Publication date: 15.07.2024
Tax liabilities of foreigners in Ukraine
Introduction
Tax liabilities of foreigners in Ukraine are an important part of the country's legal system. Foreigners who reside or conduct business in Ukraine are subject to tax legislation that establishes the procedure for taxation of their income, property and other assets. In this article, we will review the main aspects of tax liabilities of foreigners in Ukraine, including tax residency status, types of taxes, taxation procedures, international double taxation treaties and court practice in this area.
Legal framework
The tax legislation of Ukraine is governed by the Tax Code of Ukraine, other laws and regulations, as well as international treaties ratified by Ukraine. The main principles of the tax system are legality, equality, fairness, neutrality and transparency. Foreigners residing in Ukraine or receiving income from sources in Ukraine are obliged to comply with these principles and fulfil their tax obligations in accordance with the law.
Tax residency
Tax residency status is a key factor determining the scope of a foreigner's tax liabilities in Ukraine. In accordance with the Tax Code of Ukraine, an individual is considered a tax resident of Ukraine if he or she meets one of the following criteria:
- Resides in Ukraine for more than 183 days in a calendar year.
- Has a permanent place of residence in Ukraine.
- Has a centre of vital interests in Ukraine (personal or economic ties).
- Is a citizen of Ukraine.
A tax resident of Ukraine is taxed on global income, i.e. on all income received from sources both in Ukraine and abroad. Foreigners who are not tax residents of Ukraine are taxed only on income derived from sources in Ukraine.
Types of taxes
Foreigners residing or operating in Ukraine are subject to various types of taxes, including
Personalincome tax (PIT): PIT is the main tax paid by individuals, including foreigners. The personal income tax rate in Ukraine is 18% for most types of income, as well as 1.5% military duty. Foreigners who are tax residents pay personal income tax on all their income earned both in Ukraine and abroad. Foreigners who are not tax residents are subject to personal income tax only on income derived from sources in Ukraine.
Corporate income tax: Foreign companies operating in Ukraine through permanent establishments are subject to corporate income tax. The corporate income tax rate in Ukraine is 18%.
Valueadded tax (VAT): Foreigners conducting business activities in Ukraine and being VAT payers are obliged to pay this tax. The general VAT rate in Ukraine is 20%, with reduced rates of 7% or 0% for certain types of transactions.
Real estatetax: Foreigners who own real estate in Ukraine are subject to real estate tax. The amount of tax depends on the area and value of the property.
Land tax: Foreigners who own or use land plots in Ukraine are subject to land tax. The tax rate depends on the category of land and its location.
Taxation procedures.
Foreigners who are tax residents of Ukraine or who receive income from sources in Ukraine are required to comply with certain taxation procedures, including
Registration as a taxpayer: Foreigners conducting business activities in Ukraine are required to register as taxpayers with the tax authorities at the place of their business or residence.
Filingtax returns: Foreigners who receive income from sources in Ukraine are required to file tax returns with the tax authorities. Declarations are submitted annually by 1 May of the year following the reporting year.
Payment of taxes: Foreigners are obliged to pay taxes specified in tax declarations or tax assessment notices in a timely manner. Tax payment deadlines are set by law or by the tax authorities.
Reporting and document flow: Foreigners conducting business activities in Ukraine are required to maintain accounting records and submit financial statements to the tax authorities in accordance with the requirements of the law.
International agreements for the avoidance of double taxation
Ukraine has concluded international double taxation treaties with many countries. These treaties regulate the taxation of income earned by residents of one country in the territory of another country and prevent double taxation of the same income. The main provisions of such agreements include:
Division oftaxation powers: The treaties determine which country has the right to tax certain types of income (e.g., income from labour, business, dividends, interest, royalties, etc.).
Application of tax rates: The treaties establish the maximum tax rates that may be applied to the income of residents of one country in the territory of the other country.
Mutual recognition of taxes: The treaties provide for mechanisms of mutual recognition of taxes paid in the country of origin of income and reduction of tax liabilities in the country of residence.
Dispute resolution: The treaties set out the procedures for resolving disputes between the countries regarding the interpretation and application of the provisions of the treaties.
Court practice
The court practice in the area of tax liabilities of foreigners in Ukraine shows real cases of dispute resolution and protection of taxpayers' rights. Here are some examples of court cases:
Case on tax residency status
In this case, a foreigner challenged a tax authority's decision to recognise him as a tax resident of Ukraine. The foreigner claimed that he had not resided in Ukraine for more than 183 days in the reporting year and did not have a permanent residence in Ukraine. The court, having considered the evidence, found that the foreigner did not meet the criteria for tax residency and satisfied his claim.
Case on taxation of income from real estate lease
In this case, a foreigner challenged a tax authority's decision to impose personal income tax on income from the rental of real estate located in Ukraine. The foreigner argued that under an international double taxation treaty, such income should be taxed in his country of residence. The court, having examined the provisions of the treaty, found that income from real estate lease is subject to taxation in Ukraine and dismissed the claim.
Case on payment of income tax by a permanent establishment of a foreign company
In this case, the tax authority assessed income tax to a permanent establishment of a foreign company in Ukraine. The company challenged this decision, arguing that its activities did not constitute a permanent establishment under the provisions of an international double taxation treaty. The court, having considered the evidence and the provisions of the treaty, found that the company's activities did create a permanent establishment and dismissed the claim.
Conclusion.
Tax obligations of foreigners in Ukraine are an important aspect of the legal system, which is regulated by the Tax Code of Ukraine, other laws and international agreements. Foreigners residing or operating in Ukraine are required to comply with tax legislation, register as taxpayers, file tax returns and pay taxes. International agreements on the avoidance of double taxation provide protection against double taxation and set out the rules for taxation of foreigners' income.
The court practice shows real cases of dispute resolution and protection of taxpayers' rights, which confirms the importance of compliance with the law and correct application of the provisions of international agreements. Further improvement of the tax legislation and its application practice is essential to ensure efficient and fair taxation of foreigners in Ukraine.
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