An individual entrepreneur received targeted financial assistance from the state for the implementation of a cultural heritage restoration project. How to report such funds and whether this income is included in the total monthly or annual taxable income – read further.
Features of receiving and taxation of a state grant
The Tax Code of Ukraine (hereinafter – the Tax Code) contains a definition of a budget grant. It recognizes targeted assistance in the form of funds or property provided on a gratuitous and non-refundable basis from the state and/or local budgets, international technical assistance for the implementation of a project or program in the fields of culture, tourism and the creative industries sector, sports and other humanitarian areas in accordance with the procedure established by law. The list of providers of budget grants is determined by the Cabinet of Ministers of Ukraine (paragraph 14.1.2771 of the Tax Code).
The procedure for taxation of a budget grant is determined by item 170.71 of the Tax Code. Item 170.71 .1 of the Tax Code establishes that income in the form of a budget grant is not taxable and is not included in the total monthly or annual taxable income of a taxpayer when it is accrued (paid, provided) in favor of the taxpayer.
In accordance with item 170.71 .2 of the Tax Code, the tax agent of the taxpayer during the accrual (payment, provision) of income in the form of a budget grant in their favor is the provider of such grant.
Tax agents are providers of budget grants in the Tax Calculation of the amounts of income accrued (paid) in favor of taxpayers – individuals, and the amounts of tax withheld from them, as well as the amounts of the accrued single contribution (hereinafter – the Calculation), the submission of which is provided for in poin “b” of item 176.2 of the Tax Code, reflect (for the reporting month) the amount of income accrued (paid) in the reporting tax period in the form of budget grants.
At the same time, the Calculation must indicate information about the concluded contracts for the provision of budget grants and their terms, including the term of the contract, the registration number of the tax card of the individual taxpayer who received the budget grant, or the series and number of the passport (for individuals who, due to their religious beliefs, refuse to accept the registration number of the taxpayer's tax card and have notified the relevant regulatory authority about this and have a mark in their passport).
Information is also provided on the fact that the taxpayer used the budget grant or part of it for its intended purpose or the taxpayer violated the terms of the agreement on the intended use of the budget grant, on the full or partial return of the budget grant by the taxpayer to the tax agent - the provider of the budget grant (in the event of such return).
In accordance with item 170.71 .3 of the Tax Code, if a tax agent - provider of budget grants - does not include in the Calculation information about the taxpayer's violation of the terms of the agreement on the targeted use of the budget grant, such a provider of budget grant is obliged to fulfill all the obligations of a tax agent regarding income specified in item 1701 of the Tax Code.
When a taxpayer has violated the intended use of a targeted grant, they are obliged to reflect the amount of income received in the form of a budget grant (its part), in respect of which a violation of the relevant terms of the agreement on the intended use of the grant was committed, as part of the annual taxable income for the relevant reporting year and submit an annual tax declaration on property status and income (hereinafter referred to as the Declaration) in accordance with the Tax Code of Ukraine and independently pay tax on such income (item 170.71.4 of the Tax Code).
If a taxpayer has fully or partially returned a budget grant to the grantor (tax agent ) in the reporting (tax) year of its payment (grant), such a taxpayer has the right, in accordance with the procedure established by Article 42 of the Tax Code, to notify the supervisory authority thereof with copies of documents confirming the fact of such return. In this case, the taxpayer is exempted from the obligation to reflect such part of the paid (granted) and returned grant as part of income in the annual Declaration and to pay tax on the relevant income (paragraph one of item 170.71 .5 of the Tax Code).
If the taxpayer returned the budget grant in favor of the grantor (tax agent ) in full or in part in the calendar year following the reporting (tax) year in which the corresponding grant amount was included in the annual taxable income, the taxpayer has the right to file a clarifying Declaration and reduce the amount of annual taxable income for the relevant reporting year by the returned grant amount, provided that copies of documents are provided confirming the fact of the return of the relevant grant or part of it in favor of the grantor (tax agent ) (paragraph 2, item 170.71 .5 of the Tax Code).
