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Tax rates in Ukraine

What are the current income tax rates for residents and non-residents in Ukraine?

Both, residents and non-residents, are taxable at 18% personal income tax rate.

  • salary;
  • all kinds of compensatory and incentive payments;
  • other payments and fees that are accrued in connection with labor relations and civil law
  • contracts;
  • winning in the state and private money lottery.

This rate also applied to the taxable income received from abroad.

In addition to that, starting from August 2014 a 1,5% military tax on personal income was introduced in Ukraine.

 

General social and health security

Employers are liable to pay Unified Social Security Contributions. The social security contribution in Ukraine is 22% of the gross earnings (salaries and benefits paid to employees).

This percent is applied to salaries which are less than 25 subsistence minimums for able-bodied persons. If the salary is higher, then only the amount up to 25 subsistence level for able-bodied persons is taxable, while the rest is non-taxable.

The subsistence level for able-bodied persons in Ukraine is UAH 2270,00 (approx. EUR 65,55) starting January 1st. 2021.

The 22% from gross salary is divided among different funds (unemployment fund, accident fund, pension contribution and temporary disability fund).

 

Value added rates (VAT)

Standard VAT rate in Ukraine is 20% and is imposed on domestic sales of goods and services, imported goods or services.

VAT payers must provide the monthly report until the 20th day of the month following the reporting month. Payment of VAT is made within 10 days from the end of the report’s submission, up to and including the 30th day.

 

That is why Ukraine is such a good country to open an IT startup!

Private individuals, wiling to conduct entrepreneurial activity without incorporation of separate legal entity, can do it by registering as Private Entrepreneurs. This form of business is very popular among software developers in Ukraine because it is simple to register and maintain. Besides it offers good tax savings through the Simplified Tax Regime available for such structure.

There are two main taxation systems for private entrepreneurs: General Tax Rules and Simplified Tac Regime. Whereas all private entrepreneurs are by default on General Tax Rules, Simplified Tax Regime is available subject to certain requirements as per type of business, annual turnover and require registration with tax authorities as Unified Tax Payer.

Please, note that foreign individuals are allowed to work using Simplified Tax Regime only if they are tax residents of Ukraine!

 

Private entrepreneurs and General Tax Regime

  • income tax rate is 18%;
  • military tax is 1,5%;
  • social security tax is 22% from profit, but not less than 22% from the minimum salary in Ukraine (i.e., starting from January 1st. 2021 one monthly social security tax makes UAH 1320,00, and starting from December 1st. 2021 it makes UAH 1430,00 per month) and no more than 22% from 15 minimal salaries.
  • besides, private entrepreneur using a general taxation system has to pay 20% VAT;
  • private entrepreneur has to file an annual tax reporting (on income tax and social security tax);
  • private entrepreneur has to pay taxes on quarterly basis (income tax) and annual basis (military tax and social security tax);
  • in case a private entrepreneur hires employees or individuals who are not private entrepreneurs:
  • a private entrepreneur withdraws income tax (18%) and military tax (1,5%) from salary of each employee while paying the salary;
  • a private entrepreneur pays social security tax on each employee’s salary (not less than UAH 1320,00);
  • a private entrepreneur is obliged to file a monthly and a quarterly tax report.

 

Simplified Tax Scheme

A private entrepreneur under a Simplified Tax Scheme pays only a single Unified Tax, the rate of which depends on amount of income, number of employees, type of business etc.

The Unified Tax rate is considerably lower when compared to the General Tax Scheme which requires the private entrepreneur to pay a number of mentioned above taxes.

A private entrepreneur using a Simplified Tax regime pays one Unified tax and does not have to pay other taxes loke:

  • income tax;
  • military tax;
  • VAT for suppliers on the territory of Ukraine;
  • land tax.

 

Unified tax rate

A private entrepreneur belongs to the 3rd. group if his annual income is no more than UAH 7 000 000 (which is approximately EUR 202 136,00).

For example, a software developer based in Kyiv, Ukraine gets USD 4000,00 as his monthly salary, which makes USD 48 000,00 annually). A software developer choses to use the 3rd. group of Simplified Tax and he will pay just 5% tax rate for his income, which makes about UAH 67824,00 annually (an equivalent of USD 2400,00 as for Jan., 1st. 2021). In addition to that a software developer will pay UAH 1320,00 per month in 2021 and UAH 1430,00 per month starting from December 1st. 2021.

Thus, his net income will be UAH 1 272 706,00 (1 356 480,00 – 67 824,00 – 15 950,00).

As you can see tax-payers using a Simplified Tax regime enjoy much more favorable rules of taxation and receive much higher net income than using a general taxation scheme. That is why many software developers prefer to provide services as a contractor, being private entrepreneurs and using the 3rd. group of taxation rate.

 

 

 

Links to the used resources:

https://home.kpmg/xx/en/home/insights/2015/11/ukraine-income-tax.html

https://www.contactukraine.com/taxation/private-entrepreneur-taxation

https://home.kpmg/xx/en/home/insights/2015/11/ukraine-income-tax.html

https://accace.com/wp-content/uploads/2017/03/2017-Tax-Guideline-Ukraine-EN.pdf

https://relevant.software/blog/6-key-facts-that-make-ukraine-a-great-software-development-outsourcing-destination/

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