FOP RECEIVED A GRANT FROM A CHARITABLE FOUNDATION: WHAT ABOUT TAXATION?
Taxation of income received by an individual entrepreneur (IE) from business activities, except for persons who have chosen the simplified taxation system, is carried out in accordance with Article 177 of Section IV of the Tax Code of Ukraine (the "Code") or Chapter I of Section XIV of the Code, depending on the chosen taxation system.
Thus, in accordance with clause 177.2 of Article 177 of the Code, the object of taxation is net taxable income, i.e. the difference between total taxable income (revenue in cash and in kind) and documented expenses related to the business activities of such individual entrepreneur.
Pursuant to clause 177.6 of Article 177 of the Code, if an individual entrepreneur receives income other than from conducting business activities within the scope of the types of such activities chosen by him/her, such income is taxed in accordance with the general rules established by the Code for individual taxpayers.
Income for an individual entrepreneur - single tax payer is income received during the tax (reporting) period in monetary form (cash and/or non-cash); tangible or intangible form as defined in clause 292.3 of Article 292 of the Code. At the same time, income does not include passive income received by such an individual in the form of interest, dividends, royalties, insurance payments and reimbursements, income in the form of budget grants, as well as income received from the sale of movable and immovable property owned by an individual and used in his/her business activities (clause 292.1 of Article 292 of the Code).
In addition, the income of an individual entrepreneur - single tax payer also does not include amounts of special-purpose funds received from the Pension Fund and other mandatory state social insurance funds, from budgets or state trust funds, including within the framework of state or local programmes (sub-clause 4 of clause 292.11 of Article 292 of the Code).
We note that the terms of the grant agreement concluded between an individual entrepreneur and a non-profit organisation (charitable foundation or public organisation) do not provide for the production (manufacture) and/or sale of goods, performance of works, provision of services by such entrepreneur in favour of the said organisations, but only for the provision of financial assistance in the implementation of the project.
Thus, since the income in the form of a grant is not related to the result of the individual entrepreneur's business activities, such income, regardless of the taxation system chosen by the individual entrepreneur, is taxed under the general rules established by the Code for individual taxpayers.
The procedure for taxation of personal income is regulated by Section IV of the Code, pursuant to clause 163.1 of Article 163 of which the taxable object of a resident is, in particular, total monthly (annual) taxable income and foreign income, which is income (profit) derived from sources outside Ukraine.
The list of income included in the total monthly (annual) taxable income of a taxpayer is set out in clause 164.2 of Article 164 of the Code.
In accordance with clause 167.1 of Article 167 of the Code, the tax rate is 18 per cent. of the tax base in respect of income accrued (paid, provided) to the taxpayer (except as specified in clauses 167.2 - 167.5 of Article 167 of the Code).
Also, the said income is subject to military duty (sub-clause 1.2 of clause 161 of subsection 10 of section XX "Transitional Provisions" of the Code).
The rate of the military fee is 1.5 per cent. of the taxable object specified in sub-clause 1.2 of clause 161 of subsection 10 of section XX "Transitional Provisions" of the Code (sub-clause 1.3 of clause 161 of subsection 10 of section XX "Transitional Provisions" of the Code).
The accrual, withholding and payment (transfer) of personal income tax and military duty to the budget are carried out in accordance with the procedure established by Article 168 of the Code and sub-clause 1.4 of clause 161 of subsection 10 of section XX "Transitional Provisions" of the Code.
A grant is a one-time non-refundable targeted payment to individuals and legal entities of a sum of money or donation of equipment, premises (usually from their own funds and property) by individuals and legal entities, including foreigners, as well as international organisations, for scientific research, implementation of energy and resource-saving technologies, taking measures for environmental safety and elimination of consequences of environmental disasters, performance of creative works, publication of works of fiction, science, education, fine arts, medical and other literature.
If a grant is provided in favour of individual entrepreneurs by a charitable foundation or a non-governmental organisation, please note the following.
According to subpara. 164.2.20 of para. 164.2 of Art. 164 of the Code, the total monthly (annual) taxable income of a personal income tax payer includes other income, except for the income specified in Art. 165 of the Code.
In accordance with sub-clause 168.1.1 of clause 168.1 of Article 168 of the Code, a tax agent that accrues (pays, provides) taxable income in favour of a taxpayer is obliged to withhold personal income tax and military duty from the amount of such income at the taxpayer's expense using the tax rate of 18 per cent, as defined in Article 167 of the Code, and the military duty rate of 1.5 per cent. as set out in sub-clause 1.3 of clause 161 of subsection 10 of section XX "Transitional Provisions" of the Code.
Taking into account the above, income in the form of a grant paid by a charitable foundation or a non-governmental organisation - residents of Ukraine in favour of individual entrepreneurs is included in their total monthly (annual) taxable income as other income and is subject to personal income tax and military duty by the legal entity as a tax agent on the general terms.
Source: https://dp.tax.gov.ua/media-ark/news-ark/755843.html
