Workers in frontline territories may be exempted from personal income tax: new tax guarantee proposed in the Parliament

As previously reported by the "Judicial and Legal Newspaper", a draft law No. 15340 was registered in the Verkhovna Rada, proposing to establish a separate status for participants ensuring vital activity in active combat zones for workers who actually perform socially important functions under dangerous conditions.

Draft law No. 15340 provides for granting such persons social, labor, insurance, medical, and security guarantees, a special wage payment regime with bonuses, the possibility of providing official housing, as well as social protection mechanisms in case of injury, death, or disappearance.

In connection with this, another draft law No. 15342 was registered in Parliament, proposing amendments to the Tax Code of Ukraine. It concerns the introduction of tax support for workers ensuring vital activity in active combat zones. The draft law envisages targeted exemption from income taxation provided there is confirmed actual work performed under dangerous conditions.

The essence of the initiative

The draft law provides tax guarantees for persons granted the status of participant ensuring vital activity in active combat zones.

The key idea is the introduction of a tax guarantee that will allow excluding certain payments to workers from taxable income if they:

• actually and personally work in active combat zones;
• perform socially necessary functions (medicine, energy, transport, public administration, utilities, and other services);
• have confirmed periods of such work.

The draft law proposes to introduce a tax guarantee for persons with the status of participant ensuring vital activity in active combat zones. It is proposed to exempt from personal income tax salaries, official salaries, monetary allowances, bonuses, additional payments, premiums, rewards, incentive, compensation, and other payments accrued for confirmed periods of actual and personal performance of functions in the respective territories.

The tax guarantee will apply upon documentary confirmation of the person's status and relevant periods of work. If such confirmation is not available at the time of income accrual, taxation will be carried out according to general rules with the right to subsequent recalculation after obtaining the necessary documents.

At the same time, the application of the tax guarantee cannot be a reason for reducing salaries, official salaries, bonuses, additional payments, premiums, or other payments. Moreover, the tax benefit will not apply to remote work or cases where the person did not actually perform functions in the respective territories.

However, the implementation of the draft law may affect the revenue part of the state and local budgets due to possible non-receipt of personal income tax from the incomes of persons granted the relevant status for confirmed periods of performing functions in active combat zones. At the same time, such an impact is not automatic and applies only to incomes accrued for confirmed periods of actual and personal performance of functions.

The final budget impact will depend on the number of persons with the status, confirmed periods of work, and the amount of accrued income, and the necessary financial calculations must be provided by the Government.

In the future, it is expected that the adoption of the act will have a positive socio-economic effect, as it will ensure the tax implementation of the special status of workers performing socially necessary functions in difficult security conditions and will contribute to increasing their material motivation and personnel stability in the respective sectors.

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