Innovations of the Law of Ukraine № 4113-IХ as of 04.12.2024 “On amendments to the Tax Code of Ukraine and other laws of Ukraine on stimulating development of digital economy in Ukraine”
Law of Ukraine № 4113-IХ as of 04.12.2024 “On amendments to the Tax Code of Ukraine and other laws of Ukraine on stimulating development of digital economy in Ukraine” (hereinafter – Law № 4113) will enter into force on 01.01.2025, except for certain provisions relating to clarification of procedure for paying military levy, which enter into force on the day following the publication date of the Law № 4113 and apply to periods from the date of entry into force of the Law of Ukraine № 4015-IX as of 10.10.2024 “On amendments to the Tax Code of Ukraine and other laws of Ukraine on ensuring balanced budget revenues during the martial law” (hereinafter – Law № 4015), i.e. from 01.12.2024.
Innovations of the Law № 4113 are the following:
provisions of the Tax Code of Ukraine (hereinafter – Code) regarding application by the Diia City residents of appropriate personal income tax rate and single contribution to obligatory state social insurance (hereinafter – single contribution) regarding payment of income to taxpayers – specialists of the Diia City resident have been clarified.
provisions of the Code regarding procedure for paying personal income tax on income of taxpayers – specialists the Diia City resident for relevant calendar months in which the Diia City resident did not meet relevant requirements of relevant legislation have been clarified;
procedure for paying personal income tax and single contribution from income of taxpayers –specialists of the Diia City resident, which was registered as a startup, has been determined;
procedure for paying military levy by individual tax payers has been clarified;
self-employed persons (individuals-entrepreneurs, persons involved in independent professional activities) who are called up for military service during mobilization or involved in performance of mobilization duties are exempted from accrual, payment and submission of military service reporting for the entire period of their military service.
Changes in payment of the personal income tax and single contribution by the Diia City residents
Sub-paragraph170.141.2 Paragraph 170.141 Article 170 of the Code stipulates that income of taxpayer – resident specialist of the Diia City is taxed at the personal income tax rate determined by Paragraph 167.2 Article 167 of the Code (5%), paid in his/her favor by the Diia City resident in the form of:
a) salary;
b) remuneration under a gig contract concluded according to procedure provided for by the Law of Ukraine "On stimulating development of digital economy in Ukraine", including remuneration for creation and transfer of rights to works created on order;
c) royalties for creation of a service work and transfer of rights to service works.
Changes, introduced by the Law № 4113, clarified provisions of the Code and clearly defined that the personal income tax rate of 5% is applied to the specified income starting from calendar month following the calendar month in which status of the Diia City resident was acquired.
Income of specialists of the Diia City resident, accrued (paid) in the calendar month in which status of the Diia City resident was acquired, is taxed at the18 percent rate.
2. Changes to Sub-paragraph 170.141.5 Paragraphs 170.141 Article 170 of the Code clarify procedure for paying personal income tax on income of taxpayers – specialists of the Diia City resident for relevant calendar months in which the Diia City resident did not meet relevant requirements of relevant legislation.
In order for the Diia City resident to apply the personal income tax rate of 5% to income of taxpayers – specialists of the Diia City resident, he/she must meet in relevant month requirements specified in Paragraphs 2 and 3 of Part 1 Article 5 of the Law of Ukraine “On stimulating development of digital economy in Ukraine”, namely: average monthly remuneration of employees and involved gig specialists must be not less than equivalent of 1200 euros, and average number of employees and gig specialists must be not less than 9 people.
Taking into account changes made by the Law № 4113, it is established that if tax agent – resident of Diia City in relevant calendar month did not meet the specified requirements, such tax agent is obliged, within the framework of tax calculation of amounts of income accrued (paid) in favor of taxpayers – individuals, and amounts of tax withheld from them, as well as amounts of accrued single contribution, to independently calculate the personal income tax at the 18% rate in relation to income of specialists – Diia City resident that was accrued (paid) during such calendar month, and at its own expense to pay (transfer) personal income tax to the budget, minus the tax that was paid (transferred) to the budget from such income.
3. Part 3 Article 5 of the Law of Ukraine "On stimulating development of digital economy in Ukraine" stipulates that legal entity that does not meet all requirements for the Diia City resident is granted a right to remain in the specified status, but not longer than until December 31 of calendar year following the calendar year in which it acquired status of the Diia City resident, provided that requirements established by Part 3 Article 5 of the Law of Ukraine “On stimulating development of digital economy in Ukraine” are met.
Law № 4113 added new Sub-paragraph to Paragraph 170.141 Article 170 of the Code, which determines procedure for applying relevant personal income tax rate by such legal entities.
It is established that until December 31 of calendar year following the calendar year in which tax agent acquires status of the Diia City resident, income paid to specialists of the Diia City resident shall be subject to the personal income tax rate of 5% in calendar month in which they did not meet requirement specified in Paragraph 3 Part 1 Article 5 of the Law of Ukraine “On stimulating development of digital economy in Ukraine” (average number of employees and gig specialists may be less than 9 people).
If, after December 31 of calendar year following the calendar year in which they acquired status the Diia City resident, such tax agent – resident of Diia City continues to fail to meet requirement specified in Paragraph 3 Part 1 Article 5 of the Law of Ukraine “On stimulating development of digital economy in Ukraine”, such tax agent – resident of Diia City is obliged, within period specified for monthly tax (reporting) period, to independently calculate and pay (transfer) to the budget at own expense the personal income tax at 18% rate on income of specialists the Diia City resident paid during the last three months of calendar year following the calendar year in which tax agent acquired status of the Diia City resident, less the tax that was paid (transferred) to the budget from such income.
At the same time, amount of such tax paid (transferred) by tax agent is not included in the total monthly (annual) taxable income of specialists the Diia City resident.
Paragraph 2 Section II "Final and Transitional Provisions" of the Law № 4113 stipulates that provisions of the new clause of Sub-paragraph 170.141.6 Paragraph 170.141 Article 170 of the Code regarding the need to pay additional personal income tax by tax agent – Diia City resident, who continues to fail to meet requirement specified in Paragraph 3 Part 1 Article 5 of the Law of Ukraine "On stimulating development of digital economy in Ukraine", after December 31 of relevant calendar year, apply to Diia City residents who acquire status of the Diia City resident according to Part 3 Article 5 of the Law of Ukraine "On stimulating development of digital economy in Ukraine", starting from the first day of month following the month of entry into force of the Law № 4113, i.e. from February 1, 2025.
4. Changes to Part 141 Article 8 of the Law of Ukraine "On collection and accounting of single contribution for obligatory state social insurance" (hereinafter – Law № 2464) clarify procedure for applying relevant single contribution rate by new Diia City residents.
As of today, single contribution for a payer – Diia City resident, who in a calendar month met requirements specified in Paragraphs 2, 3 of Part 1 Paragraph 10 of Part 2 Article 5 of the Law of Ukraine "On stimulating development of digital economy in Ukraine" (average monthly remuneration of employees and gig specialists involved must be not less than equivalent of 1200 euros, average number of employees and gig specialists must be not less than 9 people, total amount of tax debt within 30 days does not exceed 10 minimum wages (based on amount of the minimum wage established on January 1 of a current calendar year), is established:
1) for amount of wages accrued to each insured person by types of payments, which include basic and additional wages, other incentive and compensation payments, including in kind, determined according to the Law of Ukraine "On remuneration" – in amount of the minimum insurance premium;
2) for remuneration amount to individuals for performance of work (provision of services) under gig contracts concluded according to procedure provided for by the Law of Ukraine "On stimulating development of digital economy in Ukraine" – in amount of the minimum insurance premium contribution.
Changes introduced by the Law № 4113 clarified provisions of the Law № 2464 and clearly defined that single contribution in amount of the minimum insurance contribution from the specified income is paid by the Diia City resident starting from a calendar month following the calendar month in which payer acquired status of the Diia City resident.
5. Part 3 Article 5 of the Law of Ukraine “On stimulating development of digital economy in Ukraine” grants right to a legal entity that does not meet all requirements for the Diia City resident to remain in the specified status, but not longer than until December 31 of a calendar year following the calendar year in which it acquired status of the Diia City resident, provided that requirements established by Part 3 Article 5 of the Law of Ukraine “On stimulating development of digital economy in Ukraine” are met.
Law № 4113 added Part 141 Article 8 of the Law № 2464 with new provisions that determine procedure for applying relevant single contribution rate by such legal entities.
It is established that such legal entities, until December 31 of a calendar year following the calendar year in which they acquired status of the Diia City resident, pay single contribution in amount of the minimum insurance contribution and in such calendar month in which they did not meet requirement specified in Paragraph 3 Part 1 Article 5 of the Law of Ukraine “On stimulating development of digital economy in Ukraine” (average number of employees and gig specialists may be less than 9 people).
If, after the specified period, such payer – Diia City resident continues to fail to meet requirement specified in Paragraph 3 Part 1 Article 5 of the Law of Ukraine "On stimulating development of digital economy in Ukraine", is obliged, within a month, to independently calculate and pay single contribution at the 22% rate (8.41% for employee with a disability) in relation to income paid during each reporting period when the payer did not meet the specified requirement, within the last three months of a calendar year following the calendar year in which payer acquired status of the Diia City resident, minus single contribution that was paid in amount of the minimum insurance contribution for such reporting periods.
Such additional amounts are not subject to a penalty of 10% of the additional amount established by Paragraph 3 Part 11 Article 25 of the Law № 2464.
In accordance with Paragraph 2 Section II “Final and Transitional Provisions” of the Law № 4113, provisions of Part 141 Article 8 of the Law № 2464 regarding the need to pay single contribution shall apply to the Diia City residents who acquire status of the Diia City resident according to Part 3 Article 5 of the Law of Ukraine “On stimulating development of digital economy in Ukraine”, starting from the first day of month following the month of entry into force of the Law № 4113, i.e. from February 1, 2025.
Regarding legislative changes in collection of military levy
Regarding payment of military levy from income received by individuals-entrepreneurs from conducting economic activities (except for single tax payers)
Law № 4015 came into force on December 1, 2024, which, in particular, increased military levy rate from 1.5% to 5%, including for individuals-entrepreneurs (hereinafter – individuals-entrepreneurs) who are not the single tax payers.
Herewith, the Law №4113 establishes that annual tax liability from military levy on income of payers defined in Paragraph 162.1 Article 162 of the Code, which is included in the total annual taxable income for the reporting (tax) year2024 and final calculation of tax liabilities in the submitted annual property status and income tax declaration, including from foreign income, is determined at the military levy rate of 1.5% (except for income from property operations, income in the form of value of inherited or gifted property).
Military levy rate of 5% is applied to income included in the total annual taxable income and final calculation of tax liabilities in the submitted annual property status and income tax declaration accrued (paid) to the taxpayers starting from January 1, 2025.
Taxation of income received by individual-entrepreneur from conducting economic activities, except for persons who chose simplified taxation system, is regulated by Article 177 Section IV of the Code.
Income of individuals-entrepreneurs received during a calendar year from conducting economic activities is taxed at rate determined by Paragraph 167.1 Article 167 Section IV of the Code (Paragraph 177.1 Article 177 Section IV of the Code).
Taxation object is net taxable income, i.e. difference between the total taxable income (income in monetary and non-monetary form) and documented expenses related to economic activities of such individual-entrepreneur (Paragraph 177.2 Article 177 Section IV of the Code)
In addition, Paragraph 164.1 Article 164 Section IV of the Code, particularly determines that taxation basis of the personal income tax for income received from conducting economic activities or independent professional activities is net annual taxable income, which is determined according to Paragraph 177.2 Article 177 and Paragraph 178.3 Article 178 Section IV of the Code.
Final calculation of the personal income tax for the reporting tax year is carried out by the payer independently according to data specified in the annual property status and income tax declaration, taking into account the personal income tax paid by payer during a year on the basis of documentary confirmation of its payment (Sub-paragraph 177.5.3 Paragraph 177.5 Article 177 Section IV of the Code).
Individuals-entrepreneurs submit annual tax declaration within period specified in Sub-paragraph 49.18.4 Paragraph 49.18 Article 49 Section I "General Provisions" of the Code, which, along with income from entrepreneurial activity, must indicate other income from sources originating in Ukraine and foreign income, as well as information on the amounts of single contribution charged on income from entrepreneurial activity in amounts determined according to the law (Paragraph 177.11 Article 177 Section IV of the Code).
Accrual, withholding and payment (transfer) of levy from income of levy payers specified in Sub-paragraph 1 of Sub-paragraph 1.1 Paragraph 161 Sub-section 10 Section XX of the Code shall be carried out according to procedure established by Section IV of the Code, taking into account peculiarities determined by Sub-section 1 of this Section, at rate determined by Sub-paragraph 1 of Sub-paragraph 1.3 of this Paragraph (Sub-paragraph 1.4 Paragraph 161 Sub-section 10 Section XX of the Code).
Therefore, calculation of the military levy tax liability for income received by individuals-entrepreneurs from conducting economic activities, except for persons who chose simplified taxation system, is carried out for the reporting (tax) year based on the tax base.
Taking into account above specified, the military levy rate of 1.5% is applied to the net taxable income for 2024 received by individual-entrepreneur who is not the single tax payer from conducting economic activities.
Herewith, such income received by such taxpayer starting from January 1, 2025, is taxed at the military levy rate of 5%.
Regarding payment of the military levy by individuals-entrepreneurs who are the single tax payers
Law № 4015 came into force on December 1, 2024, which amended the Code and designated individuals-entrepreneurs who pay single tax as payers of military levy.
Law № 4113 clarifies procedure for paying military levy by individual tax payers.
Military levy for individual-entrepreneurs – single tax payers (except for electronic residents (e-residents)) is established from January 1, 2025 to December 31 of year in which martial law, introduced by Decree of the President of Ukraine “On introduction of the martial law in Ukraine” № 64/2022 as of 24.02.2022, approved by the Law of Ukraine “On approval of Decree of the President of Ukraine “On introduction of the martial law in Ukraine” № 2102-IX as of 24.02.2022, will be terminated or canceled.
Military levy rate for individuals-entrepreneurs – single tax payers:
first, second and fourth groups – 10% of the minimum wage established by the law as of January 1 of tax (reporting) year, calculated per calendar month (in 2025 – 800.0 UAH);
third group – 1% of income determined according to Article 292 of the Code.
Individuals-entrepreneurs – single tax payers of the first, second and fourth groups pay military levy by making advance payment not later than the 20th (inclusively) of the current month. Such payers may pay military levy by making advance payment for the entire tax (reporting) period (quarter, year), but not later than until the end of current reporting year. Accrual of advance payments for such military levy’s payers is carried out by the controlling authorities.
Individuals-entrepreneurs – single tax payers of the third group pay military levy within 10 calendar days after the deadline for submitting the single tax payer’s declaration for the tax (reporting) quarter.
Individuals-entrepreneurs – single tax payers reflect amounts of military levy (including its monthly advance payments) as a part of the single tax payer’s declaration.
Regarding liability
Failure to pay (fail to transfer) or payment (transfer) not in full by individuals-entrepreneurs – single tax payers of the first, second and fourth groups of advance payments from military levy in manner and within terms specified by the Code shall entail imposition of a fine in the amount of 50% of the military levy rate specified by the Code.
Individuals-entrepreneurs – single tax payers of the third group for violating rules for payment (transfer) of military levy amounts are held liable in the form of a fine in amounts specified in Article 124 of the Code.
Regarding the right not to pay and exemption from paying military levy
1. Payers of military levy – individuals-entrepreneurs – single tax payers of the first and second groups, whose tax address is located in territories of hostilities or in territories of Ukraine temporarily occupied by the russian federation as of the date of beginning of hostilities or temporary occupation, have the right not to pay military levy for a period from the first day of month in which hostilities began in relevant territory, possibility of hostilities arose or temporary occupation of such territory began, until the last day of month in which such active hostilities were completed, possibility of hostilities ceased or temporary occupation was completed.
At the same time, if levy payers – individuals-entrepreneurs – single tax payers of the first and second groups do not pay single tax and military levy, such persons do not fill out the single tax payer – individual-entrepreneur’s declaration for a period in which the single tax and military levy were not paid.
2. Payers of military levy – individuals-entrepreneurs – single tax payers of the first and second groups who do not use labor of hired persons are exempted from paying military levy for one calendar month per year during vacation, as well as for a period of illness lasting 30 or more calendar days, which is confirmed by extract from the Electronic register of disability certificates.
Regarding the inclusion of amounts of paid military levy calculating the minimum tax liability
Law № 4113 establishes that from January 1, 2025 to December 31 of year in which martial law, introduced by Decree of the President of Ukraine “On introduction of the martial law in Ukraine” № 64/2022 as of 24.02.2022, approved by the Law of Ukraine “On approval of Decree of the President of Ukraine “On introduction of the martial law in Ukraine” № 2102-IX as of 24.02.2022”, in the process of calculating difference between amount of the total minimum tax liability and the total amount of taxes, levies, payments and expenses paid for lease of land plots by the single tax payers of the second and third groups and individuals-entrepreneurs – single tax payers of the fourth group to the total amount of taxes, levies, payments and expenses paid for lease of land plots, determined by Paragraphs 2971.2 - 2971.5 Article 2971 of the Code, includes amounts of paid military levy.
Regarding payment of military levy from income received by individuals involved in independent professional activities
Law № 4113 clarifies procedure for paying military levy by individual tax payers.
Law № 4113 establishes that annual military levy liability on income of payers defined in Paragraph 162.1 Article 162 of the Code, which is included in the total annual taxable income for the reporting (tax) year 2024 and final calculation of tax liabilities for which is carried out in submitted annual property status and income tax declaration, including foreign income, is determined at the military levy rate of 1.5% (except for income from property operations, income in the form of value of inherited or gifted property).
Military levy rate of 5% is applied to income included in the total annual taxable income and final calculation of tax liabilities for which is carried out in submitted annual property status and income tax declaration accrued (paid) to the taxpayers starting from January 1, 2025.
Personal income taxation procedure of income received by individuals involved in independent professional activities is established by Article 178 of Section IV of the Code.
Income of citizens received during a calendar year from independent professional activities is subject to the personal income tax at rate determined by Paragraph 167.1 Article 167 Section IV of the Code (Paragraph 178.2 Article 178 Section IV of the Code).
Taxable income is considered to be the total net income, i.e. difference between income and documented expenses necessary to carry out a certain type of independent professional activity (Paragraph 178.3 Article 178 Section IV of the Code).
In addition, Paragraph 164.1 Article 164 Section IV of the Code particularly determines that the personal income taxation base for income received from independent professional activities is the net annual taxable income, which is determined according to with Paragraph 178.3 Article 178 Section IV of the Code.
Final calculation of the personal income tax for the reporting tax year is carried out by the payer independently according to data specified in property status and income tax declaration, which, along with income from independent professional activities, must indicate other income from sources originating in Ukraine and foreign income, as well as information on the amounts of single contribution accrued on income from independent professional activities in amounts determined according to the law (Paragraph 178.7 Article 178 of the Code).
Calculation, withholding and payment (transfer) of levy from income of the levy payers specified in Sub-paragraph 1 of Sub-paragraph 1.1 Paragraph 161 Sub-section 10 Section XX of the Code shall be carried out according to procedure established by Section IV of the Code, taking into account peculiarities determined by Sub-section 1 of this Section, at rate determined by Sub-paragraph 1 of Sub-paragraph 1.3 this Paragraph (Sub-paragraph 1.4 Paragraph 161 Sub-section 10 Section XX of the Code)
Calculation of the military levy liabilities for income received by individuals involved in independent professional activities is carried out for the reporting (tax) year based on the tax base.
Therefore, military levy liability for income received by individuals involved in independent professional activities, which is included in the total annual taxable income for the reporting (tax) year2024, is determined at the military levy rate of 1.5%.
Military levy rate of 5% will be applied to income of individuals involved in independent professional activities, which is included in the total annual taxable income starting from January 1, 2025..
Regarding calculation, withholding and payment of military levy to the budget for military personnel
Law № 4113 clarifies list of incomes of military personnel to which the military tax rate of 1.5% is applied.
1. specified military tax rate applies to income received in the form of cash benefits, monetary rewards and other payments made according to legislation of Ukraine (except for income exempted from military levy according to with Sub-paragraph 1.7 Paragraph 161 Sub-section 10 Section XX "Transitional provisions" of the Code) by servicemen 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 of Ukraine, and other military formations established according to the laws of Ukraine
Paragraph 1 Section II “Final and Transitional Provisions” of the Law № 4113 stipulates that the aforementioned changes will apply from the date of entry into force of the Law № 4015, i.e. to periods from December 1, 2024.
In addition, we additionally note that provisions of the Code have been left unchanged, according to which, during legal regime of the martial law, income in the form of monetary support for law enforcement officers, military personnel and employees of the Armed Forces of Ukraine, 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 Guard 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 russian federation are not subject to military levy taxation.
2. Law № 4113 amended Paragraph 25 of Sub-section 10 Section XX "Transitional provisions" of the Code, according to which self-employed persons (individuals-entrepreneurs, persons involved in independent professional activities) who are called up for military service during mobilization or involved in performance of mobilization duties are exempted from calculation, payment and submission of military service reports for the entire period of their military service.
Basis for such exemption is application by a self-employed person and copy of the military ID card or copy of another document issued by relevant state body, indicating data on the call-up of such person to military service by conscription during mobilization, for a special period, which are submitted to the revenue and duties authority at the place of tax registration of self-employed person within 10 days after demobilization. If a demobilized self-employed person is undergoing treatment (rehabilitation) in connection with performance of duties during mobilization, for a special period, application and copy of the military ID card or copy of another document issued by relevant state body are submitted within 10 days after the end of treatment (rehabilitation).
Regarding payment of military levy by individuals from income subject to annual declaration
1. Law № 4113 added Paragraph 161 of Sub-section 10 Section XX "Transitional provisions" of the Code with a new Sub-paragraph 1.16, which determines procedure for payment of military levy by individuals from income subject to annual declaration.
Annual tax liability from military levy on the taxpayer’s taxable income included in the total annual taxable income for the reporting (tax) year 2024 and final calculation of tax liabilities for which is made in the submitted annual property status and income tax declaration, including foreign income, is determined at the military levy rate of 1.5% (except for income from property operations, income in the form of value of inherited or gifted property).
Military levy rate of 5% is applied to income included in the total annual taxable income and final calculation of tax liabilities in the submitted annual property status and income tax declaration accrued (paid) to the taxpayers starting from January 1, 2025..
Such income of individuals specifically includes:
certain types of income that are not subject to taxation upon payment, but are not exempted from taxation (forgiven (cancelled) principal amount of the taxpayer’s debt (loan), amount exceeding annual non-taxable amount of non-targeted charitable assistance, taxable part of income from the sale of one’s own agricultural products, etc.);
income received from a person who is not tax agent (from other individuals (residents or non-residents)) (income from renting property to another individual, etc.);
foreign income;
income from sale of investment asset;
income from engaging in entrepreneurial activity and/or from conducting independent professional activities.
2. Separately, the Law № 4113 establishes peculiarities of paying military levy on income from property operations, income in the form of value of inherited or gifted property.
Amount of income from property operations, income in the form of value of inherited or gifted property, subject to taxation according to provisions of Section IV of the Code, received by the taxpayer after entry into force of the Law № 4015, i.e. after December 1, 2024, is taxed by military levy at 5% rate, regardless of the indication of such income in the annual property status and income tax declaration for 2024.
