Operating expenses — cost of goods (works, services) consists of expenses directly related to the production of such goods, works or services, namely:

• direct material costs (raw materials, materials and semi-finished products forming the basis of the manufactured goods, works or services);

• direct labour costs (wages and other payments to employees engaged in producing goods, works or services);

• depreciation of production fixed assets and intangible assets directly related to producing goods, works or services;

• the cost of purchased services directly related to their production or provision;

• other direct expenses (social contributions, rent for land and property shares).

Expenses forming the cost of goods, works and services are recognised as expenses in the reporting period in which income from the sale of such goods, works or services is recognised. Other expenses are recognised in the reporting period in which they were incurred, subject to specific rules. For example, accrued taxes and fees are included in the expenses of the reporting period for which they are accrued.

Unlike the previous legislation, Section I of the Tax Code of Ukraine defines the term “marketing services (marketing)”. Marketing services are services that support a taxpayer's activities in market research, promotion of sales of products, works or services, pricing policy, organisation and management of movement of products, works or services to the consumer, and after-sales customer service within the taxpayer's business activities. Marketing services include, in particular, placement of the taxpayer's products at points of sale, study, research and analysis of consumer demand, inclusion of the taxpayer's products, works or services in sales information databases, and collection and distribution of information on products, works or services.

One innovation of the Tax Code of Ukraine is a separate rule stating that a taxpayer is entitled to recognise for tax purposes expenses supported by documents prepared by non-residents in accordance with the rules of other countries.

The Tax Code contains no restrictions on recognising expenses for fuel and lubricants for passenger cars or operating leases of passenger cars when determining the taxable object, or expenses for warranty repair and replacement of defective goods where the terms have been published by the seller. The former limit of 5% of gross expenses for the reporting tax period on insurance expenses recognised for tax purposes was removed, except for insurance of risks related to production of national films, which could be recognised at no more than 10% of the production cost of such a film. The limit on voluntary transfers of funds to budgets or non-profit institutions was also changed: instead of 2% to 5% of the previous year's taxable profit, the limit was set at no more than 4% of that profit.

Subparagraph 140.1.7 of the Tax Code of Ukraine provided for an increase in daily business travel allowances from UAH 30 per day to 0.2 of the minimum wage applicable to an able-bodied person on 1 January of the reporting tax year per day, and for foreign business travel to no more than 0.75 of that minimum wage per day.

For business travel within Ukraine and to countries where Ukrainian citizens do not require a visa or entry permit, the daily allowance is determined on the basis of the business travel order and relevant source documents. Under the previous legislation, recognition of such travel expenses was based on marks of the sending and receiving parties on a travel certificate; the Code did not require such marks as a mandatory element for recognising the expenses. One innovation of the Tax Code of Ukraine was that expenses could be supported, in particular, by electronic tickets.

The Tax Code permits tax recognition of expenses for education and/or professional training, retraining or advanced training of individuals at foreign educational institutions where a certificate from such an institution is mandatory for meeting particular conditions of business activity.

Unlike the previous legislation, the Tax Code provided that taxpayers licensed to produce electrical and/or thermal energy and using coal and/or fuel oil for such production include in direct material costs, within the cost of goods sold, works performed and services provided during the year, an amount of a fuel reserve instead of the value of coal and/or fuel oil consumed in the technological process. The reserve is created to ensure uninterrupted electricity supply to consumers.

The amount of the fuel reserve is determined independently by the taxpayer each month on the basis of the average monthly cost of fuel purchased in the previous year, but not less than the actual cost of fuel purchased during the current month. At the end of the reporting year, the reserve is adjusted to the value of fuel consumed in the technological process, as follows:

• if the actual value of fuel consumed in the technological process during the reporting year exceeds the reserve accrued for that year, the cost of goods sold, works performed and services provided is increased by the difference between the value of the fuel consumed and the reserve accrued for the reporting year;

• if the actual value of fuel consumed in the technological process during the reporting year is less than the reserve accrued for that year, the cost of goods sold, works performed and services provided is reduced by the difference between the value of the fuel consumed and the reserve accrued for the reporting year.

In addition, the Tax Code provides that taxpayers licensed for transmission and/or supply of electrical and/or thermal energy include in the cost of sale of electrical and/or thermal energy and services for its transmission and/or supply the expenses actually incurred during the relevant reporting period on purchasing electrical and/or thermal energy.

It should be noted that, under paragraph 7 of subsection 4 “Special rules for corporate profit taxation” of Section XX of the Tax Code of Ukraine, expenses are not recognised for goods, works or services received or provided after 1 April 2011 to the extent that their cost was paid as advances before that date where those advances had already been included by the taxpayer in gross expenses when paid, including during a period on the simplified taxation system.

For corporate profit taxpayers that moved from the simplified taxation system to the general system, when income from the sale of goods, performance of works or provision of services is recognised under the general system, the cost of those goods, works or services formed during the period on the simplified system is included in expenses proportionately to the recognised income.

In addition, under paragraph 13 of subsection 4 “Special rules for corporate profit taxation” of Section XX of the Tax Code of Ukraine, temporarily until 1 January 2014, the date on which income of housing and utility companies from housing and utility services increased was the date funds were received from the consumer in the taxpayer's bank account or cash desk. Such companies recognised in the cost of housing and utility services the cost of goods, works and services to the extent actually paid for them. Other expenses were recognised under the general rules of Section III of the Tax Code of Ukraine.