The company provided reimbursable financial assistance to the employee −individual. What are the consequences of the transaction for the company?
In such a situation, the company that provided reimbursable financial assistance should pay attention to “payroll” taxes and fees − personal income tax (hereinafter − PIT), the war tax (hereinafter − WT) and the unified social contribution (hereinafter − USC).
PIT and WT
The total monthly (annual) taxable income of the taxpayer does not include the principal amount of reimbursable financial assistance received by the taxpayer (paragraphs 165.1.31 of the Tax Code of Ukraine, hereinafter − TCU). This means that the PIT and the WT are not accrued for the amount of financial assistance provided to individuals.
At the same time, the amount of such assistance should be reflected in the form No. 1DF with the sign of income “153” (sub-category 103.25 “ZIR”) in the following way:
- the amount of accrued income should be fixed in column 3a “Amount of accrued income” regardless of whether such income is paid or not;
- the amount of actually paid income to the taxpayer by the tax agent should be in column 3 “Amount of paid income”;
- “0” (zero) should be indicated in column 4a “The amount of accrued tax”
- “0” (zero) should also be indicated in column 4 “The amount of transferred tax”.
In the total monthly (annual) taxable income of the taxpayer, PIT is included and is taxed at the rate of 18% and the WT at a rate of 1.5%:
- the amount of the taxpayer’s debt under a civil law contract concluded by him/her, which limitation period has expired, exceeding the amount that is 50% of the monthly subsistence minimum applicable to the able-bodied person as of January 1 of the reporting year (in 2017 − UAH 800), except the amount of tax debt for which the limitation period has expired in accordance with sec. II of TCU, which establishes the procedure for collecting debts on taxes, fees and repayment of tax debt (paragraphs 164.2.7 of TCU);
- the principal amount of the debt (credit) of the taxpayer, forgiven (cancelled) by the creditor on its own decision, not related to the bankruptcy procedure, before the expiration of the limitation period, if its amount exceeds 25% of one minimum wage (per year), established on January 1 of the reporting tax year (in 2017 – UAH 1 600) (sub-para. “д” of sub-para.164.2.17 of TCU).
The individual independently pays the PIT from such incomes and indicates them in the annual tax return. At the same time, the creditor company is obliged to notify the taxpayer − the debtor − to send a registered letter with the delivery notification or to conclude an appropriate contract, or to provide the debtor with a personal signature on the forgiveness (cancellation) of the debt and include the amount of the forgiven (annulled) debt in the tax calculation of the amount of income, accrued (paid) in favour of the taxpayer, following the results of the reporting period in which such debt was forgiven. In the event that the creditor fails to notify the debtor about the forgiveness (cancellation) of the debt in accordance with the procedure specified in para.164.2 of the TCU, the creditor is obliged to perform all the duties of a tax agent in respect of incomes specified in certain sub-para.164.2.17 of TCU.
In the sub-category 103.02 “ZIR” tax specialists also note that if the debtor does not fulfil the obligations within the time limit specified in the contract, that is, does not return reimbursable financial assistance, the amount of debt should be included in the taxable income of the taxpayer in the event of its cancellation (forgiveness) by the creditor before the expiry of the period of limitation on the basis of sub-para. “д” of sub-para.164.2.17 or sub-para.164.2.7 of TCU at the expiry of the limitation period.
That is, the amount of unreimbursable financial assistance is to be taxed in the following cases:
- when the limitation period for the provided financial assistance has expired;
- if the creditor has made a decision to forgive the debt to an individual.
If the company-provider made a decision to forgive the debt and notified the debtor-individual about the forgiveness of the debt, then it must reflect the amount of financial assistance in the form No. 1DF with the income sign “126”. And with the sign of income “107” at the expiration of the limitation period.
USC
According to paragraph 1 of Art.7 of the Law of Ukraine “On collection and accounting of a single contribution to compulsory state social insurance” of 08.07.2010 No. 2464-VI, the USC is to be accrued for the amount of wages by types of payments that include basic and additional salaries, other incentive and compensation payments, including in kind, determined in accordance with the Law of Ukraine “On Labour Remuneration” of 24.03.1995 No. 108/95-ВР, and the amount of remuneration to individuals for performance of work (provision of services) under civil law contracts.
Since the amount of the reimbursable financial assistance is not included in the wage fund according to the Guidelines on Wage Statistics approved by the order of the State Statistics Committee of Ukraine dated 13.01.2004 No. 5, when a debt is forgiven to an individual, it is also not the subject to the USC (sub-para. 3.31 of the Guidelines).
