Law 466-IX: Large-scale Tax Code Reform and New Rules for Business

 

The adopted changes to the Tax Code, known as Law 466-IX (formerly Bill 1210), introduced a major reform of Ukraine’s tax system. The main goal of the changes is to adapt the legislation to the international standards of the BEPS plan.

These innovations significantly change the rules for business, affecting corporate income tax, Controlled Foreign Companies (CFC), and taxpayer liability. In this article, experts from Law Business Association (LBA) provide a detailed analysis of the law’s key provisions.

Law No. 466-XI “On Amendments to the Tax Code of Ukraine Regarding Improvement of Tax Administration” entered into force on May 23, 2020. It became the foundation for a new ethics of relations between the state and taxpayers.

Changes in PIT Taxation and Exemptions

According to the amendments to Art. 164 – Art. 165 of the TCU, the list of payments not subject to PIT (Personal Income Tax) was clarified and expanded. This allows taxpayers to legally reduce their tax burden in specific cases.

In particular, such payments include:

• Moral damage compensation: in the amount determined by a court decision, but not exceeding four times the minimum wage as of January 1 of the reporting year.
• Pension payments: amounts of pensions exceeding 10 times the subsistence minimum.
• Insurance payments from MTIBU: amounts of regulated payments or compensations that do not exceed the actual damage caused at market prices.

Installment of Tax Liability for Mortgages

Law 466-IX provided an important preference for borrowers. Now, a taxpayer has the right to pay in installments over 3 years the tax liability calculated on the principal amount of the mortgage loan debt.

This applies to cases where the loan was forgiven by the lender at its own discretion. It is important to note that previously this norm applied to both the principal and interest, but now it only applies to the principal amount of the debt.

Transactions with Investment Assets and Non-residents

The reform significantly detailed the rules for working with investment assets. From now on, operations involving the return of funds or property upon the withdrawal of a participant from the issuer’s share capital or upon company liquidation are equated to the sale of an investment asset.

Special attention should be paid to transactions with related non-resident persons or companies from “low-tax” jurisdictions:

1. Income is determined at a price not lower than the market price (when selling an asset).
2. Expenses are determined at a price not higher than the market price (when purchasing an asset).

This rule does not apply if the buyer is a controlled foreign company where the seller is the controlling person, provided that ownership is maintained at the end of the period.

Controlled Foreign Companies (CFC): What You Need to Know

The implementation of CFC rules is one of the most complex stages of the reform. A resident taxpayer recognized as a controlling person is obliged to:

• Determine the share of profit of the controlled foreign company.
• Include it in the total annual taxable income.
• Pay tax at the rate of 18% (according to clause 167.1 of the TCU).

Real Estate Sales Taxation: New Rates

Law 466 significantly changed the approach to taxing transactions with real estate and vehicles within one reporting year.

The current tax scale is as follows:

• First object per year: zero rate is maintained.
• Second object per year: a 5% rate applies.
• Third and subsequent objects: taxed at the basic rate of 18%.

At the same time, an exemption was introduced: the sale of an unfinished construction object is exempt from 5% PIT if it has been owned by the taxpayer for more than three years.

Increased Liability and Penalties (Form No. 1DF)

Tax administration has become stricter. The law provides for a twofold increase in penalties for violating the procedure for submitting reports on individual income.

For non-submission, errors, or unreliable data in calculation No. 1DF, the following is provided:

• A fine of UAH 1,020 (previously UAH 510).
• For a repeated violation within a year — UAH 2,040 (previously UAH 1,020).

---