Corporate income tax
The basic rate of corporate income tax (CIT) is 18%. Payers of CIT are Ukrainian legal entities and permanent establishments of foreign entities.
CIT is levied on a company’s net profit, ie turnover less total expenses according to a company’s accounts.
CIT reporting period is usually a quarter. An annual reporting period is for new companies, agricultural producers and companies with an annual turnover of less than UAH 40 million (about USD 1.45 million).
If a company pays dividends (except for dividends to individuals) and they exceed the taxable income for the dividend period, it must pay an advance CIT at 18% levied on the excess amount.
Preferential corporate taxation for agribusiness
The Ukrainian tax law provides benefits for agricultural producers. They may register as payers of single tax of the fourth group (ST4) if a share of agricultural commodities in the previous year was 75% or more.
Payers of ST4 do not pay CIT, land tax for the land where they produce agricultural commodities (see section 2.8), and fee for use of water reservoirs (see section 2.10).
ST4 is charged on the valuation rate of land which a company owns or uses. For value calculation, municipalities approve the rates for different types of land. The rates are indexed by the inflation rate and multipliers set out in the Tax Code depending on the type of land.
ST4 is paid quarterly and divided into portions of 10%, 10%, 50% and 30%. If the total area of land changes, a taxpayer must reassess the sum of ST4.
Value-added tax (VAT) is levied at 20% on the transfer of goods and services in Ukraine and on the import of goods. VAT for the export of goods is 0%, which is not equal to tax exemption. In the case of a 0% rate, a company has to report to the tax authority but pays no tax. In the case of exemption, a company has neither reporting nor payment obligations. 0% rate reduces an exporter’s net liability for VAT.
Some transfers of goods or services are exempt from VAT such as lease or the transfer of assets in a reorganisation of a company.
Registration of a company as a VAT taxpayer may be voluntary or compulsory. It is compulsory if a company’s transactions for the transfer of goods and services in the past 12 months exceed UAH 1 million (approx. USD 36,000).
VAT is reported monthly.
Net VAT liability is VAT accrued on goods and services sold less VAT accrued on goods and services purchased. If the resulting amount is positive, it is paid as a tax. If it is negative, it is reconciled to the VAT debt for previous periods. If there is no such debt, a taxpayer may claim a refund from tax authorities, or the negative amount may be deferred to future reporting periods.
Arm’s length principle applies to controlled transactions of a CIT payer. A controlled transaction is deemed to be at arm’s length if its terms do not differ from those in a non-controlled transaction (ie a transaction on market terms).
- Controlled transactions include:
- transactions with non-resident related parties;
- cross-border sale of goods or services through non-resident agents;
- transactions with residents of jurisdictions with favourable tax conditions, as listed by the Ukrainian government;
- transactions with non-residents who do not pay CIT in their jurisdictions or are not tax residents of the countries of their incorporation;
- transactions between a non-resident and its permanent establishment in Ukraine.
Transfer pricing rules apply if a taxpayer’s annual income exceeds (without indirect taxes) UAH 150 million (approx. USD 5.43 million) and if the aggregate sum of transactions between a taxpayer and a relevant counterparty exceeds (without indirect taxes) UAH 10 million (approx. USD 0.36 million) throughout a year. For transactions between a non-resident and its permanent establishment in Ukraine, only the second figure applies.
Transfer pricing rules do not apply to payers of single tax (see section 2.2).
If a Ukrainian company makes a payment to a non-resident legal entity, eg dividends to a foreign shareholder, it has to pay withholding tax at 15% unless a tax treaty between Ukraine and a relevant country sets another rate.
A sale of a business that gains most of its value from Ukrainian real estate is subject to withholding tax of 15% in Ukraine, even if the parties are not tax residents of Ukraine. The value which the business gains from real estate is calculated based on a company’s accounts. Ukrainian agribusiness gaining most of its value from leased land is usually not subject to this tax.
Ukraine has a broad tax treaties network following the OECD model. In general, the treaties allow for double taxation relief and reduced income tax rates. To benefit from an applicable treaty relief, a non-resident must have a tax residency certificate issued by the tax authority of its country of residence.
Personal income taxation
Personal income tax (PIT) is levied on any income such as salary, income from the sale of property, royalty, capital gains, gifts, dividends. Some income is deductible for PIT purposes, eg loans or dividends reinvested.
An individual pays PIT regardless of his or her residency. Residents of Ukraine pay PIT on their worldwide income, while non-residents are taxed only on their Ukrainian income. If a Ukrainian company makes a payment to a non-resident individual, it has to withhold PIT from such payment.
A foreign citizen is a resident of Ukraine for tax purposes if he or she has significant personal or business ties with Ukraine or stays in Ukraine for at least 183 days.
The basic PIT rate is 18%. For dividends, PIT is 5% if they are paid by Ukrainian corporate income tax payers and 9% if they are paid by payers of single tax (see section 2.2), foreign companies or Ukrainian corporate investment funds.
Anything that is taxed with PIT is also taxed with military tax at 1.5%. Therefore, personal income is taxed at 19.5% (or 6.5% or 10.5% in the case of dividends).
Starting from 2022, Ukrainian residents must report to the Ukrainian tax authority on foreign companies controlled by them (CFC rules) and tax income of those companies with PIT and military tax. Ukrainian residents are exempt from this tax if the total income of all foreign companies does not exceed EUR 2 million or a company receives income mainly from production or trading (as opposed to passive income typical for holding companies).
Salaries are taxed with PIT at 18% and military tax at 1.5% (see section 2.6). An employer must withhold taxes when it pays salaries to employees.
In addition to this, Ukrainian employers pay social security contributions for each employee at the rate of 22% of the amount of his or her gross salary. The salary on which the social security contribution is levied is capped with the amount of 15 monthly minimum salaries (approx. USD 3,200).
The total withholdings on a salary for an employer are about half of its net amount.
An employee may claim tax relief for certain expenses such as charity donations, Ukrainian tuition fees and life insurance payments.
Land tax is levied on the valuation rate of a land plot or, if not valued, on its area. Municipalities set the tax and valuation rates for the land located in their territory. For agricultural land, the tax rate must be set between 0.3% and 1% of the valuation rate. If it is not valued, the tax is between 0.3% and 5% of the valuation rate for arable land located in the same region.
The land under gardens, berry farms and vineyards not in fruiting stage, hybrid plants, gene pools and seedbeds of perennials is exempt from land tax.
Payers of single tax (see section 2.2) are exempt from land tax for the land where they produce agricultural commodities.
Real estate tax
The real estate tax rates are set by municipalities and cannot exceed 1.5% of the minimum salary per square meter of real estate (approx. USD 3). The taxable area of real estate starts from 60 square meters for apartments, 120 square meters for houses and 180 square meters for non-residential property. Only meters exceeding that minimum area are taxable. The whole area is taxable if it is five times larger than the minimum taxable area.
Agricultural premises such as dairy facilities, poultry farms, grain elevators and greenhouses are exempt from real estate tax.
Car owners pay vehicle tax on cars less than 5 years old and with the average market price exceeding 375 minimum salaries (approx. USD 81,500). The vehicle tax rate is a fixed sum of UAH 25,000 (approx. USD 905) and is paid annually.
Companies and permanent establishments of foreign companies producing or importing excisable goods pay excise tax. Excisable goods include ethanol, alcohol distillates, alcoholic drinks, tobacco and tobacco products, fuel, certain vehicles, and electric power.
Excise tax is levied on the price or volume of excisable goods. Depending on the type of goods, the rate is a fixed sum of money or a percent of the price of goods.
Export of excisable goods and reimport of goods due to their defects are exempt from excise tax. Reimported goods exempt from excise tax cannot be sold in Ukraine.
Taxation of use of natural resources
If a company dumps waste (eg pesticides, manure) into air or water or disposes of waste on land, it must pay environmental tax. The tax rate varies depending on the amount of waste dumped by a company. A multiplier of 3 applies to a tax rate for waste dumped within a settlement or closer than 3 km from it.
Fee for use of water reservoirs
Companies must pay fees for extracting water from water reservoirs for commercial needs such as fish farming or transportation. The use of water for drinking, firefighting or hygienic needs (eg water supply in water closets) of a company or its personnel is exempt from the fee.
The fee is levied on the volume of water used by a company. The tax base for use of water for transportation purposes is the amount of time spent on transportation by water.
Payers of single tax (see section 2.2) do not pay the fee for use of water.