Tax Status of Ukrainians Abroad
What is important to consider?
Many Ukrainian citizens are forced to stay abroad due to a full-scale Russian invasion. Some were there before the war and could not return, others had to leave Ukraine after February 24. It is clear that something is very difficult to predict at the moment and it can happen that, depending on your circumstances, your stay abroad can be long.
Once you have settled the main issues of your forced relocation (search for housing, registration of the necessary documents, etc.), we advise you to consider the future - and, in particular, your tax status . That's why it can be important.
1. You can become a tax resident of your country of residence
A long stay in a foreign country can make you its tax resident. In most cases, this means that this country will want to tax all your income, wherever you receive it: in this country or in any other (including Ukraine). That is, if you continue to work as an employee or perform some work as an independent contractor, or you are a business or real estate owner, or an investor in financial instruments, or you are an IT specialist who is a member of a corporate stock / option plan, or decide to sell your property in Ukraine to have the means to live - any state, even the friendliest and friendliest, may want to tax your income or property.
How long is the stay? Most often you can meet the term of 183 days. Many countries use this test: if you stay in a country for more than 183 days, you become a tax resident. However, some countries use more sophisticated tests that take into account more than just the number of days of stay. In some countries, if you have a family in that country or your children have gone to a local school, 90 days a year may be enough to be considered a tax resident. In the UK, for example, the more connections you have with the country (housing, family, work, etc.), the fewer days you have to stay there to be considered a resident. Some countries may presume that you have received the status of a tax resident based solely on the fact of registration of your place of residence in these countries. Example,
Is compulsion taken into account? This factor can really be taken into account. Two years ago, the world faced a similar problem when many people were forced to stay abroad because of the coronavirus pandemic. At that time, some countries recognized that the period of forced stay should not be taken into account when calculating the period sufficient to acquire the status of a tax resident. However, so far we have not encountered similar official explanations regarding the war in Ukraine.
2. You can be considered a resident both in Ukraine and in your new country
It is known that Ukraine is reluctant to "release" its tax residents. For example, in Ukraine it is not enough just to be outside the country for more than 183 days to lose tax residency. When you left Ukraine, you were unlikely to register for permanent residence abroad, so you formally continue to live and, as a result, are considered a resident of Ukraine. In addition, many of you can be registered as natural persons - entrepreneurs in Ukraine, which is an independent unconditional sign of tax residency in Ukraine. However, this does not prevent you from being a resident in another country (on the grounds listed above).
That is, you can have the status of "double tax resident". This creates a risk of double taxation - because both Ukraine and your new country will believe that they have the right to tax all your income. In this case, double taxation agreements can come to the rescue. They usually settle the issue when there is competition between countries for you as a resident (or rather, competition for part of your income in the form of taxes).
Ukraine has such agreements with many countries, including all EU countries. However, it should be remembered that agreements with different countries may differ. In addition, the agreements apply rather subjective criteria, which may be interpreted differently in different countries - much depends on the practice of applying the agreements. The application of an agreement is always an individual case, which depends on the specific circumstances and how developed the jurisdiction is.
3. Tax liabilities in a new country may arise even if you do not become a resident
Acquiring residency is not the only basis for taxing your income. Here are some examples.
You work as an employee and get paid. If you work for an employer from one country (for example, you continue to work for a Ukrainian company) while physically in another country, that country may tax your wages. Double taxation agreements can also help here. However, they also allow a new country to tax your salary under certain conditions (according to the most common rule - if you are physically in the country for more than 183 days during any 12-month period). Here you can also talk about the compulsion of your stay, but whether such an argument will be accepted by local tax authorities - depends only on local law and practice.
You provide services as an independent contractor or consultant or entrepreneur (particularly as a sole proprietor) and continue to receive revenue from customers. If you provide services while physically located in another country, that country may tax your business income. The rule "183 days", as for the salary, does not apply here. In addition, you may be required to register for VAT purposes in that country and to charge such VAT and other registrations. For example, a number of our sole proprietors have continued their IT or consulting activities abroad using the Ukrainian single tax, but in foreign countries these taxes are subject to other taxes that must be paid there.
You are a director of a company. If you are a director of a company that is foreign to your new country of residence, and you continue to perform your functions, you can establish a permanent representative office for this company or even create conditions for the tax resident of your country of residence not only you but also yours. companies. This will allow the country of your stay to tax your company's profits. Potential tax liabilities in this case do not arise in you personally, but in your company.
You work in show business, sports or entertainment. This is a very specific area that has its own characteristics in terms of tax structuring. But if you work in this field and perform outside of Ukraine, you should keep in mind that your income from these performances may be taxed in the country where they are held. Therefore, you may be personally required to declare your income and pay tax.
4. If you own a business, local CIC rules may apply to you
Even if you do not currently have any income, but you own a business (significant shares in legal entities that are foreign to your country of residence), you may incur tax liabilities in the new country. You've probably heard of the "KIC rules" - when a country taxes the retained earnings of foreign companies owned by a resident of that country. Such rules have only recently taken effect in Ukraine, but they have existed for a long time in many countries around the world.
So, if you are a business owner and a resident of a new country, you should assess whether there are CIC rules in it and whether they affect you. For example, your Ukrainian company may be taxed under foreign rules because you (its owner) have become a resident of another state and that state considers Ukrainian companies to be your foreign companies to which its retained earnings tax rules may apply.
5. If you have large assets, they may be subject to wealth tax
Some countries (for example, Spain) tax the wealth of individuals. Of course, this mainly applies to wealthy citizens whose asset value exceeds a certain limit. Wealth taxes can be applied to both residents (asset value worldwide) and non-residents (asset value located in that country). So, even if you do not plan to acquire the residence of a country, but are thinking about buying real estate in it, you should consider the presence of such taxes.
In general, I would like to congratulate you - if this material is relevant to your situation, then you are a happy person, because you have either a job or other income, which is currently not the case with many of our compatriots. Therefore, it is a kind of pleasant problem (in comparison, of course). In addition, I will add that many countries where our Ukrainians go have their own tax exemptions and preferential regimes, or can support such interpretations of their legislation that will not lead to the taxation of your income there. This is a matter of individual analysis of each case.