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Ukraine: Technological Innovation in Taxation

Ukraine: Technological Innovation in Taxation

Issue 10.10
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In light of the ongoing war with Russia, Ukraine is leveraging technological innovations to fortify its taxation system, ensuring efficiency and transparency. Two notable initiatives – electronic residency and electronic excise tax stamps – will transform how business is conducted and taxes are collected in the country.

Electronic (Tax) Residency: A Gateway for Foreign Entrepreneurs

One of Ukraine’s initiatives is the introduction of electronic (tax) residency for foreigners, which promises a streamlined approach for foreign entrepreneurs seeking to engage in business in Ukraine.

The project offers a unique status to foreigners, allowing them to conduct business within the country’s borders without a physical presence. This opens the doors to international entrepreneurs, making it easier for them to establish and operate businesses in Ukraine. Registering as a sole proprietor is a straightforward process that does not require a physical presence in Ukraine.

One of the most attractive features of electronic residency is the favorable tax regime it offers to foreign entrepreneurs. They are subject to a flat tax rate of 5% on their revenue within the limits of approximately EUR 200,000 per year (the limit increases yearly). The tax rate is set at 15% for income generated beyond this threshold. The flat tax rate allows to thrive for those businesses that do not have enough tax-deductible expenses to reduce tax base on the regular corporate income tax system. Also, the tax administration process is simplified, with banks serving as tax agents responsible for withholding and remitting taxes directly to the state budget.

Administrative processes for electronic residents are very user-friendly. All documents and correspondence with the State Tax Service are conducted electronically, and payments are made electronically, reducing bureaucratic red tape and enhancing efficiency.

The introduction of electronic residency couldn’t have come at a more crucial time for Ukraine. With the nation navigating a challenging war effort, fostering an environment that welcomes foreign entrepreneurs proves Ukraine’s resilience and commitment to economic growth.

Electronic Excise Tax Stamps: Enhancing Transparency

Ukraine has introduced electronic excise tax stamps as part of its broader digital transformation efforts to boost transparency and accountability in excise tax collection.

Electronic Excise Tax Stamps, often called “e-stamps,” are digital markers affixed to excisable goods, including alcoholic beverages, tobacco products, and e-cigarette liquids. These digital stamps enable authorities to track the movement of these products from manufacturers and importers to consumers. This facilitates the monitoring of tax payments and ensures the legality of product origins, a feature accessible to every citizen.

Manufacturers and importers can generate e-stamps within the e-Excise digital traceability system and apply them to individual bottles of alcohol or packs of cigarettes. These stamps, equipped with a two-dimensional DataMatrix code, are resilient, remaining readable even in the face of surface damage.

E-stamps will foster seamless electronic interactions between state bodies and business entities, further streamlining the tax collection process.

With these innovations in place, Ukraine is poised to increase state budget revenues from excise taxes and curtail the shadow markets for tobacco and alcohol products. E-stamps are a pivotal step toward a more transparent and efficient taxation system, showcasing Ukraine’s commitment to digital transformation despite challenging circumstances.

A Resilient Path Forward

In a time of adversity and uncertainty, Ukraine’s commitment to embracing technology to strengthen its taxation system is commendable. Electronic residency and excise tax stamps represent a move toward efficiency and transparency and a signal to the world that Ukraine is open for business, even in the face of war. These innovative initiatives will benefit the government through increased tax revenues, empower entrepreneurs, boost economic growth, and ultimately contribute to a more resilient and prosperous Ukraine on the global stage.

By Vitaliy Odzhykovskyy, Partner, Kateryna Utiralova, Senior Associate, and Ivan Chopyk, Associate, Sayenko Kharenko

This article was originally published in Issue 10.10 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.