In the evolving global environment, where many Ukrainians have been compelled to engage in entrepreneurial activities beyond their national borders, understanding fiscal responsibilities becomes crucial. Despite conducting business internationally, if you remain a Ukrainian tax resident, your obligations under national law continue to apply. This article sheds light on the essential aspects of fiscal compliance, clarifying how, when, and which obligations must be rendered to Ukraine.
Tax Residency in Ukraine
As per Ukrainian regulations, an individual qualifies as a tax resident if they spend a significant portion of the year within the country or maintain substantial personal or commercial ties, such as family or primary revenue sources. Residing within the nation for more than 183 days annually or having vital personal interests, including family, employment etc. in Ukraine generally designates one as a tax resident for fiscal purposes.
While holding Ukrainian citizenship is not the sole determining factor for tax residency, citizens often continue to be classified as residents, even if temporarily based abroad, particularly when they maintain strong connections to their homeland. Entrepreneurs registered as sole proprietors in Ukraine automatically assume tax residency status, which entails the duty to meet domestic tax responsibilities.
Handling Revenue Generated Internationally
Those considered Ukrainian tax residents are required to declare their worldwide income and remit taxes on all earnings, irrespective of the source. This includes income from business operations, salaries, investments, and any other financial gains derived from outside the country.
If you are registered as a sole proprietor in Ukraine and generate revenue internationally—including funds gained via digital banking platforms—this revenue falls under Ukrainian taxation. The tax rates in such scenarios can exceed those applied to earnings deposited into domestic accounts. Specifically, revenues transferred to foreign accounts are taxed at 18% for personal income tax (PIT), along with a 1.5% military contribution, which is substantially higher than the 5% (or 2%) rate applied to simplified taxation systems for sole proprietors.
To have your earnings taxed under the Ukrainian regime, they must be transferred into Ukrainian banking accounts within the relevant tax period during which the income was earned.
Simultaneously, the state where your business takes place may impose its tax obligations, leading to potential instances of a double tax burden.
Implications of Registering Your Venture Abroad
If one’s entrepreneurial venture is registered in an overseas state, the local fiscal authorities will likely demand compliance with domestic fiscal laws. Ukraine state has established agreements with many nations, including Italy, Hungary, Germany, Poland, and others, aimed at preventing double taxation. These treaties allow for tax payments made within foreign territories to be credited against levies due in Ukraine. To take advantage of this provision, one must provide official documentation confirming the income earned and taxes paid abroad.
In cases where the country where your business is registered lacks the mentioned agreement with Ukraine, levies may be enforced twice—both in the foreign country and domestically in Ukraine. Consequently, it is vital to verify whether a tax agreement is in place with the country in which you intend to operate and to familiarize yourself with the specific rates and rules that may apply.
Military Contribution: A Non-Negotiable Duty
It is important to note that none of such treaties exempt individuals from the obligation to pay the military contribution. This means that even if one’s has settled levy dues internationally, one is still required to contribute 1.5% of your foreign income to Ukraine’s military levy. Ukrainian tax authorities have clarified that taxes paid in other countries do not count towards this levy.
Deadlines for Filing and Paying Taxes
Adhering to filing deadlines and making timely payments is crucial for avoiding penalties. For individual taxpayers, income declarations for the prior year must be submitted by May 1, with tax payments due by August 1. These deadlines apply equally to income generated outside Ukraine.
For sole proprietors, the filing and payment deadlines are dependent on the tax system they have selected. In foreign jurisdictions, deadlines can vary widely, so it is essential to familiarize yourself with local fiscal laws to ensure adherence.
How We Can Assist You
Our expert team of legal and tax professionals is ready to assist you in determining your residency status and navigating the complexities of global taxation policies. We provide comprehensive consultations on filing tax returns, preparing documents to mitigate double taxation, and addressing any other tax-related concerns. Reach out to us for expert guidance, enabling you to efficiently manage your tax liabilities while concentrating on the growth and success of your business.
