Exit capital tax voted down by businesses, MP claims

Businesses that were allowed to opt for exit capital tax instead of income tax refuse it, said Danylo Hetmantsev, the chair of the Ukrainian parliament’s tax committee.

Exit capital tax (ECT), which effectively taxes the distributions of profits and capital by companies instead of financial profits, has been allowed for residents of Diia City, a special legal and tax regime for IT businesses established in early 2022.

Ukrainian authorities have been mulling possible replacement of income tax with exit capital tax for many years, but businesses have not been so interested, the MP claimed in an interview with RBC-Ukraine, a Ukrainian news media outlet.

"Today we have 500 residents in Diia City, income tax rate there is very low, 6.5%, and exit capital tax is given as an option. But out of those 500 companies, 225 have switched to exit capital tax

"Moreover, some companies, having switched to this regime, give it up," Mr Hetamntsev said, adding that this is a "real indicator" of how much ECT is needed in Ukraine.

IT businesses are "among the most advanced in terms of experimentation", and their opting out of ECT is about "how this tax is perceived by businesses," he believes.

The introduction of exit capital tax was one of Ukrainian president Volodymyr Zelenskyy’s election promises. ECT envisages abandoning the traditional system of income taxation, whereby the difference between a company's income and expenses is taxed.

While the former president of Ukraine, Petro Poroshenko, also initiated the introduction of ECT, the bill did not receive parliamentary support.