Ukraine - Income Tax

Ukraine - Income Tax

Taxation of international executives

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Tax returns and compliance

When are tax returns due? That is, what is the tax return due date?

30 April

The standard annual filing deadline is 30 April of the year following the reporting year.

It may be extended to 31 December based on an application from the taxpayer if the documents for a foreign tax credit need to be obtained from a foreign jurisdiction.

If individual plans to leave Ukraine to live in another country, such individual must submit a ‘departure tax declaration’ no less than 60 days prior to his/her departure and settle the tax due based on an assessment issued by the tax authorities.

What is the tax year-end?

31 December

What are the compliance requirements for tax returns in Ukraine?

The following individuals are obligated to file a tax return:

  1. individuals conducting private activities including individual entrepreneurs;
  2. individuals who received income from which the Ukrainian income tax was not withheld.

Tax returns must be filed by 30 April of the year following the reporting year and the final tax payment should be made not later than 31 July of the year following the reporting year.

Generally, if during a calendar year, a Ukrainian tax resident terminates activities generating income taxable in Ukraine as stipulated in the Ukrainian Tax Code and intends to leave Ukraine for permanent place of residence abroad, the individual must submit a departure tax return not later than 60 calendar days prior to the departure from Ukraine. Income tax due on departure tax return is to be paid within 10 calendar days from the tax return filing date. Within 30 calendar days from the date the tax return was filed, tax authority checks tax obligation liability and payment of the tax.

Failure to file a tax return in time may result in penalty, which equals UAH 170.00 in case a tax payer identified him/herself that he/she is required to file a tax return.  Delay in tax payment within 30 calendar days starting from the tax payment due date results in 10% penalty of the amount of tax liability. Delay in payment for more than 30 calendar days results in 30% penalty of the amount of tax liability.

Residents / Non-residents

Ukrainian tax residents are taxable in Ukraine with respect to their worldwide income, while Ukrainian tax non-residents are taxable in Ukraine with respect to their Ukrainian source income.

Tax rates

What are the current income tax rates for residents and non-residents in Ukraine?

Both, residents and non-residents are taxable at 18% tax rate. Also, such income is subject to temporary military tax at 1.5% rate.

Residence rules

For the purposes of taxation, how is an individual defined as a resident of Ukraine?

The concept of tax residency incorporated in the Ukrainian legislation is similar to that of most double taxation treaties.

An individual is considered a Ukrainian tax resident if he/she has a domicile in Ukraine. If an individual also has a domicile in another state, the individual is qualified as a tax resident in Ukraine if he/she has a permanent place of residence in Ukraine.

If the individual also has a permanent place of residence in the other state, then the individual becomes a tax resident in Ukraine if he/she has a centre of vital interests in Ukraine. This could be the place where the individual's family members have a permanent abode.

In case it is not possible to determine the centre of vital interests, or the individual does not have a permanent place of residence in any country, the individual is qualified as a tax resident in Ukraine if he/she is present in Ukraine for a period (periods) exceeding 183 days during a calendar year. For the purpose of calculation of days of presence in Ukraine, both days of arrival and departure are taken into account.

If it is not possible to determine the residence status of an individual based on the above conditions, an individual is qualified as a Ukrainian tax resident if he/she is a citizen of Ukraine.

Non-residents are individuals who do not qualify as residents of Ukraine.

Is there a de minimus number of days rule when it comes to residency start and end date? For example, a taxpayer can’t come back to the host country for more than 10 days after their assignment is over and they repatriate.

No

What if the assignee enters the country before their assignment begins?

If the assignee enters the country before their assignment begins, these days are taken into account when determining the assignee’s Ukrainian residency position for income tax purposes.

Termination of residence

Are there any tax compliance requirements when entering or leaving the country?

For the year when a foreign citizen becomes a tax resident in Ukraine, he/she is obliged to file a tax return declaring Ukrainian and foreign income.

Ukrainian tax residents are required to file a departure tax return if he/she leaves Ukraine to live in another country. The personal income tax return should be submitted not later than 60 calendar days prior to departure from Ukraine and personal income tax liabilities should be settled within 10 calendar days after tax return is filed to tax authority.

Departure tax

There is no additional departure tax

What if the assignee comes back for a trip after residency has terminated?

If during a trip an assignee works or provides services in Ukraine, income derived from such activities in Ukraine should be taxable in Ukraine unless a tax relief is available under a Double Tax Treaty.

Communication between immigration and taxation authorities

Do the immigration authorities in Ukraine provide information to the local taxation authorities regarding when a person enters or leaves Ukraine?

Generally, the immigration authorities provide such information to the tax authorities upon request of the latter.

Filing requirements

Will an assignee have a filing requirement in the host country after they leave the country and repatriate?

Such requirement may arise if an assignee received income taxable in Ukraine (e.g. stock income for work in Ukraine etc.) that was not taxed at source.

Economic employer approach

Do the taxation authorities in Ukraine adopt the economic employer approach to interpreting Article 15 of the OECD treaty? If no, are the taxation authorities in Ukraine considering the adoption of this interpretation of economic employer in the future?

Generally, Ukraine has not adopted tax laws on economic employer approach yet. Commentaries to OECD Model Tax Convention do not have a status of law in Ukraine.

De minimus number of days

Are there a de minimus number of days before the local taxation authorities will apply the economic employer approach? If yes, what is the de minimus number of days?

Not applicable.

Types of taxable compensation

What categories are subject to income tax in general situations?

In general, taxable compensation includes remuneration received in-cash, in-kind, or in the form of imputed income. Income received in foreign currency must be converted into Ukrainian Hryvnya at the rate of the National Bank of Ukraine effective on the date of accrual (payment) for employment renumeration and other income. Income received in-kind is valued at fair market value.

Taxable compensation includes, but is not limited to, the following:

wages, bonuses, and commissions

allowances (such as, cost-of-living, moving, housing, home-visit, etc.)

reimbursement (or direct payment at the expense of employer) of employee’s expenses/ income tax/ employee portion of social security contributions, etc.

  • stock compensation
  • income derived from sale of the immovable property
  • income received from giving property for rent
  • dividends, interests, winnings
  • investment income
  • fines and penalties
  • insurance reimbursement
  • amount of unused travel advances, that was not returned on time
  • extra daily allowance

Tax-exempt income

Are there any areas of income that are exempt from taxation in your country? If so, please provide a general definition of these areas.

Non-taxable compensation includes, but is not limited to, the following:

  • Certain state aids and benefits (such as unemployment allowance, maternity allowance).
  • Charity (with certain restrictions).
  • Reimbursement by an employer in Ukraine of employees’ business trips expenses within certain limits, provided these expenses are properly documented in accordance with Ukrainian legislation.
  • State pensions which do not exceed 3 minimum wages per month.
  • Payment received from a life insurance company.
  • Scholarship that does not exceed the subsistence minimum multiplied by 1.4 coefficient (in 2016 – UAH 1,925.20)
  • Gift value that does not exceed 50% of a minimum salary as of January 1 (in 2016 – UAH 689)
  • Fees paid by an employer for education of an individual if the following requirements are met:
    1. monthly amount of the fee should not exceed the subsistence minimum multiplied by 1.4 coefficient
    2. the employment relations between employer and employee should last no less than 3 years
  • Interest from state securities issued by the Ministry of Finance of Ukraine.
  • Social security contribution made by the employer.
  • Alimony.

Expatriate concessions

Are there any concessions made for expatriates in your country?

Income of diplomats, consuls, administrative and support staff who do not hold a permanent residency permit are exempt from taxation in Ukraine, unless the income relates to an activity other than their duties within these organizations.

Salary earned from working abroad

Is salary earned from working abroad taxed in Ukraine? If so, how?

Tax residents are subject to Ukrainian income tax on their worldwide income subject to annual tax return submission. A foreign tax credit may be claimed in Ukraine under a relevant Double Tax Treaty with regard to salary for work abroad.

Taxation of investment income and capital gains

Are investment income and capital gains taxed in your country? If so, how?

“Capital gains” are generally subject to income tax at rate of 18% as well as temporary military tax rate at 1.5% for both residents and non-residents.

For proceeds and expenses received/incurred in foreign currency an equivalent in Ukrainian Hryvnya must be calculated for tax purposes based on the official exchange rate of the National Bank of Ukraine effective on the day when income was received (paid).

Dividends, interest, and rental income

All dividends received by Ukrainian residents and non-residents are subject to personal income tax at the rate of 5% if the income received from the Ukrainian legal entity. Dividends received from foreign legal entities are taxed at the rate of 18% and temporary military tax at the rate of 1.5%.

Interest received by Ukrainian residents/ non-residents is subject to personal income tax at the rate of 18% as well as temporary military tax at the rate 1.5%.

Rental income received by Ukrainian tax residents/ non-residents is subject to personal income tax at rates of 18% as well as temporary military tax rate at 1.5%. Rental expenses (e.g. mortgage interest, maintenance and utilities costs etc.) are generally not deductible for tax purposes.

Gains from employee stock option exercises

Generally, the taxation of stock options exercises is not specially referred in the Ukrainian tax legislation. In practice the taxation is carried out in accordance with principle of the taxation of the investment income at rates of 18% as well as temporary military tax rate at 1.5% for both residents and non-residents.

Foreign exchange gains and losses

Not subject to personal income tax.

Principal residence gains and losses

Taxation of proceeds from the sale of property depends on the tax residence status of an individual in the year of sale, the type of property sold and the property ownership period prior to sale.

For example, disposal by a Ukrainian tax resident of immovable property is subject to personal income tax at 5% (and may be not taxed in certain cases.

Proceeds from the sale of property located in Ukraine by a Ukrainian tax non-resident are taxable in full (no deductions are available) at the rate of 18% and temporary military tax at the rate 1.5%.

Capital losses

Capital losses from the operation with the investment assets within one calendar year may be carried forward to the next years, provided certain legal requirements are met.

Personal use items

General rules on taxation of proceeds from the sale of property apply.

Gifts

Gifts received from legal entities and individual entrepreneurs for a total value of less than UAH 689 per month are tax-exempt. The value of such gifts exceeding the threshold is subject to personal income tax at the rate of 18% (with applying a coefficient 1,219512) and temporary military tax at 1,5% for tax residents and for tax non-residents. 

Any gifts between family members and close relatives are tax-exempt.

Gifts of immovable property, vehicles, securities and shares between individuals who are not family members or close relatives are taxable at the rate of 5% for tax resident recipients and at the rate of 18% for tax non-residents. In both cases also temporary military tax at 1,5% will apply.

Additional capital gains tax (CGT) issues and exceptions

Are there capital gains tax exceptions in your country? If so, please discuss.

There is no additional CGT in Ukraine.

Pre-CGT assets

Not applicable

Deemed disposal and acquisition

Not applicable

General deductions from income

What are the general deductions from income allowed in your country?

Tax resident individuals may be entitled to the following main tax deductions from their income:

  • Charitable donations to Ukrainian charities and non-profitable organisations, in an amount not exceeding 4% of the taxpayers taxable income
  • Secondary professional or higher education expenses of a taxpayer and their dependents. In 2016 the deductible limit is UAH 1,929 per month
  • Premiums for qualified Ukrainian voluntary long-term life insurance or non- state pension insurance for the benefit of a taxpayer and their dependents. In 2016 the deductible limit is UAH 1,710 per month for taxpayers and UAH 965 for dependents
  • Cost related to a child adoption – in a full amount
  • Limited amount of mortgage interest, provided it is used to finance the acquisition of a taxpayer’s main place of residence
  • Expenses for re-equipment of a vehicle for using biofuels.

Tax reimbursement methods

What are the tax reimbursement methods generally used by employers in your country?

Currently gross up and rollover methods are used for personal income tax reimbursements

Calculation of estimates/ prepayments/ withholding

How are estimates/prepayments/withholding of tax handled in your country? For example, Pay-As-You-Earn (PAYE), Pay-As-You-Go (PAYG), and so on.

Pay-As-You-Earn (PAYE):

Tax agents which pay income (exceptions apply to some types of income) to individuals are required to withhold income tax and remit it to the Ukrainian tax authorities. Tax agents include individual entrepreneurs, Ukrainian legal entities, and Representative offices/Branches of foreign legal entities registered in Ukraine.

Income tax from salary is withheld and remitted to the tax authorities generally simultaneously with the payment of the salary.

Individuals who receive remuneration from outside Ukraine are personally responsible for income tax compliance and pay tax from such income on a self assessment basis. Tax prepayments during a year are not required in such cases.

When are estimates/prepayments/withholding of tax due in your country? For example, monthly, annually, both, and so on.

Tax agents are generally required to withhold income tax every time when income is paid to an individual or to third parties on behalf of the individual.

Tax payable based on the individual tax return is generally due by 31 July of the year following the reporting year.

Relief for foreign taxes

Is there any Relief for Foreign Taxes in your country? For example, a foreign tax credit (FTC) system, double taxation treaties, and so on?

Relief for foreign taxes may be available in Ukraine only if it is provided by the effective Double Tax Treaty.

To support a credit for foreign taxes, an individual should submit to the Ukrainian tax authorities a statement of income received and income taxes paid in the foreign country. To support an exemption or a lower tax rate under the treaty, the individual should submit a confirmation of tax residence in the foreign country and confirmation of income received and income taxes paid in the foreign country, if applicable. In both cases, documents must be endorsed or issued by the relevant foreign tax authorities, authenticated (e.g., by means of an Apostile) and translated into Ukrainian with the translation being certified by a notary public.

General tax credits

What are the general tax credits that may be claimed in your country? Please list below.

Not applicable.

Sample tax calculation

This calculation assumes a married taxpayer resident in Ukraine with two children whose three-year assignment begins 1 January 2013 and ends 31 December 2015. The taxpayer’s base salary is USD100,000 and the calculation covers three years.

  2013

USD
2014

USD
2015

USD
Salary 100,000 100,000 100,000
Bonus 20,000 20,000 20,000
Cost-of-living allowance 10,000 10,000 10,000
Housing allowance 12,000 12,000 12,000
Company car 6,000 6,000 6,000
Moving expense reimbursement 20,000 0 20,000
Home leave 0 5,000 0
Education allowance 3,000 3,000 3,000
Interest income from non-local sources 6,000 6,000 6,000

Exchange rate used for calculation: USD1 = UAH23.

Other assumptions

  • All remuneration and benefits are attributable to local sources.
  • Bonuses are paid at the end of each tax year, and accrue evenly throughout the year.
  • The company car is used for business purposes.
  • The employee is deemed resident throughout the assignment.
  • Tax treaties are ignored for the purpose of this calculation.

Calculation of taxable income

Year-ended 2013

UAH
2014

UAH
2015

UAH
Days in Ukraine during year 365 365 365
Earned income subject to income tax
Salary 2,300,000 2,300,000 2,300,000
Bonus 460,000 460,000

460,000

Cost-of-living allowance 230,000 230,000 230,000
Housing allowance 276,000 276,000 276,000
Company car      
Moving expense reimbursement 460,000 0 460,000
Home leave 0 115,000 0
Education allowance 49,680 48,480 48,480
Interest income 138,000 138,000 138,000
Total earned income 3,913,680 3,567,480 3,912,480
Other income 0 0 0
Total income 3,913,680 3,567,480 3,912,480
Deductions 0 0 0
Total taxable income 3,913,680 3,567,480 3,912,480

 

Calculation of tax liability

  2013

UAH
2014

UAH
2015

UAH
Taxable income as above 3,913,680 3,567,480 3,912,480
Ukrainian tax thereon 662,573 603,548 775,188
Less:
Domestic tax rebates (dependent spouse rebate) 0 0 0
Foreign tax credits 0 0 0
Total Ukrainian tax 662,573 603,548 775,188

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