Compensation from an airline or hotel: in which cases Ukrainians are required to pay personal income tax and the military levy

Ukraine's State Tax Service has clarified the taxation of compensation payments that individuals receive from airlines, carriers, booking services, or hotels in connection with cancelled flights, delays, or unprovided accommodation. As reported by RBC-Ukraine, the key criterion distinguishing a "clean refund" from taxable income is whether the payment is a return of previously paid funds or a separate additional amount that is not covered by an exception under the Tax Code.

When compensation becomes taxable income

Ukraine's Tax Code explicitly includes penalty payments — fines, late fees, as well as compensation for material or non-material (moral) damage — in the taxable income of an individual. This means that if an airline or hotel, in addition to refunding the cost of a ticket or room, pays the passenger or guest an additional sum for inconvenience, delay, or breach of contract terms, such payment is by default recognized as income and is subject to declaration. It is fundamentally important that this refers specifically to the "additional" portion: the return of previously paid money is not taxed, as it does not constitute income within the meaning of the Tax Code.

Rates and payment procedure

For income received by individuals from compensation payments, the standard rates apply: 18% personal income tax (PIT) and 5% military levy. Thus, the total tax burden on the additional compensation amounts to 23%. Payment follows the standard procedure: the income is included in the individual's tax return, and the tax is remitted to the budget. If the payment was made by a foreign company, this does not exempt a Ukrainian resident from the obligation to declare the income received and pay the corresponding taxes.

Exceptions under the Tax Code

The Tax Code provides for a number of exceptions under which certain categories of compensation are not included in taxable income. However, for a typical situation — when a foreign airline, booking service, hotel, or carrier pays the passenger or guest a separate additional amount without a specific legal basis for tax exemption — the rule remains simple: such income must be declared, and PIT and the military levy must be paid. In other words, the burden of proving the existence of an exception lies with the taxpayer, not with the tax authority.

A practical rule for travelers

For an ordinary traveler who has received compensation for a cancelled flight or unprovided accommodation, the guideline is as follows: if an amount that is not a refund of previously paid money but a separate additional payment (penalty, fine, compensation for moral damage, reimbursement of expenses) has been credited to a bank account or card, and the Tax Code does not contain a specific provision exempting exactly this category of payments from taxation — the income is subject to declaration. In practice, this covers most cases in which a passenger receives, for example, a fixed compensation for a flight delay in addition to the ticket price.

Broader than it seems: what else is subject to declaration

The State Tax Service also reminded that the obligation to declare income is not limited to wages. Almost all monetary and non-monetary benefits received by an individual, including gifts, winnings, prizes, and other receipts, are subject to PIT and the military levy. This means that compensation from an airline is just one of many cases in which a Ukrainian must account for the tax consequences of the amounts received. Ignoring the declaration obligation may result in the assessment of late fees and fines by the tax authorities.