Under the Ukrainian law "On Personal Income Tax," a taxpayer is entitled to reduce its total annual taxable income by way of a tax credit, which, in particular, includes interest (or a part of the interest) paid by the taxpayer under a residential mortgage loan during a reporting year.

Example:

In 2008 an individual received a salary of UAH100,000, of which UAH15,000 was withheld as personal income tax by the individual's employer. In 2008 the individual paid UAH20,000 as interest under a residential mortgage loan.

Total annual taxable income is UAH100,000.

Tax credit is UAH20,000.

Consequently, the total annual taxable income when reduced by the tax credit is UAH80,000 (UAH100,000 - UAH20,000). The tax to be paid from UAH80,000 is UAH12,000. However, UAH15,000 was paid to the State Budget by the individual, so the UAH3,000 difference (UAH15,000 - UAH12,000) must be reimbursed by the State Budget to the individual.

Criteria for Including the Interest in a Tax Credit

A taxpayer is entitled to include the interest in the tax credit for the reporting year, provided that the following requirements are met:

  1. The taxpayer must be a Ukrainian resident, who has received a Ukrainian tax identification number.
  2. The mortgage loan period must exceed 5 years.
  3. The property to which the mortgage relates must serve as a permanent place of residence for the taxpayer (confirmation of this is provided by national passport with appropriate registration).
  4. The loan currency must be UAH or foreign currency.
  5. The tax credit is available in respect of interest payable regarding a residential area not exceeding 100 square meters.

List of Documents

In order to obtain a refund of the overpaid tax from the State Budget by claiming a tax credit, the taxpayer will need to provide the local tax authorities with the following documents:

  1. Tax return (to be filed by 1 April 2009);
  2. List of expenses to be included in the tax credit (in the approved form);
  3. Calculation of the overpaid personal income tax that should be returned to the taxpayer (in the approved form);
  4. Copy of Ukrainian tax identification number;
  5. Copy of national passport, including the page confirming registered place of residence;
  6. Certificate from the taxpayer's employer indicating the salary income received by the taxpayer and the tax withheld from such income in 2008;
  7. Copies of the relevant loan agreement and mortgage agreement;
  8. Copies of payment documents confirming the payment of interest under the mortgage loan during the reporting year (for example, a receipt with a cash stamp evidencing transfer of funds or a bank payment order indicating a funds transfer);
  9. Taxpayer's application indicating his/her bank account, to which the overpaid personal income tax should be credited.

Overpaid personal income tax must be credited to a taxpayer's bank account at a commercial bank or transferred by postal order within 60 days of the tax return being filed.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.