Tax treatment of charitable assistance
Charitable assistance is not just an act of kindness and generosity, it is often the basis for taxation. In early August, the Government extended the list of areas of charitable assistance that are exempted from the individual income tax and the war levy. So, this matter should be clarified in general.
Thus, the amendments extended the list of the purposes making the charitable assistance amount eligible for exemption from individual income tax. Such amounts are most often transferred to the benefit of:
· Internally displaced persons;
· Persons affected by the armed aggression of Russia in the period of the martial law;
· Other categories of persons, as stipulated in subclause 165.1.54, article 165 of the Tax Code of Ukraine.
Other categories may be the benefactors entered in the Register of Volunteers, receiving funds and/or materials, equipment, etc. needed for the transfer to the staff of the Armed Forces of Ukraine, military servicemen (reservists) or their family members, the employees of the enterprises that are engaged in ensuring the national security, etc.
Let’s look into various types of financial assistance. We will not dwell upon repayable financial assistance, as it is not in focus today. The charitable assistance granted by businesses to employees, third parties, the army or the charity foundations is generally provided as non-repayable financial assistance.
The letter of request must be provided as the basis for granting assistance, which must indicate the type of charitable assistance and its purpose. Individual entrepreneurs and/or limited liability companies may file a letter of proposal, expressing their wish to grant assistance voluntarily, indicating the type and the purposes for which such assistance will be used. Then a reply confirming consent to the charitable assistance should be received.
If a letter of request or a consent is received, an individual entrepreneur (or a company’s chief executive) signs off on the order of approval on the granting of charitable assistance, where they indicate: the intended purpose of the charitable assistance; its type and amount; the beneficiary’s details; the persons responsible for the granting of the assistance, the handover of the charitable assistance to the ultimate beneficiary.
If charitable assistance is granted in the form of funds transfer, a payment instruction serves as confirmation; if goods or services are transferred, the certificate of acceptance of charitable assistance is executed, specifying the following details on a mandatory basis: the document’s name; the parties’ bank details; the purpose, the transaction’s content and volume; the document’s date, the parties’ signatures.
Targeted and non-targeted assistance
The employers often grant various assistance to their employees as well. Such assistance may be targeted and provided, for example, for the following purposes:
· for household needs (e.g., replacement of windows or repair of housing damaged by an attack, housing lease, etc.);
· due to family reasons;
· for medical treatment and children’s recreation;
· for the purchase of military equipment, ammunition, etc;
· for burial.
Such costs are not included in the payroll fund.
Non-targeted assistance, including financial (under subclause 170.7.3 of article 170 of the Tax Code of Ukraine) may also be provided, both to employees and to third-party individuals (as we mentioned in the previous section).
Important note. Non-targeted assistance belongs to the category “other payments” and is not related to the payroll fund. Therefore, it is not the basis for the calculation of its beneficiaries’ single social contribution.
The amounts of assistance and taxation
Enterprises grant charitable assistance from their own funds, which are treated as operating expenses in the accounting. Such expenses may include funds granted as charitable contributions, donations, or humanitarian aid, which are aimed at unpaid transfer of property or funds to achieve the charity goals, such as the support of certain population groups, etc.
If charity assistance is granted to a specific individual and its aggregate amount in the reporting tax year does not exceed the income limit as of January 1 of the same year (UAH 4240 in 2025), such amount is not included in the beneficiary’s taxable income. If the amount of assistance from a specific company or an individual entrepreneur exceeds UAH 4240, then the payor of the assistance, as a tax agent, shall withhold and pay the individual income tax at the rate of 18% and the war levy at the rate of 5% on the amount of the excess. Regardless of the amount of the assistance paid out, the payer of such assistance must indicate such payment in the Consolidated Reporting, in 4DF annex. If the amount of the assistance received for the year exceeds the limit, the beneficiary shall calculate and pay the individual income tax on the amount of the excess independently, according to the annual tax return filed.
If the financial assistance is paid out systematically and such assistance is granted to all or the majority of the employees, then the payment of such assistance is provided for in the regulations on the remuneration of the employees (such as the collective agreement, sectoral agreement, etc.), and such financial assistance is treated similarly to salary for taxation purposes, and the entire amount of the assistance is included in the monthly taxable income and subject to Individual Income Tax at the rate of 18% and the war levy at the rate of 5%.
Are businesses that received assistance liable for taxes?
Businesses of all sizes are often affected by hostile fire. It often happens that the general public and businesses put together their efforts to help the affected company keep afloat, launch fundraisers or provide assistance in person.
For a company affected by hostile fire, non-repayable financial assistance for the recovery of a destroyed object is income recognized as part of other operating income and taxable according to the Tax Code of Ukraine. Such assistance corresponds to the definition of income, because it increases a company’s assets and must be part of the taxable income. The receipt and the granting of non-repayable financial assistance does not have implications in terms of VAT, as such assistance is not the item of taxation and does not fall under the definition of the goods or services supply operations. In accounting, the amount of non-repayable financial assistance is recognized as part of other operating income of the reporting period, under the credit of subaccount 718 “Income from current assets received free of charge”.
If an entrepreneur receives non-repayable assistance, regardless of the chosen taxation system, the amount of such assistance is not included in his/her income. However, it is treated as an individual’s fringe benefit subject to the individual income tax and the war levy. A tax agent granting such assistance must withhold and pay the individual income tax at the rate of 18% and the war levy at the rate of 5% on the amount of such assistance and show it in the Consolidated Reporting in attachment 4ДФ with the code of income type “126”.
Reporting aspect
A benefactor, which is a business entity, defines in the tax reporting the information on the amounts of non-targeted charitable assistance granted to individuals, including individual entrepreneurs. The amount of non-targeted charitable assistance, in particular, the amount exceeding the set limit is shown in the consolidated reporting, in annex 4DF, with the code of income type “169”.
It should be also noted that targeted or non-targeted charitable assistance is not included in taxable income if granted to a taxpayer affected by the armed aggression of Russia in the period of the martial law or the state of emergency.
Charitable assistance granted for the said purposes must be distributed via:
- national budget or local budget;
- bank accounts of charitable organizations, the Red Cross Society, included in the Register of Non-Profit Organizations and Institutions.
The Cabinet of Ministers of Ukraine defines the procedure for confirming the status of the persons affected by the armed aggression of Russia against Ukraine in the period of the martial law, the state of emergency, for the exclusion of income received as targeted or non-targeted charitable assistance from taxation base.
Tax exemption – innovations
It should be also noted that from March 16, 2025, after the Law of Ukraine No. 4254-ІХ of 25.02.2025 came into effect, not only charitable assistance in monetary form, but also non-monetary charitable assistance, is exempted from tax. The purposes of such assistance are defined in the List of needs (hereinafter the List). The limit not included in the taxation base of the individual income tax payers is approved by the resolution of the Cabinet of Ministers of Ukraine No. 653 of 26.11.2014.
According to the updated provision of the Tax Code of Ukraine, the charitable assistance is not part of the taxable income if it meets the following criteria: this should be the charitable assistance in the aggregate amount (value) not exceeding 500 minimum salaries set by the law as of January 1 of the reporting (tax) year, intended to restore the lost property, for residential, social and household needs and other needs according to the List.
In 2025, this amount is UAH 4 000 000. If the total amount (value) of the charity assistance received during the reporting (tax) year exceeds the mentioned limit, the amount of the excess over such limit is subject to income tax at the rate of 18% and the war levy at the rate of 5%, and the beneficiary must file the annual tax return specifying the amounts of charitable assistance.
Another category of the persons or companies exempted from taxation are those that raise charity donations from the public on behalf of a charitable organization or to the benefit of a charity organization on their own behalf, on behalf or to the benefit of other beneficiaries, according to the procedure defined by the Law of Ukraine On Charitable Assistance and Charitable Organizations. The amount of tax benefit equals the amount of the raised funds actually credited (transferred) to such charitable organization or beneficiary (clause 165.1.68, article 165 of the Tax Code of Ukraine).
Nataliia Shcherbak, an accounting and tax consultant