Since 2020, when amid the coronavirus pandemic catering establishments in Ukraine switched to online menus and card payments, tips for staff have increasingly been left via a payment terminal, QR code, or sent as a transfer to a bank card. However, as the State Tax Service explains, the law considers tips income, which means taxes must be paid on them. The procedure for paying them depends on who receives the funds: the individual directly or the establishment.
UNN explains how this works and how much will have to be paid and by whom.
Why tips are taxed
Tips are a voluntary reward for service in addition to the cost of the order. However, the voluntary nature of the payment does not make it tax-exempt for the recipient.
Two rates apply to the relevant income of an individual: 18% personal income tax (PIT) and 5% military levy. Together, this amounts to 23% of the tips. Cash or a QR code does not cancel tax obligations. What matters is who processes the payment.
Tips paid to a personal card: who pays 23%
If the QR code leads to the personal card of a waiter, bartender, or other employee, the money is received directly from the customer. In this case, the establishment does not receive this amount, does not include it in its revenue, and does not withhold taxes from it.
According to the State Tax Service, the recipient must independently include such tips in their annual taxable income, file a property and income declaration, and pay PIT and the military levy. For example, if an employee receives UAH 1,000 in tips over a certain period, the tax will amount to UAH 180, and the military levy to UAH 50. In total, UAH 230 must be paid. After taxation, UAH 770 effectively remains from that thousand.
What to do if tips are received in a restaurant’s account
The situation is different when a customer adds a tip to the total bill or transfers it to the account of a business or individual entrepreneur. The establishment receives the funds first, so it must properly record them in its accounts. If the money is subsequently paid to an employee as part of remuneration for work, the establishment acts as a tax agent. It withholds 18% PIT and a 5% military levy from the payment and transfers them to the budget. The employee does not need to declare this particular income again or pay taxes on it a second time.
When the payment is formalized as wages, the employer also becomes obligated to accrue the unified social contribution in accordance with the established rules. Therefore, the restaurant owner must properly organize the accounting of non-cash tips and their transfer to staff.
How to properly declare tips
An employee who received money directly from customers should regularly record the amounts received. Bank statements, payment histories, and personal tip records can help. This makes it easier to determine annual income.
Under the general rules, a property and income declaration must be filed by May 1 of the year following the reporting year, while the taxes indicated in it must be paid by August 1. For tips received in 2026, reporting will take place in 2027, taking into account the rules for extending statutory deadlines.
The declaration can be filed through the Taxpayer’s Electronic Cabinet, the "My Tax" app, in person, or by mail. At the same time, information about tips received directly from customers should be checked and, if necessary, entered independently.
What penalties apply for undeclared income
Ignoring the obligation to declare tips may result in fines. The Tax Code provides for a fine of UAH 340 for failing to file a declaration or filing it late, and UAH 1,020 for a repeated similar violation within a year.
Financial sanctions may also apply for late payment of an agreed tax liability. As a general rule, the fine is 5% of the repaid tax debt for a delay of up to 30 calendar days and 10% for a longer delay. Under conditions established by law, interest may be charged.
Electronic tips: what employees and establishments should take into account
Before using a QR code, an employee should find out exactly where the funds are being transferred: to their personal account or to the restaurant’s account. This determines who will report to the tax authorities.
Establishments should clearly define the procedure for collecting and distributing tips, record the receipts in the relevant documents, and inform staff whether taxes were withheld at the time of payment. Employees should retain proof of payment.
Let us remind you
Earlier, we reported that Glovo automatically charges thousands for "tips" on delivery and does not refund the money.