About taxes in Ukraine: payers are not only individual entrepreneurs, but also individuals

Content of the article:

Ukraine is a country with a complex taxation system, where taxes are collected from various sources, including individuals. Often the misconception is that taxes are primarily paid by individual entrepreneurs (IEs), but in reality, ordinary citizens are also significant taxpayers.

Taxes Paid by Individuals

• Personal Income Tax: This is one of the main taxes paid by individuals on their income. Personal income tax rates may vary depending on the amount of income and tax category.
• Military Tax: According to the legislation of Ukraine, citizens with income are required to pay military tax. This fee may depend on various factors, including income and age.
• Property Tax: Property owners are subject to this type of taxation. It depends on the value of the property and other factors.

Sources of Individual Income

• Salary: One of the main sources of income for most citizens of Ukraine is salary. When receiving a salary, personal income tax and other deductions are automatically withheld.
• Pensions and Social Security Benefits: Individuals may receive pensions, unemployment benefits, and other social benefits that may be subject to taxation.
• Business Income and Investments: Some citizens may have their own business or invest in various financial instruments, such as shares or real estate, which also becomes a source of income and is subject to taxation.

Comparison of Taxation: Individual Entrepreneurs vs. Individuals

Therefore, it can be seen that the taxation of ordinary individuals lies in several categories, including taxation of income, property, and other levies. Although they may not have the same amount of taxation as individual entrepreneurs, they are still significant taxpayers in Ukraine.

Key Sources of Income to Declare

• Salary:

This is the main source of income for many citizens. Includes wages, bonuses, compensation, and other financial compensation received from an employer.

• If the person is a resident of Diia City:

Diia City, an innovative economic zone, attracts the attention of businesses and individuals with its special conditions for development and investment. This special status not only opens up many opportunities but also imposes certain requirements on business owners and employees, including the obligation to declare income.

• Business Income:

If you are an entrepreneur or sole proprietor, you need to declare profits received from your business activities, including income from the sale of goods or services, as well as other business-related income.

• Income from Real Estate and Vehicles:

If you own real estate, you must declare any income received from the rental or sale of this property.

• Investment Profits:

This includes income from investments in securities, shares, bonds, dividends, interest on bank deposits, profit from the sale of securities, etc.

• Social Security Benefits:

If you receive social benefits, a pension, or a scholarship, this income must also be declared.

• Other Income Sources:

This can include various types of income, such as lottery winnings, gifts, inheritance, etc.

Declaration of wages received and taxes withheld from them

Declaring wages earned and the associated taxes withheld is an important step for all workers to help ensure compliance with tax laws and avoid future tax problems. Below is a step-by-step process for declaring wages received and taxes withheld.

1. Obtaining the form “Tax right to income of individuals” (Form No. 1DF)

This form is the fundamental document for declaring income of individuals in Ukraine. You can obtain this form from the tax office or download it from their website.

2. Gathering the necessary information

Before you start filling out your return, gather all the information you need about your income and taxes withheld. This includes your annual income, Social Security and Medicare contributions, retirement fund contributions, and other important financial data.

3. Filling out the declaration

Get ready to fill out the declaration, following the instructions and recommendations provided at each step. Enter all required information about your income and deductions.

4. Check and correction

Check the completed declaration for errors and make sure that all data is entered correctly. Correct any errors or deficiencies before submission.

5. Submission of the declaration

Once you have checked your return and are sure it is completed correctly, submit it to the tax office or using the electronic services provided by the tax authorities.

6. Payment of withheld taxes

If you filed your return correctly, you may owe the government or be entitled to a tax refund. In case of debt, you need to pay the corresponding amount to the tax office. If you are eligible for a refund, the government will refund the excess amount.

Declaring Wages and Withheld Taxes

Declaring wages earned and the associated taxes withheld is an important step for all workers to help ensure compliance with tax laws and avoid future tax problems. Below is a step-by-step process for declaring wages received and taxes withheld.

1. Obtaining the Form “Tax Right to Income of Individuals” (Form No. 1DF)

This form is the fundamental document for declaring income of individuals in Ukraine. You can obtain this form from the tax office or download it from their website.

2. Gathering the Necessary Information

Before you start filling out your return, gather all the information you need about your income and taxes withheld. This includes your annual income, Social Security and Medicare contributions, retirement fund contributions, and other important financial data.

3. Filling Out the Declaration

Get ready to fill out the declaration, following the instructions and recommendations provided at each step. Enter all required information about your income and deductions.

4. Check and Correction

Check the completed declaration for errors and make sure that all data is entered correctly. Correct any errors or deficiencies before submission.

5. Submission of the Declaration

Once you have checked your return and are sure it is completed correctly, submit it to the tax office or use the electronic services provided by the tax authorities.

6. Payment of Withheld Taxes

If you filed your return correctly, you may owe the government or be entitled to a tax refund. In case of debt, you need to pay the corresponding amount to the tax office. If you are eligible for a refund, the government will refund the excess amount.

Declaring Income as a Diia City Resident

A resident of Diia City is an individual or an enterprise that has received resident status within this economic zone. This gives them access to a range of benefits, including tax benefits, simplified registration procedures, and other financial and administrative benefits.
Income received, whether it is wages from an employer, profits from a business, or other sources, must be declared in accordance with the laws of the country. Residents of Diia City are no exception.

How to Declare Income:

• Get the Necessary Documents: Gather all the necessary information about your received income, such as wages, dividends, investment winnings, etc.
• Filling Out the Declaration: Complete the income declaration form, following all requirements and instructions provided by the tax authorities.
• Check and Correction: Check your declaration for errors and make sure that all data is entered correctly.
• Filing Your Return: Submit your return to the tax office within the required time frame.

Taxation of Dividends from a Ukrainian LLC

Dividends are one of the ways to profit from investments in businesses. As the owner of a share in a Ukrainian Limited Liability Company (LLC), you can receive dividends from the company’s profits. However, it is important to understand how these dividends are taxed in Ukraine.

Taxation of Dividends:

• Corporate Tax: As a general rule, dividends received from Ukrainian LLCs are subject to corporate tax. The rate of this tax is 15% of the amount of dividends.
• Military Levy: Dividends received may also be subject to a military levy, which currently amounts to 1.5% of the dividend amount.

Dividend Taxation Process:

• Calculation of Tax Amount: The tax amount is determined by applying the corporate tax rate to the amount of dividends received.
• Tax Withholdings: Corporate tax and military levy on dividends may already be withheld by the LLC if such withholding is provided for in the company’s articles of incorporation. Otherwise, you, as the owner, need to pay these taxes to the budget yourself.
• Declaration: Dividends received must be reported on your tax return that you file with the IRS.

Taxation on Income from Selling Cars or Real Estate

Selling a car or real estate can be a source of impressive income, but it is important to understand how this income is taxed. Ukrainian tax legislation has certain rules for taxing such income that should be considered.

Taxation of Income from the Sale of a Car:

• Personal Income Tax: As a general rule, profits from the sale of a car are subject to personal income tax. The rate of this tax is 18% of the profit.
• Value Added Tax (VAT): If you sell a car as an entrepreneur or as an individual who carries out this operation systematically and in volumes beyond personal use, you are also required to pay VAT for this operation.
• Military Levy: A military levy of 1.5% may also be applied to income received from the sale of a car.

Taxation of Income from the Sale of Real Estate:

• Personal Income Tax: Profits from the sale of real estate are generally subject to personal income tax. The rate of this tax is 18%.
• Value Added Tax (VAT): If you are a VAT payer and the sale of real estate occurs within the scope of your business, you may have to pay VAT on this transaction.
• Military Levy: As with the sale of a car, a 1.5% military levy may also apply to income from the sale of real estate.

Taxation of Rental Income for Individuals

Renting out real estate has become a popular way for many people to earn extra income. However, it is important to understand how this income is taxed in Ukraine when you act as an individual.

Tax Obligations:

• Personal Income Tax: As a general rule, income from the rental of real estate is subject to personal income tax. The rate of this tax is 18% of the amount of net rental income.
• Calculation of Net Income: Net income is defined as the difference between rental income (excluding expenses related to rental data, which can be attributed to gross income) and expenses associated with the maintenance and servicing of real estate (for example, utilities, repairs, etc.).
• Declaration of Income: Income received from the rental of real estate must be declared in accordance with the tax laws of the country. This means that you will need to complete and submit a tax return and report all rental income received.

The Importance of Cost Accounting

When calculating personal income tax from rental real estate, it is important to take into account all expenses associated with this activity. Costs for maintaining, maintaining, and repairing real estate can be deducted from gross income, thereby reducing the amount of taxable income.

Emergencies

• Special Tax Regimes: In some cases, special tax regimes may be applied to income from rental real estate, which allows reducing the tax burden.
• Tax Reports: Regular tax reporting and proper accounting of expenses helps ensure accurate tax calculations and compliance with tax obligations.

Taxation on Investment Income

Investment income is the income received from investing funds in financial or capital investments such as stocks, bonds, real estate, or other financial instruments.

Taxation:

• Personal Income Tax: Typically, investment profits are subject to personal income tax. The rate of this tax may vary depending on the country and legislation, but in most cases, it ranges from 15 to 30%.
• Tax on Dividends and Interest: Some investment vehicles, such as stocks, may generate income in the form of dividends. This income may also be subject to tax according to tax laws.
• Capital Tax: When selling capital investments such as shares or real estate, a capital tax may apply on the gain on the sale of the assets. The rate of this tax may vary depending on the country and legislation.

Taxation on Donated or Inherited Property

Receiving property by inheritance or gift can be a complex process, especially from a tax perspective. Let’s consider the main aspects of taxation of income received from donated or inherited property in Ukraine.

Taxation of Inherited Property

• Personal Income Tax: Typically, property inherited from relatives or other persons is subject to personal income tax. The tax rate depends on the value of the inheritance and your status.
• Inheritance Tax: Ukraine does not have a separate inheritance tax. However, the inheritance may be subject to personal income tax if it is realized.

Taxation of Donated Property:

• Personal Income Tax: Gifts in cash are generally subject to personal income tax. However, if the gift is given by relatives or close persons, tax benefits or exemptions may apply.
• Gift Tax: Ukraine does not provide for a separate gift tax. However, if the value of the gift exceeds a certain amount, it may be subject to personal income tax.

Tips for Tax Optimization:

• Asset Transfer Planning: Transferring property by inheritance or gift can be a strategic move from a tax perspective. The possibility of distributing property between relatives should be considered to minimize tax obligations.
• Contacting a Professional: Before transferring property by inheritance or as a gift, it is recommended that you contact a tax advisor or attorney for specific advice relevant to your situation.

Taxation for Individual Entrepreneurs by Groups

Individual entrepreneurs can choose different taxation systems depending on their activities and the amount of income. Let’s consider the main features of taxation of income of individual entrepreneurs for different groups in Ukraine.

Group 1 Individual Entrepreneurs

• Single Tax: Group 1 individual entrepreneurs have the right to pay a single tax in the amount of a percentage of the minimum wage established for the taxation period. This rate is usually the lowest among all groups of individual entrepreneurs.
• Simplified Reporting System: Group 1 individual entrepreneurs have the right to a simplified reporting system, which greatly facilitates accounting and tax reporting.
• Limitation on the Number of Employees: Individual entrepreneurs of the 1st group may have restrictions on the number of employees they can hire.