Royalties are not just creative income; they are taxable objects. Learn about tax rates, the role of tax agents, and why royalties cannot be included in Single Tax income for individual entrepreneurs.
Royalties are not just creative income; they are objects of taxation. Authors, musicians, and performers should take note: payments for the use of your works are subject to taxation in accordance with the current legislation of Ukraine.
What are Royalties?
Royalties are passive income of an individual received in the form of a payment for the use or granting of the right to use:
- Copyright of a work (music, lyrics, audiovisual works, etc.);
- Related rights (performances, phonograms, videograms);
- Trademarks.
Tax Rates for Royalties for Individuals
The total tax burden on royalty payments is 23%:
- 18% — PIT (Personal Income Tax);
- 5% — Military Tax.
Who Should Withhold Taxes?
If royalties are paid through a Collective Management Organization (CMO), a label, a publisher, or any user that is a legal entity (or even an individual entrepreneur/FOP), that party acts as the tax agent for the creator.
The tax agent is obliged to:
1. Withhold PIT and Military Tax from the royalty amount.
2. Report to the controlling authorities (Annex 4DF).
3. Transfer the taxes to the budget.
Example: If a publisher, label, or CMO pays an author 10,000 UAH in royalties, the author receives 7,700 UAH "in hand," and the rest — the tax amount of 2,300 UAH — is withheld and transferred to the budget by the tax agent.
Self-Declaration
If an individual receives royalties from other individuals without tax withholding or from abroad:
- The person must file an annual income tax return with the tax office by May 1st of the following year.
- Independently pay taxes at the rate of 18% + 5%.
*Note: If income was received from tax agents, according to p.179.2 art.179 of the Tax Code of Ukraine, the obligation to file an annual return is considered fulfilled automatically.*
Important: Royalties and Individual Entrepreneurs (FOP)
Royalties cannot be income for individual entrepreneurs (FOP) paying the Single Tax of groups 1-3.
Royalties are passive income, i.e., remuneration for the use of intellectual property objects without the active participation of the person in the process. According to subp.1 p.292.1 of the Tax Code of Ukraine, royalties are excluded from the list of permitted income for Single Taxpayers.
Therefore, royalties cannot be included in the income of Single Taxpayers of groups 1-3. Taxing royalties for an individual entrepreneur at the 5% Single Tax rate is illegal.
Know your rights, protect your creative income, and pay your taxes on time!