​The Government has approved a draft law introducing taxation of distributed profit

10/4/17

Today, the Government has approved a draft law introducing taxation of distributed profit.

What’s it about?

As part of the Law No. 1797 on the improvement of the investment climate in Ukraine, a working group comprising representatives of the Ministry of Finance, business as well as experts and MPs has prepared the text of a draft law introducing taxation of distributed profit.

The key goal is to introduce taxation of corporate profit distributed as dividends or payments equal to them and to abolish taxation of the incomes of non-residents.

The Ministry of Finance organized an absolutely open and transparent process for the preparation of this draft law. All interested parties had an opportunity to join the elaboration of the draft law.

What’s the benefit?

Taxation of distributed profit instead of corporate profit tax will pose an incentive for business to re-invest into the manufacturing capacities and development. This will also simplify taxation rules and the tax administration procedures as well as improve the investment climate in Ukraine.

It must be noted, however, that the implementation of this draft law in 2018 will result in losses for the state budget and for the local budgets amounting 26 billion and 5.4 billion hryvnas respectively.

The Ministry of Finance supports the implementation of the tax on distributed profit, if the state budget remains balanced. The options available for the compensation of the budget losses include the increase of tax rates or spending cuts. The Ministry of Finance categorically opposes the increase of tax rates and considers cuts in public spending and a more effective use of the public funds the only way to compensate the reduction of the state budget revenues.

What comes next?

The Government has decided to submit the draft law to the National Council for Reforms for examination to find an optimal solution regarding what expenses shall be reduced.

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