BUYING A GENERATOR DUE TO A BLACKOUT: WHAT ARE THE TAX CONSEQUENCES?
Due to regular power outages during martial law, businesses began to purchase generators for uninterrupted operation.
According to UKT ZED (Ukrainian Classification of Goods for Foreign Economic Activity), generators mean electric generating units. They are a combination of an electric generator and a primary engine, including an internal combustion engine.
Generators are divided into the following categories according to their application:
portable generators of small size and power (from 2 – 3 kW to 10 – 20 kW), they can be carried or transported;
stationary generators that are installed on the foundation without the possibility of transportation. They are not limited in size and can have a large power.
More often, businesses use portable generators that can be moved and used in different locations, despite the fact that the generator stays in one place and is not moved during operation.
Is a fuel storage license required?
The storage of fuel in the fuel tanks of vehicles/technical equipment/devices does not require obtaining a license for the right to store fuel, because these tanks are not immovable property and do not have a clear connection to the place (territory).
If the fuel for the generator is delivered by the company from the gas station in canisters and is immediately poured into the generator tank, it is not required to obtain a license.
If the company buys fuel in canisters and stores the canisters on its territory, for example in a warehouse, in the opinion of the tax authority expressed in numerous consultations, it is necessary to obtain a fuel storage license for such a storage place.
Is it necessary to register an excise warehouse?
Under Paragraph “d” of Part 2 of Subparagraph 14.1.6 of the Tax Code of Ukraine, a fuel tank as a capacity for storing fuel directly in a vehicle or equipment or device is not an excise warehouse.
An electric generator is an equipment for continuous supply of electricity. Thus, the tank of the electric generator is not an excise warehouse, it is not required to register an excise warehouse, and the company is not an excise tax payer with respect to the fuel in the generator tank.
Is an emissions permit required?
Under the Law of Ukraine “On Protection of Atmospheric Air” No. 2707-XII dated October 16, 1992, pollutants can be emitted into the atmospheric air by stationary sources after obtaining an emissions permit.
A stationary source of pollution is a company, workshop, unit, installation or other real estate assets that maintains its spatial coordinates for a certain time and emits pollutants into the atmosphere and/or discharges pollutants into water bodies.
It follows from the above that emission permits are obtained only for stationary sources of emissions. Stationary sources are real estate assets that have a specific connection to a certain territory.
A portable electric generator does not pertain to stationary sources of pollution (it can be moved in space); therefore, it is not required to obtain a permit for a portable electric generator.
Environmental tax
Environmental tax payers are, including, but not limited to, business entities that emit polluting substances into the atmospheric air through stationary sources of pollution (Subparagraph 240.1.1 of the Tax Code of Ukraine).
A portable generator does not pertain to stationary (immovable) assets. It is not a stationary source. The environmental tax is not charged in respect of it.
Is it necessary to submit form No. 20-ОPP?
It is not necessary to notify the supervisory authority at the main place of registration when submitting a notification under form No. 20-OPP of a gas boiler and/or a fuel generator, which are operated at the addresses of the location of the legal entity’s own or rented premises, in respect of which a notification has already been submitted under form No. 20-OPP.
VAT exemption
From November 11, 2022, amendments to the Resolution of the Cabinet of Ministers of Ukraine No. 224 dated March 20, 2020, which approved the List of Goods Exempted from VAT and Import Duties in Accordance with Paragraph 71 of Subsection 2 of Section XX of the Tax Code of Ukraine, are in effect.
In September 2022, amendments were made to List No. 224, thanks to which this list can be used not only for VAT exemption, but also for the purpose of exempting goods from import duties.
The amendments, effective from November 11, 2022 until the last calendar day of the month in which the coronavirus quarantine ends, relate to the exemption from VAT and import duties for power generating sets, transformers and other electrical equipment, as well as equipment and devices for filtering or purifying water. Currently, it is December 31, 2022.
The exemption of electrical goods from VAT applies to all business entities that conduct taxable transactions with them. It applies regardless of who sells, manufactures, purchases or imports the exempted goods into Ukraine. The supplier (manufacturer or importer) can be any business entity: both a legal entity and an individual.
The exemption of electrical goods according to List No. 224 applies both to imported goods and to goods manufactured in Ukraine, regardless of the date of their production or import at all stages of supply. The basis for exemption from VAT is the compliance of the product with the name of the goods specified in the List. The codes of UKT ZED (Ukrainian Classification of Goods for Foreign Economic Activity) are given in the List for reference.
The exemption of electrical goods according to List No. 224 applies both to imported goods and to goods manufactured in Ukraine, regardless of the date of their production or import at all stages of supply.
Electrical goods are exempt from VAT only in case of availability of the following:
— documents on conformity provided for by the technical regulations that apply to such goods, and the mark of conformity applied on the goods, if the goods comply with such technical regulations,
or
— notification of the Ministry of Energy about the introduction of such goods into circulation, if the conditions of the technical regulations are not met.
To obtain such documents, one should apply to the Ministry of Energy.
From what period is the exemption of electrical goods from VAT and duty effective:
if the first event related to the sale (supply in the customs territory of Ukraine) of the generator and other electrical goods or their import occurred before November 11, then the sale (import) will be subject to VAT and duty on a general basis;
if the first event related to the sale (supply in the customs territory of Ukraine) or import occurred in the period from November 11 to 16 inclusive, documents on conformity or notification from the Ministry of Energy are required to be exempt from VAT and duty;
if the first event related to the sale (supply in the customs territory of Ukraine) or import occurred on November 17 or later, exemption from VAT and duty applies unconditionally, if the goods correspond to List No. 224. This does not apply to uninterruptible power supply systems, which require documents on conformity provided for by technical regulations or a notification from the Ministry of Energy about the introduction of such goods into circulation.
If all the conditions for exemption are met (including there are documents on conformity or notifications from the Ministry of Energy for uninterruptible power supply systems), then it is not possible to reject VAT exemption. The VAT payer is obliged to apply this exemption under Paragraph 30.4 of the Tax Code of Ukraine.
If the conditions for the exemption of electrical goods are not met (the name of the goods does not match or there are no documents on compliance or a nonfiction from the Ministry of Energy for uninterruptible power supply systems), then the VAT exemption is not applied. Then electrical goods are subject to VAT according to the general rules.
Obtaining a permit from the State Service of Ukraine on Works
Generators do not pertain to machines, mechanisms and equipment of increased danger; therefore, it is not necessary to obtain a permit for the operation of the generator, which is issued by the State Service of Ukraine on Works and its territorial bodies.
Acquisition and accounting of an electric generator
The electric generator pertains to non-current assets, intended for use for more than one year (Paragraph 4 of the National Regulation (Standard) of Accounting 7).
If the company has adopted a certain value criterion of low-value non-current tangible assets, it should be taken into account when putting the generator into operation (Paragraph 5 of the National Regulation (Standard) of Accounting 7).
For example, if the value limit of low-value non-current tangible assets is UAH 20,000.00 (without VAT), then generators costing less than this amount will be considered as low-value non-current tangible assets and will be accounted for on sub-account 112 “Low-value non-current tangible assets”, and generators costing more than this amount will be considered as fixed assets and will be accounted for on sub-account 104 “Machines and equipment”.
The economic operation of commissioning (both fixed assets and low-value non-current tangible assets) shall be formalized by the Certificate of Commissioning of Fixed Assets.
Depreciation of the generator shall be calculated monthly according to the method determined for it at the time of commissioning.
Fuel for the generator can be purchased at gas stations according to various schemes.
The legislation does not establish an obligation to develop standards for fuel and lubricant consumption for the generator. It can be done on one’s own initiative. Information on fuel consumption can be taken from the documentation for the generator or it is possible to determine the rate of fuel consumption by timing and measurement. In the latter case, the results of such measurement shall be recorded in a certificate drawn up by the commission that carried out the timing and measurement.
The write-off of the actually used fuel can be formalized by the certificate of writing off the fuel for the operation of the generator.