Further Updates on Tax Policy
As Ukraine faces unprecedented challenges due to the ongoing war, the government continues implementing significant tax reforms to support the economy and address critical fiscal needs. These changes, aimed at increasing state revenues and aligning with international standards, reflect the situation’s urgency and the complexities of balancing economic stability with social responsibility.
On November 28, 2024, the President of Ukraine signed the tax bill N°11416-d (now Law No. 4015-IX), introducing significant changes aimed at bolstering state revenues during wartime. Effective December 1, 2024, these reforms focus on adjusting military levy, corporate taxation, and compliance measures to address economic challenges and align with international standards.
The military levy for individuals increases from 15% to 5%. However, the military levy remains at 1.5% for active-duty personnel and equivalent positions. Self-employed individuals on the general tax system will also transition to the 5% rate starting in 2025. Additionally, rates for self-employed individuals on simplified tax systems will vary depending on their group: groups 1, 2, and 4 will pay 10% of the minimum statutory salary, while group 3 will pay 1% of their turnover based on first-quarter results for 2025.
Corporate taxation has also been revised significantly. Banking sector profits will now be taxed at 50%, and other financial institutions at 25%. These changes have faced criticism from experts, who argue that such sharp increases could destabilise the financial sector during a period of already heightened economic strain. However, the government maintains that these measures are necessary to generate sufficient revenues amidst the ongoing war. Meanwhile, IT companies under the Diia City framework enjoy targeted relief measures. If they meet compliance criteria, startups with fewer than nine employees will continue benefiting from the 5% PIT rate. However, startups that fail to submit annual compliance reports by the second year will face retroactive payments on PIT and social contributions. Additionally, gig specialists working under Diia City will no longer need service act confirmations, simplifying their reporting requirements.
New anti-corruption measures have also been introduced. Starting March 25, 2025, companies will no longer be able to deduct expenses linked to bribery or corruption. This includes any payments flagged by tax authorities, cases leading to court convictions, or transactions that suggest improper benefits were granted. These changes align with OECD recommendations to curb corruption in international business practices.
Ukraine has also made strides in integrating into the global financial system through its first international automatic exchange of financial account information under CRS standards. As of September 2024, Ukraine’s State Tax Service successfully received information from over 50 foreign jurisdictions and shared data with more than 30. marking a significant step toward transparency and global compliance.
The reforms coincide with ongoing support from the International Monetary Fund (IMF). The IMF recently approved USD 1,1 billion under the Extended Fund Facility. bringing total disbursements to USD 9.8 billion. The 2025 budget deficit, projected at 19% of GDP, incorporates the new tax measures, expected to yield 1.6% of GDP. Despite IMF pressure to increase the VAT rate. Ukrainian authorities successfully negotiated to keep it unchanged. However, the government remains prepared to adopt further revenue measures if fiscal shocks arise.
These reforms represent a crucial step in Ukraine’s efforts to stabilise its economy amidst the ongoing war. balancing the need for increased revenues with the broader challenges of maintaining financial stability.
