Tax Amnesty in 2021: Who is subject to tax amnesty in Ukraine in 2021?

Tax law allows to control the relationship between the state and taxpayers. Due to the fact that Ukraine treasury needs funds, on June 15, 2021 the President of Ukraine Vladimir Zelensky and the Verkhovna Rada passed a law on capital amnesty. Thus, the country wants to repeat the successful bill, which was signed in Italy and Indonesia. At that time, 80 billion euros and 366 billion dollars were declared.

In other words, the capital amnesty in 2021 implies that many Ukrainians will be able to open their assets for just 5%, which were previously acquired without paying taxes. The essence of the bill is also about how much you trust the Ukrainian government.

If your level of trust is high enough, you can buy government bonds and reduce the income tax rate to 2.5%. If you don’t trust the government, you can keep your assets in other countries and pay 9%. This law has its opponents and supporters. But to draw your own conclusions, you have to understand everything.

Law on tax amnesty in Ukraine: to whom will debts be written off?

The law about tax amnesty offers certain residents of Ukraine to declare their assets, which were acquired in the period before January 1, 2021. Moreover, this can be done voluntarily to avoid a lot of problems in the future. In other words, it gives everyone who has evaded taxes the opportunity to disclose their assets without being punished for the shadow revenue.

If you get a “white” salary all the time and are not paid extra “in an envelope,” you have nothing to declare. Another thing is when you get a salary “in an envelope,” or you buy a car, real estate, or some equipment for untaxed taxes, then you should study this bill, as it is created just for you.

Who is covered by the tax amnesty? The law will go into effect September 1, 2021, and will be in effect for one year. If an individual does not file a declaration, then he or she will automatically be considered as someone who has no assets or property. If there are still funds received “in an envelope”, in the future there may be problems with the fact that you will not be able to buy not only real estate or a car, but even a vacation trip.

There is a specific list of assets that need to be declared:

• securities; real estate;
• automobile;
• valuable elements of art, and many other things.

In this case, the tax amnesty 2021 in Ukraine does not provide for the declaration of cash. You need to open an account in any bank of the country and only there to put them. At the same time you will not need to specify the sources of income.

What is the purpose of this bill?

The main goal is to replenish the country’s budget. Thus, It is believed that the residents of Ukraine have about 50 billion dollars of undeclared assets. Of course we should not expect that all citizens of the country will disclose their income, but the state expects to receive about 1 billion dollars, and this is 2,5% of the 2021 budget.

The second goal is to bring Ukraine’s economy out of the shadows. It is believed that 40% of the economy is in the shadows. The country suffers from it, because it receives less money to the treasury. And also an honest business suffers, which can not create a good competition to those who hide their income.

Will the tax amnesty apply to all citizens of Ukraine?

There is a certain list of assets that do not need to be declared and you do not even have to worry about the fact that you may have problems in the future. If you do not disclose your income and possessions, you should have:

• A parcel of land up to the free privatization limits of a certain area that is not taxable (according to the Land Code);
• apartment – up to 120 sq.m;
• non-residential premises – up to 60 square meters;
• house – up to 240 square meters.
• car with engine capacity up to 3000 cubic centimeters;

Those who are government officials and their relatives cannot be declarants.

Tax amnesty in Ukraine: more details about how much to pay

Today Ukrainians have to pay 18% and 1.5% of the military fee from each of their income. This applies to those who worked officially and did not hide their assets. The tax amnesty in 2021 provides for these rates:

• 5% if the assets are in banks in Ukraine;
• 9% if the assets are in banks in other countries.

The rate can be reduced by half to 2.5%, if you invest your money in domestic government bonds. The income from these funds will not be taxed.

The tax fee can be paid immediately if it is broken down into three payments and paid over three years. But it is worth remembering that in this case, the rate will increase.

What does the experience of other countries show?

Consider the example of Indonesia, a tax amnesty was adopted to fill up the treasury.

This law was passed in July 2016. There were special benefits, as well as protection from lawsuits for citizens hiding their income and not paying taxes. Indeed, during the period when the tax amnesty was in effect, more money began to flow into Indonesian treasury.

The gap between rich and poor people is very wide in this country. And although the rich people are not more than 1%, they own half of the country’s society. Thus, according to calculations, it was found that about 303 billion dollars are offshore. At that point the budget of Indonesia regularly suffered from lack of funds.

The law was in force for 9 months, but the interest was slightly different. Thus, an Indonesian citizen had to pay 2% for domestic assets and 4% – for offshore assets for the first three months. Then 3% and 6% respectively for the next three months, and 5% and 10% for the last three months of the bill.

This law was criticized by many people for being too loyal to citizens who avoided taxation. This especially affected those who regularly and faithfully declared their assets and paid taxes.

It is interesting that in countries where tax amnesty was carried out, it was repeated. Thus, people who did not pay taxes simply waited for the next time and pay as little tax as possible.

What about the CFC law?

On May 21, 2020, a similar bill was already passed – the law on CFCs in Ukraine. A CFC is a controlled foreign company. This is any legal entity that is registered in any country and it has a controller. It does not matter what the legal entity does and in which country business is located.

Soon controllers will have to pay taxes on profits and submit reports to the tax authorities that they have a CFC. It is worth noting that if the profitability of all CFCs of the controller does not exceed 2 million euros, taxes will not have to be paid; also, there are other conditions under which it is possible to avoid paying tax on CFCs. You can read more about this law in our article at the link.

And this law has both supporters and opponents. After all, it is income for the state, but it can also be a reason for many people to move to another country permanently.