Taxation on foreign income received for a resident of Ukraine

Regulatory framework:

  • Tax Code of Ukraine;
  • Code of Ukraine on administrative offenses;
  • Law of Ukraine “On Payment Systems and Money Transfer in Ukraine” dated April 05, 2001 № 2346;
  • Order of the Ministry of Finance of Ukraine “On Approval of the Form of Tax Return on Property Status and Income and Instruction on filling in the Tax Return on Property Status and Income” dated October 02, 2015 № 859.

GENERAL PROVISIONS ON TAXES

  1. You are a citizen of Ukraine, and funds received in rubles will be sent to you as a foreign payment. What does his taxation mean for you. Citizens of Ukraine who work, temporarily or permanently abroad, or receive financial assistance from any persons (including foreigners) must declare their income both Ukrainian and foreign.
  2. Citizens who received income during the year fall under the declaration, and tax on such income was not levied.
  3. According to Article 14 of the Tax Code: income received from sources outside Ukraine is any income received by residents, including from any types of their activities outside the customs territory of Ukraine, including interest, dividends, royalties and any other types of passive income, inheritance, gifts, winnings, prizes, income from the execution of works (provision of services) under civil and labor contracts, from renting to residents (use) of property located outside Ukraine, including rolling stock of transport assigned to ports located outside Ukraine, income from the sale of property located outside Ukraine, income from the alienation of investment assets, including corporate rights, securities, etc.; other income from any activity outside the customs territory of Ukraine or territories uncontrolled by controlling authorities.
  4. Individual income tax payers in accordance with paragraph 162.1.1 of paragraph. 162.1 of Article 162 of the Code are individuals – citizens of Ukraine who receive foreign income.
  5. The object of taxation in accordance with Article 163 of the Code is income obtained from sources outside Ukraine.

AMOUNT OF TAX LIABILITIES

  1. The taxpayer, who receives income from a person who is not a tax agent, and foreign income, is obliged to include the amount of such income in the total annual taxable income and file a tax return on the consequences of the reporting tax year, as well as pay tax on such income (paragraph 168.2. 1 Article 168 of the Tax Code of Ukraine);
  2. During the accrual (receipt) of income received in the form of currency values or other assets (the cost of which is expressed in foreign currency or international settlement units), such income is transferred in UAH at the currency exchange rate of the NBU, which acts at the time of accrual (receipt) of such income (paragraph 164.4 of Article 164 of the Tax Code of Ukraine).
  3. The procedure for taxation of foreign incomes of individuals is established in para. 170.11 of Article 170 of the Tax Code of Ukraine, paragraph 170.11.1 which provides that if the source of payments of any taxable income is foreign, the amount of such income is included in the total annual taxable income of the taxpayer – the recipient, who is obliged to submit an annual tax return, and is taxed by the personal income tax (personal income tax) at the rate defined in paragraph 167.1 of Article 167 of the Tax Code of Ukraine (18%). In addition, foreign income is subject to taxation by a military fee (1.5%). That is, the TAX RATE is 19.5% according to the results of the year.

TAX REPORTING

  1. According to Article 164 of the Tax Code of Ukraine, upon accrual (receipt) of income received in the form of currency values or other assets (the cost of which is expressed in foreign currency or international settlement units), such income is transferred in hryvnia at the exchange rate of the National Bank of Ukraine, acting at the time of accrual (receipt) of such income. According to Article 171 of the Tax Code of Ukraine, the taxpayer is independently responsible for transferring funds and submitting a declaration to the tax authority. Citizens who received foreign income and are abroad can send a declaration by mail, or electronically, or contact the embassy or consulate.
  2. It should be noted that the transfer of funds through banks and collection of a certain amount is the payment of the bank for the service performed, not the payment of income tax, in accordance with Article 1 of the Law of Ukraine of April 5, 2001 № 2346 “On payment systems and money transfer in Ukraine.” The amount of income from sources outside Ukraine is transferred to hryvnia at the exchange rate of the National Bank of Ukraine, operating at the time of receipt of such income. Tax return by individual income tax payers shall be submitted for the reporting period – 1 calendar year, until May 01, following the reporting year.
  3. The amount of tax is set in accordance with the rules and rates in force at the time of accrual of income. If according to the norms of international treaties, the consent to the obligation of which is granted by the Verkhovna Rada of Ukraine, the taxpayer can reduce the amount of the annual tax liability in the amount of taxes paid abroad, he determines the amount of such a decrease according to these grounds in the tax return. Instructions for completing the tax return can be found on the official website of the State Fiscal Service at: Website

HOW TO AVOID DOUBLE TAXATION

At the same time, it should be noted that between the Government of Ukraine and the governments of other foreign countries there are international treaties on avoidance of double taxation (they are also between Ukraine and the Russian Federation).

In order to apply the international treaties of Ukraine on avoiding double taxation of individuals of Ukraine, citizens who receive income outside Ukraine must confirm the status of a tax resident of Ukraine.

In order to obtain the right to transfer taxes and fees paid outside Ukraine, the taxpayer is obliged to obtain from the state body of the country where such income (profit) is received, authorized to charge such tax, a certificate of the amount of paid tax and fee, as well as the base and/or object of taxation.

This certificate is subject to legalization in the relevant country, the relevant foreign diplomatic institution of Ukraine, unless otherwise stipulated by the international treaties of Ukraine.

RESPONSIBILITY FOR EVASION OF FILING THE DECLARATION

  1. For delaying tax payments, a fine may be applied to the taxpayer in accordance with Article 126 of the Tax Code of Ukraine. In addition, the amount of tax debt is charged.
  2. There is also a responsibility for failure to submit or improper submission of the taxpayer’s Declaration – an individual may be liable according to these articles (citations from the Code of Administrative Violations):
  • administrative liability under Article 164 (1) of the Code of Ukraine on administrative offenses, which entails imposing a fine in the amount of three to eight tax-free minimum incomes of citizens. For the same actions committed by a person who during the year was subject to administrative charges for the same violation, entail imposing a fine of five to eight tax-free minimum incomes of citizens.
  • financial liability for paragraph 120.1 of the Tax Code of Ukraine, which is 170 UAH for each such failure or late submission. For the same actions committed by the taxpayer, to which a fine for such violation was applied during the year, entail imposing a fine of 1020 UAH.

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