Ukraine Standard Audit File for Tax Coming in 2023

Tax authorities in Ukraine have introduced new legislation that makes SAF-T UA files mandatory for all taxpayers.

These SAF-T UA files will be used starting in 2023. All large taxpayers will be required to present their SAF-T UA file within two weeks of being requested to do so. The request will be made by such a legal entity as the State tax service.

Taxpayers must have the state-approved software required to make the SAF-T UA files.

This file is used across many other countries in Europe for tax audits.

Starting in 2025, every large taxpayer must file taxes in SAF-T UA format. From 2027 onward, every taxpayer will be required to start filing their taxes in SAF-T UA files.

This article will discuss essential updates about the new legislation coming to Ukraine. We will also tell you about some of the controversies regarding the changes.

So let's dive right in!

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What is Standard Audit File (SAF-T)?

Standard Audit File for Tax (SAF-T) is a format derived from the XML standard used for any standard audit file. Legal services use XML internationally to transfer any electronic document. These documents contain information about business activities like taxes.

The SAF-T UA is the Ukrainian version of this file. It will contain the following information:

General information regarding the large taxpayer.
Log of the business's tax audits.
Accounting records of every business transaction. This includes details of the transactions, such as primary documents.
The actual price is paid for tangible assets, services, and works the business has purchased. The audit's scope also includes the quantities of all items in the business's financial records.
The business also needs to provide financial transfers or receipts of any payments made to the business.
Information about tangible assets that are planned to be commercialized.
Information about intangible assets.

The SAF-T file is a ubiquitously readable format. This allows everyone to access it regardless of the software they use to read it. The SAF-T file can be easily exported, making it easy to use.

It contains the accounting audit information of business entities. This allows state authorities to quickly review the finances of a business and detect any criminal liability.

Benefits of using the SAF-T system

First of all, the file is in a secure format. It helps simplify the tax authorities' data collection procedure by reducing the number of documents needed.

A universal format allows any authority to perform a tax audit (or e-audit) regardless of the system from where the file originates.

There are also other benefits of using the SAF-T system, as follows:

Archive data more efficiently

Using SAF-T allows companies to archive data more efficiently. Data retrieval is relatively less complex and safer because of the lower risk of corruption of the accounting records.

Faster tax audits

Using a universal format makes tax audits faster and more efficient. This decreases operating costs for the governments.

Facilitates tax compliance

The SAF-T system facilitates tax compliance by making it easier for companies and businesses to track relevant legislation and file taxes.

It makes it easy to inspect the documentary audit file and obtain business information.

It allows international tax compliance by taxpayers who are not currently in the country. Even when operating in different countries with different tax requirements.

Reduces operational costs for businesses

Without a universal format, any business operation would need lawyers and accountants. They would have to track taxes and other legal acts.

Moreover, businesses must invest in software that can generate an electronic form containing readable information about their taxes and other documents.

What's the timeline for the implementation of SAF-T for tax in Ukraine?

From 01.01.2023, all large taxpayers will be obligated to start using SAF-T.

From 01.01.2025, large taxpayers must submit their tax audit file to the State tax service.

From 01.01.2027, every taxpayer must submit a SAF-T file to the tax authority.

Who will need to use SAF-T for tax in Ukraine?

The SAF-T UA will be imposed on large taxpayers starting 01.0.1.2023. By 01.01.2027, every taxpayer must submit a SAF-T UA file in the manner prescribed. This includes non-resident businesses as well.

Per the court decision, Order No. 561 is in effect. According to this order, large taxpayers must be able to provide information and primary documents about their account to the tax authorities within two working days of receiving the request.

The local authorities will make this request.

The large taxpayer needs to provide the following:

General ledger entries related to accounting records.
Sales ledger
Cash receipts
The tangible asset register
Intangible asset log
Tax reconciliation

The Order also requires the taxpayers to have the software to generate SAF-T UA files.

On the other hand, it requires tax authorities to have the software needed to receive the documents in the SAF-T UA format. They also need to publicize this format of the documents on the official website of the legal entity.

Order № 561 is just one part of the reform that has introduced e-audit for taxpayers. The Ministry of Finance of Ukraine also notified the public about another draft law under discussion.

The draft states that every large taxpayer must submit annual SAF-T UA files starting in 2025. All the other VAT payers, who do not categorize as large taxpayers, will be required to do that starting in 2027.

Failure to submit the file will be classified as non-disclosure of financial assets or non-provision of the SAF-T UA file. This will result in the possibility of penalty fees imposed by the State tax service, which are as follows:

100 minimum wages (UAH 600 thousand as of 2021) for a large taxpayer.
10 minimum wages (UAH 60 thousand as of 2021) for VAT payers. This doesn't include self-employed people.

Tax controversy in Ukraine

Recent changes in laws regarding tax liabilities have drawn up certain concerns. Now, the tax authorities can provide a tax offense as evidence for non-compliance in tax payments. This means they can come up with offenses that span the entire tax audit from the start of the tax filing.

Per the State tax service, the tax controversies in Ukraine are dealt with as follows:

At the level of State bodies, the tax dispute resolution procedure is not very efficient. This is because state tax authorities have a very strong threshold for fiscal analysis. This usually entails the failure of dispute resolutions for taxpayers. Because of the stringent process, taxpayers usually go straight to court instead of filing an appeal.
This further means that the tax authorities go after the taxpayers even harder. If the court decision rules in favor of the taxpayers, the tax authorities file a counter-appeal. This happens even if tax authorities have no logical grounds to file the appeal. This drains administrative time and the State budget.
As a result, taxpayers have started involving the Business Ombudsman Council to settle their tax disputes. The council is used when the taxpayers make an administrative appeal. The council reviews the business entities' tax audits and independently assesses the situation. They support the appeal if they feel that the taxpayer is being reasonable. The tax authorities then consider the Business Ombudsman Council while making their decision.

Before January 1, 2022, tax authorities could only present specific cases as evidence of non-compliance. These were the cases used to file a case in court against the taxpayer. The recent changes have people worried that tax authorities may abuse administrative power.

What makes it worse is that administrative appeals can't effectively resolve fiscal matters. Therefore, cases usually end up in court. That's when tax authorities can use their power to bring up any offense, not just the case for which the taxpayers went to court. This gives tax authorities an edge in getting the court ruling in their favor.

Tax authorities have a rebuttal; they claim that taxpayers abuse the current laws. They usually file an appeal over unpaid taxes that they want to delay. The Tax Code of Ukraine allows taxpayers to withhold any tax payment until a dispute has been resolved.

Currently, no proposals have been presented to make changes to the system. However, Ukraine will need fundamental improvement in such procedures to make tax dispute resolution more efficient.

Takeaway

From the start of 2023, taxpayers in Ukraine will start using SAF-T UA files to provide a tax audit to the government. These are standard tax files used across multiple countries in Europe.

Initially, only large taxpayers are required to provide SAF-T UA files. But by 2027, taxpayers must file their taxes with the government in SAF-T UA file format.

Not being able to file their taxes in the SAF-T UA format will incur penalties for the business operation. Moreover, these new laws have stirred up some controversy.

Tax authorities can now present any tax offense case as evidence in a court case against the taxpayers. Before January 1 2022, they could only use the case that they went to court for.

If your business operates internationally, you must have difficulty keeping track of all the changes. Tax legislation is very dynamic. That's why you need experts who keep track of this legislation for you.

Storecove is a global e-invoicing solutions provider. We track legislative changes worldwide to ensure that your business documents are compliant.

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