Two laws of 15 July 2021 on amending transitional provisions of the Tax Code and the Customs Code of Ukraine “to promote the development of ecological transport in Ukraine” (Nos. 1660-ix, 1661-ix) will introduce some tax and customs facilitations with effect from 1 January 2022.
1. Electric Vehicles
a) Import promotion of certain goods
Enterprises that maintain, establish or modernise production for the manufacture of the following means of transport will be exempted from import VAT and import duty on the import of certain goods until 1 January 2031:
Vehicles equipped exclusively with electric motors (one or more) and falling under the following Harmonised System numbers:
– 8603 (self-propelled trams and metro cars only),
– 8701 20 (wheel tractors for semi-trailers),
– 8702 motor vehicles designed to carry 10 or more persons including the driver,
– 8703 motor cars and other motor vehicles principally designed for the transport of persons (other than motor vehicles of heading 8702), including vans and racing cars,
– 8704 motor vehicles for the transport of goods,
– 8705 special purpose motor vehicles, other than those principally designed for the transport of persons or goods (for example, lorries for emergency repairs, mobile cranes, fire engines, concrete mixers, street cleaning vehicles, maintenance vehicles).
The total of 126 goods are defined in a positive list in the Customs Code.
Note, that these benefits do not apply to goods originating from Russia or imported from Russia and/or from the temporarily occupied territories.
b) Incentives for the import and supply of certain vehicles
Until 1 January 2022 the tax code granted VAT exemptions for the import into and the supply on customs territory of Ukraine of certain vehicles exclusively electrically driven. This term was extended until 1 January 2026, and the eligible vehicles determined in more detail. Eligible vehicles are:
8701 20 (truck tractors for automobile semitrailers only)
8703 80 10 10: other new vehicles, exclusively electrically driven
8703 80 90 10: other vehicles, exclusively electrically driven (i.e. used vehicles)
8704 90 00 00: certain other vehicles for the transport of goods
c) Exemption from profit tax
Until 31 December 2035, the following enterprises will be exempt from paying profit tax:
– Companies that exclusively manufacture electric motors intended for vehicles that are exclusively electrically powered (as defined in 1.a above);
– Companies that exclusively manufacture lithium-ion batteries intended for vehicles that are exclusively electrically driven (as defined in 1.a above);
– Companies exclusively manufacturing chargers for lithium-ion batteries intended for vehicles that are exclusively electrically driven (as defined in 1.a above);
– Companies that exclusively manufacture vehicles that are exclusively electrically driven (as defined in 1. a) above;
– Companies producing exclusively electrically powered self-propelled trams and metro cars (HS No 8603), and / or non-motorised trams or metro cars (HS No 8605 00 00 00).
The company must use the saved tax funds for research and testing work, for the construction or conversion of production facilities, for the expansion of production capacities and/or for the introduction of new technologies. The use of these funds must be related to the production activity of the enterprise. The funds shall be considered as targeted financing.
2. Promotion of Natural Gas and Biogas-powered Vehicles
The two incentive laws also provide for incentives for the import and manufacture of vehicles with spark-ignition internal combustion engines that run on natural gas or biogas:
Until 1 January 2026, the import into and the supply on the customs territory of Ukraine of new vehicles (including vehicles manufactured in Ukraine; HS Nos 8701 20, 8703, 8704) are exempt from VAT if the vehicles run exclusively on compressed natural gas, liquefied natural gas or biogas.
The import of goods on the positive list (see a) above) will also be exempt from import VAT and import duty until 1 January 2031 if they are imported by eenterprises that maintain, establish or modernise production for the manufacture of vehicles that run exclusively on compressed natural gas, liquified natural gas or biogas (falling under HS Nos 8701 20, 8702-8705).
Finally, companies that exclusively produce vehicles that run exclusively on compressed natural gas, liquefied natural gas or biogas (falling under HS Nos 8701 20, 8702-8705) will also be exempt from profit tax until 31 December 2035; in this respect, the above statements apply accordingly.
3. Incentive for manufacturing of Trams and Metro cars
The import of goods on the positive list (see a) above) will also be exempt from import VAT and import duty until 1 January 2031 if they are imported by enterprises that maintain, establish or modernise production for the manufacture of non-motorised trams or metro cars under HS No 8605 00 00 00 (Passenger railway or tram cars, luggage cars, postal cars and other specialized railway and tram cars).
By Julian Ries, Senior Partner and Head of International Offices, and Viktoriya Fomenko, Partner, Head of Tax and Customs, Integrites