Sale of corporate rights – a very time-consuming process and requires maximum attention of all stakeholders. However, the most interesting issue is the peculiarities of taxation of sale of corporate rights.
Investment asset includes corporate rights expressed in other than securities, forms issued by a single issuer (sub-para. “a” of sub-para. 170.2.7 of the Tax Code of Ukraine; hereinafter − TCU).
Special rules for the personal income tax (hereinafter − PIT) and the war tax of the income from the sale of corporate rights are established by para.170.2 of the TCU. Accounting of the financial results of transactions with investment assets should be conducted by the taxpayer independently, separately from other incomes and expenses. In the Book of income and expenses for determining the amount of total annual taxable income, which form approved by the Ministry of Finance of 11.12.2013 No. 794, gr. 3 for was assigned for investment income, and for and for expenses incurred in connection with costs acquisition − gr. 4.
Consequently, individual can receive after the sale both investment income and investment losses.
The composition of the total annual taxable income of an individual includes positive overall financial result of transactions with investment assets based on the results of the reporting (tax) year (sub-para. 170.2.6 of TCU).
That is, in case of sale of an investment asset an individual should file a tax return in the prescribed manner and pay income tax at a rate of 18% and the war tax at a rate of 1.5% in the case of receiving investment income (letter of the State Fiscal Service of Ukraine (hereinafter − SFSU) of 03.08.2016 No. 16830/6/99-99-13-02-03-15). The tax return of property and income should be submitted in a form approved by the Ministry of Finance of Ukraine of 02.10.2015 No.859 (as revised under the order of the Ministry of Finance of Ukraine of 15.09.2016 No.821) by May 1 of the year following the reporting one. But by August 1 of the same year, the taxpayer should pay the PIT and the war tax received from investment income.
Investment income is defined as the positive difference between the incomes received by the taxpayer from the sale of individual investment asset with taking into account of currency difference (if any), and its value determined by the amount of documented expenses for the purchase of the asset.
The SFSU in its letter of 18.01.2017 No.850/K/99-99-13-02-03-14 notes that the documents confirming the actual costs incurred for the acquisition of investment assets (Corporate Rights) by the individual − taxpayers, except for contracts sale, acts of acceptance and transfer, are the payment documents.
If a negative value appears as the result of the calculation of investment income, it is considered to be an investment loss (sub-para. 170.2.3 of TCU). If the overall financial performance is negative according to the results of the year, then it is to be transferred to reducing the overall financial result of transactions with investment assets of next years to its payment in full (para. 3 of sub-para. 170.2.6 of TCU).
In accordance with sub-paragraphs 170.2.2 of TCU the following transactions are considered equivalent to sale of investment asset:
- exchange of one investment asset for another;
- reverse repurchase or repayment of investment asset by its issuer, which belonged to the taxpayer;
- return to the taxpayer of funds or property (property rights) previously made by him/her to the authorized capital of the issuer of corporate rights − in the case of withdrawal of such a taxpayer from the number of the founders (participants) of the issuer or liquidation of the issuer.
The following are not the subject to the taxation and should not be included in the total annual taxable income in accordance with sub-paragraphs 170.2.8 of TCU:
- income from the sale of investment assets, if in 2016 the amount of such income does not exceed UAH 1 930, and in 2017 − UAH 2240;
- income earned by the taxpayer from the sale of investment assets in the case established by sub-paras.165.1.40, 165.1.52 of TCU.
If the seller of corporate rights is an individual non-resident, according to sub-para.170.10.1 of TCU incomes from sources in Ukraine, accrued (paid, provided) in favour of non-residents should be taxed according to the rules and rates as determined for residents. That is, all the requirements mentioned above concerning residents − the sellers of corporate rights also apply to non-residents.
If the company pays the income, then as the tax agent it should indicate such payments in the form No.1DF with sign of income “112”.
