Contents

1. Changes to the algorithm for calculation of personal income tax and other changes regarding personal income tax compliance

Changes to the algorithm for calculation of personal income tax and other changes regarding personal income tax compliance

On April 28, 2012 the Law of Ukraine "On Amendments to the Tax Code of Ukraine and certain other laws of Ukraine regarding tax filing streamlining" of 24 April, 2012 # 4661-VI (hereinafter - the Law) came into force.

In particular, the Law changed the following provisions of the Tax Code of Ukraine:

• The algorithm for calculation of the personal income tax (hereinafter - “PIT”)
  1. The algorithm for determining of the taxable base for 17% tax rate application has changed. According to the newly established algorithm, a cap of 10 minimum wages established on 1 January of the reporting year, i.e. UAH 10,730 for 2012 applies to the taxable base (previously this cap applied to the income accrued, which was confirmed in the clarification letters of the Ukrainian State Tax Service).
     
     Thus, PIT under the new rules should be calculated as follows:
     The monthly salary is UAH 15,000
     The taxable base= 15,000 – 3,6% UST1 (540) = UAH 14,460
     PIT = 10,730*15% + (14,460 –10,730)*17%= UAH 2,243.60.
• Declaring of personal income
  1. According to the amendments to the Tax Code, individuals who are eligible for tax discount can apply for it by 31 December of the year following the reporting one. Thus, in order to apply for a tax discount with respect to 2011 it is possible to file the tax return by 31 December 2012.
  2. According to the Law, individuals who received inheritance or a gift and settled PIT liability prior to notarizing the respective inheritance or gift do not have tax return filing liability.
  3. As regards to the obligation to file the tax return in case of receiving income from two or more tax agents, according to the changes introduced by the Law, such obligation occurs solely with respect to those taxpayers, whose total annual relevant taxable income exceeds 120 minimum wages established on 1 January of the reporting year (UAH 128 760 in 2012). At the same time, taxable income, other than salary and income under the civil contracts, should not be considered when making recalculation of PIT. Moreover, the Tax Code now provides for the algorithm for such annual PIT recalculation, which should be reflected in a separate addendum to the tax return (which, however, is not yet developed).
  4. The Law also stipulates that the tax return filing obligation is deemed fulfilled if a taxpayer received income solely from one tax agent or in case a taxpayer received income from tax agents which should not be included into the total monthly (annual) income, except for cases provided by the Tax Code.
  5. The amendments to Tax Code abolished the Addendum 7 to the personal income tax return template, which had to be filed by individuals holding certain positions who also submitted a similar tax return at the place of their work in accordance with the Law of Ukraine "On Prevention and Counteraction to Corruption" of 7 April 2011 # 3206-VI. Given the above, the adoption of the Law made a positive step towards simplification and more clear regulation of the procedure for personal income tax compliance. However, while preparing the personal income tax return for 2012 the individuals will have to apply different taxation rules, which were in force before and after the adoption of the Law, unless the tax authorities issue relevant clarifications in this respect.

We will continue monitoring the changes inlegislation regarding personal income tax

1 The Unified Social Tax

Contacts at Ernst & Young:

Olga Gorbanovskaya
Tel: +380 (44) 490 3022
Olga.Gorbanovskaya@ua.ey.com

Olena Boichenko
Tel: +380 (44) 499 2404
Olena.Boichenko@ua.ey.com

Oksana Lapii
Tel: +380 (44) 492 8233
Oksana.Lapii@ua.ey.com