Overview of taxation
All taxes and duties, rates, exemptions, rules as well as procedures and mechanisms for tax assessment and payments are defined in the Tax Code of Ukraine.
According to the Tax Code of Ukraine (TCU) main state taxes are the following:
• Corporate income tax (CIT)
The CIT is paid from profit (income minus expenses) that has its source origin from Ukraine and abroad, which is determined by adjusting (increasing or decreasing) the financial result before tax (profit or loss) determined in the financial statements of the enterprise in accordance with Ukrainian Accounting Standards (UAS) or International Financial Reporting Standards (IFRS), on the differences, defined by the Tax Code of Ukraine. Resident business entities, foreign legal entities that derive profits from Ukrainian sources and permanent establishments of foreign entities are subject to an 18% CIT rate calculated as the financial results according to Ukrainian Accounting Standards (UAS) or International Financial Reporting Standards (IFRS) adjusted to certain differences.
UAS differs from IFRS on specific rules applicable to corporate transactions. Typically, legal entities are free to choose which accounting rules apply, except in some cases when IFRS must apply, including for:
– Entities of public interest, including:
• issuers of securities listed on the stock exchange;
• insurance companies;
• private pension funds;
• other financial institutions;
• big enterprises (at least two out of the following three criteria must be met: book value of assets exceeding EUR 20 mln; annual net income exceeding EUR 40 mln; the average number of employees exceeding 250 persons).
– Public joint stock companies.
– Entities conducting activities in extraction (mining) industries.
– Other entities specified by regulatory acts adopted by the Ukrainian Cabinet of Ministers.
The rules on recognizing permanent establishments are similar to those laid out in double tax treaties. They include a permanent place of activity through which an economic activity by a non-resident is fully or partially conducted in Ukraine, namely:
– a place of management;
– a branch office;
– a facility;
– a workshop;
– an installation or a facility for exploration of natural resources;
– a warehouse;
– a server.
The following are exempt from CIT:
– non-commercial structures (state-funded organizations, charity organizations and political parties);
– entities that chose a Unified tax regime (with an annual transaction income of under around EUR 162 thsd);
– manufacturers of agricultural products.
• Withholding tax
The Tax Code of Ukraine provides a withholding tax rate of 15% to be withheld by a resident entity or by the permanent establishment of a foreign entity from the amount of any Ukrainian-sourced income, unless otherwise provided by an applicable bilateral double taxation treaty. Ukraine is a party to more than 70 bilateral double taxation treaties. A special rate of 18% applies on gains earned by non-resident companies from interest-free (discounted) treasury bonds (paragraph 141.4.3 of the Tax Code of Ukraine).
Ukrainian source income includes:
– interest payable under loans and other debt obligations issued by non-resident companies;
– gains from a disposal or other transfer of ownership of shares, derivative securities or any other corporate rights;
– gains from joint ventures’ activity in Ukraine.
Income sourced in Ukraine in the form of gains from the disposal of shares or corporate rights relate only to those issued by Ukrainian companies (paragraph 14.1.54 of the Tax Code of Ukraine). Therefore, a disposal of shares or corporate rights issued by non-resident companies is not currently subject to WHT in Ukraine.
A resident entity or permanent establishment of a non-resident entity is liable to withholding tax (WHT) with a 15% WHT rate when paying Ukrainian source income to a non-resident (including paying such income to the non-resident accounts conducted in national currency) (paragraph 141.4.2 of the Tax Code of Ukraine).
• Personal income tax (PIT)
PIT rate is 18% (tax accrued on income). However, it is also possible to apply lower or zero rates of PIT under applicable international double tax treaties. PIT is payable by any natural person (either resident or non-resident) on receipt of taxable income. Income for PIT purposes includes income obtained from transactions with investment assets. The definition of an “investment asset” covers corporate rights, shares issued by joint stock companies and derivative securities. Non-residents are also subject to PIT on receipt of Ukrainian source income, including gains from the disposal of shares and corporate rights issued by Ukrainian companies (paragraph 14.1.54 of the Tax Code of Ukraine).
• Military contribution
Military contribution at 1,5% is levied on the income that is subject to personal income tax. The tax base for the calculation of military contribution is the same as for PIT. Therefore, transactions that are subject to PIT are also subject to military tax, including transactions involving investment assets (paragraph 161, subchapter 10 of Chapter XX of the Tax Code).
• Value added tax (VAT)
The sale of goods (services) on and within the customs territory of Ukraine, the import of goods into the customs territory of Ukraine and the export of goods out of the customs territory of Ukraine are subject to VAT. The basic VAT rate is 20% of the contractual value of the relevant goods (services). Non-residents may be subject to VAT through permanent establishments that are registered for VAT.
Due to the russian aggression in Ukraine and the imposed as the result of that martial law on the territory of Ukraine, Government of Ukraine decided to implement temporary amendments to the Tax Code of Ukraine (till the end of imposed martial law) providing legal entities – unified taxpayers with exemption of VAT, as well as customs duties, for importing goods and services during the imposition of the martial law.
• Environmental tax (Eco tax)
Eco tax rate depends on the pollutant. The object and tax base of eco-taxation are volumes and types of the pollution (para. 242.1 of the Tax Code of Ukraine):
– pollutants ejected into the air by stationary sources;
– pollutants discharged directly into water objects;
– placed waste, except for the volumes and types (classes) of waste as secondary raw materials placed in the own territories (objects) of business entities;
– radioactive waste, business entities formed as a result of the activities of business entities and/or temporarily stored by their producers over the period established by special license terms;
– power generated by exploitative organizations of nuclear plants (nuclear power plants).
Eco tax rates are defined separately for:
– emissions into the air of pollutants by stationary sources of pollution (para. 243 of the Tax Code of Ukraine);
– discharges of pollutants into water facilities (para. 245 of the Tax Code of Ukraine);
– placement of waste in designated places or facilities (para. 246 of the Tax Code of Ukraine);
– formation of radioactive waste (including already accumulated) (para. 247 of the Tax Code of Ukraine);
– temporary storage of radioactive waste by their producers over the special terms of the license period (para. 248 of the Tax Code of Ukraine).
There are such local tax:
• Property tax, the component of which is a land tax
• Unified tax
Main local tax rates are the following:
• property tax, which is up to 1.5% of the minimum wage established by law on 1 January of the tax year, per 1 square meter of the property;
• land tax, which is up to 1% of land normative monetary value;
• unified tax (tax accrued on income from entrepreneurial activity).
A unified tax that can be paid instead of CIT and personal income tax by individuals-entrepreneurs and legal entities. In order to be taxable a unified tax a taxpayer has to meet requirements stated in article 291 of the Tax Code of Ukraine for the four groups of unified tax payers.
The Tax Code of Ukraine provides for the maximum unified tax rate, and the threshold for a maximum annual income and a maximum number of employees, and industries, in which unified tax can be applied by the taxpayers.
Employers are also liable to make payroll-based Unified Mandatory State Social Insurance Contributions for insured employees to the State Pension Fund at 22% rate. The tax base is capped by 15 the minimum monthly salary.