State Tax Administration of Ukraine Taxation of Small Businesses in Ukraine and Underlying Tax Risks (Current taxation regimes for small enterprises as source of wide- spread practice for tax evasion; Legislative regulation of taxation related issues as element of program for promotion of development of MSE) Conference on “Taxation of Micro and small Businesses” May 4 – 6 of 2011, Tbilisi, Georgia

Criteria for assigning of taxpayers to large, medium and small taxpayers’ groups а) small Legal persons Gross income < 70 million Grivna (6 million €) Number of employees< 50 persons Natural persons and subjects involved in economic activities b) largeLegal persons Gross income > 100 million Grivna (8,6 million €) Number of employees> 250 persons с) medium All taxpayers, not included in groups a) and b)

Small business taxation systems General Unified tax for legal and natural persons – subjects involved in economic activities Flat tax for subjects involved in economic activities – natural persons Simplified

Unified tax Legal persons Gross income < 1million Grivna (86,5 thousand €) Number of employees ≤ 50 Natural persons – entrepreneurs Proceeds from sales < 500 thousand Grivna (43,3 thousand €) Number of hired staff ≤ 10 The system of unified tax regime shall not extend to following entities:  subjects involved in economic activities, which are subject to special patenting;  Trusts, insurance companies, banks, other financial -crediting institutions and non-banking financial institutions;  Natural persons – entrepreneurs, who are involved in trade with tobacco and alcoholic beverages and combustive- lubricating materials  Gambling business and related activities, conducting of lotteries;  Currency exchanges  Producers of excise goods, export-import of such goods, wholesale and retail trade with combustive-lubricating materials  Extraction and production of precious metals and stones, wholesale and retail sales of such make.

Unified tax Legal persons 6% of proceeds from sales + VAT 10% of proceeds from sales in case of inclusion of VAT in unified tax + unified social contribution (from 36,7% to 49,7%) Natural persons From 20 to 200 Grivna per month (1,7-17,3€) + unified social contribution (no less than 34,7% of minimum wages - minimal amount of unified payment for April shall amount to 960 Grivna х 34,7% = 333,12 Grivna. Tax rates Exemptions:  Profit tax ;  VAT;  Tax on income of natural persons ;  Land tax ;  12 other taxes and duties. Exempted from requirement of maintaining of cash registers And benefit from simplified accounting

Flat tax  Natural persons – entrepreneurs, who sell goods and offer related services on markets  Gross income thousand Grivna (10,3 thousand €)  Number of wage laborers≤ 5 Restrictions: Are not authorized to trade with alcoholic beverages Tax rates: From 20 to 100 Grivna Exempted from:  Maintaining of accounting;  From requirement of maintaining of cash registers

Share of proceeds from subjects of economic activities taxed on the basis of simplified tax regime as of 2010 TotalSimplified taxation Share in % Number of subjects (legal and natural persons) (thousand) Proceeds into budget (million Grivna) 2101,90,9

- Splitting of a business; -Non-disclosure of proceeds due to failure of accounting or exemption from use of cash registers; - Provision of fictitious services - Cashing and etc. Schemes of tax evasion and minimization of tax payments

Scheme of provision of fictitious services or cashing Ordinary company >> 1 money Buffer company >> 2 Entrepreneur, taxed by simplified regime >> 3 Fictitious services (works) Budget 200 Grivna Minimization of payments Withdrawal of 500 Grivna money Fictitious services (works)

Scheme of tax evasion through splitting of business Minimization of tax on income of natural persons and contributions into social funds Budget 200 Grivnas (2400 Grivnas per year) Company “a” Hiring of employees by entrepreneurs, who benefit from simplified tax regime («b») («b») Budget loses in tax proceeds around 1 billion Grivna from income tax of natural persons and 2 billion Grivnas in social contributions Money Services (works)

Legislative regulation of taxation issues as element of program on promotion of development of small businesses Starting from the Tax Code prohibits payers of income tax to charge to expenses amounts spent on procurement of goods (works, services) from natural persons, who are taxed by unified tax. (not considered as a deductible expense) “Tax holidays” for small taxpayers, who pay income tax. Simplified system of registration (single window principle, principle of self-declaration) Reduction of licenses and permits for implementation of different types of economic activities Further reformation of simplified taxation system

State Tax authorities of Ukraine Thank you for your attention Конференция на тему «Налогообложение микро- и малого бизнеса» 4 – 6 мая 2011 года, Тбилиси, Грузия