Accounting & TAXATION
Accounting and Payroll in Ukraine
Accounting and payroll in Ukraine are legally
much the same as in more developed European markets, but in practice a lot of
nuances have to be taken into account. The accounting practices in Ukraine are
governed by the Law on Accounting and Financial Reporting since the year 2000.
This law states that IFRS should override local accounting standards, but in
practice there are many differences between the two.
The fiscal year begins on January 1st and ends on December 31st, i.e. it is
always the calendar year. As in other CIS countries, the accounting and payroll
program 1C dominates the market and finding accountants with skills to use
other programs can be difficult.
What are the controlling institutions?
The regulatory body for accounting is the
Ministry of Finance. For tax payments, companies are controlled by the State
Fiscal Service of Ukraine. Payroll taxation and employees' rights are monitored
by the State Labour Inspectorate.
Tax rates in Ukraine
Corporate income tax - 18 %
VAT - 20 %
Social security contributions (payroll tax) - 22 %
Personal income tax - 18 % (additionally a 1,5 % military tax is currently
These are the basic tax rates that apply to
normal limited liability companies and people in Ukraine. There are many
exemptions to these numbers, for example private small entrepreneurs generally
only pay 5 % tax.
Many foreign companies use such private entrepreneurs for outsourcing,
especially in the IT field. In these cases an accounting partner usually takes
care of the PE registrations, international invoicing and tax payments, in
essence taking care of the payroll and administration responsibilities.
Standard VAT rate is 20 %.
Export of goods VAT is 0 %, for services it can be 0 or 20 % depending on the
place of receiving services, place of registration of the recipient etc. Import
of goods and services to Ukraine is subject to 20 %VAT and customs duties.
Interesting facts about accounting and payroll in
Physical paper accounting documentation is still
a mandatory thing in Ukraine. This creates extra work for accountants, who need
to be able to manage and store sometimes very large quantities of paper
documents. If outsourcing is used, then the exchange of documents between
client and service provider needs to be arranged in a systematic way. The
company stamp is no longer compulsory, however many organizations still opt to
use it. Even though the law no longer requires a company stamp, it is sometimes
easier to just use it than to try explaining this to some of the
representatives of the local bureaucracy.
Ukraine is a very popular outsourcing market for
IT services in particular. The legislation allows foreign companies to purchase
services from local private entrepreneurs in such a way that resembles having
the entrepreneurs on the foreign company's payroll.
How often do I have to report?
Monthly: VAT report, Report of Unified Social Insurance
Contributions, specific statistical reports
Quarterly: Financial statements, personal income tax reports, CIT
reports in case of revenue exceeding 20 000 000 UAH (approx. 700 000 EUR)
Annually: Financial statements, CIT report.
How often will the government audit me?
The government performs scheduled on-site tax
audits of companies which are listed on the audit plan of the relevant tax
office. This list is pubished online, so companies can check if they are on it.
Unscheduled tax audits are performed in case the target company violates some statute
of the tax law, e.g. fails to file a tax return.
Some types of companies face mandatory audits,
for example JSCs, banks, issuers of securities, financial institutions and
Are tax authorities strict regarding the
Accounting and Payroll regulations?
Yes, they are - sometimes even brutal. This is a fact
that companies operating in Ukraine have to take into account. Many minute
details have to be taken into account when doing accounting, as it is very easy
to break the rules. A professional and accurate accountant is the best way to
minimize risks when it comes to government audits and checks.
foreign companies especially may sometimes face harassment from the tax
authorities, however this is occurring less and less in recent years.