In times of economic instability and increasing tax burden, more and more Ukrainian entrepreneurs are considering how to legally stop paying taxes in Ukraine and move their business to a more favorable tax jurisdiction. This is not a simple process and requires a clear understanding of legal aspects, but it is entirely possible and can significantly reduce the financial burden on your business.
In this article, we will look at how to “renounce” tax residency in Ukraine, choose a new country for business registration, and minimize tax liabilities by taking advantage of various jurisdictions.
Renouncing Tax Residency in Ukraine: What It Is and How It Works
Tax residency determines in which country you are required to pay taxes on your income.
Ukrainian law considers you a tax resident if:
- You spend more than 183 days in Ukraine per year.
- You have a center of vital interests in Ukraine.
- Your main place of residence or source of income is in Ukraine.
How to Renounce Tax Residency in Ukraine?
Relocating to Another Country: Moving to a country with a more favorable tax climate is the first step. It is important that your stay in the new country is supported by relevant documents, such as a rental agreement or property purchase.
Changing the Location of Your Main Business and Assets: Your company must be registered in the new jurisdiction, and your main assets should be moved outside of Ukraine. This will ensure that your business is no longer subject to Ukrainian tax laws.
Obtaining Tax Residency in Another Country: To legally renounce Ukrainian tax residency, you must obtain tax residency in the new country, including acquiring a local tax number and confirming residence for a sufficient period.
Choosing a New Tax Jurisdiction for Your Business
When selecting a country for new tax residency and business registration, it is important to consider several factors: tax rates, the jurisdiction’s reputation, reporting requirements, and opportunities for business development.
Let’s take a look at some popular options:
Portugal
Portugal offers a special tax regime for new residents called the Non-Habitual Resident (NHR), which allows for a significant reduction in tax burdens on income earned outside Portugal for the first 10 years of residency.
Benefits of NHR include:
- No taxes on most foreign income.
- Reduced tax rate on labor income (20% tax for IT, etc.).
- No wealth or inheritance taxes.
Cyprus
Cyprus is a well-known choice for business ventures registration due to its attractive corporate tax rate (12.5%), no dividend tax for non-residents, and multiple double taxation avoidance agreements with many countries.
Key buns of Cyprus:
Reducing Tax Burden by Registering in Countries with Favorable Tax Climates
Another option is registering your business in countries with zero or minimal corporate taxes, such as the UAE, Bahamas, or British Virgin Islands. However, it’s important to understand that such jurisdictions may carry reputational risks and do not always provide the same level of access to international markets as European countries.
Key Aspects of Choosing a Tax Jurisdiction:
- Tax Rates: Check the tax rates on income, dividends, capital gains, etc.
- Double Taxation Avoidance Agreements: Choose jurisdictions that have such agreements with your country.
- Jurisdiction Reputation: Avoid countries that may be recognized as tax havens, which could involve high reputational risks.
- Regulatory Environment: Ensure that the selected country has a stable and predictable legal framework.
Legal Aspects of Exiting the Ukrainian Tax System
It is important not only to change the location of your business registration but also to properly complete all legal and tax obligations in Ukraine to avoid fines and legal issues in the future.
- Closing FOP or LLC: If the business operates as an FOP or LLC in Ukraine, it is necessary to undergo the liquidation or reorganization procedure.
- Settling Tax Obligations: All taxes and fees must be paid before the business is closed, and all necessary reports must be submitted to the tax authorities.
- Compliance with Currency Control Laws: When transferring assets abroad, it is necessary to comply with currency control regulations to avoid sanctions.
Legalizing your business abroad and renouncing tax residency in Ukraine is a process that requires careful planning and legal support. Turning to experienced professionals will help you avoid mistakes and maximize the benefits of changing tax jurisdictions.
LFT Advisors offers comprehensive services for business registration abroad, tax structuring, and legal support in the process of changing tax residency. We will help you not only legally reduce your taxes but also protect your assets and ensure the stable development of your business in the international arena.
Contact us for a personalized consultation and start your journey to effective tax planning today!
