August 12, 2020 · 5 min read
Little time remains until the end of the current year. Therefore, most workforces of enterprises are already planning how and where to celebrate the New Year. A common practice at domestic enterprises is to issue New Year's gifts to employees for the New Year celebration. For employees, receiving a gift is a pleasant surprise, but for an accountant, it's an additional headache related to the correct accounting and taxation of these gifts and their reflection in reports. The issue of taxing New Year's gifts was problematic even for tax authorities themselves, who changed their opinion in individual tax consultations, which certainly did not contribute to an unambiguous reflection of these gifts in the enterprise's accounting.
Subparagraph 165.1.39 of the Tax Code of Ukraine (hereinafter – TCU) in its current version establishes the maximum value of a non-taxable gift, which must not exceed 25% of the minimum monthly wage established as of January 1 of the reporting tax year, excluding monetary payments in any form. For 2018, the minimum wage is set at UAH 3723.00, so a New Year's gift worth up to UAH 930.75 is not taxable.
A logical question arises: why do accountants face difficulties with such, on the one hand, a straightforward issue as the taxation of New Year's gifts? The fact is that during 2015-2017, tax authorities, in their letters, emphasized the necessity of taxing precisely the value by which a New Year's gift exceeded the non-taxable amount. This position of the fiscal authorities was repeatedly stated in letters from the SFS of Ukraine dated 29.12.2015 No. 28032/6/99-99-17-03-03-15, 14.12.2016 No. 21695/5/99-99-13-02-03-16; 25.02.2017 No. 2985/5/99-99-13-02-03-16, and in the notification of the Main Department of the SFS in Zaporizhzhia region in January 2018. Thus, in the current year, the object of personal income tax (PIT) with the natural coefficient and military levy (ML) would be the amount by which the New Year's gift exceeded UAH 930.75.
However, already in Individual Tax Consultation No. 810/6/99-99-13-02-03-15 dated 28.02.2018, tax authorities changed their opinion regarding the taxation of New Year's gifts issued to enterprise employees. Specifically, if the amount of such a gift exceeds the non-taxable amount (for 2018 – UAH 930.75), then the full value of the New Year's gift is subject to personal income tax (PIT) (taking into account the natural coefficient) and military levy (ML). That is, within 1 month, the fiscal authorities' position on the taxation of New Year's gifts changed radically, but it is unknown whether this is their final decision.
According to the latest opinion of the tax authorities, the amount of deductions from a New Year's gift is now determined as follows:
A) if the value of the gift provided to an enterprise employee is less than UAH 930.75 (including VAT). In this case, the taxpayer has no obligations to pay PIT and ML. However, an obligation arises to pay a single social contribution (SSC) on the full value of the New Year's gift without applying the natural coefficient. If the New Year's gift is provided to an employee's child, then SSC is not accrued on its value (according to paragraph 8 of Cabinet of Ministers of Ukraine Resolution No. 1170 dated December 22, 2010);
B) if the value of the New Year's gift, which is personally provided to an employee, exceeds UAH 930.75 (including VAT). In this case, a tax liability arises for the payment of PIT (using the natural coefficient), ML, and SSC on the entire value of the New Year's gift.
Ultimately, our opinion aligns with the statement of the tax authorities presented in the latest individual tax consultation dated 28.02.2018. We believe that New Year's gifts purchased and distributed to employees in 2018 for the New Year 2019 celebration, whose value exceeds the maximum non-taxable amount, are subject to PIT and ML on their full value, and not just on the amount exceeding the non-taxable gift amount. Our position is based on the fact that subparagraph 165.1.39 of the TCU in its current version states that "...the value of gifts, if their value does not exceed 25% of the minimum wage..." is not included in the monthly taxable income. Law of Ukraine No. 2628-VIII dated 23.11.2018 introduced amendments to subparagraph 165.1.39 of the TCU, which provide for the exemption from PIT and ML of the value of gifts "...in the part that does not exceed 25 percent of one minimum wage...". However, these changes will come into force on January 1, 2019.
Until this date, if the gift amount exceeds UAH 930.75, the taxpayer incurs a tax liability for the entire amount of such a gift.
Let's consider a practical example:
The value of a New Year's gift for an individual employee of the company in 2018 is UAH 1200. It is necessary to determine the amount of obligations for the payment of PIT, ML, and SSC and reflect them in reports No. 1DF and No. D4.
- Calculate the amount of PIT obligation:
- Calculate the amount of ML:
- Calculate the amount of SSC:
In reporting form No. 1DF, we indicate the income amount of UAH 1200 under income sign "126" and the tax liability amount of UAH 263.41.
In form No. D4, table 6, which contains information on personalized income, the value of the gift is indicated as wages with income sign 01.
Auditor Assistant
Buslenko Viktor
