The war in Ukraine has triggered the most significant tax system overhaul in the country’s modern history. From temporary relief measures in 2022 to increased military levies in 2025, these changes directly impact every Ukrainian expat’s financial obligations—whether you’re maintaining income sources in Ukraine or planning your eventual return.
This comprehensive guide details all war-related tax modifications, explains which temporary measures have ended, and outlines what Ukrainian expats need to know about their ongoing obligations during these unprecedented times.
The Evolution of War Tax Measures: 2022 to 2025
Initial Emergency Response (February-December 2022)
When Russia launched its full-scale invasion in February 2022, Ukraine’s government implemented emergency tax measures to keep the economy functioning:
The most dramatic change was the introduction of a simplified 2% tax regime, available to any business regardless of size. This replaced the normal 18% profit tax and 20% VAT, offering massive relief to companies struggling with war disruption. Thousands of businesses, from small shops to major IT companies, switched to this emergency rate.
Individual entrepreneurs (FOPs) in Groups 1 and 2 received permission to suspend their fixed monthly tax payments entirely. This voluntary holiday recognized that many small businesses couldn’t operate due to displacement, occupation, or economic collapse.
Social security contributions became optional for sole proprietors, allowing them to preserve cash while sacrificing future pension credits. This trade-off helped many survive the initial shock.
VAT exemptions covered critical imports: generators during power crises, military equipment, humanitarian aid, and even personal vehicles (briefly) for those who lost cars to war damage.
Stabilization Period (2023-2024)
As the front lines stabilized and international aid flowed, Ukraine began normalizing its tax system:
The popular 2% regime ended abruptly on August 1, 2023. Businesses automatically reverted to their previous tax status—either 18% profit tax or their original simplified tax group. This change, while necessary for state revenues, increased tax burdens five to nine-fold for affected businesses.
Mandatory social contributions resumed for most sole proprietors outside active combat zones. The government needed pension fund revenues and IMF agreements required fiscal normalization.
The military levy remained at 1.5% throughout this period—a relatively modest additional burden that most accepted as necessary for defense funding.
Some emergency VAT exemptions expired while others continued based on critical need. The pragmatic approach balanced revenue needs with humanitarian requirements.
Current Framework (2025)
The 2025 tax changes represent a significant shift toward increased defense funding:
The military levy jumped from 1.5% to 5% on January 1, 2025—more than tripling this component of personal taxation. Combined with the standard 18% income tax, employees now face a 23% total rate.
All businesses, including single-tax payers, must now pay a 1% war contribution on their income or profit. This marks the first time many small businesses face war-specific levies.
Social security contributions are fully mandatory again for all sole proprietors, ending the three-year holiday. The minimum payment of ₴1,760 monthly returns as an obligation.
The New 5% Military Levy: Who Pays and How Much
Scope and Application
The increased military levy fundamentally changes Ukraine’s tax burden:
Universal application: The 5% levy applies to virtually all personal income types—salaries, business income, dividends, interest, capital gains, and even some previously exempt categories.
Limited exceptions: Only active military personnel retain the old 1.5% rate, recognizing their direct service. War bonds interest and certain humanitarian compensation remain fully exempt.
Withholding requirements: Employers must withhold the 5% levy alongside the 18% income tax, remitting both to the state budget. This automatic collection ensures compliance and immediate revenue.
Self-employed obligations: Sole proprietors and freelancers must calculate and pay the levy quarterly with their income tax filings. This adds complexity to previously simple tax obligations.
Real Impact on Different Income Levels
The levy’s flat structure means everyone pays proportionally, but the real impact varies:
Minimum wage earners (₴8,000/month): Pay an additional ₴400 monthly (€10), reducing already modest purchasing power.
Average IT professional (₴80,000/month): The extra ₴4,000 monthly (€100) is noticeable but manageable given higher overall earnings.
High earners (₴200,000+/month): Pay ₴10,000+ additional monthly, though this represents a smaller lifestyle impact given their income level.
Pensioners: Most pensions remain below taxable thresholds, avoiding the military levy. However, working pensioners face the full 23% on employment income.
Specific Applications to Investment Income
Investment income faces nuanced treatment:
Dividends: The 5% military levy applies to all dividends received from January 2025, adding to the base 5% or 9% dividend tax. Total rates now reach 10-14%.
Interest: Bank deposit interest bears the full 23% burden (18% + 5%), except for government bonds which remain exempt to encourage war financing.
Capital gains: The 5% levy applies to taxable property sales and all securities transactions. The previously favorable treatment of certain gains has effectively ended.
Rental income: Landlords face 23% on rental profits, increasing the tax burden on property investment.
Business War Taxes: The 1% Contribution
Who Must Pay
The new 1% business war contribution creates obligations for entities previously exempt:
Group 1 and 2 FOPs: Pay a fixed ₴800 monthly (10% of minimum wage), regardless of actual income. This replaces their exemption from percentage-based war taxes.
Group 3 FOPs and single-tax companies: Pay 1% of net income (revenue minus documented expenses). This adds to their 3-5% simplified tax rate.
Standard regime corporations: Pay 1% of taxable profit, effectively raising corporate tax from 18% to 19%.
Agricultural producers: The 1% applies even to those using special agricultural tax regimes, broadening the tax base.
Calculation Complexities
The 1% calculation varies by tax regime:
For simplified tax payers who don’t normally calculate profit, determining “net income” creates new complications. They must track expenses and maintain documentation previously unnecessary under their simplified regime.
Standard regime companies simply add 1% to their profit tax calculation, making compliance straightforward but increasing the total burden.
Fixed-rate payers (Groups 1-2) benefit from simplicity—₴800 monthly regardless of business performance—but this can be burdensome during slow periods.
Compliance and Payment
Business war tax compliance adds administrative burden:
Quarterly filing: Most businesses must calculate and remit the tax quarterly, aligning with standard tax periods.
Documentation requirements: Expense documentation becomes crucial for single-tax payers wanting to minimize their 1% base.
Penalties for non-compliance: Failure to pay triggers standard tax penalties plus potential criminal liability for tax evasion during martial law.
No deductibility: The 1% contribution isn’t deductible for profit tax purposes, making it a true additional cost.
Expired Benefits: What’s No Longer Available
The End of the 2% Regime
The termination of the 2% simplified regime in August 2023 dramatically impacted thousands of businesses:
IT companies that had switched from 18% profit tax to 2% saw their rate increase nine-fold overnight. Many subsequently restructured operations or relocated activities abroad.
Small retailers and service providers faced the difficult choice between returning to standard taxation or qualifying for traditional simplified regimes with revenue limits.
The transition created complexity as businesses had to recalculate their tax obligations mid-year and file amended returns.
No grandfathering provisions meant immediate full-rate taxation, though businesses could carry forward any losses from the 2% period.
Mandatory Social Contributions Return
The end of voluntary ЄСВ (social contribution) payments particularly impacts sole proprietors:
January 2025 deadline: All FOPs must resume paying at least minimum contributions (₴1,760 monthly) regardless of income or activity level.
No retroactive payments required: The government isn’t demanding back-payments for the voluntary period, but those months don’t count for pension accrual.
Activity cessation: The only way to avoid payments is formally closing FOP registration, which many abroad are considering.
Enforcement challenges: With many FOPs displaced or abroad, practical enforcement remains difficult, though penalties accrue.
VAT Normalization
Most emergency VAT exemptions have expired:
Generator imports: The zero-VAT rating for generators ended after the 2023 winter crisis passed, returning to standard 20% plus import duties.
Vehicle imports: The brief zero-rating for personal vehicle imports ended in July 2022 after causing massive import surges that threatened currency reserves.
Regular business supplies: Temporary exemptions for various business equipment and supplies have largely expired, returning to standard rates.
Ongoing exemptions: Military equipment, humanitarian aid, and certain medical supplies maintain zero-rating for obvious necessity.
