August 12, 2020 · 4 min read
Quite often, enterprises arranging business trips abroad face the issue of obtaining foreign passports for employees and visas for countries where entry requires permits. However, the question of compensating such expenses is not entirely clearly regulated by legislation. Let's consider all aspects in more detail.
Subparagraph "a" of paragraph 170.9.1 of the Tax Code of Ukraine (hereinafter – TCU) stipulates that the amount of actually incurred business trip expenses, including expenses for obtaining a foreign passport and entry permits (visas), is not included in the taxable income of an individual taxpayer who is in an employment relationship with their employer. A mandatory condition for the possibility of compensating such expenses is the availability of original documents confirming such expenses and the connection of these expenses with economic activity.
It would seem that everything is clearly written, but there is one "but".
In the SFS letter dated 12.04.2005 N 3064/6/17-3116, which, despite being dated 2005, is still valid, the tax service expresses its position regarding the inclusion of foreign passport processing expenses in the employee's taxable income, which contradicts the TCU norm. Referring to the Law of Ukraine "On the Procedure for Exit from Ukraine and Entry into Ukraine of Citizens of Ukraine," the main documents for traveling abroad are identified as the passport of a citizen of Ukraine for travel abroad, a diplomatic passport, and a service passport. Since diplomatic and service passports are the property of Ukraine and are issued exclusively for official business trips abroad to persons holding certain positions, the expenses for obtaining such passports are not included in the taxable income of an individual taxpayer. A different opinion is presented in this letter regarding the passport of a citizen of Ukraine for travel abroad. Such a passport identifies the person and allows travel abroad not only for official business trips but also for personal purposes. Therefore, since current legislation does not establish specific conditions regarding the issuance of passports to citizens of Ukraine when they are sent on official business trips by enterprises, institutions, and organizations, the amount of compensation for such expenses is considered part of the employee's taxable income and is subject to personal income tax, as well as military levy.
However, regarding expenses for obtaining an entry permit (visa), the tax service holds an opposing view. Compensation for an employee's visa processing expenses is not considered an additional benefit and is not included in the employee's taxable income because, during business trips to countries where a visa is required for entry, specifically emphasizing a "business visa," such expenses are included in business trip expenses. This is also stated in the individual tax consultation of the SFS dated 16.05.2017 N 204/6/99-99-13-02-03-15/ІПК.
And here contradictions arise: a foreign passport can be used for personal travel, but a visa cannot? If we are referring to an entry permit or visa issued exclusively for the duration of a business trip, then the validity period of such a visa will expire after the trip ends. In such a case, based on the logic of tax officials, these expenses would not be included in taxable income. A different situation arises if an employee obtains, for example, an annual Schengen visa because they frequently travel abroad on business trips; then the employee can also use it for personal purposes. In that case, it is unclear what to do.
Summarizing all of the above, it can be noted that this is not the first, nor will it be the last, unregulated norm in Ukrainian legislation.
In our opinion, one should primarily be guided by the regulatory act with the highest legal force, i.e., the TCU. Neither an individual tax consultation nor an SFS letter has such legal force. These documents are explanatory and advisory in nature. The SFS letter dated 12.04.2005 N 3064/6/17-3116 does not provide sufficiently weighty grounds to consider the amount of compensation for foreign passport processing expenses as an additional benefit for the employee. Therefore, when determining whether certain expenses constitute an additional benefit, one should be guided by the norms of the TCU, official clarifications, and orders approved by the SFS.
However, it is worth knowing that such a position of the tax service exists and being prepared to defend one's own stance.
Accountant
Voznenko Vita
