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Decrease of payroll taxes
Social security tax rates (Unified Social Security Contribution or USSC) decreased drastically. For the amount payable by employer on top of the salary, the flat rate of 22% of the gross payroll now applies, instead of the previous 36.76%-49.7% (depending on the type of industry).
The employee amount, previously withheld by employer from the salary at the rate of 3.6% of the salary, is now exempt.
The taxable base for USSC is subject to a cap, which has been increased almost 1.5 times for 2016, and now is equivalent of UAH 34 450 (about USD 1400) per employee per month.
The announced, yet debatable, goal of the reform is to discourage shadow salaries and thus increase collections. At the same time, transparent businesses and their employees (low and high earners) will undoubtedly benefit from the rate reduction.
Personal income tax (PIT)
On salaries now applies at a flat 18% rate. Previously, salary income was taxed at progressive rates: 15% and 20% (for monthly income in excess of UAH 12,180 or about USD 500). The tax base for PIT is not capped.
Due to this rate change, low-paid employees may end up paying more PIT, and the opposite for high paid employees. Based on statistical data averages, gross monthly salary in Ukraine was UAH 4,498 (about USD 180) for November 2015.
The military tax on salaries at 1.5% remains unchanged in 2016.
Total payroll taxes in 2016, will be: 18% PIT plus 1,5% military tax which is an employee cost to be deducted from salary and 22% USSC which is the employer cost.
Corporate Profit Tax (CPT)
Beginning in 2016, the CPT advance payments system will be abolished. Under this system, effective during 2013-2015, the taxable period was one year, but taxpayers with annual income over UAH 20 mln. were required to make monthly tax payments in the amount of 1/12 of the previous year’s CPT liability with subsequent adjustment based on tax results of current reporting year.
Beginning in 2016, such taxpayers shall no longer pay advance CPT, but instead shall report and pay CPT on quarterly basis. The quarterly tax return shall be filed within 40 calendar days following the reporting period end and the tax shall be paid within 10 calendar days following the return filing deadline.
Taxpayers with annual income not exceeding UAH 20 mln and those freshly registered will continue to report and pay CPT on annual basis without advance payments.
As an interim measure, taxpayers are required by 31 December 2016, to make one advance CPT payment in the amount of 2/9 of CPT reported in tax return for 3Q2016.
In 2016, the cap on property tax for real estate (commercial and residential) has been increased from 2% to 3% (about USD 1.65) of the minimum statutory salary per 1 square meter per year. Actual tax rates within the cap shall be determined by local councils. Apartments over 300 square meters and residential houses over 600 square meters are subject to additional tax at the flat amount of UAH 25,000 (about US$ 1.000) per year.
The rules regarding the transport tax on luxury cars has been changed. Now the tax is payable by companies and individuals owning cars less than five years old and having a market value of at least 1,033,500 (about USD 40.000). The government is yet to approve guidelines for the market value calculation.
Quality tax advice, globally
Taxpayers should be aware that these new rules are likely to be strictly interpreted by tax authorities. As a risk management measure, taxpayers are advised to closely monitor changes and generalized tax rulings, as well as request individual tax rulings where practical.