Health is the most valuable thing for each person. Therefore, it is not surprisingly that more and more employers include a voluntary health insurance contract in the social package. This is not only the best way to take care of your employees, but also the ability to attract highly skilled personnel. Employers who have thought through all advantages and insured their employees should remember about the possible tax implications.
Types of insurance
Article 5 of the Law of Ukraine “On Insurance” of March 7, 1996, No. 85/96- ВР (with amendments and supplements) provides for that insurance may be voluntary and mandatory.
Medical insurance can be also both mandatory and voluntary.
The Income Tax
According to para.134.1.1 of the Tax Code of Ukraine (hereinafter - TCU), the subject to taxation of the income tax is profit with a source of origin from Ukraine and abroad, which is determined by adjusting (increasing or decreasing) the financial result before tax (profit or loss) determined in the financial statements of the company in accordance with the national accounting provisions (standards) or international financial reporting standards, on the differences that arise in accordance with the provisions of sec. 3 of TCU.
TCU does not provide for adjustment of the financial result before taxation to the amount of expenses related to the payment of insurance premiums under voluntary health insurance contracts. That is, such transactions are reflected in the accounting rules in determining the financial result before taxation.
However, adjustment of the financial result is provided in para.1231 of TCU and applies to contracts of voluntary health insurance in cases where, as a result of termination of labor relations between the policyholder and the insured person, the contract of voluntary medical insurance has ceased to comply with the requirements stipulated in para.14.1.521 of TCU.
According to paras.14.1.521 TCU, voluntary health insurance contract is an insurance contract that provides for an insurance payment to health care institutions in the event of an insured event involving illness of an insured person or accident. Such a contract should also provide for a minimum period of its validity (one year) and the return of insurance payments exclusively to the policyholder in case of early termination of the contract.
In this case, the taxpayer - the policyholder, who has recognized the costs in accounting, is obliged to increase the financial result before taxation of the reporting period by the amount of such prepaid payments, contributions, premiums with a penalty payment of 120% of the discount rate of the National Bank operating at the end the reporting period in which the termination of the contract took place or such agreement ceases to comply with the requirements provided by TCU.
The amount of paid payments under voluntary health insurance contracts should be reflected in line 4.1.5 of Annex РІ to line 03 РІ of the Tax Declaration on Company Income Tax, approved by the order of the Ministry of Finance of Ukraine dated 08.07.2016, No.585.
The State Fiscal Service of Ukraine in its letter of June 10, 2016, No. 12974/6 / 99-99-15-02-02-15 notes that if as a result of termination of labor relations between the policyholder and the insured person, the validity period of the contract of voluntary health insurance does not change, and such a contract is not terminated until the expiration of its minimum period of validity specified in paragraphs 14.1.521 of para. 14.1 of Art. 14 of TCU, then the adjustment provided for in Art.1231 of TCU is not applicable.
VAT
According to para.196.1.3 of TCU, the subject to the taxation of the value added tax (hereinafter – VAT) are not transactions for the provision of insurance, co-insurance or reinsurance services by persons having a license for the conduct of insurance activities in accordance with the legislation and related to such activity services of insurance (reinsurance) brokers and insurance agents.
Consequently, insurance transactions are not the subject to VAT.
Taxation of the insured person
Voluntary insurance
In accordance with para.164.2.16 of the Tax Code, the amount of the monthly (annual) taxable income of the taxpayer should include, in particular, amounts under voluntary health insurance contracts and taxed on personal income tax and are taxed on the personal income tax (hereinafter - PIT) at a rate of 18% with the use of natural coefficient (К = 100 ÷ 100 – 18 = 1.21951) (para. 164.5 of TCU). It should be reflected by the tax agent in the tax calculation f. No. 1DF with a sign of income “126”.
In addition, the indicated amount is taxed by the war tax in the amount of 1.5% in accordance with para.161 of sub-sec.10 of sec. XX of TCU without the use of natural coefficient (letter of the SFSU of 27.11.2015, No.25405/6 / 99-99-17-02-01-15).
Compulsory insurance
The total monthly (annual) taxable income of the taxpayer does not include the amount of contributions to compulsory insurance of the taxpayer in accordance with the law, other than the unified contribution to the mandatory state social insurance in accordance with Art. 165.1.5 of TCU.
Also, according to Art.170.9.1 of TCU, in accordance with the procedure established by law, the amount of travel expenses reimbursed within the limits of actual expenses for the obligatory insurance, other documented expenses related to the rules of entry and residence at the place of business, including any fees and taxes payable in connection with the implementation of such expenses, is not a taxpayer’s income - an individual who is in labor relations with his employer or is a member of the governing bodies of enterprises, institutions, organizations.
The amount of contributions to compulsory insurance of the taxpayer in accordance with the law, other than the unified contribution to the mandatory state social insurance, is reflected by the tax agent in the tax calculation of f. No. 1DF with a sign of income “132”.
USC
The contributions of companies under voluntary health insurance contracts are not the basis for the calculation of the unified social contribution (hereinafter - USC) in accordance with para.2 of sec. II of List of Payments that are not the basis for the calculation of USC, which was approved by the Resolution of the Cabinet of Ministers of Ukraine dated 22.12.2010, No. 1170, and paragraph 3.5 of the Instruction on Statistics of Wages No. 5, approved by the order of the State Statistics Committee of Ukraine of 13.01.2004.
Also, contributions from companies under compulsory insurance contracts also are not the subject to the USC.
