Wednesday, July 4, 2012

Personal Income Tax Reporting Changes

Photo from
The Law of Ukraine No 4661-VI dated 24 April 2012 "On Amendments to Tax Code of Ukraine and Some Other Laws of Ukraine Regarding Tax Reporting” came into force on 28 April 2012. The law slightly modified the approach to personal income tax reporting. The amendments affected the matters indicated below.

Firstly, the law extended the deadline for submitting an annual tax return on property and income (hereinafter – Annual Return”) with a view to qualify for a personal income tax rebate (amendments to paras 49.18.4 and 166.1.2 of the Tax Code of Ukraine). The deadline was extended from 1 May of a year following the taxable year to 31 December of this year.

This is where a taxpayer is not required to file the Annual Return by virtue of law, but rather lodges it voluntarily in order to be eligible for a personal income tax rebate. As it is well known, a tax rebate is the reduction of taxable income by the amount of certain expenses permitted by law (such as interest on a residential mortgage loan, the value of medical or educational services) and a tax refund resulting from such a reduction.

Secondly, the modifications concerned the declaration of the income received from several tax agents for the purposes of the application of 17% tax rate. The amendments were made to para 176.1 (“є”) of the Tax Code of Ukraine.

From this time onwards, while determining whether a taxable person receiving the income resulting from his labour relations or his performance of civil contracts from several tax agents, is under the obligation to hand in the Annual Return the annual rather than monthly taxable income is taken into account. While formerly the Annual Return had to be filed if the amount of the taxable income in any month of a year exceeded 10 statutory minimum wages, nowadays, the taxable person is mandated to do so if the yearly amount of the taxable income exceeds 120 statutory minimum wages.

The amendments set forth the recalculation mechanism in relation to the submission of the Annual Return on the above ground. The recalculation mechanism, by itself, is not complicated. The total taxable income declared is reduced by the amount of unified social contribution accrued (withheld) by the tax agents and by the amount of social tax benefits (if any). Of the reduced amount of the total taxable income, 120 statutory minimum wages are taxed at 15 per cent, and the rest is taxed at 17 per cent. The tax charged on the reduced amount of the taxable income decreases by the amount of tax actually accrued (withheld) by the tax agents during the taxable year. The surplus of the tax is payable to the budget within the prescribed term (by 1 August of a year following the taxable year).

In light of the above, the approval of a new appendix to the Annual Return reflecting the results of the aforesaid recalculation is expected soon. Probably it will be the appendix No 8.