Ukraine

Note that Ukrainian legislation is constantly undergoing changes and developments; consequently, taxpayers should seek expert advice wherever possible.

Main legislation changes

The major tax reform in Ukraine was implemented in January 2016. The main changes related to individuals and effective from 2017-2021 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 (7,100 Ukrainian hryvnias [UAH] starting from January 2024, UAH 8,000 starting from 1 April 2024).
• 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.
• Starting from 2021, private entrepreneurs have a right not to pay mandatory monthly USC if they are simultaneously employed at their main place of work based on a labour contract and their employer pays USC on their behalf in the amount not less than the minimal USC established by the law.

2020 tax legislation updates

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 that are 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, countries with which Ukraine has not concluded international agreements on the exchange of information), income and expenses on such transactions are determined:
  • in the amount not lower than the usual price, in case of sale, and
  • in the amount not higher than the usual price, in case of purchase.
• The entry into force of the controlled foreign company (CFC) took place 1 January 2022. Its main statements are:
  • 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 PIT may be reduced by the amount of taxes paid by the 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 Group taxation section of the Corporate tax summary.

2021 tax legislation valid since 1 January 2022 

• The following points regarding the right for a tax refund appliance and its administration are clarified / added:
  • The right to a tax refund with respect to education / medical expenses is granted not only to parents but also to guardians and fiduciaries, including parents-educators.
  • For 2021 and 2022, the tax refund includes the full cost of assistance to medical institutions, as well as the cost of treatment and purchase of medicines and / or medical devices needed for the treatment of acute respiratory disease COVID-19, vaccination costs for the prevention of acute respiratory disease COVID-19, as well as the cost of insurance payments paid to the resident insurer under insurance contracts in case of acute respiratory disease COVID-19, for the taxpayer and members of the taxpayer's family of the first degree of kinship.
  • It is stipulated that the controlling authorities may not request from taxpayers information, with the aim to prove expenses, contained in databases to which it has direct access.
• For determination of investment profit, one is allowed to deduct the value of investment assets that was declared by a taxpayer in a one-time (voluntary) special declaration.
• A new procedure is introduced for taxation of payments from a foreign institution without the status of a legal entity:
  • Income from distribution of profits from trusts and other foreign institutions without the status of a legal entity (not CFC) is taxed at 9% PIT rate.
  • The individual recipient of such payments is required to submit together with the annual tax return copies of set documents in connection with receipt of such income.
• Minimum tax liability introduced for taxpayers who are owners, tenants, and users on other conditions (including emphyteusis) of land plots classified as agricultural land, not leased (subleased) by such persons and not transferred to emphyteusis or other use on the basis of agreements concluded and registered, respectively, to the legislation. Minimum tax liability is determined by a controlling authority based on the registration address of such taxpayers (taxpayers registered as private entrepreneurs determine such tax obligation themselves).
• Remuneration (within certain limits) received by IT specialists who have a special registration as a 'resident of Diia City' from another 'resident of Diia City' is taxed at a 5% PIT rate. In addition, dividends received from a company that operates under the Diia City regime may be exempt from taxation under certain conditions.
• Ukrainian employer’s contributions to employee’s non-state pension / voluntary medical insurance not exceeding 30% of such employee’s salary are exempt from taxation.
• The following updates are introduced in respect of income from sale of property: 
  • Agricultural land directly received by the taxpayer in the process of privatisation or allocated in kind (on the ground) to the owner of the land share (share), as well as inherited land, are included in the list of real estate, the proceeds from which may be tax-exempt on sale once a year.
  • Income from sale of inherited property is taxed at a 5% PIT rate starting for the second and consequent objects, irrespective of the number of years of its ownership.
  • Income from the sale of third and consequent real estate objects is subject to an 18% tax rate but may be reduced by the certain types of documented costs of purchasing real estate located in Ukraine.
  • Income received by the taxpayer from the sale (exchange) during the reporting year of the third and subsequent objects of movable property in the form of a car, motorcycle, scooter, and / or other vehicle may be reduced by the value of such of movable property if it was declared by a taxpayer in a one-time (special) voluntary declaration according to the Tax Code provisions.

Changes related to the introduction of martial law

The following exemptions for PIT and military tax for income paid by a Ukrainian donator have been introduced:

• Charitable aid to military servicemen and other individuals directly engaged in military operations against the military aggression of the Russian Federation, as well as current or former residents of localities with military operations and/or those displaced as a result of military operations in such localities.
• Non-targeted charitable aid to individuals affected by military aggression of the Russian Federation in Ukraine.

Income provided as funds or goods (including additional benefits) to a taxpayer (and family members of 1st relationship degree) are not included into their total taxable income for 2022 and 2023 year if: 

• provided at the expense of budget funds of foreign countries and their state funds, as well as from foreign companies and organisations that, in accordance with the legislation of the relevant foreign jurisdiction, carry out charitable activities, and
• the person (taxpayer) suffered as a result of the armed aggression of the Russian Federation against Ukraine and exercised the right to temporary protection in accordance with the legislation of such a foreign state.

Receipt of such non-taxable funds or goods (including additional benefits) do not require filing of the annual tax declaration by itself. If a taxpayer received other income that requires filing a tax declaration, then such receipt of funds or goods should be included in the tax return as non-taxable income.

Military tax

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. It cannot be relieved using a double tax treaty (DTT).