What Tax Rules Apply When Receiving a Grant
Budget grants, provided they are used for their intended purpose, are not taxable, whereas other grants are usually subject to taxation as personal income (18% PIT + 5% military tax) or according to accounting rules for companies. This was reminded by the Main Department of the State Tax Service in Kyiv region.
- Definition of the grant type
The key point is the distinction between a "budget grant" and other financial assistance.
- A budget grant is assistance from the budget or within the framework of international technical assistance (ITA) for projects in the fields of culture, sports, tourism, creative industries, etc. The main condition: the provider must be on the list approved by the Cabinet of Ministers (item 14.1.277-1 of paragraph 14.1 of article 14 of the Tax Code of Ukraine).
- Other grants (from international funds or organizations not included in the Cabinet of Ministers list) are considered non-repayable financial assistance or foreign income.
- Rules for individuals and sole proprietors
- Budget grants: Are not included in taxable income and are not subject to PIT and military tax if used for the intended purpose according to subparagraph 170.7-1.1 of paragraph 170.7-1 of article 170 of the Tax Code of Ukraine. In case of misuse, the individual must file a declaration and pay 18% PIT and 5% military tax.
- "eRobota" grants: Microgrants for business development are not subject to either the single tax or PIT/military tax based on subparagraph 165.1.1 of paragraph 165.1 of article 165 of the Tax Code (as state aid) and subparagraph 4 of paragraph 292.11 of article 292 of the Tax Code.
- International grants (non-budget): Are not considered entrepreneurial income for sole proprietors. They are taxed as personal income at a rate of 18% PIT and 5% military tax. The recipient is obliged to declare these funds independently.
- Rules for legal entities
- Single tax payers (group 3): Amounts of budget grants are not included in income if used for the intended purpose according to subparagraph 12 of paragraph 292.11 of article 292 of the Tax Code. In case of violation of conditions, the grant amount is taxed at a double rate of the single tax (10% or 6%).
Profit tax payers:
- For budget grants, tax differences are provided: the financial result is reduced by the amount of income from the grant and increased by the amount of related expenses according to subparagraph 140.4.8 of paragraph 140.4 and subparagraph 140.5.16 of paragraph 140.5 of article 140 of the Tax Code;
- For other grants, no adjustments are made. Income is recognized according to accounting rules (proportionally to incurred expenses or asset depreciation).
- Important: If the grant is returned in the same year, taxes are not charged. If returned in the following year, the taxpayer has the right to file an amended declaration to recover overpaid taxes.
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