- Ukrainian authorities are reclassifying aircraft lease payments as royalties for the past seven years.
- The retroactive 15% tax demand has triggered criminal proceedings against five major national airlines.
- Industry experts warn that these claims could lead to sector-wide insolvency and bankruptcy.
Ukrainian authorities are seeking additional tax from airlines by treating aircraft and helicopter lease payments to non-residents as royalties for the past 7 years. The 15% royalty tax demand has drawn at least five carriers into criminal proceedings and raised insolvency fears across the sector.
The named airlines include Ukraine International Airlines, known as MAU, Aviation Company Constanta, Urga, N3OPERATIONSHINS and Skyline Express. The Bureau of Economic Security is pursuing cases tied to alleged failures to withhold the charge.
The dispute centers on a retrospective reinterpretation of lease payments. Airlines and their advisers say the royalty treatment emerged from a 2024 interpretation rather than a legislative amendment.
Free toolSubstantial Presence Test CalculatorThe State Tax Service published an article supporting that approach in 2024. The tax law and international conventions had not changed, lawyers said.
Ruslan Melnychenko, head of the Legal Committee of the Aerospace Association of Ukraine, challenged the change on July 13, 2026.
“In the entire history of Ukraine's independence, there have been no changes in legislation. So what changed? 2024, war – what changed? And nothing changed. In no country in the world is aircraft leasing called a royalty. In no country in the world.”
Melnychenko later warned on July 17, 2026, that collecting the claims could eliminate every company operating in the market.
“If we collect these taxes, the companies will all certainly go bankrupt; all companies on the market will certainly go bankrupt.”
A 2024 interpretation reaches tax years beginning in 2017
The tax years at issue run from 2017 to 2023, while additional charges are described as continuing into 2024-2026. Investigators are using the newer interpretation against transactions made before it appeared.
The classification determines whether a withholding payment applies. The agency’s reading equates aircraft leasing with the use of “industrial, commercial, or scientific equipment.”
Under many Double Taxation Treaties, payments for equipment qualify as royalties. Transport vehicles are typically treated under Article 8, “International Traffic,” which generally exempts those payments from the same royalty treatment.
Aircraft had been treated as vehicles for more than 30 years. The new position therefore changes the treatment of existing lease arrangements without changing the statutory wording described by the lawyers.
Tetiana Kiriyenko, head of the tax authority, is identified as leading the agency when the interpretation was developed. The Bureau of Economic Security then opened criminal cases based on alleged failures to withhold tax.
The claimed assessment covers payments made to non-residents for aircraft and helicopter leases. The dispute is not over whether airlines owe taxes generally. It concerns whether authorities can apply this classification backward to leases signed under the earlier approach.
The identified leasing payments include UAH 13.1 million
The tax authority identified at least UAH 13.1 million paid to non-residents for aircraft and railway car leasing from 2017 to 2023 where the 15% royalty payment had not been withheld.
| Period | Payments identified | Transactions described | Tax issue |
|---|---|---|---|
| 2017 to 2023 | At least UAH 13.1 million | Aircraft and railway car leasing to non-residents | 15% royalty not withheld |
| 2024-2026 | Additional charges continuing | Aircraft and helicopter lease payments | Retrospective collection sought |
The figure includes railway car leasing as well as aircraft transactions. The airline cases focus on the treatment of aircraft and helicopter payments.
Industry experts say the financial effect could exceed carriers’ ability to absorb it. Ukrainian airlines have average profitability of only 7–10%, while the proposed charge would apply to gross lease payments accumulated over seven years.
Criminal cases add asset freezes to the tax dispute
The proceedings involve Ukraine International Airlines, Aviation Company Constanta, Urga, N3OPERATIONSHINS and Skyline Express. Earlier disagreements over business taxes generally went through civil or administrative courts.
The Bureau of Economic Security is treating the current disputes as criminal offenses. The cases have brought asset freezes and operational disruptions, adding pressure to airlines already operating during wartime conditions.
The carriers face two separate risks. First, the tax claims could require payments calculated on past gross lease amounts. Second, criminal proceedings and frozen assets can interfere with day-to-day operations.
The industry has continued contributing to the budget despite the closed sky caused by the ongoing war. Aviation enterprises paid more than UAH 702 million in taxes in 2025, the highest total in eight years.
That payment record has become part of the industry’s argument against applying the new interpretation to earlier periods. Associations say weakening airlines, aircraft fleets and trained personnel could damage the sector’s ability to support post-war economic recovery when Ukrainian airspace reopens.
Advisers seek a Ministry of Finance ruling
Tax specialists have urged the Ministry of Finance to issue one official position for the industry. A high-level roundtable, titled “New Tax Practice Regarding Aircraft Leasing,” took place in Kyiv on July 15, 2026.
Participants called for an urgent Generalizing Tax Consultation that would overrule the agency’s interpretation and establish a single approach to aircraft leasing.
Tetiana Shevtsova, managing partner of Audit Company “Capital Plus” and a member of the Public Council under the Ministry of Finance, said the classification treated transport as equipment.
“Aircraft are transport, not equipment. this position of the tax service is based on an overly broad interpretation of the term 'royalties'. The interpretation. requires an official clarification from the Ministry of Finance, because without a unified approach. the tax dispute surrounding the aviation industry will only deepen.”
Shevtsova made the statement on July 15, 2026. The requested consultation would address whether treaty provisions for equipment should apply to aircraft leases or whether the payments belong under the rules for international transport.
Associations warn that the fleet could be weakened before reopening
Grigol Katamadze, president of the Association of Taxpayers of Ukraine, said on July 10, 2026, that the policy threatened the industry’s future.
“Experiments on taxing aircraft leasing could destroy Ukrainian civil aviation. reclassifying leasing transactions as royalties creates serious risks for the future of Ukrainian civil aviation.”
Industry associations appealed to the Cabinet of Ministers on July 4, 2026. They asked officials to ensure legal certainty and halt what they described as targeted pressure on a strategic sector during wartime.
Their argument extends beyond the current tax bills. If airlines lose aircraft, personnel or operating capacity before the war ends, the country could have fewer domestic aviation resources available for recovery after the airspace reopens.
The Bureau of Economic Security intensified criminal proceedings against a broader range of carriers on July 17, 2026. The cases remain tied to lease transactions dating back to 2017, while industry groups continue seeking a unified ruling from the government.
This article is for informational purposes only and does not constitute tax advice. Consult a qualified tax professional or CPA about your specific situation.
