Deloitte in the News
Family farming in Ukraine: an attempt at 'deshadowing'
When we refer to Ukraine as an agrarian state, generally we mean the quality and area of land resources. However, there is much more than that.
17 September 2018
It is a history, traditions, and lifestyle of thousands of households throughout the centuries, as well as many other things that the communist regime tried to destroy through the collectivization. Unfortunately, during the years of Ukraine's independence, these issues of concern have not been appropriately addressed by the Ukrainian government at the legislative level. Despite high grain exports, rural areas of Ukraine continue to deteriorate.
What could be done to attract ambitious people and foreign investment to Ukraine's rural areas?
The answer is quite simple: support the development of family farming enterprises. In fact, family farming enterprises make up the base of an entire American agribusiness. Although we refer to the US as a powerful post-industrial state, agriculture represents a large-scale infrastructure of companies and factories. Family farms play a key role in the US agricultural economy.
Situation in the agricultural sector of Ukraine
Today, agrarian business of Ukraine comprises different types of participants, ranging from large international landowners to small farming enterprises. While large holdings address development issues at the level of strategy, technology and environment, a farmer who cultivates a small land plot is faced with the challenge of choosing the right legal form for its business. Often, the farmers choose to conduct shadow business activities receiving cash payments from wholesale traders who buy agricultural produce at rock-bottom prices. This results in low income for the farmers and non-payment of taxes.
What steps does Ukrainian government take to develop family farming?
On 10 July 2018, the President of Ukraine signed the Law “On amending the Tax Code of Ukraine and certain laws of Ukraine to encourage the creation and operation of family farming enterprises”.
The Law is intended to help to deshadow the farming enterprises that have not been registered as legal entities.
The explanatory note to the draft law states: if the state provides favorable development conditions, it would be possible to deshadow from 200,000 to 1,100,000 farming enterprises. In addition, these enterprises would be granted a status of family farming enterprise without the need to create a legal entity.
According to the new law, family farming enterprises will be included into the single taxpayer group IV.
From now on, the single taxpayer group IV includes not only legal entities, but also individual entrepreneurs operating solely as farming enterprises, provided that they satisfy all of the below conditions:
- To be engaged solely in the production, processing, and supply of agricultural produce
- To carry out business activities (except for supplies) at the tax address
- Not to use labor of hired workers
- Only family members can participate in the farming enterprise
The area of agricultural land in ownership and/or use, and the area of water fund land in use of the farming enterprise members should be at least 2 hectares, but not exceed 20 hectares.