Amendments to Ukrainian tax legislation introduced a special economic zone (“SEZ”) created to support the development of the processing industry in certain areas of Lugansk, Lviv, and Donetsk regions.
Law of Ukraine No. 1914-IX prescribes that starting from 1 January 2022 until 1 January 2037, SEZ companies are exempt from payment of income tax, rent for special water use, use of forest resources, and land fees, if they comply with certain criteria.
These exemptions apply, among others, to companies that conduct business in food, consumer goods, wood processing, chemical and metallurgical industries, production of equipment, computers, furniture, and transport vehicles, as well as other activities specified by Law No. 1914-IX.
To apply for tax incentives, the company must comply with the following criteria:
- be incorporated after 1 January 2022;
- place of tax address, place of activity, and location of production facilities must be located in specific areas of Lugansk, Lviv, and Donetsk regions;
- no affiliated divisions, subsidiaries, representative offices or branches;
- the total amount of income received by the company from the sale of its own products must exceed 90 percent of the total amount of its income during the reporting period;
- the amount of annual income (excluding indirect taxes) determined by the accounting rules for the last annual reporting period must not exceed UAH40 million; and
- the average total number of employees during the reporting period must be at least 10 people.
In addition, certain transactions of SEZ companies will be VAT exempt until 1 January 2037, including:
- import of equipment and components, including spare parts, electric instruments and transformers, measuring equipment, etc. (if such equipment is used in production),
- sale of goods produced by SEZ companies in the territory of Ukraine.
The introduction of the SEZ for the next 15 years opens new opportunities for the processing industry subject to investments in the respective areas of Lugansk, Lviv, and Donetsk regions. The minimal tax burden will facilitate redistribution of funds to the expansion of production in the long-term prospective.
We will be glad to provide you with more information and practical advice on this issue.
