Author: Olena Andriyko, lawyer at F&P
Starting from January 1, 2026, banks will pay income tax at the rate of 50%. The Law of Ukraine No. 4698-IX dated 3 December 2025 “On Amendments to the Tax Code of Ukraine on Peculiarities of Taxation of Banks in 2026” came into force without a transitional period, which is already creating practical difficulties for financial institutions that had made plans for the year based on the previous 25% rate.
Below is not a retelling of the law, but an analysis of what it really means: which provisions are the most painful, where the legislator has deviated from the logic of the windfall tax, and what those who work with or invest in banks should expect.
What has changed: three key rules
The law contains three independent changes that together have an effect that is significantly different from a simple doubling of the rate.
The first is a 50% rate on all profits. In accordance with the amendments to Article 136 of the Tax Code, the profit of banks for the reporting (tax) periods in 2026 will be taxed at a rate of 50%. There are no thresholds, no progressive approach – the rate applies from the first hryvnia of profit.
The second is the prohibition of loss carryforwards. In 2026, banks will no longer be allowed to reduce their taxable income by the amount of negative tax losses from previous years. This is the most stringent rule for institutions that have suffered losses as a result of the full-scale invasion – write-offs of impaired assets, provisions for loan portfolios in combat zones, and loss of branches. In 2026, such banks will actually pay income tax without being able to take into account their actual previous losses. The right to carry forward losses will be restored only in 2027.
The third is an advance payment when paying dividends. The 50% rate applies to the advance payment of income tax that the bank is obliged to pay before paying dividends. We are not talking about taxation of dividends in the hands of the shareholder – this is a separate mechanism provided for in subparagraph 57.11 of the Tax Code. But in practice, this means that any dividend payment in 2026 will initially “burden” the bank with an advance payment of 50% of the payment amount, which significantly affects the decision on profit distribution.
Is it a windfall tax – and why the answer matters
The government positioned this measure as an analog of the windfall tax, which is the taxation of excess profits. In fact, there is a fundamental difference between these concepts that goes beyond a terminological dispute.
The classic windfall tax is a tax on excess profit, i.e., the part that exceeds a certain basic level (usually the average profit for the previous 3-5 years). This approach was applied by the UK to energy companies after 2022, and by the EU to electricity suppliers. The logic is simple: the state participates in the distribution of benefits from external circumstances beyond the company’s control.
The rule introduced by Law No. 4698-IX has a different nature: it taxes all profit without exception, regardless of whether it is “excessive” in any sense of the word. A bank that earns a profit equivalent to the average pre-crisis level in 2026 will pay the same 50% as a bank with record-breaking performance. This is a simple rate increase for fiscal purposes, and it should be called that.
Why is this important in practice? Because the argument “you already earn too much” does not fit well with the situation of banks that have turned a profit after several unprofitable years, but still fall under the same rate. The legal construction of the law does not provide for any differentiation depending on the level of profitability.
The fiscal effect and the real burden
According to various estimates, the increased rate should bring in UAH 15 billion to more than UAH 20 billion in additional budget revenues. These figures are realistic given the financial results of the sector in 2023-2025 – banks did demonstrate sustainable profitability even under martial law, which was the main argument of the legislator.
At the same time, the real tax burden is higher than just a comparison of rates. The prohibition of loss carryforwards actually increases the tax base beyond the “cleaned” profit – for some banks, this means that the effective rate will exceed 50% of their economic result. For most businesses in Ukraine, the corporate tax rate is 18%; banks in 2026 will find themselves in a fundamentally different regulatory dimension.
Market implications: what is already happening
The rate hike is likely to affect banks’ behavior in several ways, and some of these changes are already evident in the first months of the year.
Lending activity. The reduction in post-tax profit directly reduces Tier 1 capital. This limits the ability to increase the loan portfolio – not because of a lack of desire, but because of the NBU’s capital adequacy requirements. Banks that had plans to expand lending in 2026 are forced to revise them.
Asset structure. Investments in government bonds, which have traditionally been an attractive instrument for banks in unstable periods, become even more attractive when the decline in lending profits is already “built into” the increased rate. It is possible that 2026 will be marked by a further increase in the share of government securities in bank balance sheets at the expense of corporate lending.
Dividend policy. An advance payment of dividends at a rate of 50% is a significant deterrent to profit distribution. We should not expect active payments to shareholders in 2026: most bank boards are likely to decide to reinvest profits.
Cost of services. Banks are commercial institutions and will pass on part of the tax burden to their customers, either through commissions, margins, or the cost of credit. How quickly and to what extent will depend on the competitive environment and the NBU’s regulatory stance.
What it means for your business
For companies that interact with the banking sector, whether as borrowers, partners or investors, the new rules have specific practical implications.
- Review loan agreements. Pay attention to the terms and conditions regarding the revision of the interest rate due to changes in the bank’s expenses. Some agreements contain such clauses, and an increase in the tax burden may be grounds for revising the loan price even under the current agreement.
- Bank shareholders will receive a separate analysis. If your company is a shareholder of a banking institution or plans to receive dividends from it in 2026, the mechanism of advance payment requires a detailed calculation before the decision on profit distribution is made. What looks attractive “before taxes” may change significantly “after”.
- For banks themselves, it is an audit of the tax base. If you have accumulated losses from previous years, you need to clearly understand their amount and legal nature: which ones are subject to the prohibition of carryforwards in 2026 and which ones can be taken into account from 2027. This has a direct impact on current tax planning and provisions.
- Review the sources of funding. If your business is heavily dependent on bank lending, 2026 is the time to evaluate alternative instruments: bond loans, leasing, and capital raising. Not because bank lending will disappear, but because its terms and availability may deteriorate.
Law No. 4698-IX is a wartime decision, and this must be recognized directly. The state needs resources, the banking sector makes a profit, and the mechanism for raising funds is obvious.
But there is a question that remains open and has legal significance: is this rate a temporary measure with a clear horizon, or will it become a new “norm” for the sector? The law is formulated as a norm for 2026, but the lack of a clear mechanism for returning to the base rates and the precedent of a gradual increase (from 18% to 25% and then to 50%) is a signal that the market is already reading.
For banks, their shareholders and corporate clients, the next few quarters will be a time of adaptation. Those who do so consciously – with a full understanding of the regulations and their implications – will have a significant advantage over those who simply “wait and see.”
