Income tax is a mandatory payment made by legal entities, including farming enterprises, from their net income. In this article, we’ll examine who needs to pay this tax and when, how to calculate it correctly, and what specific aspects apply to the agricultural sector. This information will be valuable for managers and accountants of farming enterprises.
What is Income Tax
Corporate income tax is a direct tax paid by legal entities on profits earned from the sale of products, works, services, and other activities. The amount is calculated from net profit after deducting all expenses and revenues.
This form of taxation is one of the main sources of revenue for Ukraine’s state budget. Its share in revenues has fluctuated between 8-12% in recent years. For businesses, income tax is one of the most significant forms of deductions as it directly affects their financial performance. Therefore, the calculation and payment procedure is important for both the state and business.
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Income Tax Payers
In Ukraine, income tax payers include virtually all legal entities, both residents and non-residents, including:
- business entities – legal entities conducting business activities both within Ukraine and abroad;
- railway administrations receiving profit from main railway transport activities;
- railway transport enterprises and their structural units receiving profit from non-core railway transport activities;
- non-profit institutions and organizations in case of receiving profit from non-core activities and/or taxable income;
- non-residents receiving income from sources originating in Ukraine or having permanent representation in Ukraine.
Farm enterprises registered as legal entities are also income tax payers.
Read also: Farm Enterprise: What It Is, Types, How to Name and Register
How to Calculate Income Tax
The amount of income tax depends on the company’s net profit. To calculate the amount, you need to determine the tax base and apply the appropriate rate. We’ll look at an example for agricultural enterprises below.
Income Tax Formula
The income tax calculation formula is as follows:
Income Tax = Tax Base × Tax Rate.
The tax base is the monetary expression of profit as the object of taxation. It is calculated using the formula:
Tax Base = Income – Cost of Goods Sold – Other Expenses.
Income is the total amount of revenue from all types of activities. Cost of goods sold and other expenses considered when determining the object of taxation are defined according to the Tax Code of Ukraine. Note that certain types of income and expenses have special procedures for determining the tax base.
Corporate Income Tax Rate
The basic corporate income tax rate in Ukraine is 18%. It applies to the tax base determined according to the Tax Code. Besides the basic rate, there are other rates for certain types of activities. For income of non-residents and equivalent persons from sources originating in Ukraine:
- 0% – insurance payments for mandatory types of insurance;
- 4% – insurance payments for insurance contracts of risks outside Ukraine;
- 5% – on income in the form of interest on loans or financial credits;
- 6% – on freight charges;
- 12% – on insurance premiums (if 0% and 4% rates do not apply);
- 15% – on payments in the form of interest, dividends, royalties, income from engineering, rent, etc.
For bookmaking activities and gambling:
- 10% – on income from gambling using slot machines;
- 18% – on income from bookmaking activities and other gambling.
For insurance activities:
- 3% – for insurance contracts;
- 0% – for long-term life insurance contracts, voluntary medical insurance, and insurance within non-state pension provision;
- 30% – for lottery issuance and operation activities.
It’s also worth noting that banks have a basic rate of 25%, and in 2023 there was a temporary rate of 50%.
How to Calculate Income Tax: Example
Let’s look at a hypothetical example for the “Kolos” farming enterprise. For the year 2024, the farm had the following indicators:
- income from crop production – 18,000,000 UAH;
- income from livestock production – 5,000,000 UAH;
- income from services – 800,000 UAH;
- expenses for seeds, fertilizers, crop protection – 6,500,000 UAH;
- expenses for feed and veterinary medicines – 2,000,000 UAH;
- expenses for fuel and electricity – 2,300,000 UAH;
- employee wages and social security contributions – 3,700,000 UAH;
- depreciation of fixed assets – 1,200,000 UAH;
- other expenses – 1,800,000 UAH.
Calculating the financial result before taxation:
- income – 18,000,000 + 5,000,000 + 800,000 = 23,800,000 (UAH);
- expenses – 6,500,000 + 2,000,000 + 2,300,000 + 3,700,000 + 1,200,000 + 1,800,000 = 17,500,000 (UAH);
- financial result – 23,800,000 – 17,500,000 = 6,300,000 (UAH).
Now we determine the tax differences according to the Tax Code (assuming they increase the financial result by 300,000 UAH) and calculate the object of taxation:
- object of taxation: 6,300,000 + 300,000 = 6,600,000 (UAH);
- rate: 18%.
- 6,600,000 × 18% = 1,188,000 (UAH).
Thus, the “Kolos” farming enterprise must pay 1,188,000 UAH for 2024.
Of course, this is a very simplified example of how to calculate income tax. In reality, it will be more complex, taking into account all aspects of business activities and Tax Code requirements. However, it provides a general understanding of the calculation procedure for agribusiness.
The online service WEAGRO significantly simplifies calculations between counterparties and allows farmers to receive payment deferrals for purchasing agricultural inputs without extra documentation and collateral. Consequently, it helps regulate income and expenses for tax optimization.
Income Tax Payment Deadlines
Although the tax period for this levy is the calendar year, income tax payments are made quarterly as advance payments. The deadline is within 10 calendar days after the last day of the quarter.
Based on annual results, taxpayers must submit an annual tax declaration and financial statements by June 1st of the year following the reporting year. If the amount of advance payments made during the year exceeds the annual tax liability, the excess is subject to refund or credit towards future payments.
There are certain categories of taxpayers who can report and pay the tax only once a year:
- enterprises with income less than 20 million UAH;
- non-profit organizations;
- agricultural producers who don’t have quarterly tax obligations;
- newly established enterprises during their first year of operation if their annual income doesn’t exceed 20 million UAH.
From January 1, 2025, changes are being introduced regarding the submission of reports on personal income tax, military levy, and unified social contribution – it becomes monthly for tax agents.
Read also: Environmental Tax in Ukraine: What It Is and Who Must Pay It
Penalty for Late Income Tax Payment
List of penalties depending on the type:
- late payment of income tax – 10% penalty on the unpaid amount for delays up to 30 days, 20% for delays over 30 days, plus interest at 120% of the NBU annual rate for each day of delay;
- understatement of tax liability in the declaration – 25% penalty on the understated amount, repeated violation within 1095 days – 50%;
- failure to submit or late submission of reports – 340 UAH penalty, repeated violation – 1,020 UAH.
As we can see, penalties for late income tax payment are substantial, so it’s not worth neglecting timely payment and reporting, even during temporary financial difficulties.
How Farmers Can Pay Income Tax
In addition to knowing when to pay income tax, it’s also important to know the algorithm of actions. Advance payments and the final amount based on annual results must be paid to the budget at the taxpayer’s registration location. Payment details can be obtained from the local tax office or its website.
To ensure correct payment processing, it’s important to fill out the payment order correctly, indicating:
- account number according to the budget classification code;
- taxpayer’s EDRPOU code;
- reporting period for which the payment is made;
- amount.
Corporate income tax is credited to the general fund of the state budget. It’s recommended to keep the payment receipt with tax reporting documents.
Read also: What Is Installment Payment: Difference Between Credit and Installment
Income Tax for Farmers in Ukraine
In Ukraine, farming enterprises, like other legal entities, are income tax payers. The rate is 18% of the tax base. Tax legislation doesn’t provide special benefits specifically for farmers regarding this rate.
However, agricultural producers have an alternative to the general taxation system. They can choose the simplified system by becoming single tax group 4 payers. This system was created for family-type agricultural producers. To switch, they need to meet certain criteria:
- conduct activities exclusively within a farming enterprise registered according to the Law of Ukraine “On Farming Enterprise”;
- engage exclusively in growing, breeding agricultural products, harvesting, catching, processing such self-grown or bred products and their sale;
- have an agricultural production share of at least 75% for the previous tax (reporting) year;
- not use hired labor;
- farming enterprise members must be family members only.
Single tax group 4 payers are subject to special rates per hectare of agricultural land and/or water fund lands, which depend on the type of land and its location. The rates are set as percentages of the tax base – the normative monetary valuation of 1 hectare of agricultural land, considering the indexation coefficient.
Under the simplified system, a farming enterprise is exempt from paying income tax in Ukraine, property tax for land tax portion, and rent for special water use. This option is convenient if the business is just starting to develop.
Conclusion
Income tax is an important and mandatory payment. However, Ukrainian legislation provides special conditions for agricultural producers – reduced rates and the right to choose the taxation system. This allows for optimization of the tax burden.
At the same time, for effective operation, farmers need reliable partners to secure material and technical resources. The WEAGRO service comes in handy, offering installment payments for purchasing seeds, fertilizers, and crop protection products without extra charges and risks. This allows for rational use of funds to meet tax obligations.
