Taxes and Pensions in Ukraine

Ukraine has one of the most complex stifling tax systems in the world.  In a blog post last January, Alexander J. Motyl discusses Paying Taxes 2012, the annual study from PricewaterhouseCoopers, the World Bank, and the International Finance Corporation, which “measures the ease of paying taxes across 183 economies worldwide, covering both the cost of taxes and the administrative burden of tax compliance.”


"The study ranks countries along four measures: ease of paying taxes, the number of tax payments, the time to comply, and the total tax rate (which measures the “amount of taxes and mandatory contributions borne by the business in the second year of operation, expressed as a share of commercial profit”). According to the 2012 study, “In high income economies the case study company makes 15.2 payments, takes 168.7 hours to comply with its main taxes and has an average Total Tax Rate of 37.4%. This compares to 38.3 payments, 271 hours and 67.8% for low income economies. Keep those figures in mind, and take a deep breath, as we look at Ukraine’s numbers".

Pension Tax is one of the separate taxes.  Pensions are paid by the state beginning at age of  60 (was 55 for women). Pensioners do not need to retire to draw pension. Lowest pension is $125 per month.  There is some relationship between type of job, salary and pension levels but Tanya says it is very complex. A friend of hers with 20 years in Administration gets about $300 per month.


Pension tax on salaries is 35%.  Companies pay employees minimum wage officially, which is entered in the employees record of employment book and pay Pension Tax on that amount.  The remainder of the salary is paid in cash in a plain envelope.  As near as I can figure this means that salaries and employment taxes are not deductible from income for tax purposes.  A lawyer a few years ago told me that office rent was not deductible from income for tax purposes.


There is something they call a flat tax where businesses grossing between certain amounts pay a monthly tax regardless of net income.  Obviously businesses at the high end of the range like this arrangement.  


Then there is a 20% VAT which is included in the price one pays but identified separately on the till slip (where there is one).  Farmers pay VAT on purchases.  Processors pay VAT on the livestock and milk purchased from farmers which means they simply deduct it from the price the farmer receives, so he pays twice.  I am still waiting for someone to explain to me in detail how VAT works at the farm level.


There is a move afoot to bring in a long overdue property tax. I am waiting for details on that.