Individual Income Tax
Under Ukrainian legislation, residents of Ukraine pay taxes in Ukraine on their worldwide income, whereas non-residents are subject to taxation only in respect of their Ukrainian-source income. However, in cases, when applicable double tax agreement (DTA) determine other rules, the DTA has priority over Ukrainian national legislation.
Among main taxes, which apply to income of individual include income tax, temporary military tax and property tax (the latter is paid annually for owned real-estate, passenger vehicles, and land).
Additionally, in case of import of goods for certain amount (namely, in cases of expedited shipping – for more than 150 EUR; in cases of import of goods in accompanied baggage through airport customs – for more than 1000 EUR and in cases of import of goods in accompanied baggage through other customs than at the airport – for more than 500 EUR), individuals will have to pay VAT tax and customs duty.
In certain cases an individual may have to pay additional state fees and duties (for example 1 % state duty for notarial certification of a deed on the sale of real-estate, 1 % Pension Fund for a purchase of real-estate, state duty for application to court and others). Starting from 2016, individuals do not pay social security tax (except for individuals registered as private entrepreneurs).
This article provides a basic guide to the taxation of individuals in Ukraine. Taxation of private entrepreneurs is out of the scope of this article.
Special criteria apply when determining tax residency of an individual
Residents of Ukraine pay taxes on their world-wide income, whereas non-residents pay taxes in Ukraine only for their Ukraine-source incomes. For this reason it is important to define tax residence of individual for taxation purposes. Note that the rules for residence for tax purposes vary from country to country and can be different from nationality and citizenship.
In Ukraine, tax residence is defined in accordance with Tax Code of Ukraine, if otherwise is not prescribed by applicable Double Tax Agreement (DTA) rules. In Ukraine tax residence is different from nationality, citizenship and residence for currency control purposes. Tax residency rules in Ukraine are similar to those, recognized in international tax practice such as proposed by OECD Model Convention, though Ukraine is not part of OECD and can ignore commentaries to the Convention.
In accordance with Tax Code of Ukraine, an individual will be considered a tax resident of Ukraine in any of the following cases:
- when an individual resides in Ukraine
- if individual lives also in another country, he/she is considered resident of Ukraine in case he/she has permanent residency in Ukraine
- in cases when the person has permanent residency in more than one country, then he/she is a resident of the country where he/she has personal and economic ties (center of vital interests)
- if none of the above-mentioned criteria applies, the individual is a resident of the country where he/she lives for 183 and more days during the year.
Additionally, such factors as place of permanent residence of individual’s family or country of business registration may also be taken into consideration. If under the above-mentioned criteria it is not possible to determine tax residency of the individual, he/she will be considered resident in the country of his/her citizenship. In addition, according to Tax Code, an individual can unilaterally define himself/herself as Ukrainian tax resident.
Types of taxes and tax rates for individuals
Income, received by an individual, is taxed at 18%, 9%, 5% or 0% rate depending on the type of income, in some cases tax residency of the individual, and other relevant factors. This section provides a detailed overview of the type of income and applicable tax rates for individuals in Ukraine.
Additionally, all income, for which income tax applies, is also taxed by a temporary military contribution in the amount of 1,5 % of taxable income (introduced starting from August 2014). In cases, when income is exempt from taxation by income tax or taxed at 0%, military tax does not apply (with a number of exceptions).
Note that tax base of income and military tax is usually full amount of income (not net profit), including in cases of sale of a movable and immovable property. Exceptions from this rule are defined by Tax Code of Ukraine (for example net profit from sale of securities, profit from entrepreneurial activity)
Starting from 2016 individual’s income is exempt from social security taxation, whereas employers are obliged to pay 22 % from the salary of each employee (this amount is not deducted from salary but paid by employer on the top of the salary). Note that minimal amount of monthly social security tax amounts UAH 704 per month and maximum amount of monthly social security tax amounts UAH 9,262 per month.
Tax on Income from Employment and Civil Services Agreements
In Ukraine salaries and income from services under civil agreements are taxed at 18 %. Together with temporary military tax as mentioned above, the total amount of tax for salary or income from civil services agreements will amount 19, 5 % (18 %+1,5 %).
Tax on Investment Capital Gains, Dividends, Interest Income
Dividend income received by individuals from legal entities who are residents of Ukraine and corporate income tax-payers, are taxed at 5% (exception is dividends from Ukrainian investment funds which are taxed at 9%).
9 % tax rate applies to dividends from:
- legal entities on Simplified Tax Scheme;
- legal entities, registered overseas;
- dividends from investment funds
Other passive income (such as deposit interest, other investment income) is taxed at 18%.
Additionally, passive income is taxed at 1,5 % by the military tax.
Income, received for granting property for lease, is taxed at 18 % (plus 1,5 % military tax)
Note that lessee is a tax agent of the lessor and is responsible for withholding the tax from lease income and payment of tax. If the lessee is a private individual, then lessor pays the tax himself/herself on a quarterly basis and files annual tax declaration.
In cases when the lessor is non-resident and he is giving for lease his / her real-estate in Ukraine, he can do it only through an agent -legal entity or private entrepreneur, registered in Ukraine.
Income from Sale of Residential Real-Estate
- sale of residential property, owned by an individual for more than three years is exempt from taxation on condition that this is the first sale of residential property in the reporting year
- sale of residential property owned less than 3 years before sale or if it is a second or any subsequent sale of residential property during the reporting year is taxed at 5 % (income tax) and 1,5 % (military tax) – for residents; and 18 % (income tax) plus 1,5 (military tax) – for non-residents
Income from Sale of Commercial Real-Estate
For residents: is taxed at 5 % (income tax) plus 1,5 % (military tax)
For non-residents: is taxed at 18 % (income tax) plus 1,5 % (military tax)
Income from Sale of Land Plot
- sale of land plot which size does not exceed free land transfers (size of free land transfer is defined under Land Code of Ukraine for each type of land) if this land plot is owned by seller for more than 3 years and on condition that this is the first sale of land plot in the reporting year – is exempt from taxation
- in other cases: residents pay 5 %(income tax) plus 1,5 % (military tax) of sale amount; non-residents pay 18 %(income tax) plus 1,5 % (military tax) of sale amount
Income from Sale of Motor Vehicle
- the first sale of car or other motor vehicle during the reporting year is exempt from taxation
- second or any subsequent sale of car or other motor vehicle during the reporting year is taxed at 5 % (income tax) and 1,5 % (military tax) – for residents; and 18 % (income tax) plus 1,5 (military tax) – for non-residents
Income from Sale of Other Movable Property
- For residents: is taxed at 5 % (income tax) plus 1,5 % (military tax)
- For non-residents: is taxed at 18 % (income tax) plus 1,5 % (military tax)
Inheritance & Gift Tax
For clarification, an inheritance is a benefit received on a death and a gift is a benefit received otherwise than on a death.
Regarding inheritance, the following rules apply:
- Property, inherited by resident from his first civil degree relative-resident of Ukraine, is taxed at 0%
- The property, inherited by other resident than first civil degree relative-resident of Ukraine, is taxed at 5% (income tax) plus 1,5 % (military tax).
- if a resident of Ukraine inherits property from non-resident of Ukraine such income is taxed at 18% (income tax) and 1,5 % (military tax)
- if non-resident (irrespective of relative relations) inherits any property in Ukraine, such income is taxed at 18% (income tax) and 1,5 % (military tax)
Regarding gifts, the following rules apply:
- Property received as a gift by resident from his first civil degree relative-resident of Ukraine is taxed at 0%
- Property received as a gift by other resident than first civil degree relative-resident of Ukraine (private individual), is taxed at 5% (income tax) plus 1,5 % (military tax)
- when a resident of Ukraine receives a gift from non-resident of Ukraine, such income is taxed at 18% (income tax) and 1,5 % (military tax)
- if non-resident (irrespective of relative relations) receives any property in Ukraine as a gift, such income is taxed at 18% (income tax) and 1,5 % (military tax)
Prizes, lottery winning, and royalty are taxed at 18% rate. Additionally, this income is taxed at 1,5 % by the military tax.
Taxable and Non-Taxable Income
This section provides a quick glance at what type of income is taxable and what type of income is excluded from tax.
Income subject to taxation
- employment income and benefits in kind
- income received under civil agreements
- income from the alienation of property and property rights (with some exceptions)
- income from giving property for lease or rent
- part of a pension, which exceeds 10 minimal living wages, defined for disabled persons for the 1st of January of the reporting year
- gifts and prizes
- dividends and interests
- investment profit
- inherited property
- contributions to unqualified pension funds made on behalf of a tax-payer by employer (with some exceptions)
- other incomes as defined by Tax Code of Ukraine
Income not subject to taxation (for residents and not residents)
- Investment income from number of state securities and bonds of the National Bank of Ukraine
- compensation of apartment or car rental expenses for employees if such compensation is envisaged by an employment agreement
- amounts received by employees from employers for certain types of medical treatment and services
- alimony received from residents as per court ruling or under Family Code of Ukraine (alimony from non-residents are taxed at 18 %)
- part of a pension, which does not exceed 10 minimal living wages, defined for a disabled person on the 1st of January of the reporting year
- property received by tax-payer as a result of division of spouse property
- amounts received from the sale of residential real estate providing it was owned by an individual for 3 + years and this is the first sale of residential real estate within the reporting year
- amounts received from the sale of land plots not exceeding in area the limit for free land transfers
- amounts received from the first sale of a car or other moto-vehicle during the reporting year
- certain types of charity income
- other income as prescribed by Tax Code of Ukraine
Deductions and Tax Reliefs
Non-resident individuals are not allowed to tax deductions
Residents of Ukraine are entitled to partially deduct expenses incurred within the reporting year. Note that non-resident of Ukraine are not allowed to use such tax reliefs.
Deductible expenses must be declared in the annual tax return. The following expenses can be deducted partially:
- mortgage loan interests
- expenses for education of tax-payer or his close relative (up to UAH 1930 for 1 person per month)
- medical expenses (with some exceptions)
- contributions to voluntary life or pension insurance
- expenses for certain types of charity (up to 4 % from annual taxable income of individual)
- others in accordance with Tax Code
Tax Return Filing
In cases, when the individual is receiving income from a tax agent (e.g. a company, private entrepreneur) or income under notarial deal, the required tax amount is deducted or paid at source by the tax agent. In other words, in such cases, the tax agent withholds tax on behalf of the tax-payer at the time of payment to the individual and the tax agent is responsible for making the payment to tax authorities. In notarial deals, the notary is responsible for calculating the required tax amount for the deal before notarizing, checking payment of income tax (notary will require bank receipts on payment of income tax) and then filing quarterly reporting. Consequently, if all the taxes were withheld or paid at the time of receiving income, the resident does not have to file annual tax reporting.
Whereas in cases, when income tax and/or social security tax were not withheld or paid in full at the time of receiving of such income (e.g. when income was received from private individual, from non-resident and others), the individual is obliged to report and file annual tax declaration by 1st of May of the year following the reporting year and pay taxed on his own.
Regardless, if individual-resident wishes to obtain tax relief and deduct part of expenses from tax base, he/she is obliged to file annual tax declaration not later than end of the year, following the reporting year.
Annual Property Tax
Annual Real Estate Property Tax
Real-estate property tax is paid by residents and non-residents of Ukraine annually based on calculations, made by tax authorities. Amount of tax depends on type of real estate, total area of owned real estate and its location. Tax authorities send tax notification with amount of tax due to the tax-payer or his/her representative (for non-residents) until the 1st of July of the year, following reporting year. Such tax has to be paid withing 60 calendar days upon receipt of tax notification.
Residential Real-Estate Tax
Owners of residential real-estate (residents and non-residents) are obliged to pay annual property tax in the amount, set by local authorities but not more than 1.5 % of minimum wage effective on the 1st of January of the reporting year per square meter (in 2017 it is 48 UAH per square meter)
Owners of residential real-estate will pay additional 25 000 UAH per year if total area of owned residential real-estate exceeds 300 square meters (for apartments) and 500 square meters (for residential buildings)
- first 60 square meters of apartment/apartments are exempt from taxation; and
- first 120 square meters of residential building (house) are exempt from taxation
- in cases, when tax-payer has both house and apartment, first 180 of residential real-estate are exempt from taxation
Commercial Real-estate Tax
Owners of commercial real-estate (residents and non-residents) are obliged to pay annual property tax in the amount, set by local authorities but not more than 1.5 % of minimum wage effective on the 1st of January of the reporting year per square meter (in 2017 it is 48 UAH per square meter)
Some commercial real estate is exempt from taxation:
- industrial buildings
- agricultural buildings for use directly for agricultural production
- certain social services buildings
Land Plot Tax
Annual tax on land plots is paid by owners or permanent users of land plots. In cases, when individual uses land plot on the basis of lease agreement, he does not pay land tax, but he/she pays lease payments.
Amount of tax is defined by municipal authorities and it depends on normative value of land, type of land plot and its size, it can vary from 1-5 % from normative value of land plot.
Some categories of private individuals are exempt from taxation (for example pensioners, disabled persons, individuals who have three and more kids under 18 and others).
2. Annual Passenger Car Tax
Property tax is paid by residents and non-residents of Ukraine, who own passenger car, registered in Ukraine, which was manufactured less than 5 years ago and has market price more than 375 minimal wages effective on the 1st of January of the reporting year. Tax amounts 25 000 UAH annually per each passenger car which meets the above-mentioned criteria.
Tax is paid annually based on calculations, made by tax authorities. Tax authorities send tax notification with amount of tax to the tax-payer’s registered address or place of registration of passenger car (for non-residents) until the 1st of July of the year, following reporting year. Such tax has to be paid within 60 calendar days upon receipt of tax notification.
Summing It Up
Some summary text here
Tax rates and reporting rules depend on the type of income, received by an individual, and a person, who is paying such income.
In most cases, income (such as salary, passive income, royalty etc) is paid to an individual by tax agent, taxed at 18 % (income tax) plus 1,5 % (military tax) rate and the amount of tax is automatically withheld by the tax agent at the time of payment. Some income is taxed at 9 %, 5 %, 0 % or even exempt from taxation.
In cases, when income is paid by individual or non-resident, and not under the notarial deal, an individual is obliged to pay tax on his own and file annual tax declaration. Due to the complexity of tax law of Ukraine, it is highly recommended to use services of tax consultant to define tax obligation correctly.
Starting from 2016 individuals do not pay social security tax and there is no net wealth tax in Ukraine.
Here are some additional resources that you might find useful :
- Taxes in Ukraine
- Property Tax in Ukraine
- Taxation of Private Entrepreneur
For further information, please contact us.