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Draft law №5600 adopted by Parliament. Changes in personal income taxation

08/12/21

On 30 November 2021 the Verkhovna Rada of Ukraine adopted in the second reading the draft law of Ukraine No. 5600 “On Amendments to the Tax Code of Ukraine and certain legislative acts of Ukraine to ensure balanced budget revenues” (further – “Draft Law No. 5600”). 

The final wording of the Draft Law is not available yet. Still, our experts were following the voting on amendments to the Draft Law and below we list some main and important anticipated changes regarding personal income taxation (PIT).

Regarding the taxation of income from the sale of real estate (Art. 172.2):

  • The list of real estate, the proceeds of which may be tax-exempt on sale once a year, widened with agricultural land, directly received by the taxpayer in the process of privatization or allocated in kind (on the ground) to the owner of the land share (share), as well as inherited land
  • Income received by the taxpayer from the second sale during the reporting tax year of real estate, as well as all subsequent sales of inherited real estate, is taxed at a rate of 5% PIT on sales income
  • Income from the third or further sale during the reporting tax year of real estate is taxed at a rate of 18% PIT on net income (!), i.e., the difference between income and the cost of acquisition of such real estate located in Ukraine, including (but not exclusively):
  • the cost of acquisition and the acquisition of ownership of real estate under different conditions (purchase, exchange, construction, obtaining a part of share capital, mortgage, etc.) and registration fees, state duties and similar payments made in connection with acquisition / acquisition of real estate rights
  • the value of the real estate asset, which was declared by the individual as the asset in the one-off special declaration (amnesty declaration)
  • the value of the real estate asset received at liquidation (termination) of a legal entity (including foreign one) or formation without the status of a legal entity (including foreign one) by the taxpayer – the shareholder (the participant, the partner, the shareholder, the founder, the controlling person)
  • the value of gifted real estate, which is equal to the amount of state duty, registration fee or other similar payments, taxes and fees paid in connection with such donation.

Under the amnesty declaration, it will be possible to reduce the taxable income by the declared value of:

  • securities during the calculation of investment income from the sale of such securities (Art. 170.2.2)
  • movable property in the form of a car / motorcycle / moped or other vehicle during the calculation of profit for the third and subsequent sales for the year (Art. 173.2)
  • property rights (right of claim) when calculating income from the sale of the right of claim, or receiving money to repay the debt under such right of claim (Art. 19 of Subsection 1 of Section XX "Transitional Provisions").

The range of declarants eligible for tax amnesty has also been expanded, as the restrictions will apply only to persons who performed public functions in Ukraine within the meaning of the Law "On the Prevention and Counteraction of the Legalization (Laundering) of Proceeds from Crime, Financing of Terrorism and Financing of the Proliferation of Weapons of Mass Destruction", starting from 1 January 2010.

It is specified that all incomes from foreign sources are taxed at a rate of 18%, except for the following types of income, which must be calculated according to special rules (Art. 170.11):

  • foreign dividends
  • investment profit
  • profit of controlled foreign companies (CFC)
  • distribution of profits, including accumulated for previous periods, from formations without the status of a legal entity that is not a CFC.

There will be a new procedure for taxation of payments from a foreign formation without the status of a legal entity (Art. 170.11-1):

  • distribution of profits from trusts and other foreign formations without the status of a legal entity (not CFC), is taxed at a rate of 9% PIT
  • individual - the recipient of such payments, is obliged to submit together with the annual tax return copies of the following documents:
  • the decision of the authorized person (trust manager/trustee), with information that the payment is made in connection with the distribution of profits
  • written confirmation of the taxpayer's right to receive such payments.

Some points on granting and administering a tax rebate have been clarified:

  • the right to a tax rebate with respect to education expenses is granted not only to parents, but also to guardians and fiduciaries, including parents-educators
  • for 2021 and 2022, the tax rebate includes the full cost of assistance to medical institutions, as well as the cost of treatment and purchase of medicines and / or medical devices needed for the treatment of acute respiratory disease COVID-19, vaccination costs for the prevention of acute respiratory disease COVID-19, as well as the cost of insurance payments paid to the resident insurer under insurance contracts in case of acute respiratory disease COVID-19, for the taxpayer and members of his family of the first degree of kinship
  • it is stipulated that the controlling body may not request from taxpayers information, with the aim to prove expenses, contained in databases to which it has direct access.

We stress that the above list of amendments is neither full nor detailed. We will comment on other significant amendments in our upcoming messages.

The Draft Law should enter into force on 1 January 2022 (except for certain provisions), provided it is signed by the President of Ukraine.

We will monitor the developments on Draft Law No. 5600.

Contact us

Slava Vlasov

Slava Vlasov

Partner, Leader, Tax and Legal Services, PwC Ukraine

Tel: +380 44 354 04 04

Olga Trifonova

Olga Trifonova

Director, Head of Transfer Pricing practice, PwC Ukraine

Tel: +380 50 331 9746

Julia  Kadibash

Julia Kadibash

Senior Manager, PwC Ukraine

Tel: +380 44 354 0404

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