Tax privileges for import of energy-saving equipment into Ukraine

Ukrainian businesses that import energy-saving products such as energy-saving materials, equipment and components into Ukraine are exempted from payment of import duty and value added tax (VAT).

Under the Ukrainian Tax Code, imports of the following are VAT-exempt:

1) equipment that runs on renewable energy sources, energy-saving equipment and materials, tools for measurement, control and expenditure management of fuel and energy resources, equipment and materials for production of alternative types of fuels or for production of energy from renewable energy sources;

2) materials, equipment and components used for production of:

- equipment which runs on renewable energy sources;

- materials, raw materials and equipment to be used in production of alternative types of fuels or in production of energy from renewable energy sources;

- energy-saving equipment and materials, use of which provides cost savings and rational use of fuel and energy resources.

A similar provision is contained in the Ukrainian Customs Code, exempting energy-saving products from import duty.

The two mandatory conditions for exemption of energy-saving goods from payment of import VAT and import duties are:

- use of energy-saving products by Ukrainian business entities for own production;

- identical products with similar quality characteristics are not produced in Ukraine.

In addition, a product should be a new energy-saving product for a specific project, rather than intended, for example, for further resale.

A list of energy-saving products exempt from import duties and import VAT will be approved by the Cabinet of Ministers of Ukraine.

Ukrainian businesses that violate the conditions will have to pay import duty, VAT plus a suitable penalty. Monitoring of the intended use of imported goods into Ukraine will be by the local customs authority for the place where the Ukrainian business is registered and the Ukrainian National Agency for Efficient Use of Energy Resources ("National Agency").

The process for obtaining these privileges can be divided into several stages:

1) preparing a project, collecting documents and signing a supply contract with a foreign partner;

2) filing documents with the Ukrainian Ministry of Economy and obtaining permission from the Cabinet of Ministers for importation;

3) importing the products;

4) keeping the customs authorities informed of actual and intended use.

As a first step it is necessary to obtain:

- National Agency confirmation of the energy efficiency of the project;

- Ministry of Economics confirmation that similar products are not produced in Ukraine.

Documents must include, e.g., the energy efficiency rate scheduled to be achieved after project implementation, and a list of equipment planned to be imported.

After a contract for the supply of energy-saving products is signed, the package of documents is filed with the Ministry of Economy. If the decision is positive, the Ministry recommends that import of energy-saving products for the project be allowed. The next step is for the Cabinet of Ministers to exempt energy-saving products for the project from payment of import duty and import VAT. Once the exemption is granted, the Ukrainian business may bring the goods into the country.

Following importation, the Ukrainian business must report every month for three years on the intended use of the goods to the relevant customs authority.

This procedure seems rather burdensome and takes several months. At the same time it is worth noting that high-quality document preparation and proper maintenance will lead to the desired result and will save considerable sums of money.

The  author can be reached at: bnt_attorneys-at-law@legalserviceindia.com