Tax residency. How do Ukrainians pay taxes abroad.

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Kaploukh Victoria

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Publication date: 05.06.2024

Tax residency determines in which country a person must pay taxes. For Ukrainians who temporarily or permanently live abroad, it is important to understand the tax residency rules of both countries in order to avoid double taxation and fulfill their tax obligations.

1. 1. Definition of tax residency.
   Ukraine:
   • A person is considered a tax resident of Ukraine if he has a permanent place of residence in Ukraine.
   • If the permanent place of residence is in another country, a person can be recognized as a resident if he stays in Ukraine for 183 days or more during a calendar year.
   • The location of the center of vital interests (family, work, business) is also taken into account.
   Other countries:
   • Each country has its own rules for determining tax residency. This usually also includes a criterion of 183 days or permanent residence.
   
   2. Avoidance of double taxation
   Ukraine has agreements on avoidance of double taxation with many countries. These agreements include:
   • Rules for determining residency, if a person is considered a resident of both countries.
   • Double taxation elimination mechanisms (for example, offsetting of paid taxes or exemption from taxes).
   
   3. Payment of taxes abroad.
   Recommendations for Ukrainians:
   1. Find out your tax residency: Study the rules of both countries to understand where you have to pay taxes.
   2. Consult tax advisors: Consult tax law specialists in both countries.
   3. Take into account agreements on avoidance of double taxation: Find out whether there is an agreement between Ukraine and the country of your stay.
   4. File tax returns in both countries: Even if you are not a tax resident of Ukraine, you may need to file a return to report income and taxes paid abroad.
   5. Pay the right taxes: Make sure you pay taxes according to the laws of both countries.
   
   4.Tax reporting in Ukraine.
   If you are a tax resident of Ukraine:
   • You are required to declare all your income, including those received abroad.
   • You are entitled to a credit for taxes paid abroad under double taxation agreements.
   If you are not a tax resident of Ukraine:
   • You declare only income received in Ukraine.
   
   Examples.
   Example 1: You live and work in Germany for more than 183 days a year. In this case, you may be considered a tax resident of Germany and must pay taxes there. However, you may still need to file a return in Ukraine and benefit from a double taxation agreement.
   Example 2: You work in Ukraine, but you often go to Poland for short periods (less than 183 days a year). You remain a tax resident of Ukraine and pay taxes in Ukraine, and declare income in Poland as foreign income.

Confirmation of tax residency is an important step for avoiding double taxation and correct fulfillment of tax obligations. To prove your tax residency, it is usually necessary to obtain a relevant document from the tax authorities of the country in which you are a resident. Here's how to do it:

1. In Ukraine.
   Obtaining a tax residency certificate:
   1. Application submission: Submit an application to the local tax authority (State Tax Service of Ukraine). A sample application can usually be found on the official website of the tax service.
   2. Submission of documents: Usually it is necessary to submit:
   Passport of a citizen of Ukraine.
   Certificate of residence registration.
   Other documents confirming your income and residence in Ukraine.
   3. Obtaining a certificate: After considering the application, you will be issued a certificate of tax residency, which confirms that you are a resident of Ukraine for tax purposes.
   
   Abroad.
   Obtaining a certificate of tax residency in another country:
   1. Contacting the tax authority: Contact the local tax authority of the country where you live.
   2. Submitting an application: Submit an application for a certificate of tax residency. This process may differ in different countries, so check the requirements on the official website of the tax authority.
   3. Submission of documents: Usually required:
   Passport or other identity document.
   Certificate of residence registration.
   Documents confirming your income and payment of taxes in this country.
   4. Obtaining a certificate: After considering the application, you will receive a certificate of tax residency of this country.
   
   International agreements.
   Use of double taxation agreements:
   1. Checking the existence of an agreement: Check whether there is an agreement on the avoidance of double taxation between Ukraine and the country of your residence. The list of such agreements can be found on the official website of the State Tax Service of Ukraine.
   2.Submission of a certificate to another country: If there is an agreement, a certificate of tax residency of Ukraine can be submitted to the tax authorities of another country to avoid double taxation.
   
   General advice.
   1. Consultation with a tax consultant: To avoid mistakes and ensure that all procedures are carried out correctly, consult a tax consultant or lawyer.
   2. Retention of documents: Always keep copies of all documents related to your tax residency in case of verification or clarification.

The determination of tax residency depends on several key factors, which can vary from country to country. Here are the main ones:

1. The main factors for determining tax residency.
   Duration of stay in the country:
   • Many countries use the 183-day rule: if you stay in a country for 183 days or more in a calendar year, you are considered a tax resident of that country.
   Domicile:
   • If you have a permanent residence in a certain country, you may be considered a tax resident of that country.
   Life interests center:
   • This includes your main place of residence, your family's place of residence, your main place of work or business. The center of vital interests often determines your country of tax residency.
   Financial and social connections:
   • Availability of bank accounts, ownership of property, social ties (place of education of children, participation in local communities, etc.) can influence the determination of residency.
   Citizenship:
   • In some countries, citizenship automatically means tax residency, although this is not the main criterion in most countries.
   
   In Ukraine.
   The following criteria are used to determine tax residency in Ukraine:
   Permanent place of residence in Ukraine:
   • A person who has a permanent place of residence in Ukraine is considered its tax resident.
   Stay in Ukraine for 183 days or more:
   • If a person stays in Ukraine for 183 days or more during a calendar year, he is recognized as a tax resident of Ukraine.
   Life interests center:
   • If you have vital interests in Ukraine (family, business, etc.), this may also indicate your tax residency.
   
   In other countries.
   Each country has its own rules for determining tax residency.Here are some examples:
   USA:
   • Uses the substantial presence rule, which includes being in the country for 183 days in the past three years.
   Great Britain:
   • Has a complex system that takes into account the number of days of stay, availability of housing, work, family ties and other factors.
   Canada:
   • Determines residency based on life circumstances, such as having a permanent home, family members, property, and social connections.
   
   Agreements on avoidance of double taxation.
   If you are a resident of two countries, double taxation agreements help to determine in which country you must pay taxes. They usually contain provisions regarding:
   • Determination of residency in case of dual residency.
   • Offsetting or exemption from paying taxes in the second country.
   
   Advice.
   1. Consult with tax advisors: Tax laws can be complex, so it is better to consult with experts.
   2. Keep your documents: Keep all documents proving your residence, income and tax payment.
   3. Familiarize yourself with the local rules: Study the rules for determining tax residency in the country where you live or work.
   
   The Ministry of Finance of Ukraine has developed a questionnaire describing possible situations in which citizens of Ukraine find themselves abroad. You can read the clarifications received from foreign countries at the following link: http://surl.li/grhlf.