On 15 June 2021, the Parliament of Ukraine adopted a law commonly referred to as the Tax Amnesty Law1 (“Law“), which introduces voluntary disclosure program with respect to unreported taxable income and assets.
On 21 July 2021, the Law entered into force. By its terms, the tax amnesty will be available from 1 September 2021.
According to the Law, eligible individuals would be pardoned for tax and currency control offenses with respect to personal assets once properly reported by such individuals in strict compliance with the tax amnesty procedures. The tax amnesty is time-bound to the period commencing on 1 September 2021 and ending on 1 September 2022.
The tax amnesty offers eligible individuals the benefit of regularizing reportable assets at a special tax rate varying from 2.5% to 11.5%, as applicable. Politically exposed persons may not enroll in the tax amnesty program.
The Law allows participating in the tax amnesty only in person, while the earlier drafts proposed special depersonalized participation procedures.
Proper compliance with the tax amnesty procedures relieves an individual from the obligation to disclose the sources of the reported income/assets to the tax office. At the same time, no relief is provided for anti-money laundering (AML) and know-your-customer (KYC) purposes.
In more detail
1. Who is eligible?
A private individual (“Applicant“) being defined as:
- a resident of Ukraine for tax purposes, including a self-employed individual
- a foreign tax resident who used to be a Ukrainian tax resident at the time when the reportable income arose
2. Who is not eligible?
- politically exposed persons, i.e., individuals who were required to file declarations under anti-corruption legislation for any period from 1 January 2005
- individuals who are not of a legal age
3. What is pardoned?
The proposed tax amnesty covers “reportable assets” in the form of:
- taxable income derived but failed to be reported for tax compliance purposes prior to 1 January 2021
- assets acquired at the expense of such unreported taxable income, including:
- currency values, including foreign currency held with foreign banks by eligible individuals
- movable and immovable property, securities, stakes in legal entities, intellectual property rights and/or financial instruments owned by the Applicant
- other assets, property and property rights:
- directly owned by the Applicant
- controlled by the Applicant, including assets that generate or may generate income for the Applicant
4. What is not pardoned?
In contrast, the following assets are excluded for the purposes of the tax amnesty:
- income, property, other assets acquired through criminal activities, save for (i) criminal tax evasion offenses, (ii) currency control offenses and/or (iii) violations of the concentration procedure under Ukrainian antitrust legislation
- income, property, other assets of the Applicant who is subject to a pretrial investigation or court proceedings for certain criminal violations, including criminal tax evasion, forgery by an official, etc.
- assets located (registered) in aggressor state
- physical cash unless it is deposited with Ukrainian banks under the “special bank account” procedure — no relief is provided for the associated AML and KYC procedures conducted by Ukrainian banks with respect to, inter alia, the source of the deposited funds
5. Tax rates
If properly disclosed, the qualifying income is proposed to be taxed at the following special tax rates:
- 5% – with an alternative tax rate of 6% if taxes due are paid in three equal annual installments – with respect to:
- the currency values deposited with Ukrainian banks
- debt claims to residents of Ukraine
- other reportable assets located (registered) in Ukraine
- 9% – with an alternative tax rate of 11.5% if taxes due are paid in three equal annual installments – with respect to:
- the currency values deposited with foreign banks
- debt claims to nonresidents of Ukraine
- other reportable assets located (registered) outside of Ukraine
Temporarily, from 1 September 2021 to 1 March 2022, the Law offers a further reduced rate of 7% (or an alternative 9.5% tax rate in case of the three equal annual installments election).
- 2.5% – with an alternative tax rate of 3% if taxes due are paid in three equal annual installments – of the nominal value of Ukrainian government bonds with a maturity greater than one year and no premature termination, so long as acquired (i) between 1 September 2021 and 31 August 2022 and (ii) prior to filing the special declaration
- 18% in case of violation of the tax amnesty procedures in a part concerning, inter alia:
- the failure to comply with the obligations to deposit currency values with banks and other financial institutions
- the failure to provide proper documentary support for debt claims
- the failure to provide copies of documents requested by the tax office within the tax amnesty procedures
6. Reporting and payment
The special declaration must be filed by the Applicant in electronic form.
Self-assessed tax liability is payable within 30 calendar days following the submission of the special declaration.
The Applicant may also choose to pay tax liability in three equal installments – one within 30 calendar days following the filing of the special declaration, one on or before 1 November 2023, and one on or before 1 November 2024.
The failure timely to pay – in full or in a part – reported tax liabilities will render the special declaration as such that has not been filed, thus, stripping the Applicant of the otherwise afforded benefits and protections with the taxation of the disclosed assets with the regular 18% Personal Income Tax and 1.5% Military Tax. Financial, administrative and/or criminal liability might potentially ensue.
7. Afforded benefits
Upon discharging the “final” tax assessment, the Applicant would be:
- relieved of the obligation to prove the sources of the reported income/assets
- exonerated of criminal liability for tax evasion, tax noncompliance, etc., perpetrated before 1 January 2021
- relieved of financial liability for violations of tax and currency control legislation with respect to the reported income/assets
Information reported by the Applicant in the special declaration and supporting documents would be confidential and may not be relied upon in the course of audits or used as evidence in criminal proceedings with respect to the reported income/assets. Special rules apply to “close relatives” of politically exposed persons.
1 Law of Ukraine No. 1539-IX “On Amendments to the Tax Code of Ukraine on Stimulating the Regularization of Income and Improving Tax Culture of Citizens by Introducing One-Time (Special) Voluntary Disclosure by Individuals of Their Assets and Payment to the Budget of One-Time Tax” dated 15 June 2021.