Why is this important?
The
introduction of the 9% rate of personal income tax on dividends for specific
entities was one of the important changes adopted within the scope of the mini
tax reform of 2017. In particular, the 9%
rate was provided for dividend distributions made by non-residents,
collective investment institutions and non-payers of corporate income tax,
including unified tax payers.
Why is this
change important?
The answer is
quite simple: the introduction of
9% rate can facilitate the
removal of some income from the shadows.
Firstly, some
wealthy members of the Ukrainian society are allegedly ready to receive legitimate income from their foreign
companies in the form of dividend distributions if those are taxed on the 9% rate, rather than 18 % rate.
Secondly,
some tax evasion schemes utilized by legal entities subject to unified tax of
the third group and aimed at avoiding 18 % tax on dividends may lose their
sense. Such taxpayers may extract their
profits by means of dividend distributions instead of transferring them based
on “fake nature” deals to the individual
entrepreneurs. The cost of paying
dividends will be higher by few percent points than that of the “services” of
the individual entrepreneurs. However, owing to the completely legitimate and
risk-free nature of the dividend distribution, we can assume that selection
will done in favor of the latter.
Thirdly,
applying the reduced rate of personal income tax may promote the legalization
of the shadow incomes of small and medium agricultural entrepreneurs. In the
vast majority of cases their enterprises are unified tax payers of the fourth group. We can assume
that, if the 9% rate of personal income tax is introduced, the profits of such
enterprises will be distributed among their owners by way of dividends, rather than through various “dark”
schemes.
From what time is it valid?
Determining
the time at which the 9% rate on
dividend distribution enters in force is the most interesting point.
According to
the Law of Ukraine of 21 December 2016 No 1797-VIII “On Amendments to the Tax
Code of Ukraine on Improving the Investment
Climate in Ukraine” (hereinafter - the “Law on Improving Investment Climate”)
it was set out that the 9% rate
would take effect after the Law of Ukraine ”On the Service of Financial
Investigations” has come into force.
At first
glance, it is a very deep idea. Is
not it?
At first,
instead of the Tax Police the Service of Financial Investigations is created.
The Service provides better quality control over the compliance with tax laws.
Only after this is accomplished, taxpayers are able to apply the reduced rate
of personal income tax on dividends.
Nonetheless,
what was considered to be the
“brilliant” idea proved to be a banal error made in the course of the
enactment of the Law on Improving
Investment Climate.
Eventually,
the technical error has been corrected by the Law of Ukraine dated 23 March
2017 No 1989-VIII (hereinafter - the “Law on Clarification”). In particular,
this Law repealed the provision of the Law on Improving Investment Climate under which the introduction of the
9% rate was suspended to the adoption of
the Law of Ukraine ”On the Service of Financial Investigations”.
As a
consequence, the 9% rate of personal income tax on dividends became
applicable starting from 1 January 2017.
How to refund the tax ?
Although the
Law on Clarification introduced 9% rate
of personal income tax from 1 January
2017, it entered into force from 15 April 2017. The dividends payable for the
period from 1 January 2017 to 15 April 2017 were taxed at 18% personal income
tax.
Is it
possible to refund the overpaid income tax for the relevant periods and how to
do it?
The first
thing that, in our opinion, the tax agent* who withheld 18% tax from dividends
in the period from 1 January 2017 to 15 April 2017 is supposed to do is to
specify the overpaid income tax in the tax return - Form 1DF (ДФ).
In the column
4a “sum of tax withheld” the tax agent should reflect the sum of the tax at the
rate of 9%, and in the column 4 “sum of tax remitted” he should reflect the sum
of the tax already paid at the rate of 18%.
After the processing of the tax return the tax authorities must mark the
sum of the overpaid tax as refundable and include this information to the
integrated card of the taxpayer.
The question
is who has the right to refund the overpaid personal income tax: the tax agent
or the taxpayer who received the dividends.
First of all,
it is logical that the recipient of the dividends may apply for the refund of
the overpaid personal income tax. This right is undoubtedly granted to him as a
payer of personal income tax according to section 43 of the Tax Code of Ukraine
(the refund of erroneously and/or overpaid taxes). The overpaid personal income
tax must be refunded within 20 calendar days after the submission of the
relevant application.
The legislation
does not expressly entitle the tax agent to refund the overpaid personal income tax from the state revenues. However,
the refund to the tax agents is possible in accordance with the clarification
of the State Fiscal Service of Ukraine. This clarification has been posted in
the publicly available information and reference database "ZIR"
(103.07 category). The clarification emphasizes that the tax agent has a right
either to refund the overpaid personal income tax or to carry it forward to offset
against the tax obligations of the ensuing periods.
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| Co-authored by Anton Havryk |
It is clear
that following the refund of the tax from the state revenues the tax agent will
have to transfer the amount of the refunded tax to the natural person as part
of the dividends belonging to the latter.
Lastly, it
comes as no surprise that the tax authorities are not usually prone to
refund overpaid taxes to taxpayers in a
voluntary fashion. So, taxpayers and tax
agents who are not content to carry the overpaid tax forward ought to be ready
to step into a court battle with the tax authorities.
* A person
responsible for withholding and remitting personal income tax under the
“Pay-as-You-Earn” system.
