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Income tax and VAT on receiving the bonus in monetary form from non-resident supplier

In the letter of 28.10.2016 State Fiscal Service of Ukraine has provided clarification regarding taxation of receiving bonus in monetary form from the supplier on the basis of non-resident credit note (the settlement document which contains the message which goes the supplier to the buyer about record on credit of the account of the last certain amount in connection with approach of a circumstance which created a right of claim of such amount for buyer).

This explanation is proved by numerous requests from representatives of both small, and large business in a consequence of lack clearly defined by the legislation rules governing this sector of relationships.

Concerning the taxation on profit it should be noted the following.

So, according to provisions of the Tax Code of Ukraine (further – the Code) the object of taxation on income tax is a profit with an origin source from Ukraine and abroad, which is determined by adjusting (increase or decrease) a financial result to the taxation (profit or loss), determined in the financial reporting of the entity in according to national provisions (standards) of financial accounting or international accounting standards, on the differences arising according to section III provisions “Tax on profit of enterprises” of the Code.

The tax code in the current edition didn’t provide carrying out adjustment of a financial result to the taxation on differences on operations to obtain a bonus in monetary form from non-resident supplier.

Consequently, such transactions are reflected in the formation of financial result to taxation according to the rules of accounting.

Concerning the value added tax (further – the VAT) on the specified transactions, we consider necessary to note the following.

According to relevant provisions of the Code the value added tax, transactions are assessed of taxpayers on delivery of goods / services which place of delivery is on customs area of Ukraine.

The code says that it is necessary to understand any transaction as delivery of services, not being delivery of goods, or another transaction on transfer of the right to intellectual property items and other intangible assets or provision of other property rights concerning such objects of intellectual property right, and also provision of services consumed in the process of making of a certain action or implementation of certain activities.

The place of delivery of services is the place of registration of the supplier, except operations performed based on provision of services of the real estate agencies, preparation and carrying out a construction and other services which are carried out in the location of the real estate, and also services in the sphere of culture, education, science and sport.

According to Code provisions marketing services (marketing) are the services providing functioning of activity of the taxpayer in the sphere of market research, sales promotion of products (works, services), politicians of the prices, the organization and management of movement of products (works, services) to the consumer and after-sale service of the consumer within economic activity of such taxpayer.

One of the methods used by suppliers for promotion of goods in the market is payment of the motivational and stimulating payments (awards, bonuses, other encouragement) for benefit of buyers (the organizations which purchase goods in the supplier) which are an achievement award of certain economic indicators and promote revival of sale of goods of the supplier.

As the motivational and stimulating payments (awards, bonuses, other encouragement) paid by the product supplier (works, services), in particular, for accurate observance of the schedule of orders, are directed to stimulate product sales (works, services), such payments are recognized as payment of marketing services.

Therefore, in case of payment by the nonresident seller of remuneration in cash to the resident buyer for accurate observance of the schedule of orders, the taxation object of the VAT are the marketing services provided by the buyer, and remuneration in cash (bonuses), in turn, is compensation of cost of such services.

The place of delivery of marketing services in compliance the Code is the place of registration of the supplier of such services, that is in this case customs area of Ukraine.

Thus, the resident buyer when obtaining from the nonresident seller has remunerations in cash in connection with achievement of the corresponding indicators (in particular, accurate observance of the schedule of orders), occur tax liabilities on payment of the VAT for the amount of the received reward.

The base of the VAT tax, in accordance with the provisions of the Code in this case will be the amount of the received reward (the amount of bonuses).

The Finance Business Service company is always ready to provide you qualified consultation. Our working methods provide an individual approach to the client. Turning to us, you will not meet sample decisions, supported with theories.