Declaring investment income

What is investment income?

According to the Tax Code of Ukraine, investment profit is the positive difference between the income from the sale of an investment asset and the costs of its acquisition.

In other words:

1. bought shares for $10,000;
2. sold for $15,000.

Your income for tax purposes is not the entire sale amount, but only the profit of $5,000 (after conversion into hryvnia in accordance with the requirements of the law).

It is this difference that is the tax base.

What transactions are considered investment?

Investment assets include, in particular, shares of Ukrainian and foreign companies, corporate rights, investment certificates, bonds, derivatives, certain types of securities, as well as other financial instruments defined by the legislation of Ukraine.

At the same time, it should be understood that not all transactions with such assets are taxed equally. For each transaction, the financial result is determined separately in accordance with the provisions of the Tax Code of Ukraine. This takes into account the cost of acquiring the investment asset, income from its alienation, documented expenses, as well as other circumstances that may affect the procedure for determining investment income and the amount of the taxpayer’s tax liabilities.

Do I need to file a declaration?

Yes. If an individual has received investment income, he is obliged to file an annual tax return on his property and income. Even if the funds remained in a brokerage account or were not transferred to a Ukrainian bank account, this does not exempt him from fulfilling the tax obligation. Tax legislation takes into account the fact of receiving income, not the place of its storage.

What taxes must be paid?

As a rule, investment income is taxed:

• personal income tax;
• military levy.

However, in specific situations, international treaties on the avoidance of double taxation or special rules for individual financial instruments may apply.

That is why there is no universal answer regarding the amount of tax.

The most common mistakes investors make

Over the years of practice, I can identify several typical mistakes.

• Taxation of the entire sale amount

Many people mistakenly believe that tax is paid on the entire value of the shares sold.

In fact, only the profit after taking into account documented expenses is taxed.

• Lack of documents

One of the most common mistakes made by investors is improper storage of documents confirming the implementation of investment transactions. In particular, brokerage reports, statements from brokerage and bank accounts, documents confirming the purchase of investment assets, information on paid brokerage commissions and other documents confirming the expenses incurred are often lost or not stored.

At the same time, the presence of such documents is a key condition for confirming the cost of purchasing an investment asset and correctly determining the investment profit. In their absence, it can be extremely difficult to prove the amount of expenses incurred before the regulatory authority, which, in turn, can lead to an increase in the tax base and additional tax liabilities.

• Incorrect currency conversion

One of the most common mistakes when declaring investment income is the incorrect conversion of transactions made in foreign currency. Many investors mistakenly use the commercial rate of the bank, the rate of the brokerage platform, or the rate on the date of the actual receipt of funds into the bank account. However, this approach does not always comply with the requirements of tax legislation.

The Tax Code of Ukraine establishes special rules for determining income and expenses received in foreign currency. For the correct calculation of investment income, each transaction must be converted into hryvnia using the official exchange rate in cases and on dates specified by law. In this case, both the costs of acquiring an investment asset and the income from its disposal are taken into account separately.

It is errors during currency conversion that often lead to incorrect determination of the tax base, which, in turn, may become the basis for additional tax liabilities, application of penalties and fines. Special attention is required in situations where an investor carries out a large number of transactions through foreign brokers or buys and sells investment assets on different dates, because a different exchange rate may be applied for each such transaction.

That is why correct currency conversion is one of the key stages of preparing a tax return and requires careful analysis of each investment transaction.

• Losses are not taken into account

In certain cases, losses from single transactions may affect the overall financial result of the investor.

However, this requires proper calculation and documentary confirmation.

• Misconception that the State Tax Service “will not see” a foreign account

Today, the international automatic exchange of tax information (CRS) significantly expands the capabilities of regulatory authorities to obtain information about the financial accounts of Ukrainian tax residents.

That is why hiding foreign income is becoming an increasingly risky strategy.

What to do if you haven’t filed a tax return for several years?

In practice, this is one of the most common categories of appeals to a tax lawyer. A significant number of investors began to carry out transactions through international brokers several years ago, not realizing that the investment profit received is subject to declaration in Ukraine. Most often, they learn about the existence of such an obligation only after receiving information about the international automatic exchange of tax information (CRS) or while preparing to file a tax return.

Despite this, in most cases, the situation can be resolved legally. First of all, it is necessary to conduct a comprehensive analysis of all investment transactions, establish the actual financial result for each investment asset, correctly calculate tax liabilities taking into account the requirements of the Tax Code of Ukraine, prepare and submit appropriate tax returns, as well as assess and minimize possible tax risks.

It is important to understand that timely appeal for professional legal assistance significantly expands the possibilities for effective resolution of the situation. The earlier the tax analysis is conducted and the necessary measures are taken, the more legal mechanisms the taxpayer will have to properly fulfill his obligations, protect his own interests, and minimize the risk of penalties and tax disputes.

Why you should contact a tax lawyer?

Practice shows that the biggest errors occur when filling out declarations yourself.

A tax lawyer will help:

• analyze all investment transactions;
• correctly determine investment profit;
• take into account documented expenses;
• check the application of international conventions;
• prepare a tax return;
• accompany the State Tax Service audit;
• represent the interests of the payer during administrative and judicial appeals.

Investing opens up significant financial opportunities, but at the same time imposes tax obligations on the investor. Correct determination of investment income, timely declaration and proper documentary confirmation of expenses help to avoid significant financial losses, penalties and lengthy disputes with tax authorities.

If you have carried out transactions with securities, invested through foreign brokers or are not sure whether you have correctly determined the amount of tax, it is advisable to conduct a preliminary tax analysis. This will allow you to identify possible risks in a timely manner and ensure full compliance with the requirements of tax legislation.

If you want to conduct a tax analysis of your investment transactions. This will help you correctly determine tax liabilities, timely comply with legal requirements, and minimize the risks of additional assessments, fines, and disputes with tax authorities.