What is VAT and who has to pay it?

VAT is a value-added tax. It is imposed on the market price of goods when they are sold. However, if both the entrepreneur and the supplier operate with VAT, this tax is paid only on the value added. Its main payer is the end consumer. In this case, it is the seller who accounts for VAT and transfers it to the state budget. 

Let's take a closer look at what goods and services are subject to VAT, how to calculate the VAT on the amount, what rates are set for 2024, and how to properly issue tax invoices?

What is included in VAT?

VAT consists of:

• tax rates (Article 193 of the TCU),

• accrual bases (according to Articles 188-192 of the TCU),

• the object of taxation (according to Article 185 of the TCU).

Also, VAT consists of two main elements: a tax credit and a tax liability.

A tax liability is the amount that an entrepreneur pays to the state budget. Taxpayers incur it when they sell services or goods. However, the total amount of goods and services sold by an entrepreneur is important here.

A tax credit is an amount by which an entrepreneur can reduce his or her VAT liability. It arises when a taxpayer purchases goods or services and the supplier of these goods issues a tax invoice for the amount equal to the purchase price. The tax invoice must then be registered with the State Tax Service within a certain timeframe. Otherwise, the tax authorities may not grant a tax credit.

VAT rates in Ukraine in 2024

The tax rates are set forth in Section V of the TCU.

This year, the VAT rates are set as follows:

• 20% is the rate applicable to most taxpayers.

• 7% is the rate set for the medical industry, in particular for the sale of pharmaceutical products and medical supplies.

• 14% is the rate for certain agricultural goods, the list of which can be found in subpara. "d" of para. 193.1 of the TC

• the zero rate applies only to goods intended for export from the country.

All taxpayers are divided into:

1. Active — this category includes entrepreneurs who have the status of a VAT payer and directly transfer the tax to the state budget.

2. Passive — this category includes end consumers, i.e. buyers of goods and services.

According to the current TCU, an entrepreneur must register as a value added taxpayer if he or she has received income in excess of UAH 1 million from the sale of goods in the last year.

How is the amount of VAT payable calculated?

At the end of the reporting period, the amount of tax credits is summarized. The amount of tax liability is subtracted from this amount. The result is the difference, which is taken as the amount of value added tax and paid to the state budget. 

There are situations when the amount of the tax credit is significantly higher than the amount of the tax liability. In this case, the difference will be reimbursed by the state. However, if, on the contrary, the amount of tax liability is higher, the taxpayer must pay VAT to the state budget.

An example of how to calculate the amount of VAT when cooperating with a value-added taxpayer

Assume that a mobile phone store purchased equipment from a manufacturer for UAH 15,000 and sold it to customers for UAH 18,000. Thus, we have a Manufacturer's Price including VAT of UAH 15,000 and a Retail Price including VAT of UAH 18,000.

Let's calculate the tax liability of the store. How to calculate VAT on the amount? To do this, let's determine the VAT on the retail price. The amount is equal to UAH 3000.

The store's tax credit will be UAH 2,500, which means that you need to calculate VAT on the manufacturer's price.

Now let's determine the amount of VAT that the store has to pay to the budget: the tax credit must be subtracted from the tax liability. Thus, the amount to be paid is UAH 500.

An example of cooperation with a VAT non-payer

The company purchased equipment worth UAH 1200 from a supplier who is not a VAT payer, including VAT of UAH 0 (this will be the amount of the tax credit).

The company then sold the equipment to the final consumer. The amount of the tax invoice is UAH 1800, including VAT of UAH 300 (this is a tax liability).

It turns out that the company has to pay to the state budget: 300-0=300 UAH.

How is VAT paid?

An entrepreneur pays value added tax through a payment to the State Tax Service. The payment can be made either by bank transfer to a current account or in cash at a bank cash desk.

Interaction of the taxpayer with customers and suppliers

If a company that sells goods or services is a VAT payer, it matters who its supplier is. Thus, in order to reduce tax liabilities, it is necessary to enter into transactions only with companies that are other VAT payers.

As for customers, in this case, it does not matter at all whether they buy goods and services from a VAT payer or not. The reason is that the seller will only have a tax liability and will therefore have to pay value added tax on all invoices.

How can a VAT payer purchase goods?

There is a single rule here: if the supplier is a value-added taxpayer, the seller company registers the purchase of goods as a limited liability company (LLC). However, if the seller cooperates with a supplier that does not pay VAT, the products are purchased for a sole proprietorship. And it should be noted that the subsequent sale of the goods will be carried out only from the company for which the purchase was made, i.e., either to a sole proprietorship or to an LLC.

Formation of expense invoices

When purchasing goods, the supplier must create an expense invoice. This document is necessary for the turnover of goods.

An expense invoice is a primary document that confirms the transfer of inventory from a supplier to a buyer.

The document is drawn up in two copies. The supplier retains one copy, and the buyer receives the other. The waybill is signed by authorized persons responsible for the shipment and receipt of the goods.

A VAT payer who purchases products from a supplier accepts an expenditure invoice in hard copy or through an electronic document management service, such as Medoc, Vchasno. These documents are needed to confirm the reality of the trade transaction in case of a tax audit.

Registration of tax invoices by a VAT payer

If the tax invoice is generated between the 1st and 15th day of the current month, you must register this document by the 20th day inclusive.

If a tax invoice is generated after the 16th day of the month, it must be registered by the 18th day of the following month.

To properly register a tax invoice, you need to fill out the official form as follows:

• all information should be in Ukrainian only;

• the list of product nomenclature in the customer's invoice is also in Ukrainian;

• the client's data must match the payer's data: it cannot be that the invoice was issued to one person and paid by another person;

• if the supplier is a VAT payer, the product card shall indicate its name, EDRPOU code, and VAT payer number. You also need to fill in the stanza with the address;

• if the supplier is not a VAT payer, you do not need to fill in the field with the tax number.

How can I return a product or change its nomenclature?

If a VAT payer decides to change the nomenclature of goods after paying the invoice, an adjustment calculation must be created. That is, the previous invoice is canceled, and a new invoice is registered.

The program for keeping records of goods from Torgsoft will help you improve your store operations, eliminate errors, and serve customers quickly. Thanks to its special options, you can expand your business opportunities and easily sell goods at the checkout, create invoices, keep records, record and accept payments, issue invoices, and much more.

The Torgsoft program will help you build a systematic and successful business.