Taxation in Ukraine

Taxation in Ukraine

1. THE TAX SYSTEM 

In Ukraine, taxes and statutory charges are levied in accordance with the Tax Code of Ukraine (effective from 2011). The major taxes and compulsory payments are: 

• Corporate income tax (CIT) 
• Value added tax (VAT) 
• Personal income tax (PIT) 
• Unified social contribution (USC) 
• Temporary “military charge” 
• Excise tax 
• Property tax 
• Duty 
• Land rental fee 

All taxpayers are required to register with the State Tax Agency (STA) and to obtain a tax identification (ID) number. Registration is undertaken through the local tax office where the business is located. Without a tax ID number it is not possible to open a bank account in Ukraine. 

2. TAXES ON BUSINESS 

2.1. Corporate income tax

2.1.1. Tax rates 

Since 2014 the basic CIT rate is 18%. 

Agricultural and small businesses may qualify for a simplified tax regime at a low tax rate (3% or 5% of the sales). Special tax treatment also applies to insurance companies and lotteries. 

In Ukraine, CIT administration is centralised and no additional corporate income taxes are imposed at regional or local levels. For each reporting period, CIT is calculated on a self-assessed basis. 

CIT returns must be filed on a quarterly basis and in some cases – on calendar year basis (for new legal entities, and for entities with annual income less than UAH 40 million that is appr. USD 1.1 million). It is allowed to credit the foreign income tax (up to the amount of the Ukrainian income tax on the same income).

2.1.2. Taxable base 

CIT is levied on tax residents of the Ukraine on their gross worldwide income and it is levied on non-residents on their Ukraine- sourced income. A non-resident entity with place of effective management in Ukraine qualifies as a tax resident taxed on Ukraine-sourced income only.

The taxable base for CIT is calculated as Ukraine and foreign-sourced income, which is determined by adjusting (increasing or decreasing) the financial result before tax (profit or loss), as defined in the financial statements in accordance with IFRS or the national accounting regulations (standards) (an election available for most businesses except banks, insurance companies etc.), for tax differences according to the Tax Code. Income includes any income from the sale of goods/works/services, capital gains, foreign exchange gains, free-of-charge transfers, and other taxable receipts in cash, in kind, or in the form of intangibles accrued within the reporting period. 

Taxpayers with annual income below UAH 40 million (that is appr. USD 1.1 million) may opt to not apply the tax differences.

Ukraine uses an accrual method for tax accounting. Income is realised in the tax period when the transfer of ownership title to goods/services/works occurs, while deductible expenses (forming the cost of production of sales) is recognised on the date when the relevant goods/services/works were supplied. 

Dividends received from residents of Ukraine and non-residents under the recipient’s control shall not be included into taxable incomes.

2.1.3. Tax loss use

Tax losses can generally be carried forward indefinetely, except for so-called big taxpayers – that are allowed to use in a tax year only 50% of unused tax loss (the remaining 50% can be forward to the next year). It is not allowed to carry back a tax loss.

A taxpayer qualifies as a big one if at least 2 conditions are met (assets value above EUR 20 mln, sales proceeds above EUR 40 mln, average staffcount – above 250).

2.1.4. Allowable deductions 

Most business-related expenses are deductible for CIT purposes. However, the deductibility of certain expenses is specifically limited (for example, interest payable to related non-residents; royalties paid to non-residents). 

2.1.5. Transfer Pricing 

The Ukrainian transfer pricing rules correspond to OECD transfer pricing guidelines. The amount of taxable profit received by a taxpayer from one or more controlled operations is considered to be at “arm’s length” if the determination of cost or income is calculated in a manner that is no different from the way it is determined for comparable transactions between unrelated parties. 

The List of Controlled Operations 

For purposes of transfer pricing, controlled operations are defined as the following types of transactions, so long as the total income of the taxpayer and/or its related persons exceeds 150 million UAH per year and the volume of business transactions of the taxpayer with one counterparty exceeds 10 million UAH for the corresponding year: 

• Business transactions conducted between a taxpayer and related parties that are non-residents (including through a non-related intermediary(ies) that does not perform any significant activities); 
• Business transactions amounting to the sale or purchase of goods through a non-resident agent; 
• Business transactions between a non-resident and its PE in Ukraine;
• Business transactions where one of the parties is a non-resident of legal forms (specific for each country) that do not pay tax on their foreign incomes and/or do not qualify as a tax resident in a country of their incorporation. The list of such forms in the respective countries is published by the Cabinet of Ministers of Ukraine;
• Business transactions where one of the parties is a non-resident registered in a country that is included in the list of countries published by the Cabinet of Ministers of Ukraine (including the countries with the CIT rate is at least 5% lower than in Ukraine).

Also 30% adjustment applies to income from sales to a resident of low-tax jurisdiction or of a special legal form, or expenses on purchases from them unless a transfer pricing documentation proves an arm’s length prices.

Annual Reporting and Penalties 

For transfer pricing purposes, the reporting period is the calendar year. Taxpayers having transactions with controlled operations during the reporting period with one counterparty in amount exceeding UAH 10 million should submit a report on controlled operations and a notification on participating in a multinational group to the tax office before 1 October of the following year (in a prescribed format) and the transfer pricing documentation on them – within 30 days after the tax office’s request. 

Also big businesses are required to file a master file and a country-by-country report (if the group revenues exceed EUR 50 mln and EUR 750 mln respectively).

2.1.6. Withholding tax 

Any income received by (and paid to) a non-resident company is subject to a withholding tax (WHT) in Ukraine at a rate of 15% unless an applicable double tax treaty provides otherwise and the income’s beneficial owner is confirmed (also anti-avoidance rules apply to prevent treaty shopping). Such income includes dividends, interest, royalties, capital gains, lease payments, brokerage and agency commission, and so on. Income from a non-resident’s sale of a Ukrainian real estate company is also subject 15% WHT.

Income received as consideration for goods/services/works provided to a resident is mostly WHT exempt. Different WHT rates apply to certain types of income paid to non-resident’s (for example, freight, insurance premiums paid abroad, and advertising fees). Withholding tax rate may be reduced under an international taxation convention (Appendix 1). 

Ukraine started to apply MLI in December 2019.

2.1.7. Taxation of non-residents acting via permanent establishment 

Foreign entities that conduct commercial or non-commercial activities in Ukraine are required to follow the tax registration procedure and file the CIT returns for commercial activities via their permanent establishment (PE) in Ukraine. 

PE is a fixed place of business through which economic activities of non-residents in Ukraine are carried out wholly or partially, in particular: a place of management; branch; office; factory; workshop; installation or structure for the exploration of natural resources; mine, oil/gas well, a quarry or any other place of extraction of natural resources; warehouse or premises used for the delivery of goods, computer servers. 

PEs are subject to normal corporate income tax. However, an exemption may be available if the activities of the non-resident do not lead to creation of a PE under the Tax Code or the relevant tax treaty. With regard to corporate income tax, taxable profits of a PE can be determined based on direct method where profits are determined as gross income (received offshore or onshore) less allowable expenses incurred by the PE. 

2.1.8. Thin capitalisation 

For a debtor whose debt obligations from transactions with non-resident related parties exceed the amount of equity by more than 3.5 times (or by more than 10 times for financial institutions and companies involved exclusively in leasing activities), 

the debtor’s financial result before tax is additionally increased by the excess amount of interest on loans, borrowings, and other debt obligations over 30% of the financial result before tax, interest and depreciation (EBITDA). 

Interest that exceeds this limit is added back (i.e., increases the financial results before tax). Annually the taxpayer may carry forward 95% of the remaining excessive interest (non-deducted during a year) until it is fully utilized. 

2.1.9. Controlled Foreign Companies (CFC)

CFC’s profits are taxed at 18% for legal entities and 5% or 9% for an individual. The first CFC reports shall be filed by a controlling shareholder in 2023 for 2022.

2.2. Value added tax 

2.2.1. Tax rates 

In general terms, Ukraine uses input/output VAT system similar to the EU. VAT applies at the following rates:

• 20% is levied on the supply of goods and services in the customs territory of Ukraine and on the importation of goods and services to Ukraine. 
• 7% - for medical drugs and products. 
• 14% - import and local sales of some agricultural products.

Supplies of certain goods and services (for example, charitable aid, financial services, and so on) and export of software development, consulting and some other services, are exempt from, or not subject to, VAT. (That is, they are exempt without a right to a VAT credit). 

Export supplies of goods are zero-rated. (That is, they are exempt with a right to a VAT credit). 

Since 2022 e-supplies of services to individuals in Ukraine are subject to 20% VAT and the foreign providers must VAT register in Ukraine (if their sales in Ukraine exceed UAH 1 million for any preceding 12 month period), add 20% VAT to the price and file the monthly VAT returns.

2.2.2. Registration for VAT purposes 

Registration as a VAT payer is compulsory for all Ukrainian companies, individuals, and permanent establishments of non-resident companies that qualify as VAT payers (in other words, those whose volume of transactions subject to VAT exceeds UAH 1 million (approximately USD 27 thousand) for any preceding 12 months of operation. 

Taxpayers whose volumes of transactions do not reach the mandatory threshold can voluntarily register as VAT payers. 

2.2.3. VAT mechanism 

The amount of VAT that a registered VAT payer incurs on local purchases of goods and services (so-called input VAT) can be credited against the taxpayer’s VAT liabilities (so-called output VAT) in computing the final VAT payable to (or refundable from) the government. The input VAT amount in excess of the taxpayer’s VAT liabilities may be used to offset VAT liabilities of subsequent tax periods, or it can         be refunded in cash. 

VAT on import of goods (payable to the customs) and services is collected through a reverse charge mechanism (sometimes referred to as “import VAT”). This mechanism requires self-assessment and payment of the 20% VAT by a Ukrainian importer for the tax period (which is a month under the VAT system) when goods/services are imported to Ukraine. The paid VAT can usually be claimed by the Ukrainian importer as a VAT credit in the same tax period. If the goods or services imported are used in transactions that are not subject to VAT, or for transactions outside the business activity of the Ukrainian importer, the import VAT cannot be recovered, and it becomes a cost to the Ukrainian importer.

The reverse charge mechanism does not apply if a non-resident service provider has a PE registered as a VAT payer in Ukraine. In such a case, the VAT registered PE is in charge of assessing VAT liabilities, offsetting them against the input VAT, and paying the difference to the government. 

2.2.4. System of electronic VAT administration 

VAT payers are automatically assigned with accounts in the system of electronic VAT administration. The system of electronic VAT administration ensures automated VAT accounting in respect of each taxpayer. 

Upon sale VAT payers must register all VAT invoices in the system that is a pre-condition for recognition of VAT credit by a customer/buyer.

2.2.5. VAT reporting 

For VAT purposes, the reporting period is a calendar month (though in rare cases of low volume activities it can be a quarterly reporting period). VAT payers are required to file VAT returns within 20 days after the end of the reporting month. VAT payable, if any, should be remitted to the government within 30 days after the end of the reporting month. 

2.3. Unified tax 

Legal entities and individual entrepreneurs may choose to pay taxes pursuant to so-called “simplified taxation system”, if they meet certain thresholds. In such cases, they can be registered as unified taxpayers (UT). Unified taxpayers are exempt from some taxes. For example, depending on the UT taxpayer group, UT is a substitute for corporate income tax, personal income tax regarding the business activity of an individual, VAT (unless the taxpayer chooses to pay Unified Tax at a reduced rate plus VAT), land tax (on land used for business purposes), and so on. 

If a taxpayer engages in certain, specifically excluded types of business activities or is owned by a non-resident, they cannot qualify as unified taxpayers. The types of activities listed include, for example, currency exchange, export, import of excisable goods, gambling, financial services, and so on. Non-resident individuals of Ukraine are also not allowed to be registered as unified taxpayers. UT taxpayers are also subject to simplified tax reporting requirements.  

The unified tax system consists of 4 groups. The reporting period for Groups 1, 2, and 4 is the calendar year, for Group 3 it is quarterly. 

Details about Unified Tax Groups, as well as the income thresholds, types of activities UT taxpayers may engage in, and the UT rates are provided in Appendix 2. 

3. TAXATION OF INDIVIDUALS 

3.1. Personal income tax 

In Ukraine, individuals are subject to PIT depending on whether they are tax residents or not. Individuals who are tax residents of Ukraine are taxed on their worldwide income and non-residents are taxed on their Ukraine-sourced income only. Under Ukrainian law, Ukraine-sourced income is income derived by an individual as a result of any labour or business activity performed in Ukraine, including remuneration for the work performed in Ukraine, whether paid by a Ukrainian or a foreign company. 

Under Ukrainian law, an individual can be considered a tax resident of Ukraine if he/she meets the Ukrainian tax residency criteria, which are as follows:

• An individual is considered a Ukrainian tax resident if he/she has a domicile in Ukraine. 
• If the individual also has a domicile in another country, the individual is deemed to be resident of Ukraine provided he/she has a permanent place of residence in Ukraine. 
• If the permanent place of residence is also available in another country, the individual is deemed to be resident of Ukraine provided his/her centre of vital interests is situated in Ukraine. 
• If it is not possible to determine the actual centre of vital interests, or if the individual does not have a permanent place of residence in any country, the individual is deemed to be tax       resident of Ukraine if he/she stays in Ukraine at least 183 days during a calendar year. 

In Ukraine, both resident and non-resident individuals are taxable at the tax rate of 18%. 

Dividends income is taxed that the rate of 5% if the dividends payer is a corporate income taxpayer and 18% in other cases. 

Interest on bank deposits and current accounts is taxed at the rate of 18%. 

Generally, any benefit provided by the individual’s employer is subject to tax in Ukraine, unless such benefit and/or reimbursement of expenses is provided by the Ukrainian employer and is connected with the employment duties of the employees according to the employment agreement or in a collective agreement.

Under Ukrainian law, income received from foreign sources, or income from Ukrainian sources that was not taxed at source, is subject to taxation in Ukraine based on an annual tax return. The obligation to report this income in Ukraine and to pay the tax rests with the individual. The tax return is filed with the district/city tax authorities’ office at the place of the individual’s domicile in Ukraine. 

The annual tax return is due by 30 April of the year after the end of the calendar year. The self-assessed tax is due by 31 July of the year after the end of the calendar year. The tax can be paid in UAH only.  

If a remuneration to an individual (whether the individual is a tax resident or non-resident) is paid through the payroll of a Ukrainian entity, the income tax is withheld at source. In such cases the individual is not required to submit any tax return in Ukraine. 

Where Ukraine has an international treaty (that is, a double taxation treaty) that provides for tax treatment other than that provided under Ukrainian law, the rules of the international treaty prevail over domestic legislation. 

3.2. Military charge 

In addition, a temporary “military charge” has been introduced from 2014. The military charge is 1.5% of employment income (withheld by the employer, or self-assessed on the PIT return together with PIT self-assessment) and is applied in respect of all other types of income that is subject to personal income tax.

4. UNIFIED SOCIAL CONTRIBUTION 

In addition to personal income tax (PIT), remuneration, allowances, and similar payments made to employees (whether Ukrainian or foreign nationals) through a Ukrainian payroll are subject to the unified social security contribution (USC), which is paid by an employer at its expense. Only foreign individuals working in a foreign company’s representative office are not subject to USC. 

The monthly taxable base for USC is capped at 15 times the minimum subsistence allowances (in 2023 the cap equals to UAH 100,500/month or approximately USD 2,750/month). 

USC due from the employer is payable when the remuneration is paid. Employers’ contribution is 22% of the gross income, up to the monthly cap.

5. OTHER TAXES 

5.1. Customs duty 

Importation of equipment, machinery, materials, and other goods is usually subject to Ukrainian import duties. No import (customs) duties apply if a foreign shareholder (investor) contributes equipment and machinery to the share capital of its Ukrainian subsidiary, provided the Ukrainian company does not dispose of the contributed equipment and machinery within three years. 

In-kind capital contributions are, however, subject to Ukraine’s 20% VAT under the reverse charge regime. 

Import (customs) duties are levied on the customs value of imported goods and are calculated in a variety of ways: 

• as an ad valorem tax (that is, as a percentage of the customs value of the imported goods), 
• as a certain fixed amount per imported item, or 
• as a combination of the two. 

Regular Ukrainian customs duty rates on import of specific goods are set out in the Law of Ukraine “On the Customs Tariff of Ukraine”. 

Reduced rates of customs duties apply to goods originating from most favoured nation countries (subject to providing certificate of origin). Full rates apply to goods from other countries. 

The import of goods is subject to 20% VAT that is paid using the reverse charge mechanism. The amount of VAT is assessed based on the customs value of the imported goods plus import customs duties and excise duties. Also, if excisable goods are imported in Ukraine (for example, cigarettes, alcohol products, and so on), the importer is required to pay excise duty before customs clearance. Export of goods from Ukraine is generally subject to 0% Ukrainian VAT and is typically exempt from customs duties. 

5.2. Excise tax 

Excise tax rates on imports are assessed at rates on the sum of the declared customs value and customs duties, without VAT. Payment should be made in Ukrainian currency at the Ukrainian National Bank exchange rate effective on the date of payment. Excise tax is also paid by Ukrainian manufacturers of excisable goods. 

Excise tax is paid on cars, tobacco, alcoholic beverages, fuel, and electric energy. 

As well, a 5% excise tax was introduced on retail sales of excisable goods such as tobacco, beer and alcoholic beverages. This tax is charged by the retail sales companies. 

5.3. Property Tax 

For property tax purposes, residential and non-residential property owned by individuals and legal entities are considered taxable objects. The tax base is the total area of residential and non-residential property. The tax rate is up to 1.5% of the minimum wage per 1 sq.m. of the taxable base (in 2023 the minimum wage is UAH 6 700 or USD 183). 

The tax period for property tax purpose is the calendar year. 

Chart of withholding tax rates 

The following chart presents a list of withholding tax rates that may be applicable to certain types of income derived from the Ukraine by non-residents of Ukraine. 

Notes:

(1) Figures in the brackets in the “Dividends” column indicate the minimum percentage share ownership a foreign shareholder in a Ukrainian company must own in order for the reduced WHT rate to apply (provided such shareholder is the beneficial owner of such dividends). 

(2) Figures indicated in the table above separated by a slash (/) suggest that different WHT rates may apply to a particular type of income under the relevant double taxation treaty, depending on the circumstances.

Unified tax groups information