Collective investment institutions (CIIs) in Ukraine are exempt from corporate income tax on joint investment funds and on income from transactions with fund assets (sub-clause 141.6.1 of the Tax Code of Ukraine). Tax arises at investor level: an individual pays 9% personal income tax on CII dividends or 18% on investment profit from redemption, plus a 5% military levy, and a company includes CII dividends in its taxable profit.
Key points
- CIIs are corporate investment funds and unit investment funds (sub-clause 14.1.86 of the Tax Code, Article 1 of Law No. 5080-VI).
- The exemption works at fund level: investor contributions, income from asset transactions, interest, rent and royalties are exempt from corporate income tax.
- For individuals, CII dividends are taxed at 9% (sub-clause 167.5.4) and gains on sale or redemption of CII securities at 18% (sub-clause 167.5.1, clause 170.2); the military levy of 5% applies in both cases.
- A corporate investor may not reduce its financial result by CII dividends (sub-clause 140.4.1).
- CII assets are managed by an asset management company (AMC), and the fund's annual financial statements are audited every year (Article 73 of Law No. 5080-VI).
What a CII is
A collective investment institution is a corporate fund or a unit fund created under the Law of Ukraine "On Collective Investment Institutions" No. 5080-VI and registered by the National Securities and Stock Market Commission in the Unified State Register of CIIs (Articles 1 and 6).
| Feature | Corporate fund | Unit fund |
|---|---|---|
| Legal status | Legal entity in the form of a joint-stock company (Art. 8) | Pool of assets without legal personality (Art. 41) |
| Securities | Shares of the corporate fund | Investment certificates issued by the AMC |
| Asset management | AMC acts on behalf of the fund under an asset management agreement (Art. 63) | AMC acts in its own name and keeps separate accounts (Art. 43, 63) |
CIIs may be open-end, interval or closed-end, and diversified, non-diversified, specialised or qualifying (Article 7). A venture fund is a non-diversified closed-end CII with exclusively private placement of its securities. Fund set-up and registration are handled by our group's law firm, legal.ua; Key Solutions covers the tax model, accounting and reporting.
Corporate income tax exemption
Under sub-clause 141.6.1 of the Tax Code, the following are exempt: funds contributed by founders of a corporate fund; funds and other assets raised from investors; income from transactions with CII assets and income accrued on them; and other income from CII activity, such as interest on loans, lease payments and royalties. CII assets include property, corporate rights, real estate (including construction in progress), property rights and claims formed from joint investment funds.
No advance corporate income tax payment is due on dividends to the extent of tax-exempt profit (sub-clause 57.1-1.3). Issue, placement, sale and redemption of securities for cash are outside the scope of VAT (sub-clause 196.1.1). The AMC pays corporate income tax on its own business under the general rules.
How investor income is taxed
| Investor and income | Tax | Tax Code |
|---|---|---|
| Individual: dividends on fund shares or investment certificates | 9% PIT + 5% military levy, withheld by the tax agent | 167.5.4, 170.5 |
| Individual: sale or redemption of CII securities | 18% PIT + 5% military levy on investment profit | 14.1.268, 170.2, 167.5.1 |
| Resident company: CII dividends | Included in the financial result; Article 136 rates (base rate 18%) | 140.4.1, Art. 136 |
| Non-resident: dividends | 15% withholding tax unless a tax treaty sets another rate | 141.4.1, 141.4.2 |
An individual's investment profit equals sale proceeds minus documented acquisition costs (sub-clause 170.2.2); redemption by the issuer is treated as a sale. By comparison, dividends from an ordinary corporate taxpayer are taxed at 5% (sub-clause 167.5.2), and CII dividends are expressly excluded from that rate.
Accounting, reporting and audit
- For a unit fund, the AMC keeps accounting and tax records separately from its own business and from other funds (Article 43 of Law No. 5080-VI).
- Accounting specifics for CIIs are set by the Commission in agreement with the Ministry of Finance, and the AMC calculates net asset value for each fund, daily for open-end funds (Article 49).
- The AMC engages an auditor every year to audit the fund's annual financial statements, paid from fund assets (Article 73). The statutory audit is performed and signed by an audit firm entered in the relevant section of the Register of Auditors and Audit Entities; Key Solutions prepares the accounts and reporting and supports the fund and the AMC until the audit is completed.
- CRS reporting on CII investor accounts is filed separately for each fund (clause 39-3.11 of the Tax Code).
Typical tax risks
- Applying 5% instead of 9% to CII dividends paid to individuals, which results in additional tax, penalties and late payment interest.
- Double taxation in holding structures, since a company cannot deduct CII dividends (sub-clause 140.4.1).
- Missing evidence of acquisition cost, which makes the whole sale amount taxable (sub-clause 170.2.2).
- Gaps in CRS reporting, which carries separate obligations and penalties for depositories and AMCs (Article 118-1).
When to get tax advice
Advice is worth getting before any step that changes the tax result: setting up a corporate fund, transferring assets to it, paying dividends, an investor's exit or a sale of fund securities. We model taxes for the fund, the AMC and investors under several scenarios. For one-off questions, book tax advice; to review the wider structure, see optimisation of the taxation system; to set up accounting for a new fund or AMC, see setting up tax and accounting records. Fees are agreed individually and depend on the number of funds, investors and transactions. Contact us via the contacts page.
Legal basis
- Tax Code of Ukraine No. 2755-VI: sub-clauses 14.1.86, 141.6.1, 140.4.1, 167.5.1, 167.5.4, clauses 170.2, 170.5; military levy under clause 16-1 of subsection 10 of Section XX.
- Law of Ukraine No. 5080-VI: Articles 1, 7, 8, 41, 43, 49, 63, 73.
Frequently asked questions
Does a CII pay corporate income tax?
Joint investment funds are exempt from corporate income tax under sub-clause 141.6.1 of the Tax Code. This covers investor contributions, income from transactions with fund assets, interest, lease payments, royalties and other income from CII activity. Tax is paid by investors when they receive dividends or sell fund securities.
How are dividends from a corporate investment fund taxed?
For an individual, personal income tax is 9% (sub-clause 167.5.4) plus a 5% military levy, withheld by the issuer as tax agent. For a resident company, the dividends stay in the financial result, because sub-clause 140.4.1 does not allow a deduction for CII dividends.
Who keeps the accounts of a CII?
For a unit fund, the asset management company keeps accounts separately from its own business and other funds (Article 43 of Law No. 5080-VI). A corporate fund is a legal entity whose assets are managed by the AMC under an agreement. The AMC calculates net asset value for each fund.
Is an audit mandatory for a CII?
Yes. The AMC engages an auditor every year to audit the fund's annual financial statements, paid from fund assets (Article 73 of Law No. 5080-VI). The auditor may not be a related party of the AMC. Key Solutions prepares the accounts and reporting for the audit and supports the fund until it is completed.
Can business assets be moved into a corporate fund tax-free?
The exemption in sub-clause 141.6.1 applies to the fund, so contributed assets are not taxed in its hands. For the contributor, tax consequences follow the Tax Code rules for the specific transaction and type of asset. The structure should be modelled before the transfer, together with the future exit.
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