LETTER OF THE MAIN STATE TAX AUTHORITIES OF UKRAINE

of June 7, 1996 No. 14-116-5-2/11-3609

About the taxation of indexed cost portion of share

The main state tax authorities of Ukraine concerning the taxation of indexed cost portion of share as a result of increase in authorized fund report that by the Procedure for increase in authorized capital of joint-stock company in connection with indexation of fixed assets approved by the order of the Ministry of Finance of Ukraine of 30.06.95 N 110 and registered in the Ministry of Justice of Ukraine 12.07.95 N 212/478, it is determined that the joint-stock company which according to the resolution of the Cabinet of Ministers of Ukraine carried out indexation of book value of fixed assets has the right to increase authorized capital by the amount which does not exceed the amount of indexation of book value of fixed assets reduced by the amount of indexation of depreciation on them by additional share issue or increase in share par value (the letter of the Main state tax authorities of Ukraine of 24.01.96 N 14-211/10-463).

Thus, the share value addition amount as a result of increase in authorized capital of joint-stock company which corresponds to the indexed cost of fixed assets according to the orders of the Government is not the income of the citizen, the income is not enlisted in its taxable and is not subject to taxation by profitable tax on citizens.

Is not subject to taxation by the income tax in case of exit of citizens from members of joint-stock company the cost of their money and property contributions in share (authorized) fund of this company which were executed at the expense of own means, and also at the expense of the privatization certificate.

The remaining balance of share of the amounts of property share which is paid citizens in case of dismissal from the company, and also the amounts of the income which is gained by founder citizens and members of the companies in the form of share dividends and as a result of profit distribution (income) of these companies and other corporate laws is assessed with tax as a part of cumulative taxable the income at the rate of 15 percent according to item 4 article 7 of the Decree of the Cabinet of Ministers of Ukraine of 26.12.92 N 13-92 "About the income tax from citizens".

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