Clarification on tax payment

The total monthly (annual) taxable income includes income received by the taxpayer as an additional benefit in the form of value in use of housing and other tangible or intangible property owned by the employer, provided to the taxpayer for free use, or compensation for the value of such use, unless such provision is due to taxpayers’ carrying out labor functions under labor agreement (contract) or collective agreement, or in accordance with the law within the set limits (subpara. "a" of para. 164.2.17 Section 164.2 of Art. 164 of the Tax Code of Ukraine of 2 December 2010 № 2755-VI).

Provisions of the Labor Code of Ukraine of 10 December 1971 № 322-VIII as amended (hereinafter - the Labor Code) provide for instances where a legal entity must compensate (indemnify) a hired employee their travel expenses, namely:

- due to the transfer, acceptance or referral to work in another area (Article 5 note 1 of the Labor Code);

- in connection with official business travel (Article 121 of the Labor Code).

Thus, in other cases the fare may be compensated by decision of the company manager and be considered a fringe benefit of an employee.

Taxpayer’s total monthly (annual) taxable income includes the amount of income in the form of fringe benefits (subpara 164.2.17 para 164.2 of Art. 164 of the Tax Code of Ukraine)

Tax agent that accrues (pays, provides) taxable income in favor of the taxpayer is required to withhold the tax on the amount of such income at its expense at 15% or 17% rate.

Given that employee's travel to the workplace and / or from work home is not connected with the performance of labor function and is not covered by the Labour Code, should management decide to compensate an employee the fare, the amount of such compensation will be subject to PIT under subpara 164.2.17 para 164.2 Art.164 of the TCU.