What is the process of VAT refund for sole proprietors
As you know, individual entrepreneurs in the 3rd group can be VAT payers with 3% of their income and can choose to pay VAT and be registered as a VAT payer under the general taxation system.
They can choose the EH rate determined for the 3rd group of 3% (including VAT) (subpara. 4 of para. 293.8 of the TCU):
– a business entity that is registered as a VAT payer when it switches to the simplified taxation system by submitting an application no later than 15 calendar days before the beginning of the next calendar quarter;
– a group 3 EH payer who has chosen the 5% rate, in case of voluntary change of the EH rate by submitting an application for change of the EH rate no later than 10 calendar days before the beginning of the calendar quarter in which the new rate will be applied and registering such EH payer as a VAT payer.
A sole proprietorship under the general taxation system is governed by Article 177 of the Tax Code when taxing its income.
The Tax Code does not prohibit VAT refunds to individual entrepreneurs who are taxpayers and have a negative difference between the amount of tax liability and the amount of tax credit.
VAT refunds are subject to general rules. In order to be eligible for a VAT refund, 3 conditions must be met
- the amount of VAT must be paid (subpara. b) of para. 200.4 of the TCU). This means that the goods, works, and services for which the tax credit arose and for which the refund is claimed were paid in cash to suppliers or to a budget account in case of import of such goods (in the reporting or previous periods). Also, if the goods have been received but not yet paid for, and the supplier has registered a tax invoice, the condition is still not met;
- the amount of the refund must be within the limit of the invoice registration (subpara. “b” of para. 200.4 of the TC). If the negative value is greater than the limit for invoices, the application for budgetary refund in the declaration should be limited to the limit, and the rest should be carried over to the next period. In this case, the right to a refund remains;
- in order to receive a refund in cash to a current account, there must be no VAT debt. If there is a debt, the negative value is first taken into account in its repayment (subpara. “a” of para. 200.4 of the TC). And only within the registration limit, i.e., subject to the second restriction. Thus, if you have a VAT debt, including fines and penalties, you will still receive a refund, but not in cash, but by repaying such a debt. Please also note that after such a “set-off” VAT, the registration limit is reduced (explanation of the State Tax Service ZIR 101.17).
In addition, an important condition is the chronology of the use of the tax credit. When filling out both Annex 2 (D2) and Table 2 of Annex 3 (D3) to the VAT return, it is advisable to apply the principle of chronology of negative value formation, according to which tax liabilities of the current (reporting) period are reduced by the amount of the tax credit in the chronological order of its occurrence – from the oldest to the newest.
Applications for the refund of budgetary refunds are automatically entered into the Register of applications for the refund of budgetary refunds within the business day of their receipt in the chronological order of their receipt.
The agreed amounts of budgetary reimbursement shall be refunded in chronological order in accordance with the priority of entry into the Register of applications for refund of budgetary reimbursement.
Within 30 calendar days following the last day of the deadline for filing a tax return, the controlling authority conducts an in-house audit of the data of the tax return or clarifying calculations (if submitted).
Taxpayers who are entitled to a budgetary refund in accordance with this Article and have filed an application for a refund of the amount of budgetary refund shall receive such budgetary refund if the controlling authority approves the declared amount of budgetary refund based on the results of an in-office audit, and in cases where the amount of budgetary refund is declared to be more than UAH 100 thousand, based on the results of a documentary unscheduled audit.
The Register of applications for the return of the amount of budgetary refund is compiled on the basis of the databases of the central executive body that implements tax and customs policy and the central executive body that implements state policy in the field of treasury services for budgetary funds.
The following data shall be entered into such Register:
1) name of the taxpayer and his/her individual tax number;
2) the date of submission of the application for refund of the amount of budgetary refund to the taxpayer’s bank account submitted as part of the tax return or adjustment calculation (if submitted)
3) the amount of tax claimed for budgetary refund specified in each application submitted as part of a tax return or adjustment calculation (if submitted) and other data.
The procedure for maintaining and the form of the Register of Applications for Refund of Budgetary Refund shall be approved by the Cabinet of Ministers of Ukraine.
The amount of budgetary reimbursement specified in the application shall be deemed to be agreed in the Register of Applications for Refund of Budgetary Reimbursement from one of the following dates
a) from the day following the day of expiration of the deadline for conducting the audit, if the controlling authority enters information in the Register of applications for the return of the amount of budgetary reimbursement on the absence of violations during such an audit;
b) from the day following the day of expiration of the deadline for conducting an in-office audit, if the controlling authority has not entered into the Register of applications for the refund of the amount of budgetary reimbursement information on the date of commencement and termination of the audit of the data specified in the tax return or clarifying calculation, with a mandatory mark on the type of audit (in-office, documentary);
c) from the day following the day of expiration of the deadline stipulated by this Code for drawing up the audit report, if the controlling authority has not entered the information on the date of drawing up the audit report in the Register of applications for the return of the amount of budgetary reimbursement;
d) from the day following the day of expiration of the deadline stipulated by this Code for sending (delivery) of the tax notice-decision, if the controlling authority has not entered the date and number of the tax notice-decision in the Register of applications for the return of the amount of budgetary refund;
d) from the date of recognition of the tax notification-decision as unlawful and/or its cancellation.
If, based on the results of an in-house or documentary audit, the controlling authority finds that the amount of the budgetary refund does not correspond to the amount declared in the tax return, such authority
a) in case the amount of budgetary refund claimed by the taxpayer exceeds the amount determined by the controlling authority based on the results of the audit, sends a tax notice to the taxpayer, which indicates the amount of such excess and the grounds for its deduction;
b) in case the taxpayer is found to be not entitled to receive a budgetary refund based on the results of the audit, sends a tax notice to the taxpayer stating the grounds for refusal to provide a budgetary refund.
The electronic VAT administration system provides automatic accounting by taxpayer:
- tax amounts contained in the issued and received tax invoices and adjustment calculations registered in the Unified Register of Tax Invoices;
- tax amounts paid by taxpayers when importing goods into the customs territory of Ukraine;
- amounts of replenishment and balance of funds on accounts in the electronic value added tax administration system;
- the amount of tax for which taxpayers have the right to register tax invoices and calculations of adjustments to tax invoices in the Unified Register of Tax Invoices;
- other indicators that are taken into account when calculating the tax amount.
The procedure for electronic administration of the value added tax is established by the Cabinet of Ministers of Ukraine. Taxpayers are automatically opened accounts in the electronic value added tax administration system.
