Ukraine Personal Income Tax

Residents of Ukraine are subject to tax on world­wide income. Individuals who are not tax residents in Ukraine are taxed on their Ukrainian-source income, which includes the following:

  • Income derived from work or services performed in Ukraine
  • Income and gains from the disposal of real estate in Ukraine
  • Rent from property located in Ukraine
  • Dividends paid on shares of Ukrainian companies

An individual is considered to be a tax resident of Ukraine if he or she has a place of abode in Ukraine. If a person has a domicile both in Ukraine and in another country, he or she is considered Ukrainian tax resident if he or she has a permanent place of abode in Ukraine. If he or she has a permanent place of residence in both countries, he or she is considered Ukrainian tax resident if he or she has a center of vital interests (for example, resident relatives) in Ukraine. If a country where the person has a center of his or her vital interests cannot be determined or if a person does not have a permanent place of residence in any country, he or she is considered Ukrainian tax resident if he or she is present in Ukraine for 183 days or more during a tax year (including the day of arrival and the day of departure). For this purpose, the days of presence in Ukraine need not be consecutive.

If it is impossible to determine residency status based on the above, the person is considered to be Ukrainian tax resident if he or she is a citizen of Ukraine.

Notwithstanding the above, the law allows an individual to claim tax residency in Ukraine based on an acknowledgment that Ukraine is his or her main residence or on registration as a self-employed person in Ukraine.

However, in practice, since January 2010, the most important criterion from the perspective of the tax authorities in Ukraine is physical presence (183 days) during a calendar year in Ukraine, which must be confirmed by documents.

Income subject to tax. The taxation of various types of income is described below.

Employment income. The taxable employment income of residents consists of all compensation received in cash or in kind, whether the income is received in Ukraine or abroad.

The taxable income of an individual also includes allow ances paid because of residence in Ukraine (hardship and cost of living allowances) and compensation received for children’s education, meals and holiday travel for the taxpayer’s family to the family’s home country.

Certain benefits provided by a Ukrainian employer to employees and compensation for such benefits (for example, accommoda­tion or corporate cars) may be exempt from tax under the tax code of Ukraine if the following conditions are satisfied:

  • The benefits are provided with respect to the performance of labor.
  • The benefits are stipulated in the law, an applicable employ­ment agreement or a collective bargaining agreement.
  • The benefits are provided within the limits prescribed in the employment agreement, the collective bargaining agreement or the law. Because the law does not currently impose any such limits, the employment agreement or collective bargaining agreement must specify the limits.
  • The employer owns the property provided to the employee.

Individuals are exempt from tax on the following types of employment income:

  • Unified social tax payable by a Ukrainian employer on top of an employee’s salary
  • Amounts paid by employers to Ukrainian educational institu­tions to cover educational costs for the training of their employ­ees with respect to the business activities of the employer, subject to certain limitations
  • Amounts paid by employers to cover medical assistance to employees, subject to certain limitations
  • Company contributions made to service providers under long-life insurance contracts and non-state pension contracts for the employees’ benefit, subject to certain limitations

Passive income. Effective from 1 January 2016, passive income in the form of dividends received from nonresident companies and collective-investment institutions, royalties and capital gains, as well as interest income received by individuals from deposits in Ukrainian banks, is subject to tax at a rate of 18%. Dividends received by individuals from resident companies are taxed at a rate of 5%.

Self-employment and business income. Taxable self-employment and business income consists of gross income (receipts in cash or in kind), less appropriately documented expenses incurred in generating that income.

Exempt income. In addition to the exempt items mentioned above, individuals are exempt from tax on the following types of income:

  • Tax refunds as well as payments from state social security and pension funds
  • Insurance proceeds, except for long-term life (long-life insur­ance contracts are those that have a duration of five years or more and that provide for an insurance payment as a lump sum or annuity if certain conditions are satisfied) and non-state pen­sion insurance (subject to certain limitations)
  • Income received from entrepreneurial activities by an individu­al who pays tax under the simplified system of taxation

Taxation of employer-provided stock options. Ukrainian law con­tains no specific rules for the taxation of stock option plans. Consequently, taxation of such options is based on general prin­ciples. Because of the broad definition of income, a risk of taxa­tion of an option at the moment of grant exists. The position of the Ukrainian tax authorities on this matter is unclear, but it appears that this risk is remote. As a result, options are likely to be taxed at the moment of exercise.

The difference between the option exercise price and the fair mar­ket value of the shares on the date of exercise is considered to be taxable income to the employee. This income is subject to tax at a rate of 18%.

On the sale of the shares in Ukraine, the employee derives a tax­able capital gain, which is equal to the difference between the sale price and the purchase price. For the taxation of capital gains derived from the sale of shares outside Ukraine, the entire sale proceeds are subject to tax in Ukraine without the possibility of deducting expenses incurred in connection with the acquisition of the shares. Income from the sale of shares is taxed in the same manner and at the same rate as the employee’s other compensa­tion income. The capital gain is not taxable if it falls within the capital gains exemption described in Capital gains. Currency restrictions apply to the grant of stock options by a foreign legal entity to “Ukrainian currency control residents.” “Ukrainian cur­rency control residents” are Ukrainian citizens, foreigners or stateless persons who permanently reside (as defined) in Ukraine, including those who temporarily stay abroad. Ukrainian currency control residents must obtain a license from the National Bank of Ukraine to purchase shares in a foreign company. However, a li­cense is not required if the shares are received as a gift (it is ad­visable to apply for an individual ruling on the matter). In addi­tion, if shares are received as a gift or inheritance, the taxable amount is decreased by the amount of personal income tax and state duty (the current maximum rate of the state duty is 1%).

Income from alienation of movable and immovable property. Income derived from sales of property is subject to tax at the rates described in Rates, but certain exemptions and special rules apply.

Income derived from sale of a car, motorcycle or motor bicycle in Ukraine is exempt from tax if only one such sale is performed in a reporting year.

Income derived from the sale of immovable property (for exam­ple, residency house, apartment or single room) in Ukraine with the simultaneous sale of a land plot on which the property is located, if any, or from the sale of a land plot (subject to certain limitations) is exempt from tax if a seller has owned the respec­tive immovable property for more than three years and if only one such sale is performed in a reporting year.

Capital gains. A capital gain is usually calculated as the difference between proceeds derived by a taxpayer from investment assets and expenses incurred in connection with the acquisition of such property.

Capital gains derived from the alienation of investment assets, such as securities and other corporate rights, are included in taxable income to the extent that the annual gains exceed the amount of UAH1,930. If the alienation of the investment assets results in a loss, such loss can be deducted against gains derived from the alienation of investment assets during the tax year, subject to certain limitations. Such loss can be carried forward to future years without limitation.

An individual who receives income from the alienation of invest­ment assets must record the results of the transactions separately from other income and expenses and report such results in the final tax return. However, if the individual performs transactions regarding investment assets with the involvement of a securities broker in accordance with an agreement with the broker, the broker may be considered a tax agent of the individual.

Deductions. Taxable salary income received from a Ukrainian employer may be reduced by the social tax benefit, which varies from one to two subsistence minimums for the employee as of 1 January of the reporting year (currently, the subsistence mini­mum in Ukraine equals UAH1,378), depending on the status of the individual (categories include single parents, parents of handicapped children, widowers, certain war veterans, disabled persons, Chernobyl victims and others).

A Ukrainian tax resident who has a Tax Identification Code may apply for a tax discount by deducting from salary income the sum of certain amounts paid to Ukrainian residents during the tax year. The following amounts may be included in the tax discount:

  • Payments for the education of the individual and his or her immediate family members, subject to certain restrictions
  • Payments for medical assistance provided to an individual and his or her immediate family members, subject to certain restric­tions (this measure will take effect in the year following the year when the Law of Ukraine on Mandatory Medical Insurance enters into effect)
  • A portion of interest paid by an individual with respect to a mortgage credit
  • Cost of charitable gifts made by a taxpayer in an amount of up to 4% of his or her annual taxable income
  • Long-term life insurance premiums and contributions paid by the taxpayer for himself or herself or his or her immediate fam­ily (subject to certain limitations) to the respective Ukrainian resident entities (insurance companies)
  • Private pension insurance contributions made by the taxpayer for himself or herself or his or her immediate family (with cer­tain restrictions) to the respective Ukrainian resident entities (non-state pension funds and banking establishments)
  • Payments for artificial insemination, with certain restrictions
  • Payments for state services related to the adoption of a child
  • Payments for equipment that allows a taxpayer’s vehicle to use biofuel
  • Expenses incurred on the building or purchase of accommoda­tion that is classified as affordable

The total amount of the tax discount may not exceed the total amount of taxable salary income received by an individual during the tax year. In addition, any amount of the tax discount that is not used as a result of this restriction may not be carried back or forward.

To claim the tax discount, a taxpayer must file his or her tax return by the end of the tax year following the reporting year. All of the relevant expenses incurred must be properly documented with receipts and bills. Based on the tax return, the tax authorities allow the tax discount and refund any excess tax paid not later than 60 days after receipt of the tax return.

Rates. Flat income tax rates of 0%, 5% and 18% are imposed on individuals in Ukraine. The rates vary according to the type of income.

Income derived from the alienation of real estate is taxed at a rate of 0%, 5% or 18% depending on the following:

  • Duration of ownership of such property
  • The frequency of alienations
  • Type of property
  • Tax residence status

In general, an 18% tax rate applies to most types of income of resident and nonresident individuals (employment and non-employment), except for the types of income described below.

An 18% tax rate applies to dividends received from nonresident companies and collective-investment institutions, royalties, investment income and interest income received by resident and nonresident individuals in Ukraine. A 5% tax rate applies to dividends received from resident companies.

Gifts and inheritances received are treated as income and are sub­ject to personal income tax at rates of 0%, 5% or 18%. The appli­cable rate depends on the residency status of the giver or testator and on the degree of relation between the giver or testator and recipient or inheritor.

A tax rate of 18% applies to prizes and gains derived from non-statutory lotteries.

The law provides a special procedure for the payment of Ukrainian-source income by a nonresident individual or compa­ny to a nonresident individual. Under such procedure, the income must be paid through an account specially opened by the recipi­ent nonresident individual at a Ukrainian bank, which acts as a tax agent of the individual.

Income received in foreign currency is converted into Ukrainian currency at the exchange rate established by the National Bank of Ukraine on the date of accrual (receipt). The converted amount is then subject to tax at the same rates as income in Ukrainian currency. The exchange rate on 3 June 2016 was UAH25.051207 = USD1.

Military levy. Effective from 3 August 2014, a military levy of 1.5% is imposed on Ukrainian wages and similar compensation, as well as on lottery and gambling prizes. This levy was expected to be in effect until 1 January 2015. However, it is further extend­ed for an indefinite term. In addition, the base for the levy is extended to any personal income (including foreign income) to which income tax applies.

Relief for losses. Loss carryforwards and carrybacks are not allowed.

Property tax

Property space that exceeds 60 square meters for an apartment, 120 square meters for a house or 180 square meters for various types of residential property, including all of its parts (in the case of simultaneous ownership of apartments and residential houses) is subject to property tax. Property tax may be established at a rate of up to 3% of a minimum salary (UAH41.34) per square meter of space. The local authorities establish the property tax rates, depend­ing on the location.

If the taxpayer owns residential real estate and if the total area exceeds 300 square meters (for an apartment) and/or 500 square meters (for a house), the amount of real estate tax is increased to UAH25,000 annually for each real estate object.

Social security

Locally paid salaries are subject to the unified social tax, borne by the employer at a flat rate of 22%. The base for the contribu­tions is capped by the maximum monthly base (25 minimum subsistence amounts for able-bodied persons), which was UAH36,250 as of 2 June 2016.

The unified social tax is not payable on salaries paid from outside Ukraine by nonresident employers to their employees, unless the respective costs are then recharged to the Ukrainian entity that benefits from the individuals’ work.

Tax filing and payment procedures: The tax year in Ukraine is the calendar year.

For most individuals, tax is payable through withholding at source of payment by a tax agent. The tax is withheld by the tax agents, which are entities that withhold and pay personal income tax on behalf of and at the expense of individual taxpayers in Ukraine. Ukrainian entities, including enterprises with foreign investment, must withhold income tax from the salaries of their employees.

The following individuals, among others, must file annual tax returns:

  • Individuals who derive income that is taxable in Ukraine if a tax agent did not withhold income tax from such income
  • Foreign individuals who obtained Ukrainian residence status in the reporting year

An individual may voluntarily file a tax return even if this is not required by law. An individual may want to voluntarily file a tax return to claim a tax refund or a tax discount.

An individual must file the annual income tax return before 1 May of the year following the reporting year. However, to claim a tax discount, an individual may file a tax return by 31 December of the year following the reporting year. Under the tax law, the deadline for the settlement of tax liability is 1 August of the year following the reporting year.

Tax residents who intend to leave Ukraine must file a departure tax return no later than two months before departure. After the liability is settled, the tax authorities issue a tax certificate, which must be presented by the individual to the Ukrainian Immigration Services when leaving Ukraine.

In Ukraine, for delinquent filing, the tax authorities may impose an administrative fine and financial sanctions of up to UAH306.

In addition, the tax authorities are monitoring the timing of tax payments very closely. The tax authorities impose late payment penalties of 0.06% of the tax due per each day of delay. They also impose an additional fine of 10% of the tax due. This fine is increased to 20% if the payment delay exceeds 30 days.

Self-employed individuals and private entrepreneurs are subject to special tax filing and payment requirements, which differ from the above.

Tax treaties

Ukraine is currently honoring the double tax treaties entered into by the former USSR with Japan, Malaysia and Spain.

Ukraine has entered into new double tax treaties with the follow­ing jurisdictions.

Algeria                           India                             Portugal

Armenia                         Indonesia                     Romania

Austria                           Iran                              Russian

Azerbaijan                     Ireland                          Federation

Belarus                          Israel                            Saudi Arabia

Belgium                         Italy                              Singapore

Brazil                             Jordan                          Slovak Republic

Bulgaria                         Kazakhstan                   Slovenia

Canada                           Korea (South)              South Africa

China                             Kuwait                         Sweden

Croatia                           Kyrgyzstan                   Switzerland

Cuba                              Latvia                           Syria

Cyprus                           Lebanon                       Tajikistan

Czech Republic              Libya                            Thailand

Denmark                        Lithuania                      Turkey

Egypt                             Macedonia                   Turkmenistan

Estonia                           Mexico                         United Arab

Finland                          Moldova                      Emirates

France                            Mongolia                     United Kingdom

Georgia                          Morocco                      United States

Germany                        Netherlands                   Uzbekistan

Greece                           Norway                         Vietnam

Hungary                        Pakistan                         Yugoslavia

Iceland                           Poland                           (former)*

* This treaty applies to Montenegro and Serbia.

Ukraine has signed a double tax treaty with Luxembourg, but this treaty has not yet been ratified.

Temporary visas

Entry visas may be obtained from Ukrainian embassies or con­sular offices before arrival in Ukraine. Ukraine issues transit, short-term (for up to 90 days of stay in Ukraine in a 180-day period) and long-term (for those foreigners who submit the docu­ments for work or living in Ukraine) visas.

Individuals may travel to Ukraine without visas if they are citi­zens of Andorra, Argentina, Bosnia and Herzegovina, Brazil, Brunei Darussalam, Canada, European Union (EU) member countries, the Hong Kong Special Administrative Region (SAR), Iceland, Israel, Japan, Kazakhstan, Kyrgyzstan, Korea (South), Liechtenstein, Macedonia, Monaco, Mongolia, Montenegro, Norway, Panama, Paraguay, San Marino, Serbia, Switzerland, Tajikistan, Turkey, the United States or Vatican City, and if the duration of the stay does not exceed 90 days in a 180-day period, with certain exceptions (up to 90 days in a 365-day period for citizens of Argentina; up to 30 days in a 60-day period for citi­zens of Bosnia and Herzegovina and Serbia, up to 30 days for citizens of Brunei Darussalam; up to 14 days for citizens of the Hong Kong SAR; up to 60 days for citizens of Turkey [60 days are given to a Turkish citizen for a consecutive stay in Ukraine; if a Turkish citizen has two or more entries into Ukraine, the Turkish citizen may stay in Ukraine 90 days in a 180-day peri­od]). Visitors from other countries need to obtain entry visas.

The citizens of some countries may obtain short-term visas at the border crossing point on arrival in Ukraine if documents proving the touristic purpose of their stay in Ukraine are available. Such visas are single entry with a validity of up to 15 calendar days. The countries in this category are Antigua and Barbuda, Australia, Bahamas, Barbados, El Salvador, Mauritius, New Zealand, Palau, St. Kitts and Nevis, Seychelles, Trinidad and Tobago, and the United Arab Emirates.

Citizens of the majority of member countries of the Commonwealth of Independent States (CIS) do not need visas to enter Ukraine, with certain exceptions.

Work permits

To work in Ukraine (either based on a direct employment agree­ment or being assigned based on an agreement between a Ukrainian and a foreign legal entity), a foreign national must have a work permit. No comprehensive quota system exists in Ukraine with respect to the issuance of residence and work per­mits to most foreign nationals. Obtaining a work permit is a rather burdensome and time-consuming procedure.

The State Employment Center of the Ministry of Social Policy issues work permits, which are usually valid for a period of up to one year and may be extended for the same period.

The employer of a foreign national must apply for a work permit with the local employment center and submit the following documents:

  • An application
  • Copies of certificates on education (diplomas) and addenda, such as grades and detailed descriptions of the subjects’ hours, if any
  • Copies of passport pages bearing personal data
  • The medical certificates stating that the person is not suffering from alcohol addiction, drug addiction or communicable dis­eases according to the Ministry of Health list (these certificates are the medical certificate confirming that the person is not suffering from narcological diseases [diseases caused by drug addiction] [Form 140/o] and the medical certificate confirming that the person does not suffer from tuberculosis, is HIV nega­tive and is not infected with any agents of communicable dis­eases that prohibit immigration to Ukraine [Form 028/o])
  • A stamped and signed certificate issued by the future employer stating that the position in which the foreign individual will work is unconnected with the citizenship in Ukraine and does not require any access to Ukrainian state secrets according to the law
  • Two color matte photographs of 3.5 cm by 4.5 cm
  • Official document confirming absence of previous convictions of the foreign individual (who is present in Ukraine at the time of the issuance of the work permit) or the documents confirm­ing that the foreign individual (who is outside Ukraine at the time of work permit issuance) is not serving a sentence for a crime and is not on trial

All documents issued in foreign countries and in foreign lan­guages must be legalized, apostilled or notarized, depending on the country of issuance, before their translation into Ukrainian.

In addition, the procedure for obtaining a work permit varies depending on the category of the employee. The rules make a clear distinction between the lists of documents needed to obtain work permits for direct employees, secondees and intracorporate transferees (a specific category of secondees).

When granting work permits, Ukraine considers if an employer has demonstrated that the labor of the applicant and his or her skills are necessary. No special treatment is given to EU nation­als. The application procedure is the same for all foreign nation­als. The work permit application process may take up to two months.

A foreign national’s work permit becomes invalid if the individ­ual changes employers.

A work permit is a basis for issuing a Long-term Visa D (a spe­cial type of entry visa, which may be obtained for the purpose of engaging in employment in Ukraine). However, this type of visa is a single-entry visa (which is issued for a purpose of obtaining a temporary residence permit in Ukraine) and does not allow multiple trips (a foreign individual is allowed to stay in Ukraine up to 45 days for obtaining his or her temporary residence per­mit). To commute freely to and from Ukraine, a temporary resi­dence permit must be obtained.

Self-employment. No law prohibits foreign nationals from estab­lishing or managing businesses in Ukraine. However, restrictions on foreign investment are imposed in certain industry sectors, including defense. Business activities of foreign nationals must comply with either domestic law or international treaties entered into by Ukraine.

Residence visas/permits

Foreign citizens’ passports are registered at the point of entry into Ukraine. Individuals can legally stay in Ukraine for a period of 90 days during a 180-day period or for the term of validity of the respective visa that is the basis for entry into Ukraine, unless otherwise provided under a relevant international agreement. A foreign citizen who remains in Ukraine longer than the valid registration period must apply for extension of the period of stay with the immigration service of Ukraine if sufficient grounds exists for such extension (for example, treatment, pregnancy or childbirth, caring for a sick family member, registration of heri­tage, applying for an immigration permit or Ukrainian citizen­ship, performance of the duties of a foreign correspondent or representative of the foreign mass media).

If a foreign citizen’s employer has obtained a work permit for the individual, a temporary residence permit must be obtained from the Ukrainian immigration authorities in order for the foreign citizen to have a right to stay in Ukraine for the period of the work permit’s validity (usually up to one year) and to travel freely to and from the country. An individual can begin the pro­cedure for obtaining a temporary residence permit only if he or she obtains a D-type visa at a consular office outside Ukraine, with exceptions for certain CIS countries. Citizens of certain CIS countries (Armenia, Azerbai jan, Belarus, Georgia, Moldova, the Russian Federation and Uzbekistan) do not need to apply for the D-type visas and may obtain the temporary residence permits right after their work permits are obtained. Citizens of Kazakhstan, Kyrgyzstan and Turkmenistan should apply for the D-type visas outside Ukraine.

A foreign citizen must submit the following documents with the Ukrainian immigration authorities:

  • Two applications for a temporary residence permit.
  • Obligation from the employer (a document stating that in case of termination of the employment relationship with the foreign employee, the company has the obligation and takes responsi­bility for informing the Ukrainian immigration authorities of that fact).
  • Petition from the employer.
  • Notarized translation of the first page of the foreign citizen’s passport.
  • Foreign citizen’s original passport.
  • Notarized copy of the foreign citizen’s Ukrainian work permit.
  • Four matte color photographs sized 3.5 cm x 4.5 cm.
  • The employer’s order on appointing a person authorized for work with foreign citizens. This is the company’s internal human resources (HR) order that indicates appointment of the person authorized for work with foreign citizens. This person is usually an employee from the company’s HR department who is responsible for working on the foreign employees’ Ukrainian immigration compliance issues.
  • A copy of the passport of the person authorized for work with foreign citizens, certified by the signature of the owner.

The temporary residence permit application process may take up to two weeks.

On obtaining a temporary residence permit, a foreign citizen should be registered at his or her place of residence in Ukraine.

Family and personal considerations

Family members. The working spouse of a work permit holder does not automatically receive a work permit. An application must be filed independently. The spouse is allowed to stay in Ukraine under the family reunion grounds and accordingly ob­tain his or her own temporary residence permit. Like the holder of the work permit, the D-type visa should be first obtained at a consular office outside Ukraine. The information on children under 16 is inserted in one of the parents’ temporary residency permits.

Marital property regime. A joint ownership regime applies to legally married couples in Ukraine. The regime is mandatory and applies to property acquired during marriage. Property owned by an individual before marriage, as well as property obtained during marriage by gift or inheritance, remains separate property. Sepa­rate property must be clearly identified when the couple first becomes subject to the joint ownership regime.

Although the law is silent on the marital domicile, Ukraine ac­knowledges marriages contracted in foreign countries. Conse­quently, the joint ownership rules are applied to couples married outside Ukraine who divorce under Ukrainian law.

Forced heirship. Under Ukrainian law, specified proportions of testamentary property are transferred to minor or disabled chil­dren or to a disabled spouse or parent, regardless of the contents of a will.

Driver’s permits. If a foreign individual obtains a permanent resi­dence permit, his or her driving license is valid only for the period of 60 days from the moment of issuance of the permanent residence permit. To obtain a local Ukraine driver’s license, an applicant must pass a written examination, a medical test and a practical driving test.