Note that Ukrainian legislation is constantly undergoing changes and developments; consequently, taxpayers should seek expert advice wherever possible.
The major tax reform in Ukraine was implemented in January 2016. The main changes related to individuals and effective from 2017/18 are the following:
- The personal income tax (PIT) rate of 18% is applicable to all kinds of passive income received by individuals, with the exception of dividends paid under certain conditions.
- Ordinary dividends paid by non-residents, mutual investment funds, and non-payers of corporate income tax (CIT) in Ukraine are taxed at 9%.
- The maximal monthly base for unified social contribution (USC) is 15 times the minimal wage set for the respective period (month) of the year. The minimal base for income received at the main place of work is one minimal wage (4,723 Ukrainian hryvnias [UAH] during 2020).
- Added a possibility for individuals to postpone tax payments in respect of income arising as a result of forgiven debt related to residential mortgage.
- A tax deduction is allowed not only with respect to secondary and higher educational expenses, but also for expenses incurred in relation to pre-school, extracurricular and school education. The total amount of the tax deduction charged to the taxpayer in the reporting tax year may not exceed the amount of the annual general taxable income of the taxpayer calculated as a salary.
- Currency exchange differences are added to calculation of individual’s investment profit, etc.
In 2020, the Ukrainian government passed a law amending the tax legislation of Ukraine. Below we provide the list of main changes/clarifications in respect of taxation of individuals:
Investment income from foreign sources is taxed according to the rules established for taxation of investment profit/loss.
- In case of sale or acquisition by the taxpayer of investment assets to / from non-residents - related parties or non-residents registered in the states (territories) included in the list approved by the Cabinet of Ministers (e.g., whose CIT rate is 5% or more lower than in Ukraine, or countries with which Ukraine has not concluded international agreements on the exchange of information, etc.), income and expenses on such transactions are determined:
- in the amount not lower than the usual price, in case of sale;
- in the amount not higher than the usual price, in case of purchase.
The statute of limitations for the audit of tax agents increased to 7 years.
Starting from 1 January 2021, the following changes will be introduced to taxation of Controlled Foreign Companies (CFC) rules:
Tax residents who are controlling persons for a foreign company will have to determine their share of the profits of such company in accordance with the rules of the Tax Code of Ukraine, declare it in the annual declaration of property status and income and pay tax at the following rates:
- 9%, if the individual actually receives the allocated funds (directly or through the chain of indirect ownership) and such distribution took place before the submission of the CFC report.
- 18% in other cases. Recalculation of the tax (from 18% to 9%) and refund of part of the paid tax is possible provided that the individual actually receives the allocated funds and submits an adjusting annual tax return before the end of the second calendar year following the reporting year.
Under certain conditions, the amount of personal income tax may be reduced by the amount of taxes paid by CFC.
The CFC profit received as dividends from legal entities of Ukraine is taxed at the rates of 5% or 9% (from mutual investment institutions or business entities that are not CIT payers). In this case, such amount is not taken into account when determining the portion of the CFC profit, and is not subject to further taxation during its actual payment in favour of the controlling person. Dividends previously taxed at the level of a Ukrainian company are not subject to re-taxation.
For more details on new CFC rules adopted by the Ukrainian government and how the taxable profit is determined please refer to the respective section in CIT part of Tax Summaries.
Personal income tax (PIT)
Interest income is taxed at an 18% rate. Banks and credit unions are required to withhold PIT and report to the tax authorities the total amount of interest income and tax withheld during a given period without providing any information on the individuals or their bank accounts.
A temporary 1.5% military tax on personal income was introduced in August 2014. This will be effective until the reformation of the Ukrainian Military Forces is completed, and affects all taxable income of residents and non-residents in Ukraine. The tax base is not capped. Ukrainian employers and other tax agents are responsible for tax withholding.
Military tax from income not received from a tax agent should be paid on a self-assessment basis within the deadlines for PIT.