New VAT Rules for Agri-Exporters in Ukraine
Despite the ongoing war, Ukraine remains a vital player in the global grain market and continues to export agricultural commodities via the “grain corridor” under the Black Sea Grain Initiative. However, the export proceeds from these commodity sales do not always reach Ukraine in time. According to the National Bank of Ukraine, as of 1 October 2022, non-residents owed approximately USD 5.5 billion to Ukrainian exporters, making this a serious issue for the Ukrainian Government doing its best to balance FX rates and the economy amid the war. To address this issue, which is said to be caused by the shadow market of grain export revenues, on 12 January 2023 the Ukrainian parliament adopted Law No. 8166-д On Amendments to the Tax Code of Ukraine and Other Laws on Application of the Export Ensuring Regime During Martial Law and State of Emergency (the Law).
The new regulation under the Law suggests withholding VAT refunds from agri-exporters until export revenues are returned to Ukraine, which during the martial law should be done within the settlement period of 180 days after the customs clearance date (instead of the usual 365 days). This applies to key agricultural commodities such as wheat, barley, corn, soybean, rapeseed, cake and meal, oil (sunflower, safflower, and cottonseed), and sunflower seeds (the Regulated Commodities). The new regime can be implemented on a decision of the Cabinet of Ministers during martial law. If issued, exports of the relevant Regulated Commodities will become subject to the new VAT rules described below.
New VAT rules
The new VAT rules will apply if an exporter meets any of the following criteria:
- in the corresponding current month, the total customs value of exported Regulated Commodities exceeds one-third of all export revenue received by the exporter for the previous six months; or
- the central tax authority established a violation by the exporter of the requirements of the currency legislation during the previous twelve months.
Such exporters will have to register tax invoices before the date of submitting the relevant customs declaration and recognise VAT liabilities at the rate applicable to the supply of goods within the customs territory of Ukraine (which for most Regulated Commodities constitutes 14%, with the general rate being 20%). This means that they will not be able to obtain a VAT refund through the usual procedure. Such exporters will only be able to apply for a VAT refund after their export revenue has been received in their bank account in Ukraine, at which point they will be able to adjust the tax rate from 14%/20% to 0%.
Importantly, notwithstanding this criteria, only registered VAT payers will be able to export the Regulated Commodities.
To better enforce the new rules, the Law prohibits operations with the Regulated Commodities being settled by way of set-off or generally with any other settlement method that does not provide for the repatriation of funds to exporters’ bank accounts in Ukraine.
The Law was signed by the President on 3 February 2023 but has not been published yet. The underlying amendments will come into effect in one month after official publication.
It is worth noting that legislators opted for the regulations provided by the Law over several other options. Alternative envisaged 15% preliminary export deposits, the use of special treasury accounts with export overdrafts and bank guarantees. However, these alternatives were considered to be less effective than the mechanism suggested by the Law.
The text was prepared by CMS in Kyiv.