Tax discount: what should be known

Tax discount is one of the privileges, which is available to any payer of the individual income tax, under specific conditions. So, we suggest learning what tax discount is and how it should be used.

According to the subparas.14.1.170 of the Tax Code of Ukraine (hereinafter - TCU), tax discount for individuals, who are not business entities, is a documented amount (value) of the expenses of the taxpayer-resident in connection with the acquisition of goods (works, services) from the residents-individuals or legal entities during the reporting year, on which it is allowed a reduction of his/her total annual taxable income received by the results of the reporting year in the form of wages, in the cases determined by the TCU.

The basis for the accrual of tax discount with an indication of specific amounts should be reflected in the taxpayer’s annual tax return, which is to be filed to 31 December inclusively following the tax year (subpara.166.1.2 of TCU).

Thus, the right to a tax discount is not postponed for the following tax years after the reporting year. Thus, if the individual before the end of 2016 does not take an advantage of the right to accruing of a tax discount based on the results of 2015, this right is to be lost.

The tax discount includes expenses actual implemented by the taxpayer during the reporting tax year. The expenses should be confirmed by the relevant payment and settlement documents, in particular, receipts, fiscal or trademarks checks, cash receipt, copies of contracts that identify the seller of goods (works, services) and the buyer (recipient).

The value of such goods (works, services) and the term of their sales (performance, delivering) are required to be reflected in the mentioned documents – paras.166.2.1 of TCU. The originals of supporting documents should not be sent to the state tax service, but they should be kept during limitations period (i.e. within 1095 days).

A taxpayer, with the requirements of paragraphs 164.2 and 164.6 of TCU and restrictions that relate to each of the following expenses, is entitled to include in the tax discount the reduction of taxable income of the taxpayer as a result of the tax year the following his/her implemented expenses (paragraph 166.3 of TCU):

• a part of the amount of interests paid by individual for the use of housing mortgage loan;
• the amount of funds (or the value of the property), listed (transferred) in the form of donations or charitable contributions to non-profit organizations (in an amount not exceeding 4% of the total taxable income of such reporting year);
• the amount of funds paid for the acquisition of secondary professional and higher education;
• the amount of funds paid for the treatment (unfortunately by results of 2015 this discount still is not available);
• insurance payments (contributions, premiums) under a long-term life insurance and pension contributions under the nongovernmental pension provision;
• the amount of expenses  for payment of Assisted Reproductive Technologies;
• the amount of expenses  for payment of state services related to the adoption of a child, including the payment of the state fee;
• the amount of funds paid in connection with the reequipment of the vehicle;
• the amount of expenses payment for construction (purchase) of affordable housing, including for repayment of preferential mortgage housing loan provided for such purposes, and interest thereon.

The total amount of tax discount accrued to the taxpayer during the reporting tax year should not exceed the amount of his/her total annual taxable income, accrued as wages, reduced by the amount of the unified contribution for obligatory state social insurance, insurance contributions in the Saving Fund, and in cases provided for by the law, - obligatory insurance contributions to the pension fund, which, in accordance with the law are paid at the expense of salary of the employee, as well as on the amount of tax social benefits (if any exist).

It should be reminded that in 2015 the unified social contribution at the rate of 3.6% was withheld from the amount of accrued wages.

The following documents should be prepared and submitted to the State Tax Inspectorate (hereinafter - STI) for money compensation in the form of tax discount:

1. A passport copy (first, second pages and pages indicating the registration).
2. A certificate copy of the tax identification number (hereinafter - TIN).
3. A copy of the receipts for payment of contributions/payments making (it is required to have originals for a possible confirmation).
4. Original certificates of incomes received in the reporting year, from the place of work (in the prescribed form).
5. Information on the opened current account in the bank (or payment card number).
6. Standard application form on the amounts paid and taxes withheld (it can be obtained in STI).
7. Declaration on the incomes and the annex thereto (forms should be gotten in STI).
8. A copy of the contract with the educational institution/Polis of universal life insurance/mortgage contract and pledge agreement/other contracts for services that relate to the tax discount.

The documents for receiving of tax discount for tuition are required to be provided in addition:

1. A copy of the birth certificate or marriage certificate – in case if the declaration is submitted by the parents or one of the spouses.
2. A certificate issued by educational institution on period of studies of a person in the reporting (calendar) year.