Ukraine approves compromise model for introducing exit capital tax for SME – Finance ministry
The Finance Ministry of Ukraine has said that the introduction of the exist capital tax without a threat to fiscal stability only for small- and medium-sized enterprises (SME) with annual income of up to UAH 200 million is realistic. The compensator in the form of conventional payment of the exit capital tax in advance in the amount of 50% of the sum of tax liabilities for the profit tax for 2018 will apply.
"This model of taxation was discussed with the IMF and after difficult negotiations was agreed as possible," the ministry said in a statement on Tuesday.
According to its calculations, in this case 98% of the total number of legal entities will switch to the payment of the exist capital tax and benefit from this tax, while about 4,500 companies with an annual income of over UAH 200 million, who declared 85% of the total amount, will remain payers of the profit tax (according to the annual declaration of 2017).
The Finance Ministry said that it shares the opinion that the current legislation allows large companies to apply certain tax optimization through low-tax jurisdictions. However, to minimize these risks, the MLI convention was signed, the BEPS bill was drafted, and the rates of bilateral tax treaties are being reviewed, the ministry said.
According to the ministry, the direct loss of the budget in the case of the introduction of the exist capital tax for all existing taxpayers from January 1, 2019 will amount to UAH 46.7 billion in the absence of the opportunity of reducing the expenditure part of the national budget. The ministry added that in 2020 budget the losses will be significant, and fiscal risks will remain high.
"We consider it necessary to note that under the circumstances, Ukraine should give high priority to fiscal sustainability and continue cooperation with international partners and creditors, in particular, with the IMF, whose technical mission is now in Ukraine," the Finance Ministry said.