How much an investor actually takes home: taxes on income from shares, dividends, and OVDPs

You sold your shares for more than you paid for them, received dividends, or saw your domestic government bonds mature. You have generated income — and a practical question immediately arises: how much of this amount will you keep, and how much will go to the government?

The answer depends not on the amount of income, but primarily on the type of income. The Tax Code establishes different rules for different types of investment income, and the difference in the amount can be significant.

We recently explained what dividends are and how shareholders receive a share of a company’s profits. In addition, in August, the Commission approved five more foreign ETFs for trading in Ukraine, specifically those focused on dividend income. And personal investment accounts, which are intended to create additional incentives for long-term investing, are currently in the legislative proposal stage.

No matter which tool you choose, the question of taxes almost always arises. So let’s take a look at how it works.

Disclaimer: In this article, we discuss the key rules for taxing investment income. In practice, there are nuances that depend on the specific type of income, transaction, and the investor’s circumstances; therefore, each individual case may require further consideration.

Three types of income — three different rules

Investors in Ukraine most often encounter three types of income from securities: profits from selling shares for more than they were purchased for; dividends — a portion of a company’s profits that it pays to its shareholders; and income from bonds, particularly government bonds.

And the tax rules differ here.

You sold the shares at a higher price — 23% of the profit

If you bought shares and later sold them for a higher price, the positive difference between the proceeds from the sale and the documented acquisition costs constitutes investment income.

Important: The tax is calculated not on the total amount you received from the sale of the shares, but specifically on the profit.

For example, you bought shares for 40,000 UAH and sold them two years later for 55,000 UAH.

Your investment profit is:
55,000 – 40,000 = 15,000 UAH.

From this amount, the following must be paid:
● 18% personal income tax — 2,700 UAH;
● 5% military levy — 750 UAH.

In total — 3,450 UAH in taxes.

Therefore, out of 15,000 UAH in investment income, 11,550 UAH remains after these taxes are paid.

If, during the year, some of the transactions involving investment assets resulted in a loss, this also matters. For tax purposes, the overall financial result of such transactions for the year is determined: the amount of investment gains is reduced by the amount of investment losses, in accordance with the rules of the Tax Code. The positive value of this overall financial result is included in taxable income.

If transactions are conducted through a professional securities dealer, such as a bank, that dealer acts as a tax agent. At the same time, the taxpayer is responsible for tracking the overall financial result of transactions involving investment assets for the year and must report it in the annual tax return in the cases provided for by law.

Dividends: why the rate is not always the same

The logic is different when it comes to dividends. The personal income tax rate depends on who pays them.

If dividends are paid by a Ukrainian company that is subject to corporate income tax, the personal income tax rate is generally 5%.

If dividends are paid by a nonresident entity, a collective investment entity, or a business entity that is not subject to corporate income tax, the personal income tax rate of 9% applies.

A military levy of 5% also applies to such dividends.

Let’s look at a simple example.

If a Ukrainian company — a corporate income tax payer — has paid you 10,000 UAH in dividends, then as a general rule:

● 5% personal income tax — 500 UAH;
● 5% military levy — 500 UAH.

In total — 1,000 UAH in taxes.

The investor will receive 9,000 UAH in cash.

If, for example, we are talking about dividends from a non-resident entity, the total tax burden will generally amount to 14%: 9% personal income tax and 5% military levy.

Of that same 10,000 UAH, 1,400 UAH will go in taxes, and after paying them, you’ll be left with 8,600 UAH.

Thus, the tax burden on such dividends is lower than that on investment income from a sale of shares.

At the same time, different rules apply to certain types of dividends. In particular, dividends on shares or other corporate rights that are classified as preferred or provide for payment of a fixed amount of dividends or an amount greater than the payments on other shares are treated as wages for tax purposes and are taxed in accordance with the relevant rules.

Certain transactions involving the distribution of dividends in the form of shares or equity interests may also be excluded from taxable income — provided that the conditions set forth in the Tax Code are met, in particular if such a distribution does not result in any changes in the proportion of all shareholders’ interests in the issuer’s authorized capital.

OVDPs: Tax burden — 0%

The situation is different with domestic government bonds.

In the cases provided for by the Tax Code, an individual’s income from OVDPs (domestic government bonds) is not included in taxable income and is not subject to personal income tax or military levy.

Therefore, for a natural person, the tax rate on such income is 0%.

Here’s a simple example: if your income from OVDPs is 10,000 UAH, no personal income tax or military levy is due on that amount.

In other words, out of 10,000 UAH in income, 10,000 UAH goes to the investor.

It is precisely the absence of income tax that sets OVDPs apart from many other investment instruments.

And what might change with personal investment accounts

Personal investment accounts, or PIAs, are a separate story.

Their idea is to create conditions under which long-term investing receives tax incentives, and investors can build a securities portfolio with a focus not on quick trades but on long-term capital accumulation.

Currently, two draft laws have been registered in the Verkhovna Rada — No. 15314 and an alternative version, No. 15314-1 — which propose different approaches to providing tax incentives for retail investments.

In particular, the draft law No. 15314 provides for a personal investment account model and special tax conditions for long-term investing, subject to compliance with the requirements set forth by law.

However, it is important not to jump to conclusions here: this is still a legislative proposal, not a rule in effect. The final PIA model, the conditions for applying tax incentives, and other details will depend on which version of the law the Verkhovna Rada ultimately adopts.

A three-part portfolio

Let’s imagine an investor who holds company shares, OVDPs, and an ETF at the same time. Over the course of the year, he sold some of his shares at a profit, received dividends, and earned income from government bonds.

This is not a single item of “investment income” that can simply be added up and multiplied by a single tax rate.

Different rules apply to each type of income: dividends are taxed at certain rates, investment income from the sale of shares at others, and income from OVDPs is subject to a separate tax regime.

That is why investors should keep separate records of their transactions, retain documents confirming the acquisition cost of assets, and take into account the source and type of income received.

This is particularly important if there were both profitable and unprofitable transactions involving investment assets during the year. To determine the overall financial result for the year, investment gains and losses are calculated according to the rules established by the Tax Code.

Who calculates it and when to pay

In practice, it all depends on the type of income and the method used to carry out the transaction.

When a Ukrainian company pays dividends, the applicable taxes are generally withheld by a tax agent, so the investor receives the amount after those taxes have been withheld.

If transactions involving investment assets are conducted through a professional securities dealer, including a bank, such a dealer acts as a tax agent in the cases specified in the Tax Code.

At the same time, the taxpayer is responsible for recording the overall financial result of transactions involving investment assets for the calendar year. That is why it is important to keep records of transactions and expenses related to the acquisition of assets.

Brokers and other professional market participants may provide investors with information about transactions they have carried out. These documents help determine the financial result before filing a tax return.

Things to keep in mind

Sale of shares at a profit: A positive overall financial result from transactions involving investment assets is taxed at a rate of 23% — 18% personal income tax + 5% military levy.

Dividends from a Ukrainian company that is a corporate income tax payer: as a general rule, 10%: 5% personal income tax + 5% military levy.

Dividends from a nonresident entity, a CII, or a business entity that is not subject to income tax: as a general rule — 14%: 9% personal income tax + 5% military levy.

Income from OVDPs: the tax burden for a natural person is 0% personal income tax and 0% military levy.

Most importantly, the same 10,000 UAH in investment income can translate to different amounts received “in hand,” depending on where that income comes from. Therefore, when evaluating the return on an investment, it’s important to consider not only the instrument’s potential yield but also to understand the rules governing its taxation.

This is a general overview and not individual tax advice. For complex or unusual transactions, you should also refer to the provisions of the Tax Code and the guidelines issued by the State Tax Service.

Sources: The Tax Code of Ukraine — Art. 165, Art. 167, para. 170.2, para. 170.5; para. 16¹ of Subsection 10 of Section XX of the Tax Code of Ukraine; the draft laws of Ukraine No. 15314 and No. 15314-1.