Personal income tax on foreign dividends

Declaration 2024: On what date (accrual or receipt) and at what exchange rate is the base for calculating personal income tax on foreign dividends determined?

The base for calculating personal income tax on foreign dividend income, by which the amount of annual tax liability is reduced, is determined

► subject to documentary evidence of the date of receipt of foreign income in the form of dividends, personal income tax is calculated on the amounts of such dividends received during the reporting year and translated into hryvnias at the NBU exchange rate effective on the date of receipt;

► if the date of receipt of foreign income in the form of dividends is not documented, personal income tax is calculated on the total amount of income from foreign sources received during the reporting year, and such income is considered to be received in the last calendar month of the reporting year and translated into hryvnias at the NBU exchange rate effective as of December 31 of the reporting year.

Pursuant to subparagraph 164.2.8 and subparagraph 14.1.268 of the Tax Code, the total monthly (annual) taxable income of a taxpayer includes passive income, in particular, income received in the form of dividends (except as specified in subparagraphs 165.1.2 and 165.1.41 of the Tax Code).

Subpara. 162.1.1 of the TCU stipulates that taxpayers are, in particular, resident individuals who receive foreign income.

The procedure for taxation of personal income is set forth in Section IV of the TCU, which provides that subparagraph 163.1.3 of the TCU states that the object of taxation of personal income tax is foreign income, i.e. income (profit) received from sources outside Ukraine.

The procedure for taxation of foreign income is regulated by clause 170.11 of the TCU, sub-clause 170.11.1 of which stipulates (subject to the requirements of sub-clause 49.18.4 of the TCU), that if the source of payment of any taxable income is foreign, the amount of such income is included in the total annual taxable income of the taxpayer-recipient who is obliged to file an annual tax return on property and income by May 1 of the year following the reporting year, and is taxed at the rate specified in paragraph 167.1 of Article 167 of the TCU, except for

a) income specified in sub-clause 167.5.4 of the TCU, which is taxed at the rate specified in sub-clause 167.5.4 of the TCU;

b) profit from transactions with investment assets, which is taxed in accordance with the procedure set forth in paragraph 170.2 of the TCU;

c) profits of controlled foreign companies, which are taxed in accordance with the procedure set forth in paragraph 170.13 of the TCU;

d) payments in cash or in kind in connection with the distribution of profits or a part thereof, the source of which is an entity without the status of a legal entity, created on the basis of a transaction or registered in accordance with the legislation of a foreign state (territory) without the creation of a legal entity, which are taxed in accordance with paragraph 170.¹¹¹ of the TCU.

In order to eliminate double taxation, the amounts of taxes and fees paid outside Ukraine are credited when calculating taxes and fees in Ukraine in accordance with the rules established by the TCU (clause 13.4 of the TCU).

Pursuant to clause 13.5 of the TCU, in order to obtain the right to offset taxes and duties paid outside Ukraine, the taxpayer must obtain a certificate from the state authority of the country where such income (profit) is received, authorized to collect such tax, on the amount of tax and duty paid, as well as on the tax base and/or object of taxation. The said certificate is subject to legalization in the relevant country, the relevant foreign diplomatic mission of Ukraine, unless otherwise provided by applicable international treaties of Ukraine.

Pursuant to the first paragraph of subparagraph 170.11.2 of the TCU, if, in accordance with the provisions of international treaties ratified by the Verkhovna Rada of Ukraine, a taxpayer may reduce the amount of annual tax liability by the amount of taxes paid abroad, the taxpayer shall determine the amount of such reduction on the specified grounds in the annual declaration.

At the same time, the amount of tax on foreign income of a resident taxpayer paid outside Ukraine may not exceed the amount of tax calculated on the basis of the total annual taxable income of such taxpayer in accordance with the laws of Ukraine (subpara. 170.11.4 of the TCU).

In addition, pursuant to paragraph 164.4 of the Tax Code, when accruing (receiving) income received in the form of currency values or other assets (the value of which is expressed in foreign currency or international settlement units), such income is converted into hryvnias at the exchange rate of the National Bank of Ukraine effective at the time of accrual (receipt) of such income.

If a taxpayer does not have supporting documents regarding the amount of income received from foreign sources and the amount of tax paid in a foreign jurisdiction, executed in accordance with Article 13 of the TCU, such a taxpayer must submit to the supervisory authority at its tax address an application for extension of the deadline for filing the Declaration until December 31 of the year following the reporting year. If a taxpayer fails to file a tax return within the prescribed period, it shall be liable under the Tax Code and other laws (second paragraph of subparagraph 170.11.2 of the Tax Code).