Draft Law of Ukraine

"On Amendment of the Law of Ukraine "On Enterprise Profit Tax"

The draft suggests changing the definition of "long-term life insurance agreement" presented in clause 1.37 of the Law of Ukraine "On Enterprise Profit Tax" (hereinafter referred to as "the Law"). Also the draft suggests amendments to clauses 5.6 "Peculiarities of Calculating Expenditures on Labor Payment" and 7.2 "Taxation of Insurance Activity" of the Law.

To date, according to clause 5.6 of the Law, payers of enterprise profit tax (hereinafter referred to as "Taxpayer") shall have the right to include in their gross expenditures sums of insurance payments transferred in favor of their employees under long-term life insurance agreements not in full, but in the amount, which:

• does not exceed 15% of the salary, the employee obtains from the Taxpayer during such calendar quarter;
• in aggregate does not exceed UAH 6,000 calculated for one insured employee during the reporting tax period.

Apart from that if the Taxpayer is simultaneously paying fees for additional pension provision (insurance) of the employee, each quarter they may include into their gross expenditure the amount of fees paid for long-term life insurance of the employee and for their additional pension provision (insurance), which together do not exceed 15% of the employee’s salary obtained from the Taxpayer during such calendar quarter.

Amendments to clause 5.6 of the Law clearly establish that Taxpayers may also include into gross expenditures also fees under agreements on pension deposits and non-governmental pension provision of their employees. However, aggregate insurance payments under agreements on long-term life insurance, pension deposits and non-governmental pension provision should not exceed 15% of the employee’s salary over the respective tax period, while the limit to the maximum amount of UAH 6,000 per one employee, which may be included into gross expenditures, is cancelled.

Amendments to clause 7.2 of the Law establish a 3% rate for taxing amounts of insurance payments under re-insurance agreements with non-resident insurers and re-insurers. However, the draft cancels some norms of clause 13.6 of the Law, which set the rate for taxing the above-mentioned payments transferred in favor:

• non-resident insurers and re-insurers, whose financial stability rating meets requirements set forth by the Cabinet of Ministers of Ukraine – at the 0% rate;
• in other cases – at the 15% rate.

Taxation rates presented in clause 13.6 of the Law according to clause 9 of "Transitional Provisions" of the Law of Ukraine N 349-IV "On Amendment of the Law of Ukraine "On Enterprise Profit Tax" of December 24, 2002, and the Resolution of the Cabinet of Ministers of Ukraine N 1640 "On Approving Requirements to Financial Stability Ratings of Non-Resident Insurers and Re-Insurers" of October 15, 2003, should be applied starting from January 1, 2004, - when the Resolution of the Cabinet of Ministers of Ukraine N 1640 of October 15, 2003, becomes effective.

Thus, the draft suggests setting forth a unified rate for taxation regardless of financial stability rating of non-resident insurers and re-insurers. It has to be mentioned that analogous suggestions related to taxation of re-insurance payments with non-resident insurers and re-insurers are included into draft law N 4091 introduced by MP M.Dobkin of October 17, 2003 (See Bulletin #80).

Also the draft suggests detailing the list of cases for terminating long-term life insurance agreements, under which the Taxpayer should include into gross incomes a certain amount of tax payments and the amount of a respectively calculated fine.