Under the current conditions, treatment is not a cheap “pleasure”. Therefore, conscientious employers, in order to support a sick worker, allocate targeted charity assistance by transferring funds to a health facility. What are the consequences of this generous gesture for the employer?
Conditions of providing
In order to receive charity assistance, an employee should submit an application to the employer asking for targeted assistance for the treatment or purchase of medicines. The documents confirming such need should be added to the application. The employer makes an order (instruction) on the provision of assistance and transfers the required amount of funds to the health care institution.
Targeted charity assistance for treatment is to be provided under certain conditions and directions of its spending.
The employer does not withhold the personal income tax and the war tax from the targeted charity assistance (sub-para. “a” of para. 170.7.4 of the Tax Code of Ukraine, hereinafter − TCU), but if the following conditions to be met:
- the assistance is provided by a resident − individual or legal entity;
- the money is to be paid directly to the healthcare institution regardless of the form of its ownership.
Assistance may be intended to compensate the cost of paid treatment services, in particular for the purchase of medicines (donor components, prosthetic and orthopaedic appliances, medical products for the individual use of the disabled), medical devices and devices included in the National List of Essential Medicines, approved by the decision of the Cabinet of Ministers of Ukraine dated March 25, 2009 No. 333.
The following should not to be paid at the expense of the assistance:
- cosmetic treatment or cosmetic surgery (including cosmetic prosthesis, not related to medical indications);
- hydrotherapy and heliotherapy, not related to chronic diseases;
- treatment and prosthetics of teeth using precious metals, galvanoplasty and porcelain;
- abortions (except for abortions conducted on medical indications, or if pregnancy is the result of rape);
- sex change surgery, venereal disease treatment (except for AIDS and venereal diseases caused by non-sexual infection or rape);
- tobacco or alcohol dependence treatment.
If at least one of these conditions is not met, the amount of assistance becomes a taxable income in the form of an additional benefit. The Unified social contribution to the target amount of assistance for treatment should not be accrued.
Both the taxable and non-taxable amount of targeted assistance for treatment should be reflected in the form No. 1DF. The privileged benefit should be shown with the sign of income “169”, taxable − with the sign “126”.
Targeted charity assistance provided in accordance with sub-para. “a” of para. 170.7.4 of TCU is not limited to a certain size. However, it has a deadline for use. Thus, targeted charity assistance should not be taxed during the period for which it is issued, but not more than 24 calendar months, following the month of receiving such assistance (para. 170.7.5 of TCU).
If the assistance is not used within the time limit, the employee must return the unused amount to the employer. Otherwise, he/she will have to include these funds in the amount of annual taxable income and reflect them in the declaration of property status and income.
The TCU allows extending the use of targeted charity assistance (para. 170.7.6 of TCU). The acquirer should apply the submission to the tax authority for this purpose. The circumstances that prevented the full use of funds within the established time frame should be set out in it.
VAT implications
When purchasing medical services for further non-economic use (treatment of an employee), the company should reflect a tax credit for the value added tax (hereinafter − VAT) (para. 198.1 of TCU). The reason is the tax invoice, which is registered in the Unified Register of Tax Invoices (hereinafter − URTI) (para. 198.3, 198.6 of TCU). Since July 1, 2015, the VAT payer forms a tax credit, regardless of the direction of the use of services − in economic or non-economic transactions.
At the same time, the free provision of treatment services for the purpose of VAT taxation is the supply of services (sub-para. “в” of para.14.1.185 of TCU). The basis of VAT taxation under such transaction is the purchase price of services of a medical institution (para. 188.1 of TCU).
In this case, the company − VAT payer should reflect the VAT obligations, draw up and register the tax invoices in the URTI (para. 15 of the Procedure for filling in the tax invoice approved by the Order of the Ministry of Finance No. 1307 dated December 31, 2015):
- one − for the actual amount of services − zero;
- the second − to the amount exceeding the purchase price over the price of supply, that is, at the price of the purchase of services; or consolidated tax invoice not later than on the last day of the reporting month, in which the services were provided, to the amount exceeding the purchase price over the price of supply, that is, at the price of the purchase of services.
Provision of vouchers for sanatorium and spa treatment, health improvement and recreation in the territory of Ukraine of individuals under the age of 18, invalids and disabled children is exempt from VAT taxation (para. 197.1.6 of TCU).
