Friday, August 29, 2014

Changed Tax Treatment of Passive Income

Co-authored by Andrii Kuleba 
 (Junior Associate of 
Lavrynovych & Partners Law Firm)
On 2 August 2014 the Act of Ukraine dated 4 July 2014 No. 1588-VII on amending certain laws with regard to the taxation of passive income entered into force.

The main novelties introduced by the Act are as follows:

- Interest, irrespective of its amount, is subject to personal income tax (PIT). Previously, only the interest over UAH 20,706.00 per year was chargeable to PIT.

- Interest accrued on bank accounts used exclusively for the payment of salaries is not within the charge to PIT.

- Interest is taxed at a PIT flat rate of 15%. A progressive rate of PIT (15%, 20% and 25%) is no more applicable.

- PIT on interest and dividends is withheld by the paying entity (tax agent). The taxpayer is not supposed to file an annual tax return.

- Tax agent does not disclose the information on a taxpayer and the amount of his/her bank deposit in a tax computation (return) to be filed with the tax authority with respect to the accrual of the interest.

- There is a possibility to adjust a PIT liability in case of the recalculation of the interest caused by the early termination of the bank deposit agreement.

- Dividends are taxed at a 5% rate of PIT on a regular basis. Formerly, the application of the 5% rate was only possible over a transitional period ended 1 January 2015. After this date a progressive tax rate (15%, 20% and 25%) was expected to operate.

* - Photo from