Salaries, deposits, and rent: who needs to pay the military tax and from which sources of income?

At the end of 2024, President Volodymyr Zelensky signed a law to increase taxes. The changes primarily affected the military levy rate, which is imposed on the income of citizens. This levy was temporarily introduced in 2014 to fund the Armed Forces.

However, as is well known, nothing is more permanent than the temporary. This tax existed until 2022, and now it has been assigned the role of increasing budget revenues to finance intensive military actions. What sources of income are subject to the military levy, and who will feel the impact of this tax increase?

Sources of Income Subject to the Military Levy

For ten years, the military levy rate remained unchanged at 1.5% of the received income. Starting from January 1, 2025, this rate has been increased to 5%. An exception has been made for military personnel and employees of law enforcement agencies. The increased rate is temporary and will remain in effect until the state of war in Ukraine is lifted, after which the old rate of 1.5% will resume on January 1 of the following year.

The sources of income subject to the military levy are specified in Article 163 of the Tax Code. These include income received from employers by officially employed individuals, as well as dividends and income earned abroad.

Income subject to the military levy includes:

• salary (basic and additional, bonuses and compensations);
• sickness benefits;
• income from civil law agreements;
• income from the sale of movable and immovable property (if such a transaction occurs twice or more times a year);
• royalties;
• income from granting rights to use intangible assets (royalties);
• severance pay upon dismissal;
• income from renting or leasing property;
• dividends and interest income from deposits for individuals;
• gifts in monetary, natural, or intangible forms, additional payments, tuition fees, or corporate clothing;
• inheritance payments, except for inheritance from first- and second-degree relatives.

Next, we will discuss in detail who and how much should pay the military levy.

From Salary

The military levy is collected from the income of individuals, legal entities, and entrepreneurs. Starting in 2025, a total of 23% will be deducted from employees' salaries instead of 19.5% (18% – personal income tax or PIT, 5% – military levy). Residents of "Diia City" will also pay a 5% levy.

Individual entrepreneurs will also pay the military tax from their income: FOPs of the first, second, and fourth groups will pay 10% of the minimum wage (currently 800 UAH), while FOPs of the third group will pay 1% of their income.

Different categories of taxpayers have different deadlines for paying the levy. FOPs of the first, second, and fourth groups pay the levy in advance every month by the 20th. The military levy can also be paid in advance for the whole year.

FOPs of the third group must pay the levy within ten calendar days after submitting the quarterly tax declaration. The declaration for the first quarter of 2025 must be submitted by May 12, so the tax payment is due by May 22.

From Income from Real Estate and Movable Property

Upon signing a real estate sales contract, the following mandatory payments must be made: state duty, PIT, military, and pension levies.

Income from the sale of the first apartment in a year is not taxed with PIT and military levy; for the sale of the second, 5% PIT and 5% military levy are paid; for the third and subsequent sales, 18% PIT and 5% military levy are applied. Taxes must also be paid on the sold apartment if it has been owned for less than three years.

The same situation applies to the sale of movable property: cars, mopeds, and motorcycles. An owner who decides to sell a vehicle within one year must pay the following taxes: sale of the first car – 0%, sale of the second car – 5% PIT on the value of the car and 5% military levy, sale of the third and subsequent vehicles – 18% PIT on the value of the car and 5% military levy.

When selling a bus, truck, trailer, tractor, or special equipment, a tax of 5% and a 5% military levy are charged even for the first transaction of the year. From the third and subsequent sales, a total of 23% tax must be paid on the estimated value of the vehicles.

Taxes must also be paid on income received from renting property. If a person rents out an apartment, they must file a declaration at the end of the year and pay PIT and military levy. This declaration must be submitted by May 1 of the following year, and taxes must be paid by August 1.

Will the increase in the military levy rate lead to higher rental prices? "A significant portion of apartments is rented out without contracts, with payments made in cash or to a card. Taxes are rarely paid on this income. If the military levy becomes a significant financial burden for owners, they may revert to the shadow economy or remain there," says the business director of LUN, Denis Sudilkovsky.

In his opinion, some will use the tax increase as an argument to raise rental prices. "This is more likely to happen if the hryvnia weakens. A significant number of landlords, especially in the western regions of the country, tie rent not to the hryvnia but to the dollar. Therefore, it is better to monitor demand, supply, exchange rates, and inflation," noted the interlocutor.

From Financial Instruments

The military levy must also be paid on dividends. From the accrued interest on deposits, 18% PIT and 5% military levy are deducted.

The same applies to received bank cashback, while payments under the "National Cashback" program are exempt from PIT and military levy.

Income from government bonds and external bonds of Ukraine (Eurobonds) is not taxed. Thus, those who invested in the state will not be affected by the tax increase.

Sources of Income Exempt from the Military Levy

Income exempt from the military levy includes maternity benefits, housing subsidies, alimony, and travel expenses. The levy is also not charged on gifts if their value does not exceed 25% of the minimum wage (currently 2,000 UAH), or if the donor is a first-degree (parents, spouse, children) or second-degree (siblings, grandparents, grandchildren) relative.

During the state of war, military levy is not paid by representatives of the Armed Forces, National Guard, SBU, Foreign Intelligence Service, State Border Service, State Protection, Ministry of Internal Affairs, State Special Communications, and the State Guard Administration.

The levy is only exempt from income related to military pay (salary, seniority bonus). However, if a soldier rents out an apartment, they must pay a 1.5% levy on that income.

Additionally, FOPs who have been mobilized may not pay the military levy (throughout their service period), as well as FOPs of the first and second groups whose tax address is in combat areas or temporarily occupied territories.