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Companies of disabled: establishment and tax benefits

Andrew Brylev


Companies established by public organizations of the disabled are among entities that legislation provides with certain tax benefits. In this paper, we consider features of such enterprises’ establishment and application conditions for tax benefits.

So, who can claim the benefits?

Content of art. 14-1 Law of Ukraine "On the basis of social protection of disabled people in Ukraine" dated 21.03.1991, № 875-XII (hereinafter - the Law № 875) states that tax benefits may apply to enterprise established by society for disabled people. That is, if a company, which employs people with disabilities, is established by other legal entities and individuals, it can not apply for benefits.

Company must obtain permit in order to obtain tax benefit. It is issued through procedure after Rules to allow authorization for tax-exempt status use for businesses and organizations of public societies of disabled people, approved by the Cabinet of Ministers of Ukraine from 08.08.2007, № 1010 (hereinafter – the Rules number 1010).

According to paragraph 2 of the Rules № 1010, in order to obtain a permit, company must meet the following criteria:

1) average number of disabled people who have worked for company during previous reporting (tax) period (usually a calendar quarter), is at least 50% of the number of full-time employees of average accounted staff. It should be defined following Instructions on number of employees statistics, approved by Order of the State Statistics Committee of Ukraine from 28.09.2005 № 286;

2) wage fund for disabled who are employed, is at least 25% of the total labor costs during tax period, which are included in costs according to rules of taxation on corporate profits;

3) amount of expenditure for processing enterprises (machining and other types of conversion) of raw materials, components, parts, and other purchased goods (services) used for production of goods (services) directly by enterprise, is not less than 8% of sale price of such goods (services);

4) average monthly salary of disabled employees under full-time equivalent must be not less than minimum wage.

As you can see, tax benefits may be claimed, mainly by companies that produce goods (services), as well as branches and other structural subdivisions of public organizations of disabled people, provided that they meet criteria and are registered as individual taxpayers.

Who gives permission?

According to Art. 14-2 of the Law № 875, gross company’s revenues during previous year was less than 8400 minimum wages, permission is issued by regional, Kyiv and Sevastopol state administrations and executive authorities of the Autonomous Republic of Crimea in the field of social policy. If revenue exceeds that amount, it is issued by the State Service for the disabled and war veterans. In accordance with the Rules № 1010, to get permission one should submit following documents:

- Statement of founder of public organization of disabled people about permission for enterprise (its affiliates, other subdivisions);

- Extract from the Unified State Register of legal entities and individual-entrepreneurs about the founder;

- Extract from the Unified State Register of legal entities and individual-entrepreneurs about the company;

- A copy of branch provisions or other separate subdivision in enterprise (if permission is obtained for them);

- Copies of company’s constituent documents, as well as founder, unless the founder is a Ukrainian public organization of disabled people, which itself provides a copy of constituent documents. The above documents are submitted once and then re-submitted only in case of any changes;

- Information on number of average disabled for previous quarter, who work for company (branch, separate subdivision), issued by territorial department of the Fund of Social Protection of the Disabled;

- A copy of state act on right of permanent land use or a copy of certificate on regulatory land monetary value in order to get permit for facilities use in relation to land tax;

- Business plan of company’s activities (branch, a separate division);

- Amount of business expenses calculation incurred for processing (machining, other transformation) of raw materials, components, parts, and other purchased goods, to identify products that are directly produced by enterprise;

- Information on the workers’ average wage amount, including those with disabilities, according the full-time employment equivalent at the company (branch, separate subdivision) for previous reporting period (quarter);

- Copies of the tax and financial reports (tax income statements, exempt from corporate tax for companies with own property, resulting from sale of goods (works) services, except for excisable goods; tax return on business profits; report "On sums of tax benefits for legal entities and individuals-entrepreneurs" (form 1-PP), balance sheet and income statement (form 2) for previous reporting period).

This package of documents is full and should be filed not later than one month before:

- Expiry of previous permit;

- Beginning of quarter, in which company plans using tax benefits.
Permission on tax benefits use is issued for a quarter, half year, three quarter or year. After permit is expired, it is obtained again.

According to requirements that apply to package of documents to obtain a permit, we can conclude that company should run on common system of taxation (ie, without benefits) for at least two quarters.

Which tax benefits are provided for public organizations of disabled people?

Tax benefits for businesses that are eligible by public organizations of disabled people, most easily are to represent in the following table.

Income tax (§ 154.1 Art. 154 of the Tax Code of Ukraine)

Profit is exempt from tax when it is was gained from sale of goods (works, services), except for excisable.

Profit under general taxable basis:

- From sales of excisable goods;

- From operations not related with sale of goods (works, services);

- Operations on excisable goods sales, obtained through mediation agreements (commission, consignment, asset management, etc.)

VAT (§ 197.6 Art. 197 of the Tax Code of Ukraine)

Transactions on sale of goods and services of own production (excluding excise) are tax exempt. Prior to January 1, 2015, such transactions are subjected to VAT at zero rate.

Under general taxable basis by VAT are:

- Operations on sales of excisable goods

- Services provided under lottery and entertainment services;

- Services related with sale of goods received under mediation agreements (commission, consignment, asset management, etc.)

Fee on Trading Activity (trade patent) (§ § § 267.1.2 267.1 Art. 267 of the Tax Code of Ukraine)

Exempt those under condition of food trade of domestic production, as well as goods made by enterprises of "Ukrainian Association of the Blind," "Ukrainian Society of the Deaf" and disabled entrepreneurs

Payment for land (pp 282.1.7 Section 282.1 of Art. 282 of the Tax Code of Ukraine)

Exemption from payment for land

Single contribution to obligatory state social insurance (SSC) (paragraph 14 of the Law of Ukraine "On the collection and accounting of a single contribution for obligatory state social insurance")

Its rate is:

- 5.3% of wage fund for workers with disabilities for Ukrainian enterprises of public organizations of disabled people;

- 5.5% of wage fund for businesses of working disabled and other public organizations of disabled

Andrew Brylev


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