Under the Ukrainian law "On Personal Income Tax," a taxpayer is entitled to reduce its total annual taxable income by way of a tax credit, which, in particular, includes interest (or a part of the interest) paid by the taxpayer under a residential mortgage loan during a reporting year.
Example:
In 2008 an individual received a salary of UAH100,000, of which UAH15,000 was withheld as personal income tax by the individual's employer. In 2008 the individual paid UAH20,000 as interest under a residential mortgage loan.
Total annual taxable income is UAH100,000.
Tax credit is UAH20,000.
Consequently, the total annual taxable income when reduced by the tax credit is UAH80,000 (UAH100,000 - UAH20,000). The tax to be paid from UAH80,000 is UAH12,000. However, UAH15,000 was paid to the State Budget by the individual, so the UAH3,000 difference (UAH15,000 - UAH12,000) must be reimbursed by the State Budget to the individual.
Criteria for Including the Interest in a Tax Credit
A taxpayer is entitled to include the interest in the tax credit for the reporting year, provided that the following requirements are met:
- The taxpayer must be a Ukrainian resident, who has received a Ukrainian tax identification number.
- The mortgage loan period must exceed 5 years.
- The property to which the mortgage relates must serve as a permanent place of residence for the taxpayer (confirmation of this is provided by national passport with appropriate registration).
- The loan currency must be UAH or foreign currency.
- The tax credit is available in respect of interest payable regarding a residential area not exceeding 100 square meters.
List of Documents
In order to obtain a refund of the overpaid tax from the State Budget by claiming a tax credit, the taxpayer will need to provide the local tax authorities with the following documents:
- Tax return (to be filed by 1 April 2009);
- List of expenses to be included in the tax credit (in the approved form);
- Calculation of the overpaid personal income tax that should be returned to the taxpayer (in the approved form);
- Copy of Ukrainian tax identification number;
- Copy of national passport, including the page confirming registered place of residence;
- Certificate from the taxpayer's employer indicating the salary income received by the taxpayer and the tax withheld from such income in 2008;
- Copies of the relevant loan agreement and mortgage agreement;
- Copies of payment documents confirming the payment of interest under the mortgage loan during the reporting year (for example, a receipt with a cash stamp evidencing transfer of funds or a bank payment order indicating a funds transfer);
- Taxpayer's application indicating his/her bank account, to which the overpaid personal income tax should be credited.
Overpaid personal income tax must be credited to a taxpayer's bank account at a commercial bank or transferred by postal order within 60 days of the tax return being filed.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.