Dmitry Yovdiy
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The document discusses various options for distance selling companies that are not residents of Ukraine to conduct business activities in Ukraine. The main options are: 1) through a registered legal entity in Ukraine, 2) through a group of business entities using a simplified tax system, or 3) without registering a business in Ukraine by importing goods through international postal consignments. Registering a legal entity has tax disadvantages like high tax burdens and frequent audits. Using a group under the simplified tax system caps annual revenue. Importing through postal consignments has restrictions on price and quantity but avoids VAT and duties. The document analyzes the advantages, disadvantages, risks, and tax implications of each option.
Dmitry Yovdiy
- 1. Tax aspects of distance selling companies activities in Ukraine Search for the best legal model 1
- 2. The main options of starting business for distance selling companies, non - residents of Ukraine • through registered on the territory of Ukraine legal entity or representative • through the group of business entities that use the simplified tax system • without registration of business in Ukraine 2
- 3. The activities of the legal entity on the territory of Ukraine. Disadvantages and Risks • Substantial tax burden on business entities of Ukraine • Fiscal approach of the tax authorities aimed at filling the state budget; • In court disputes the taxpayer and tax authorities in 9 of 10 cases tax authorities win; • Frequent tax audits (usually with additional taxes and penalties); • The complexity of registration (especially for representative offices); 3
- 4. The activities of the legal entity on the territory of Ukraine. Disadvantages and Risks List of taxes: • 20% VAT on import and customs duty under the Customs Tariff of Ukraine; • Income tax: - till 31.12.2012 - 21%; - Since 01.01.2013 till 31.12.2013, the - 19%; - Since 01/01/2014, the - 16% • Income tax for the permanent representatives - 15% • Unified Social Tax - 37% of the Wage Fund • VAT on selling goods to consumers 20% 4
- 5. Activity through the group of business entities. Disadvantages and Risks Business entities with simplified tax system pay fixed single tax : - up to 20 % from minimal wage (1-st and 2-d groups) – maximum turnover per year – up to 1 mln. UAN - 5 % from turnover (3-d group) – maximum turnover per year – up to 3 mln. UAN - 10 % from turnover (5-th group) – maximum turnover per year – up to 20 mln. UAN 5
- 6. Activity without registration of entity on Ukrainian territory . Advantages Obligatory option: import of goods into Ukraine only through international postal consignments! 6
- 7. Activity without registration of entity on Ukrainian territory. Advantages Opportunity to transfer the payment of tax burden in the country of company's registration No VAT and customs duties on import using international postal consignments is possible only in such cases: • Price per item up to 300 Euro; • Product comes from one sender to one recipient not more than 1 time a day; • The range and quantity of the goods must not look like a "bulk purchases" In the case of goods cost more than 300 euro, 20% VAT and 10% import duty are calculated from the sum exceeding EUR 300) 7
- 8. Activity without registration of entity on Ukrainian territory. Advantages Problem: Possibility of using a tax credit for export VAT caused by the exportation of goods from the country of registration. Using consignment schemes it is possible 8
- 9. Activity without registration of entity on Ukrainian territory. Advantages The main conditions of the customs clearance of goods: • The main task is justification that the imported goods are international mail • International mail marked "consignment" should be on the form of the single Administrative Document (Resolution Cabinet of Ministers № 450 from 21.05.2012 years) • In one customs declaration form on a single administrative document may be declared up to 999 products 9
- 10. Activity without registration of entity on Ukrainian territory. Risks • The risk of the application of the Permanent Representation of foreign legal entities on the territory of Ukraine permanent representation is a permanent place of business through which is used by non-resident in Ukraine for whole or part of economic activity, in particular: a place of management, branch, office, factory, workshop, and any other place of extraction of natural resources, warehouse or premises used for the delivery of goods. For tax purposes, the term "permanent representation" includes residents who have the authority to act on behalf of non-residents, which gives a non-resident civil rights and obligations (make agreements on behalf of non-residents, maintain (store) stocks of goods belonging to a non- resident, warehouse that supplies the goods on behalf of non-residents, except residents with the status of a temporary storage warehouse or a bonded warehouse) - 14.1.193 sub paragraph 14.1 of Article 14 of the Tax Code of Ukraine.. 10
- 11. Activity without registration of entity on Ukrainian territory. Risks permanent place of business solely for the purposes of non-resident activity of a preparatory or support is not a representative (paragraph 14.1.193 paragraph 14.1 of Article 14 of the Tax Code of Ukraine). Way to protect The contractual relationship between non-resident company and Ukrainian company-contractor (or representative) shall be made to perform certain types of services, from the content of which is clearly evident that these services are support to the core business of non-resident Russian legal entity, support to trading activities. 11
- 12. Opportunities of Russian distance selling companies to work through registered legal entities in Ukraine • Liberalized customs and trade laws between Ukraine and Russia in connection with the signing Agreement "On the free trade zone" of the year 18.10.2011 (ratified by Russia and Ukraine); • Introduced duty-free export and import of goods between countries; • Zero VAT and no custom duties on export of goods from Russian delivered as international post consignments (paragraph 11 part 1 article 131 Federal Law of the Russian Federation on November 27, 2010 N 311-FZ "On Customs Regulation in the Russian Federation") • Opportunity to minimize the income tax due to costs on advertising and market research (marketing), on preselling preparation goods 12
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