Kyiv
EY
19A, Khreschatyk Street
Kyiv 01001 Ukraine
Executive and immigration contacts
Olga Gorbanovskaya
+380 (44) 490-3022
Fax: +380 (44) 490-3030 Email: olga.gorbanovskaya@ua.ey.com
Halyna Khomenko +380 (44) 490-3028
Fax: +380 (44) 490-3030 Email: halyna.khomenko@ua.ey.com
At the time of writing, a major tax reform was in progress in Ukraine. Because of this potential tax reform, readers should obtain updated infor mation before engaging in transactions.
The exchange rate on 6 July 2021 was UAH27.2904 = USD1.
A. Income tax
Who is liable. Residents of Ukraine are subject to tax on world wide income. Individuals who are not tax residents in Ukraine are taxed on their Ukrainian-source income, which includes, among others, 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 selfemployed 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 allowances 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 employ ment 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 institu tions to cover educational costs for the training of their employ ees 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 under non-state pension contracts for the employees’ benefit, subject to certain limitations
Passive income. Passive income in the form of 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%, while dividends received by individuals from nonresident companies, collective-investment institutions and economic agents that are not payers of corporate profit tax are taxed at a rate of 9%.
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 personal income tax on the follow ing 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 insur ance 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 pen sion 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 con tains 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 taxa tion 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 mar ket 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 tax able capital gain, which is equal to the difference between the sale price and the purchase price. Income from the sale of shares is taxed in the same manner and at the same rate as the employ ee’s other compensation income. The capital gain is not taxable if it falls within the capital gains exemption described in Capital gains. In addition, if shares are received as a gift or inheritance, the taxable amount on sale is decreased by the amount of per sonal income tax and state duty (the current maximum rate of the state duty is 1%).
Certain limits on the transfer of funds abroad (including the pur chase of the underlying shares) apply to Ukrainian currency control residents. Currently, the annual limit is EUR200,000. Currency control residents are defined as individuals (citizens of Ukraine, foreigners and stateless persons) who permanently re side in Ukraine, including individuals temporarily staying out side Ukraine.
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 exam ple, 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 UAH3,180. 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 invest ment assets must record the results of the transactions separately from other income and expenses and report such results in the annual tax return. However, if the individual performs transac tions regarding investment assets with the involvement of a securities broker in accordance with an agreement with the bro ker, 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 half to two subsistence minimums for the employee as of 1 January of the reporting year (currently, the subsistence minimum in Ukraine equals UAH2,379), 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 restric tions (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
• 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 fam ily (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 cer tain 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 accommoda tion that is classified as affordable
• Expenses incurred on the renting of housing by an internally displaced person
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 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%, 9% 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 nonemployment), except for the types of income described below.
An 18% tax rate applies to royalties, investment income and interest income received by resident and nonresident individuals in Ukraine. A 9% tax rate applies to dividends received by indi viduals from nonresident companies, collective-investment insti tutions and economic agents that are not payers of corporate profit tax. A 5% tax rate applies to dividends received from resi dent companies.
Gifts and inheritances received are treated as income and are sub ject to personal income tax at rates of 0%, 5% or 18%. The appli cable rate for inheritances depends on the residency status of the testator and inheritor and on the degree of relation between the testator and inheritor. The applicable rate for gifts depends on the giver (that is, if a giver is a legal entity or an individual registered as a private entrepreneur, the applicable rate is 18%; if a giver is a private individual who is not an entrepreneur, the rate depends on the residency status of the giver or recipient and on the degree of relation between the giver and recipient).
A tax rate of 18% applies to prizes and gains derived from nonstatutory 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 cur rency. The exchange rate on 6 July 2021 was UAH27.2904 = 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 extend ed 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, except for operations with investment assets.
B. 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 simul taneous ownership of apartments and residential houses) is subject to property tax. Property tax may be established at a rate of up to 1.5% of a minimum salary (UAH90) 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 by UAH25,000 annually for each such real estate object.
C. 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 contribu tions is capped by the maximum monthly base (15 minimum salaries), which was UAH90,000 as of 1 January 2021.
The unified social tax is not payable on salaries paid from outside Ukraine by nonresident employers to their employees.
D. 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 for permanent resi dence 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 UAH476.
In addition, the tax authorities are monitoring the timing of tax payments very closely. The tax authorities impose late payment penalties of 0.03% of the tax due for each day of delay starting with the 91st day of non-payment. They also impose an addi tional fine of 5% of the tax due. This fine is increased to 10% 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.
E. 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 follow ing jurisdictions.
Algeria Indonesia Portugal Armenia Iran Qatar
Austria Ireland Romania
Azerbaijan Israel Russian Federation
Belarus Italy Saudi Arabia
Belgium Jordan Singapore
Brazil Kazakhstan Slovak Republic
Bulgaria Korea (South) Slovenia Canada Kuwait South Africa
China Mainland Kyrgyzstan Sweden
Croatia Latvia Switzerland
Cuba Lebanon Syria
Cyprus Libya Tajikistan
Czech Republic Lithuania Thailand
Denmark Luxembourg Turkey
Egypt Malta
Turkmenistan
Estonia Mexico United Arab
Finland Moldova Emirates
France Mongolia United Kingdom
Georgia Morocco United States
Germany Netherlands Uzbekistan
Greece North Macedonia Vietnam
Hungary Norway Yugoslavia
Iceland Pakistan (former)*
India Poland
* This treaty applies to Montenegro and Serbia.
F. Temporary visas
Entry visas may be obtained from Ukrainian embassies or con sular 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 docu ments for work or living in Ukraine) visas.
Individuals may travel to Ukraine without visas if they are citi zens of Albania, Andorra, Antigua and Barbuda, Argentina, Australia, Bahrain, Bosnia and Herzegovina, Brazil, Brunei Darussalam, Canada, Chile, Colombia, Dominica, Ecuador, European Union (EU) member states, the Hong Kong Special Administrative Region (SAR), Iceland, Israel, Japan, Kazakhstan, Kyrgyzstan, Korea (South), Kuwait, Liechtenstein, Marshall Islands, Monaco, Mongolia, Montenegro, New Zealand, North Macedonia, Norway, Oman, Panama, Paraguay, Qatar, Saudi Arabia, St. Kitts and Nevis, San Marino, Serbia, Switzerland, Tajikistan, Turkey, the United Arab Emirates, the United States, the United Kingdom, Uruguay 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 30 days in a 60-day period for citizens of Serbia; up to 30 days for citizens of Brunei Darussalam; up to 14 days for citizens of the Hong Kong SAR). Visitors from other jurisdictions need to obtain entry visas.
In a limited number of cases, foreign citizens can obtain visas on arrival, which are described below, at border check points at Boryspil and Odesa international airports.
The first type of visa referred to above is a single-entry shortterm (C type) visa, which is valid for 15 days and is available to the following.
• Applicants who enter Ukraine for a diplomatic or official pur pose on invitation of Ukraine’s state authorities
• Applicants who enter Ukraine to render assistance in eliminat ing the aftermath of an emergency or accident in Ukraine
• Applicants who enter Ukraine for urgent medical treatment or participation in the burial of a close relative in Ukraine
• Pilots and other aircraft crew members carrying out interna tional flights (based upon a pilot’s license or a Flight Crew Member Certificate issued in line with the Convention on International Civil Aviation)
The second type of visa referred to above is a single-entry transit (B type) visa, which is valid for up to five days to crew members of foreign vessels staying in Ukraine’s ports (based upon an extract from the shipboard list).
Starting from 1 January 2019, the Ministry of Foreign Affairs introduced an extended range of Ukraine’s electronic visa (e-Visa) categories of travel to Ukraine for the purposes of busi ness, private, tourism, medical treatment, cultural/scientific/ educational/sport activities and foreign mass media staff visits. E-Visas may be issued to foreigners holding passports of the fol lowing specified jurisdictions.
Bahamas India Philippines
Barbados Indonesia St. Lucia
Belize Jamaica St. Vincent and
Bhutan Kiribati the Grenadines
Bolivia Laos Samoa Cambodia Malaysia Seychelles
China Mainland Maldives Singapore
Costa Rica Mauritius Solomon Islands Dominican Mexico South Africa Republic Micronesia Suriname
El Salvador Myanmar Thailand Fiji Nauru Timor-Leste
Grenada Nepal Trinidad and Guatemala Nicaragua Tobago Haiti Palau Tuvalu Honduras Peru Vanuatu
E-Visas are issued as single-entry visas, which are valid for up to 30 days.
Citizens of the majority of member countries of the Commonwealth of Independent States (CIS) do not need visas to enter Ukraine, with certain exceptions.
G. Work permits
To work in Ukraine (either based on a direct employment agree ment 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 per mits 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 valid for a period of six months to three years and may be extended an unlimited number of times.
The local hosting entity of a foreign national must apply for a work permit with the local employment center and submit the following documents:
• An application
• Copies of passport pages bearing personal data
• One color matte photograph of 3.5 cm by 4.5 cm
• Copy of the draft employment agreement between the Ukrainian legal entity and the foreign national or the draft agreement between the Ukrainian and foreign entities
All documents issued in foreign countries and in foreign lan guages 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).
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 spe cial type of entry visa, which may be obtained for the purpose of engaging in employment in Ukraine). This type of visa is a multientry visa (which is issued for a purpose of obtaining a tempo rary residence permit in Ukraine; a foreign individual is allowed to stay in Ukraine up to 90 days for obtaining his or her tempo rary residence permit).
Self-employment. No law prohibits foreign nationals from estab lishing 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.
H. 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 exist for such extension (for example, treatment, pregnancy or childbirth, caring for a sick family member, registration of heri tage, applying for an immigration permit or Ukrainian citizen ship, 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 pro cedure 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, Azerbaijan, 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:
• Application 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 responsi bility for informing the Ukrainian immigration authorities of that fact)
• Notarized translation of the first page of the foreign citizen’s passport
• Foreign citizen’s original passport
• Foreign citizen’s Ukrainian work permit
• Medical insurance certificate
• Receipt confirming payment of the statutory fee
The temporary residence permit application process may take up to 15 working days.
On obtaining a temporary residence permit, a foreign citizen should be registered at his or her place of residence in Ukraine.
I. 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 and children are allowed to stay in Ukraine under the family reunion grounds and accord ingly obtain their own temporary residence permits (separately for spouse and for each child notwithstanding the age). Like the holder of the work permit, the D-type visa should be first obtained at a consular office outside Ukraine.
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. Sepa rate 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 chil dren or to a disabled spouse or parent, regardless of the contents of a will.
Driver’s permits. If a foreign individual obtains a permanent resi dence 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.