Repayment is not an easy matter, especially given the strong appreciation of the dollar against the hryvnias in recent years.
The insolvency of debtors forces banks to make certain concessions. A compromise is often reached: part of the debt is repaid by the debtor, part of the debt is cancelled.
This is the main problem. The State considers the cancelled part of the debt to be the income of the taxpayer, which is subject to taxation under current Ukrainian legislation.
In practice, there are exceptions to the general rule: it is important to remember that cancelled credit debts are not always taxable. Tax authorities often do not analyse the nuances of the legislation and necessarily consider the debt forgiven as taxpayer income.
Below are the basic provisions that will help you to understand the issue of the payment of the tax on cancelled credit debts.
1. Interest relief is not taxpayer income. This is particularly noteworthy because tax authorities often include the amount of interest cancelled in the money that is taxable.
2. The penalty and the penalty are not the taxpayer’s income either. Jurisprudence fully supports this position.
3. In dealing with the issue of debt forgiveness, it is necessary to ascertain whether there is an additional agreement to cancel part of the credit debt. Such agreements often stipulate:
is the total amount of debt in both US dollars and UAH,
is part of the debt that is to be cancelled, in hryvnias.
In order to determine whether you need to pay tax on cancelled credit debts, you should:
- to determine the total amount of the debt in hryvnias at the time of the signing of the Supplementary Agreement (at the rate of the NBU at the date of the signing of the Agreement).
- the total amount of the debt in dollars at the time of the signing of the supplementary agreement to convert into hryvnia at the rate of 1 dollar - 7.9930 hryvnias.
Take the second from the first and compare the amount of the cancelled debt with the calculated difference. If the amount of the debt written off in hryvnias is less than the calculated difference, you are not obliged to pay tax. If the amount of the debt written off in hryvnias is greater than the calculated difference, you are required to pay a tax for the amount exceeding the calculated difference.
4. It is important to consider the "movement" of money received on credit.
For example, you borrowed $30,000, spent it all on buying an apartment. Subsequently, due to the inability to repay the loan, the apartment was sold and all the money from the sale was returned to the bank, and the bank forgave you part of the debt.
In such case there is no object of taxation, that is, in fact you have no credit money left on your hands. In this situation you do not have to pay a tax on cancelled debts.