntm's;

10 to 60 ntm's UAH 19.55 + 20% of amount exceeding 10 ntm's;

60 to 100 ntm's UAH 189.55 + 30% of amount exceeding 60 ntm's;

in excess of 100 ntm's UAH 393.55 + 40% of amount exceeding 100 ntm's.

Special rates:

(і) 10% for the income of miners;

(іі) a 50% reduction in rates is applied to taxable income of people employed in nuclear power;

(ііі) royalty payments transferred to heirs are subject to doubled income tax rates, but not exceeding 70% of taxable royalty.

Withholding tax rates:

(і) income earned elsewhere besides to the main job is withheld from the source of income at the rate of 20% disregarding allowances to be deducted;

(іі) a 20% withholding tax rate is applied to Ukrainian source income of foreign nationals;

(ііі) income tax on dividends and other receipts from shares of Ukrainian-registered companies is withheld by the companies themselves at 30% for resident Ukrainians and at 15% for foreign nationals.

1.2. Corporate profits tax

(Law No.283/97-ВР of 22 May 1997 with amendments and additions, in force since 1 July 1997)

Taxpayers include:

(і) Ukrainian resident entities that carry on a business with aim of making profit both in Ukraine and beyond;

(іі) branch offices, subdivisions and other separate divisions of the mentioned taxpayers that do not have the status of legal entity and are located beyond the territory of registration of such a taxpayer;

(ііі) non-resident entities that carry on a business in Ukraine or repatriate Ukrainian source income;

(іv) permanent representative offices of non-resident entities that earn Ukrainian source income or perform agent/representative functions on behalf of such non-resident entities or their shareholders.

Due to rather slow pace of accounting reform, there has been passed a new law splitting between the tax accounting and financial accounting systems. Notably, taxable profits embrace income received from sale of goods and services, receipts from disposal of assets (including intangible assets and securities), rental income and royalty. The accrual method is applied to record income and expenses. Foreign exchange translation gains and losses on assets and liabilities in foreign currencies are calculated at the end of the reporting period. Corporate profit tax is calculated quarterly as a cumulative total from the beginning of current financial year.

Tax deductions and exemptions

Profits of the following entities are exempt from taxation:

(і) non-profit-making organisations, including national and local authorities, pension funds, credit unions, religious organisations, charities, environmental and health care organisations, sports, cultural, educational and scientific establishments and institutions, as well as unions, associations and other societies of legal entities that receive income only in the form of subscriptions;

(іі) companies that sell baby foods, if their profits are invested in higher outputs of or reduction in price for such foods;

(ііі) car manufacturers that have received investment of over US$150 million;

(іv) enterprises and public organisations of the handicapped;

(v) agricultural enterprises in which agricultural produce accounts for over 50% of outputs (applies only to the period from 1 July till 31 December 1997);

(vі) Chernobyl Nuclear Power Plant, if the profit is spent to prepare to and perform the actual shutdown of the nuclear power plant.

The following items are exempt from taxation:

(i) pension plans;

(іі) certain kinds of joint investments;

(ііі) funds or assets received as international technical aid;

(іv) repayable amounts provided by the Innovation Fund.

Losses incurred during the reporting period can be carried forward to future five years to reduce taxable income of future periods.

According to Ukrainian depreciation standards, 3 groups of assets are distinguished. Assets within each group are consolidated together and the reducing balance method is applied to calculate depreciation charges.

Depreciation rates:

Group 1 (buildings) – 1.25%;

Group 2 (transport vehicles, furniture, computers, other office equipment and appliances) – 6.25%;

Group 3 (all other assets not included in groups 1 and 2) – 3.75%. During 2000, business entities are allowed to claim 80% of the total depreciation charges for corporate profits tax purposes.

Accelerated depreciation is allowed for Group 3 fixed assets.

Provided the taxpayer is a non-financial institution, bad debts write-offs can be performed in case the taxpayer files a claim in the court, anticipates bankruptcy procedures or dies.

Rates

Most businesses are subject to a uniform tax rate of 30%.

Special rates:

Income from sale of innovation products is subject to a reduced tax rate of 15%.

Withholding tax rates:

(і) income earned from foreign freight services – 6%;

(іі) income of non-resident entities – 15%;

(ііі) interest income on debentures issued by Ukrainian resident entities – 15%;

(іv) insurance premiums – 30%;

(v) reinsurance premiums – 15%;

(vі) fees for rendering advertisement services – 30%;

(vіі) dividends receivable by non-resident entities – 15%.

1.3. Trade tax

(Decree No.24-93 of the Cabinet of Ministers of Ukraine, dated 17 March 1993)

Taxpayers are Ukrainian citizens, foreign nationals and individuals without citizenship regardless of the place of permanent residence, who are not registered as individual entrepreneurs and engage in unsystematic (up to four times per calendar year) trade in goods.

The taxable amount is the sum total value of goods to be put up for sale.

Tax deductions and exemptions

Sale of the following goods is exempt from tax: agricultural produce, cattle, rabbits, coypus and domestic fowl (both live, slaughtered or processed) raised in personal auxiliary farms, homestead yards, dachas, orchards and vegetable gardens; products of private beekeeping; as well as disposal of personal vehicles, if the disposal occurs only once a year.

Rates

The trade tax rate of 10% is applied to the declared value of goods that are to be sold during three calendar days, although the amount of tax cannot be less than one minimum wage. If the term of sale is extended to 7 calendar days, the tax rate is doubled.

1.4. Fixed agricultural tax

(Law No.320-XIV с, dated 17 December 1998, with amendments of 1 October 2000. In force from 1 January 1999 till 1 January 2004)

The fixed agricultural tax covers the following taxes and charges/contributions:

(і) corporate profits tax;

(іі) land tax;

(ііі) tax on owners of motor vehicles and other self-propelled machines and mechanisms;

(іv) community tax;

(v) charge for geological prospecting financed from the state budget;

(vі) contribution to the Fund for Liquidation of Consequences of the Chernobyl Accident and Social Security of the Population;

(vіі) mandatory social insurance charge;

(vііі) charge for building, reconstruction and maintenance of public highways of Ukraine;

(іх) mandatory state pension insurance charge;

(х) State Innovation Fund charge;

(хі) fee for acquisition of trade patent to carry on commerce;

(хіі) charge for special use of natural resources (as regards use of water for agricultural purposes).

Taxpayers have a right to choose the form of tax payment, e.g. in monetary form and/or in-kind (agricultural produce).

Taxpayers are agricultural enterprises of any organisational form allowed by the Ukrainian legislation, farms and other establishments that produce/cultivate, process and sell agricultural produce, in case income raised from sale of their own produce and products in the prior reporting year exceeds 50% of their gross income.

Taxpayers also include all owners and tenants (including lessees) of land lots, who produce commercial agricultural produce, except for tenants and owners of land transferred to their private auxiliary farms, construction and maintenance of residential housing, household buildings (adjacent land), gardening, dacha construction, as well as for market gardening, haymaking and pasture.

The taxable object is the area of agricultural land transferred or leased to a farmer, including rented land.

30% of the fixed agricultural tax payments are transferred to local budgets, 68% to obligatory state pension insurance authorities and 2% to obligatory social security authorities.

Tax deductions and exemptions

To stabilise agriculture, taxpayers liable for the fixed agricultural tax in compliance with the Law were exempt from this tax from 1 January 1999 till 1 January 2001. At the same time, state pension insurance and social insurance charges were still applied to these entities.

Rates

The fixed agricultural tax is levied per hectare of agricultural land as a percentage to land valuation as at 1 July 1995, namely:

– 0.5% for arable land, hayfields and pastures;

– 0.3% for perennial plantations.

Taxpayers that do business in mountainous areas and in the Polessye region are subject to the following rates of the fixed agricultural tax charged per value of one hectare of agricultural land as at 1 July 1995:

– 0.3% for arable land, hayfields and pastures;

– 0.1% for perennial plantations.

1.5. Fee for trade patent for certain types of business undertakings

(Law No.98/96-ВР, dated 23 March 1996)

Patents are applied to Ukrainian resident and non-resident entities and individual entrepreneurs without the status of legal entity, as well as to their separate divisions (branch offices, divisions, representative offices and the like) that carry on commerce, exchange foreign currency, as well as render gambling and public utility services.

Tax deductions and exemptions

Business entities and their divisions that trade exclusively in main foodstuffs made in Ukraine carry on commerce without a trade patent.

Incentive trade patents are issued to business entities and their divisions that trade exclusively in selected Ukrainian-made industrial products. Notably, incentive trade patents are used for trade in posting goods by enterprises subordinate to the State Communications Committee of Ukraine, tickets, ready-made drugs, vitamins, veterinary medicines, health products, coal, domestic furnace oil, paraffin oil kerosene and liquefied gas for personal use.

Rates

Depending on the place of trade, the fee for trade patent varies from UAH 30 to UAH 320 per calendar month.

A fee for trade patent to render public utility services varies from UAH 30 to UAH 320 per calendar month depending on the type of services rendered.

A fee for trade patent to carry on foreign exchange transactions is fixed at UAH 320 per calendar month.

A fee for trade patent to render gambling services is charged as UAH 640 to UAH 1,400 per annum, depending on the type of gambling.

2. Social security contributions (payroll taxes)

2.1. Mandatory state pension insurance charge

(Law No.400/97-ВР, dated 26 June 1997)

Taxable amounts are:

– actual payroll expenses;

– amount of taxable personal income;

– amount of foreign exchange transactions;

– value of sold jewellery, cars, real property, tobacco, and rendered cellular phone services.

Tax deductions and exemptions

Tax exemptions are granted to:

(і) payments not included into gross taxable personal income.

Rates

Rates of contribution are:

– 32% – payable by employer;

– 1% of income below UAH 150 and 2% for income over UAH 150 – payable by employee;

– 4% – payable by companies, institutions and organisations that employ disabled individuals;

– 1% to 5% depending on salary – payable by flight crews and civil servants;

– 1% to 6% – payable by legal entities and individuals that sell jewellery, cars, real property, tobacco, and render cellular communication services.

2.2. Charge for obligatory social insurance against unemployment

(Law No.402, dated 26 June 1997)

Taxable amounts are:

– actual payroll expenses;

– amount of taxable personal income.

Tax deductions and exemptions

Tax exemptions are applied to:

(і) payments not included into gross taxable personal income;

(іі) entities registered in special economic zones Yavorov and Slavutich during the period of their operations.

Rates

Employers pay the charge at the rate of 1.5%, while employees pay the charge at the rate of 0.5% of the taxable amount.

2.3. Mandatory social insurance charge

(Law No.402, dated 26 June 1997)

Taxable amounts are:

– actual payroll expenses;

– amount of taxable personal income.

Tax deductions and exemptions

Tax exemptions are granted to:

(і) payments not included into gross taxable personal income.

Rates

Employers pay the charge at the rate of 4% of the taxable amount, while the rate of 1% is applied to enterprises, institutions and organisations that employ the handicapped.

3. Indirect taxes

3.1. Value-added tax

(Law dated 3 April 1997 (in force since 1 October 1997) with amendments and additions dated 1 October 2000; as well as Decree No.857/98 of the President of Ukraine, On Certain Amendments to Taxation, dated 7 August 1998)

The VAT is levied on all transactions involving sale of goods, works and services, including barter transactions executed by legal entities and individual entrepreneurs whose annual sales turnover exceeds 3,600 non-taxable minima (UAH 61,200).

Any entity that has reached this threshold is required to register as a VAT taxpayer, although voluntary registration is also permitted.

All VAT taxpayers calculate their tax liability using the tax credit method.

According to the tax credit method, a taxpayer is entitled to offset against his VAT liability the amount of VAT paid on the acquisition of goods, works and services – the value of which is deductible for corporate profits tax purposes – and/or amortisable fixed assets or intangible assets.

The Law obliges taxpayers to bill tax invoices and give them to the buyers (safe for cases when a single sale involves less than UAH 20, as well as when selling transport tickets and billing hotel accommodation invoices.)

The VAT liability (as well as VAT credit) arises either on the day the payment is received from customer or the goods are shipped and services/works are delivered (according to proper documents verifying execution of services/works), whichever happens first. As an exception, the cash methods is temporarily applied in calculation of the VAT liability and credit by certain sectors and taxpayers, namely, energy companies and housing and public utility companies that render services to the population, as well as to budget-financed organisations.

A calendar month is the usual reporting period, although taxpayers with small turnovers may use a quarterly tax period.

If the amount of VAT credit exceeds the VAT liability, the difference is refunded by the State in the course of three reporting periods, except for differences arising from export transactions of the taxpayer, in which case the refund is transferred one month after the VAT computation is submitted to tax authorities.

Tax deductions and exemptions

Ukraine's Law On Value-Added Tax provides for a number of non-taxable transactions, such as:

(і) issue, placement under any kind of management and sale of securities, exchange of securities; clearing-house, depository, and registrar activities on the stock market;

(іі) circulation of currencies, bullion and banking metals, banknotes and coins; cashing and settlement services; raising, usage and return of money under loan contracts, deposit agreements and the like; trade in promissory notes;

(ііі) transfer of leasehold property to a lessee in compliance with lease agreements and return of such property to a lessor when the agreement expires;

(іv) insurance and reinsurance services;

(v) payment of salaries, wages, pensions, scholarships, subsidies, grants, as well as other payments to individuals, whether in money or in-kind;

(vі) transfer of fixed assets as contribution to statutory capital of a legal entity in exchange for corporate rights issued by the entity;

(vіі) free-of-charge transfer of any taxpayer's property to the State, to communal ownership of villages, settlements and cities or to their common ownership (when the property is transferred to another taxpayer), if the transfer is performed in execution of decision of the Cabinet of Ministers of Ukraine, republican or local executive authorities, local authorities (when such decisions lay within their terms of reference).

In addition, certain transactions, chiefly the socially oriented ones, are exempt from the VAT, for instance:

(і) sale of Ukrainian-made baby foods, drugs, books, notebooks, textbooks and study guides, special-purpose goods for the handicapped;

(іі) health care services, training of children, educational, burial, religious services (in compliance with special lists approved by the Cabinet of Ministers of Ukraine);

(ііі) charitable activities, delivery of pensions and monetary aid to individuals, payment for children's stay in infant schools, boarding schools, for stay in the homes for elderly and disabled, as well as in penitentiary institutions;

(іv) services rendered by public employment agencies, archives and libraries;

(v) mass transit by metropolitan and suburban passenger transport;

(vі) privatisation of state and communal property, as well as of free-of-charge privatisation of residential housing;

(vіі) sale or transfer of new buildings to individuals for residential purposes;

(vііі) goods manufactured by organisations of the handicapped;

(іх) basic research financed from the country's budget, sale and free-of-charge transfer of resources to higher educational institutions, accreditation grade III and IV;

(х) sale of own produce by agricultural enterprises to certain individuals;

(хі) sale of goods, works and services to the diplomatic corps;

(хіі) import of raw or processed sea products by ships registered in the State Marine Register of Ukraine or in the Marine Book of Ukraine;

(хііі) all transactions that support the Olympics movement in Ukraine.

Besides to export transactions, zero VAT rate is applied to:

(і) sale to milk and live cattle to food processing enterprises by agricultural producers of any form of property and business.

Rates

20%.

3.2. Contributions and charges for building, reconstruction, repair and maintenance of public highways of Ukraine

(Law No.1562-12, dated 18 September 1992)

The tax was cancelled by article 16 of the Law No.1458-ІІІ On State Budget of Ukraine for Year 2000, dated 17 February 2000.

3.3. State Innovation Fund charge

(Law No.796/97-ВР, dated 30 December 1997)

Taxable amounts are the turnovers of goods, works and services in trade, intermediary services, savings and distribution sectors, banking and insurance.

A portion of tax receipts is transferred directly to the Innovation Fund.

Tax deductions and exemptions

The following items are deducted for taxation purposes:

Amounts of VAT and excise tax.

Rates:

1%.

It is anticipated that the charge will be cancelled in the fiscal year 2001.

3.4. Excise tax

(Law No.121, dated 12 February 1998; Law No.767-97, dated 23 December 1997; Decrees of the Cabinet of Ministers No.18 of 26 December 1992 and No.43-93 of 30 June 1993, Laws No.432 of 16 November 1995, No.329 of 15 September 1995, No.30/96– ВР of 6 February 1996, No.178/96-ВР of 7 May 1996, No.216 of 24 May 1996, No.313/96-ВР of 11 November 1996).

Except for the list of tax-exempt items, the same rates are applied to goods imported into and produced in Ukraine.

Import from Russia and other CIS member-states is subject to excise tax.

Tax deductions and exemptions

Tax exemption is applied to:

(і) export;

(іі) special-purpose cars, e.g. police cars and ambulances;

(ііі) temporary exemption effective till 1 January 2007 is granted to Ukrainian-made cars, lorries and passenger vehicles;

(іv) temporary exemption was applied to petroleum products from 1 May till 1 October 2000;

(v) transit of excisable goods;

(vі) excisable goods held for exhibition purposes during exhibitions, competitions, meetings and fairs.

Rates

The list of excisable goods was abridged considerably in the second quarter of 2000.

Rates applied to excisable goods are:

cigars – UAH 20 per 100 pieces;

tobacco cigarettes (with and without filter) – UAH 10 per 1,000 pieces;

chewing and smoking tobacco – UAH 10 per kg;

raw tobacco – "0";

vine – UAH 0.8 per litre;

beer – UAH 0.14 per litre;

champagne – UAH 1.6 per litre;

vermouth and similar beverages – UAH 2.6 per litre;

ethyl spirit, vodka and similar strong drinks – UAH 16 per litre;

brandy spirit – "0";

technical-purpose spirit – UAH 0.12 per litre (rate effective till 2005);

(Alcoholic goods applied by Ukrainian medical companies, applied in foodstuff production and for other industrial needs are subject to a lower tax rate of UAH 1.2 per litre of 100о spirit.)

А72-80 petrol – EUR 40 per tonne;

А90-93 petrol – EUR 40 per tonne;

А94-98 petrol – EUR 40 per tonne;

diesel fuel – EUR 10 per tonne;

light and medium distillates – EUR 12 per tonne;

aircraft fuel – EUR 20 per tonne;

jewellery – 55%.

3.5. Customs duty

(Decree No.4 of the Cabinet of Ministers of Ukraine, dated 11 January 1993; Laws No.30 of 6 February 1996, No.173 of 7 May 1996, No.216 of 24 May 1996, No.313 of 11 July 1996, No.180/96 of 7 May 1996, No.1033/ХIV of 10 August 1999, Decree No.1007 of the Cabinet of Ministers, dated 3 August 1998).

(a) import tariff;

(b) export tariff;

(і) cow hides and cattle;

(іі) 23% rate is temporarily applied to sunflower seeds until 1 July 2002.

Tax deductions and exemptions

Tax exemptions are granted to:

(i) imports related to Chernobyl issues;

(іі) defined direct foreign investments.

A number of special/free economic zones that are not subject to import duty have been set up in Ukraine.

The lower dutiable threshold value for individuals is ECU 200 (or ECU 200 in case a single indivisible item is imported).

Rates

Ad valorem rates ranging from 0 to 70%;

30% for industrial commodities and 70% for agricultural produce that are spread over 7 groups of rates.

Most national tariffs carry the rates of 2% to 5%.

A combination of specific and ad valorem rate is applied to 25 items (the 4-digit system under the SITC classification).

General average tariff equals to 12.74%.

3.6. Uniform charge levied at checkpoints of Ukraine

(Law No.1212-XIV, dated 4 November 1999).

The uniform charge levied at checkpoints includes fees for statutory customs, sanitary, veterinary, phyto-sanitary, radiological and ecological control, as well as a toll for vehicles riding the Ukrainian highways.

The uniform charge is levied once during transit, import or export of cargo upon presentation of uniform payment documents.

Rates

Upon presentation of the Cabinet of Ministers, Ukrainian laws set the rates of the uniform checkpoint charge in EUROs. The rates cannot be altered during a budget year.

Regardless of quantity and type of cargo, rates of the uniform checkpoint charge are applied to a batch of cargo; cargo in a single motor vehicle or road train; cargo in a single railroad car if the cargo comprises one batch; cargo in heavy container if the cargo comprises one batch.

3.7. Charge for development of viticulture, horticulture and hop-growing

(Law No.587-ХІV, dated 9 April 1999)

Any business entities that engage in wholesale or retail trade in strong beverages and beer are the payers of the charge for development of viticulture, horticulture and hop growing.

The taxable amount is the income earned from wholesale or retail sale of strong drinks and beer.

Rates

The charge is levied at 1% of the taxable amount.

4. Resource charges

4.1. Taxation of natural resources. Charge for geological prospecting financed from the state budget

(the Resource Code, Regulation No.115 of the Cabinet of Ministers, dated 29 January 1999)

The charge is levied on all types of users of natural resources (including companies with foreign investment) that execute mining in previously prospected deposits, as well as in appraised deposits located in Ukraine, on Ukraine's continental shelf and in the exclusive economic zone of Ukraine (if the deposits were transferred to such willing miners with the purpose of industrial exploitation).

The charge is calculated on the basis of quantity of mineral products mined.

Tax deductions and exemptions

Charge is not levied on mining of:

(і) previously dormant deposits that had been properly categorised as exhausted in the process of prior mining activities;

(іі) hydrocarbon liquid pumped from unprofitable wells with aim of preventing leakage of explosive gas in settlements located in oil & gas regions;

(ііі) ground water that is not made use of:

extraction of which is unavoidable due to technology of mining other mineral products (the quantity of such extraction should be agreed upon with the corresponding bodies of the State Mining Inspectorate, State Geological Control and environmental authorities);

extracted from underground to prevent pollution;

extracted from underground to prevent nuisance (e.g. waterlogged state, salification, swamping, contamination, origination of landslides, etc.).

Rates

The rates of the charge are set in Ukrainian hryvnyas separately for each kind of natural resources or for groups of similar natural resources. Rates are applied to a unit of mining or abandonment of mineral deposits.

4.2. Charge for special use of forest resources and use of forestland

(The Forrest Code, Regulation No.1012 of the Cabinet of Ministers, dated 6 July 1998)

Felled timber, turpentine, secondary timber materials, recycled products and certain forest land areas are the objects of the charge for special use of forest resources and forestland.

The taxpayers are legal entities and individuals that have received forestland in permanent or temporary tenure.

Rates

The amount of charge payable depends on types of special use of timber resources, notably, timber felling, collection of turpentine, secondary timber materials, application of recycled wood and others.

4.3. Environment pollution charge

(Law No.1264-ХІІ, dated 25 June 1991; Regulation No.303 of the Cabinet of Ministers, dated 1 March 1999)

The environment pollution charge is levied based on limits of wastage, emission or dumping of pollutants into the environment.

Rates

Rates of the charge are set in fixed amount of Ukrainian hryvnyas per unit of main pollutants and wastes.

4.4. Fee for mining of mineral resources

(Regulation No.1014 of the Cabinet of Ministers, dated 12 September 1997)

All kinds of entities that engage in mining activities, including companies with foreign investment, are subject to the fee for mining.

The volume of actual abandoned mineral inventories (quantity of mined resources) is the object of taxation.

Rates

The base fee for mining is set for each type of mineral resources (groups of resources with similar application). Fees are further differentiated on basis of geological features of the area and mining conditions.

4.5. Rent fees

(Decree No.785/94 of the President of Ukraine, dated 21 December 1994, with amendments introduced by the Presidential Decree No.198/95, dated 9 March 1995)

Rent fee for oil and natural gas extracted in Ukraine is levied with aim of gradual levelling of prices for oil and gas extracted domestically and those for imported oil & gas, to nourish favourable conditions for development of the oil & gas sector, and to bring revenues to Ukraine's budget.

Rates

Article 10 of the Law No.378-XIV On State Budget of Ukraine for Year 1999 says that oil & gas producing companies (except for state-owned enterprise ChernomorNefteGaz) pay rental fees to the country's budget in the amount equivalent to US$5 per 1,000 cu m of natural gas and US$3 per tonne of oil extracted.

4.6. Contribution from receipts from main-line pipelining of oil and ammonia transit

(Law No.1458 – ІІІ, dated 17 February 2000)

Article 8 of the Law No.1458 – ІІІ On State Budget of Ukraine for Year 2000 (dated 17 February 2000) rules that business entities that pipeline oil and ammonia via the territory of Ukraine pay a fee for transit pipelining. Joint-stock company Naftogaz Ukraine acts as the taxpayer.

Article 9 of the Law No.1458 – ІІІ On State Budget of Ukraine for Year 2000 (dated 17 February 2000) mentions that national JSC Naftogaz Ukraine must pay to the country's budget 2000 at least UAH 1,005,422 on account of sale of natural gas obtained as settlement for gas transit via Ukraine, pursuant to corresponding agreements. As a rule, natural gas obtained as payment for transit pipelining is sold via auctions.

The contribution is paid every decade based on the volume of oil and ammonia conveyed via Ukraine. The contribution is paid in compliance with the order set by the Cabinet of Ministers of Ukraine. The contribution is paid in Ukrainian national currency at the official UAH to USD exchange rate set by the National Bank of Ukraine on the day preceding the day of payment.

Rates

(і) contribution for main-line pipelining of oil is charged at US$0.685 per tonne of oil conveyed;

(іі) contribution for transit of ammonia is charged at US$0.23 per tonne per 100 km.

4.7. Fee for use of Ukrainian radio frequency

(Law No.1770-ІІІ, dated 1 June 2000).

Payers are the users of Ukraine's radio frequencies distinguished by use of special or general frequency bands.

Tax deductions and exemptions

Special users of radio frequency are exempt from the fee. The Cabinet of Ministers of Ukraine determines the list of such special users.

Rates

Once a year, the Cabinet of Ministers of Ukraine sets the rates of one-off licensing fees and monthly charges for use of radio frequency.

4.8. Fee for use of water resources

(Regulation No.1494 of the Cabinet of Ministers, dated 16 August 1999, Regulation No.836 of the Cabinet of Ministers, dated 18 May 1999)

The fee is applied to industrial use of water (including hydroelectric power and watercraft transportation).

Tax deductions and exemptions

Tax exemption is granted to:

(і) water used for drinking and sanitary needs of individuals;

(іі) water applied for fire-fighting needs;

(ііі) water applied for municipal improvements;

(іv) water used in mines for dust-fighting purposes;

(v) sea water except for water coming from estuaries;

(vі) water collected by scientific research institutions with purpose of scientific research in the field of rice planting and growing of elite rice;

(vіі) water applied in main and auxiliary irrigation canals;

(vііі) groundwater pumped off to prevent water damage (e.g. pollution, waterlogged state, salification, swamping, origination of landslides, etc.);

(іх) water collected by enterprises and organisations to breed valuable species of fish and other aqueous forms of life to be further released into natural ponds and pools;

(х) seagoing watercraft that travel over inland water only in order to move from sea to a seaport located in river's lower reaches without use of special navigational measures (e.g. water discharge from reservoirs and locks);

(хі) water usage during on-water operations of rack-mounted, auxiliary and tow watercraft, as well as by water navigation on the Danube;

(хіі) fee for hydroelectric power application of water is not levied on storage plants that belong to hydroelectric power plants.

Rates

UAH 0.0202 to UAH 0.121 per cubic m, depending on river, including all kinds of inflows;

UAH 0.0403 to UAH 0.126 per cubic m depending on region;

for the needs of hydroelectric power: all rivers – UAH 0.0098 per 100 cu m of water passed through turbines (except for storage plants that belong to hydroelectric power plants);

for needs of watercraft (except for rack-mounted, auxiliary and tow watercraft) – UAH 0.002 to UAH 0.0175 per tonne/day of services rendered, depending on type of watercraft.

4.9. Land tax

(Law No.2535, dated 3 July 1992, with additions and amendments)

Taxpayers are corporations and individuals, landowners and land users, except for tenants.

Tax deductions and exemptions

Tax exemption is applied to:

(і) national parks, sanctuaries and botanical gardens;

(іі) state and local authorities, budget-financed organisations;

(ііі) health centres, associations of the blind and deaf, social organisations of the handicapped;

(іv) cultural, scientific, health care, sports and social security establishments, as well as religious organisations and charities;

(v) lands polluted with radiation or chemicals;

(vі) various experimental agricultural stations, Ukraine-based agricultural research institutions, lands set aside for new gardens, berry-growing lands, vineyards prior to harvesting;

(vіі) public highways that relate to the road department, cemeteries;

(vііі) disabled, Group 1 and 2; pensioners, war veterans, victims of the Chernobyl accident, parents with 3 and more children;

(іх) military elements and organisations, enterprises subordinate to the Ministry of Defence, and military-industry companies;

(х) research institutions;

(хі) shipbuilding enterprises (temporary exemption till 2005);

(хіі) enterprises related to space industry (temporary exemption till 2009);

(хііі) producers of cars and spare parts that have received at least UAH 150 million of investment;

(хіv) business entities registered in special/free economic zones Yavorov, Curortopolis, Slavutich, Azov, Donetsk, and in priority development areas in Lugansk, Donetsk and Zhitomir regions.

Rates

Agricultural lands: 0.1% of the appraised value of arable land, hayfields and pastures; 0.03% for perennial plantations.

Non-agricultural land:

1% of the appraised value of land in settlements. Wherever no appraisal is available, tax is levied at average rate of UAH 0.036 to UAH 0.504 per square m;

3% of the properly calculated value of land occupied by residential housing and co-operative parking lots;

a coefficient ranging from 1.5 to 7.5 is applied to lands occupied by industrial, cultural, occupational and household buildings of historical and cultural value.

5. Other national taxes and charges

5.1. Stamp duty

(Decree No.7-93 of the Cabinet of Ministers, dated 21 January 1993)

Individuals and legal entities pay the stamp duty in Ukraine for execution of action and issue of legal documents by authorised public bodies.

Tax deductions and exemptions

Exemption is given to:

(і) plaintiffs workers and employees – in respect to claims for collection of due salaries and wages and other labour-related claims;

(іі) plaintiffs – in respect to claims related to copyright law and rights for discoveries, inventions, innovations and manufacturing prototypes;

(ііі) individuals – in respect to appeals to effective court decisions as regards divorce cases;

(іv) plaintiffs – in respect to claims on reparation damage caused by mutilation or other injury, as well as by death of a breadwinner;

(v) plaintiffs on collection of maintenance;

(vі) parties on cases related to compensation of damaged caused by unjust conviction, unjust criminal accusations and the like;

(vіі) social insurance and social security bodies, certain executive authorities – as regards claims related to execution of their duties;

(vііі) plaintiffs on compensation of material damage caused by crime;

(іх) individuals – for issue or verification of copies of legal documents required to obtain government aid and pensions, as well as on cases of tutelage and adoption;

(х) authorities and public organisations, companies, institutions and organisations that file actions in respect to protection of their rights and interests of other entities in cases provided for in the effective legislation, as well as consumers in respect to violation of their rights;

(хі) individuals in respect to registration of birth, death, adoption, affiliation, issue of certificates on amendments, additions and alterations to birth certificates in case of affiliation and adoption, as well as due to errors committed by authorised bodies when making civil status records;

(хіі) individuals – for legal proof of their wills and property gift agreements in favour of state-owned enterprises, institutions and organisations;

(хііі) juvenile persons and servicemen for the first issue of Ukrainian passport, as well as juveniles for issue of certificate on inheritance rights;

(хіv) individuals enjoying social privileges pursuant to the current legislation of Ukraine;

(хv) citizens of Ukraine – for issue of diplomatic and office passports of Ukraine and for issue of sailors' identification cards;

(хvі) citizens of Ukraine and accompanying individuals – for issue of proper documents authorising travel abroad with purpose of recuperation from a disease caused by the Chernobyl accident, as well as for recovery of children suffered as a result of the Chernobyl accident;

(хvіі) Ukrainian citizens – for issue of travel documents to abroad if the visit is related to death of or visit to graves of close relatives, as well as for issue of invitations to Ukraine due to death or severe disease of close relatives;

(хvііі) foreigners who have obtained a refugee status in Ukraine and similar individuals, their families and children – for issue of travel documents to abroad;

(хіх) Ukrainian citizens and foreign nationals – for issue of documents permitting entry into or departure from Ukraine, if the necessary international treaties between Ukraine and other states reciprocally remove application of stamp duties, as well as foreign nationals who act as honorary councils of Ukraine;

(хх) children under 16 – for issue of travel documents to abroad;

(ххі) foreign tourists – for registration of foreign passports;

(ххіі) individuals – for claims on compensation of damage caused by failure to collect due monetary and property deposits placed in joint-stock companies, banks, credit institutions, trusts and other legal entities that work with money and property of individuals;

(ххііі) state customers and contractors under state contracts – in respect to claims filed to recover loss incurred during execution of state contracts, introduction of amendments, failure to fulfil or failure to fulfil properly the supplies for state needs;

(ххіv) individuals – in respect to claims on protection of rights and legal interests in rendering of psychiatric aid.

Rates

Rates depend on type of action or on claim or the amount claimed.

5.2. Tax on owners of motor vehicles and other self-propelled machines and mechanisms

(Law No.1963-ХІІ, dated 11 December 1991)

Tax on owners of motor vehicles and other self-propelled machines and mechanisms.

Tax deductions and exemptions

Tax exemption is granted to:

а) public motor carriers in respect to mass transit vehicles, if tariff charge for passengers is set in accordance with the law;

b) educational institutions fully financed from the state budgets in respect to educational vehicles, provided such vehicles are indeed used for their original purposes;

c) individuals provided for in points 1 and 2 of article 14 of the Law No.796-12 On Status and Social Protection of Individuals Suffered from the Chernobyl Accident, article 4-11 of the Law No.3551-12 On Status of War Veterans and Guarantees of Their Social Protection, article 6 and 8 of the Law No.3721-12 On Basic Principles of Social Protection of Labour Veterans and Other Elderly in Ukraine, as well as all groups of the disabled (including disabled children, upon request of social security authorities) in respect to one car (cycle-car) with 2,500-cubic-cm cylinders, or one motorcycle with up to 650-cu-cm cylinders, or less than 7.5-m-long motor boat or launch (except for racing launches);

d) individuals provided for in points 3 and 4 of article 14 of the Law No.796-12 On Status and Social Protection of Individuals Suffered from the Chernobyl Accident in respect to one car (cycle-car) with 2,500-cubic-cm cylinders, or to one motorcycle with up to 650-cu-cm cylinders, or for less than 7.5-m-long motor boat or launch (except for racing launches). Exemption applies to these individuals prior to relocation and three years after their relocation from the zone of guaranteed voluntary displacement or from the zone of strict radioecological control;

e) rates are halved as regards agricultural producers with wheeled tractors, buses and special motor vehicles that can carry more than 10 passengers;

f) rates are halved as regards individuals who own cars (code 87 03) manufactured in CIS member-states and registered in Ukraine prior to 1990 inclusive.

Rates

Type of vehicle and rates applied per 100 cubic cm of engine displacement are:

Wheeled tractors – UAH 2.5;

Minibuses (carrying up to 10 passengers) – UAH 3.6;

Cars and carriages – UAH 3 to 30;

Lorries – UAH 10 to 20;

Motorcycles – UAH 2;

Electrical vehicles – UAH 0.5 per kW;

Yachts and boats – UAH 5-10 per 100 cm of length.

6. Local taxes and charges

6.1. Miscellaneous local taxes

(Decree No.56-93 of the Cabinet of Ministers of Ukraine, dated 20 May 1993)

Local taxes and charges embrace:

(і) hotel accommodation charge;

(іі) car parking fee;

(ііі) market charge;

(іv) charge for issue of apartment warrants;

(v) charge payable by owners of dogs;

(vі) resort charge;

(vіі) charge for participation in the horse races;

(vііі) charge for wins at the races;

(іх) charge payable by individuals who bet on totalizator at the races;

(х) advertisement tax;

(хі) charge for the right to use local symbols;

(хіі) charge for the right to do video filming and telephotography;

(хііі) charge for holding local auctions, bids and lotteries;

(хіv) community tax;

(хv) charge on motor cars heading to abroad and passing through border-adjacent areas;

(хvі) fee for permits to place trade points;

(хvіі) tax on sale of imported goods.

These taxes brought in the total revenue of UAH 402 million in the course of 10 months of 2000.

[12.12.2000]

Official date the site was started

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