Ukraine: Consider tax amnesty

In brief

On 25 February 2021, the President of Ukraine submitted to the Parliament of Ukraine Bill No. 5153 'On Amendments to the Tax Code of Ukraine on Stimulating the Regularization of Income and Improving Tax Culture of Citizens by Introducing Voluntary Disclosure by Individuals of Their Assets and Payment to the Budget of One-Time (Special) Tax' ("Bill").

On 30 March 2021, the Parliament of Ukraine voted on the Bill in the first (of three) readings, making the prospects of being voted into law within the coming months quite likely.

Key takeaways

According to the Bill, individuals would be pardoned for tax and currency control offenses with respect to personal assets properly reported by such individuals within the tax amnesty procedures. The tax amnesty is time-bound to the period commencing on 1 July 2021 and ending on 1 July 2022.

The tax amnesty offers eligible individuals the benefit of disclosing reportable assets and their taxation with a special tax of a 9%, 5% or 2.5% rate, as applicable. Politically exposed persons may not enjoy the tax amnesty.

The Bill offers an opportunity to participate in the tax amnesty either in person or through an authorized representative, with the latter alternative allowing a rather unprecedented level of confidentiality and anonymity.

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") is defined as follows:

       i.         a resident of Ukraine for tax purposes, including a self-employed individual

      ii.         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?

       i.         politically exposed persons, i.e., individuals who were required to file declarations under anti-corruption legislation for any period from 1 January 2005

      ii.         individuals who are not of a legal age

Special rules apply to 'close relatives' of politically exposed persons.

3. What is pardoned?

The proposed tax amnesty covers "reportable assets" in the following form:

  • taxable income derived prior to 1 January 2021 but failed to be reported for tax compliance purposes
  • assets acquired at the expense of such unreported taxable income, including:
    • currency values, e.g., 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 (other than criminal tax evasion, currency control offenses and 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.
  • 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 in terms of checking, for instance, 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% of the tax base of the following:
    • the currency values deposited with Ukrainian banks
    • debt claims to residents of Ukraine
    • other reportable assets located (registered) in Ukraine
  • 9% of the tax base of the following:
    • the currency values deposited with foreign banks
    • debt claims to nonresidents of Ukraine
    • other reportable assets located (registered) outside of Ukraine
  • 2.5% of the nominal value of Ukrainian government bonds with a maturity greater than one year and no premature termination, acquired: (i) between 1 January 2021 and 20 June 2022; and (ii) prior to filing the special declaration
  • 18% in case of the established violation of the tax amnesty procedure pertaining to the following:
    • depositing currency values with banks and other financial institutions
    • providing proper documentary support for debt claims

6. Reporting and payment

The Applicant may file the special declaration either personally or through an authorized representative, i.e., a Ukrainian notary, whereby the latter would submit the depersonalized special declaration to the tax office, allowing the Applicant not to disclose their identity to the tax office.

Self-assessed tax liability is payable within 10 calendar days following the submission of the special declaration.

7. Afforded benefits

Upon discharging the 'final' tax assessment, the Applicant would be:

              i.         relieved of the obligation to prove the sources of the reported income/assets

             ii.         exonerated of criminal liability for tax evasion, tax noncompliance, etc., perpetrated before 1 January 2021

            iii.         relieved of financial liability for violations of tax and currency control legislation with respect to the reported income/assets.

8. Confidentiality

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.

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