Regarding legislative changes in collection of military levy by tax agents (including employers)!

Law of Ukraine № 4015-IХ as of 10.10.2024 “On amendments to the Tax Code of Ukraine and other laws of Ukraine regarding ensuring balanced budget revenues during the martial law” (hereinafter – Law) entered into force on 01.12.2024, except for certain of its paragraphs, for which different procedure for their entry into force is established (Paragraph 1 Section II “Final and Transitional Provisions” of the Law).

The Law makes changes and additions to a number of legislative acts of Ukraine, in particular, to the Tax Code of Ukraine (hereinafter – Code) in terms of increasing military levy’s rate to 5 percent of the taxable amount (except for certain categories of payers of this levy for which rate remains at 1.5 percent).

For reference: valid Paragraph 16¹ of Sub-section 10 "Other transitional provisions" of Section XX "Transitional provisions" of the Code establishes that temporarily, until decision of the Verkhovna Rada of Ukraine on completion of reform of the Armed Forces of Ukraine enters into force, the military levy is introduced.

Payers of military levy were persons specified in Paragraph 162.1 Article 162 of the Code (Sub-paragraph 1.1 Paragraph 16¹ Sub-section 10 Section XX of the Code).

According to Sub-paragraph 1.2 Paragraph 16¹ Sub-section 10 Section XX of the Code, the military levy’s taxation object was determined to be income provided for in Article 163 of the Code.

Military levy’s rate before the Law came into force was 1.5% of the taxation base.

Regarding calculation, withholding and payment of the military levy to the budget by tax agents

The Law provides for increase in the military levy rate from 1.5 to 5 percent of the taxable amount for payers of this levy, defined by Paragraph 162.1 Article 162 Section IV of the Code:

individuals – residents who receive income from both sources of origin in Ukraine and foreign income;

individuals – non-residents who receive income from sources of origin in Ukraine;

tax agents.

Sub-paragraph 1 of Sub-paragraph 1.2 Paragraph 16¹ Sub-section 10 Section XX of the Code stipulates that the military levy’s taxation object is, in particular, total monthly (annual) taxable income.

Accrual, withholding and payment (transfer) of the military levy from income of military levy’s payers specified in Sub-paragraph 1 of Sub-paragraph 1.1 Paragraph 16¹ Sub-section 10 Section XX of the Code, are carried out according to procedure established by Section IV of the Code, taking into account peculiarities determined by Sub-section 1 Section XX of the Code, at rate determined by Sub-paragraph 1 of Sub-paragraph 1.3 Paragraph 16¹ Sub-section 10 Section XX of the Code – 5% of taxable object (Sub-paragraph 1.4 Paragraph 16¹ Sub-section 10 Section XX of the Code).

Sub-paragraph 1.5 Paragraph 16¹ Sub-section 10 Section XX of the Code stipulates that persons responsible for withholding (accrual) and paying (transferring) military levy to the budget from income of payers specified in Sub-paragraph 1 of Sub-paragraph 1.1 Paragraph 16¹ Sub-section 10 Section XX of the Code are persons specified in Article 171 of the Code, in particular tax agents, including employers.

Article 164 Section IV of the Code stipulates that taxation base is total taxable income – any taxable income accrued (paid, provided) in favor of the taxpayer during reporting tax period.

At the same time, Sub-paragraph 169.4.1 Paragraph 169.4 Article 169 Section IV of the Code establishes peculiarities of attributing income in the form of wages to relevant tax periods.

If the taxpayer receives income in the form of wages for period of its retention according to legislation, including during the taxpayer’s vacation or sick leave, then for determining the maximum amount of income that gives a right to receive tax social benefit, and in other cases of their taxation, such income (part thereof) is attributed to relevant tax periods of their accrual.

Herewith, it should be noted that the fact that Paragraph 2 Section II “Final and Transitional Provisions” of the Law establishes that income of military levy’s payers – persons defined in Paragraph 162.1 Article 162 of the Code, accrued as a result of tax periods prior to entry into force of the Law, is taxed at the military levy’s rate in effect prior to entry into force of this Law, regardless of the date of their actual payment (grant), except for cases expressly provided for by the Code.

Taking into account above specified, military levy rate of 1.5% is applied to income (part thereof) accrued (paid, provided) by tax agents to taxpayers in the form of wages, including during vacation, in the form of payments related to temporary loss of working ability (during the taxpayer’s sick leave) for tax periods until December 1, 2024, regardless of the date of their actual payment (provision).

Military levy rate of 5 percent is applied to the specified income that will be accrued (paid, provided) for tax periods after December 1, 2024.

It should also be emphasized that according to Sub-paragraph 169.4.3 Paragraph 169.4 Article 164 Section IV of the Code, the employer and/or tax agent has a right to recalculate amounts of accrued income, withheld personal income tax/military levy for any period and in any cases to determine correctness of taxation, regardless of whether the taxpayer is entitled to apply tax social benefit.

Therefore, military levy rate of 1.5% is applied to income in the form of wages accrued for November 2024, regardless of its actual payment in December 2024.

Military levy rate of 1.5% is applied to payments (parts of payments) related to temporary loss of working ability if the taxpayer is on sick leave in a period until December 1, 2024, regardless of whether accruals (payments, provision) will be made in December 2024.

Specified payments (parts of payments) in case that the taxpayer is on sick leave in a period after December 1, 2024 are taxed at military levy rate of 5 percent.

Military levy rate of 1.5% is applied to income (part of income) in the form of wages for a period of the taxpayer’s stay on vacation until December 1, 2024, and military levy rate of 5% is applied for a period of the taxpayer’s stay on vacation after December 1, 2024, regardless of when such income is accrued (paid, provided).

At the same time, if the taxpayer was accrued (paid, provided) with such income in November 2024 for a period of vacation in both November and December, the employer must recalculate withheld (transferred) amounts of military levy according to procedure specified in Paragraph 169.4 Article 164 Section IV of the Code.

All other income included in the total monthly taxable income of the taxpayer, including in the form of payments under civil law contracts, rent, interest on deposits, dividends, etc., accrued (paid, provided) by the tax agents to the taxpayers after December 1, 2024, is subject to military levy rate of 5 percent, regardless of whether such income is accrued for performance of work (services), for use of the taxpayer’s property, etc. in tax periods before December 1, 2024, since, according to the Code, such income is income of the reporting period in which it was directly accrued (provided, paid), and not of the periods for which it was accrued.

Regarding accrual, withholding and payment of military levy to the budget for military personnel

It should be separately emphasized that for military personnel and employees of the Armed Forces of Ukraine, Security Service of Ukraine, Foreign Intelligence Service of Ukraine, Main Intelligence Directorate of the Ministry of Defense of Ukraine, National Guard of Ukraine, State Border Service of Ukraine, State Guard Department of Ukraine, State Service for Special Communications and Information Protection of Ukraine, State Special Transport Service, military levy rate remains of 1.5 percent of the taxable amount, determined by Sub-paragraph 1 of Sub-paragraph 1.2 Paragraph 16¹ Sub-section 10 Section XX of the Code.

In addition, please note that provisions of the Code, according to which, during legal regime of the martial law, income in the form of monetary support for the law enforcement officers, military personnel and employees of the Armed Forces of Ukraine are not subject to military levy have been left unchanged, as well as for National Guard of Ukraine, Security Service of Ukraine, Foreign Intelligence Service of Ukraine, State Border Service of Ukraine, privates, commanding officers, military personnel, employees of the Ministry of Internal Affairs of Ukraine, State Security Department of Ukraine, State Service for Special Communications and Information Protection of Ukraine, other military formations established according to the laws of Ukraine, and other persons for a period of their direct participation in the implementation of measures to ensure national security and defense, repel and deter armed aggression of the russian federation.