How to declare and pay taxes to Ukrainian refugees abroad
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Every year on January 1 and before May 1, a citizen of Ukraine must submit an annual declaration of assets and income for the previous year to the State Tax Service (SST).
Until 2022, an average of 600,000-700,000 such declarations were submitted every year, which in most cases concerned: civil servants; natural persons engaged in independent professional activity; income from which tax has not been paid; recalculation of the tax liability in connection with obtaining the right to a tax discount, etc.
According to the results of the declaration campaign, a recalculation was carried out for each individual, and the state budget received an additional several billion hryvnias. For example, for 2021 – 2.5 billion UAH, for 2020 – 2.2 billion UAH.
There is a separate reason for submitting such a declaration p.p. 170.11.1, Clause 170.11 of Art. 170 of the Tax Code (PKU), which states that citizens must declare their foreign income.
As a result of the war, only a few left Ukraine for the European Union 7.9 million peoplemainly women with minor children, then these internally displaced persons (IDPs) must submit declarations to the DPS by the above-mentioned date.
Of course, if they plan to remain citizens of Ukraine.
Who should declare?
So, we have the first fact, which is that the number of annual declarations of natural persons should increase significantly in 2023 compared to previous years. We do not take 2022 into account, because there was a relaxation of the requirements of the law regarding the submission of a declaration in connection with objective circumstances.
For the majority of our compatriots who have left Ukraine, the main source of their foreign income is financial and other material assistance from the states that have sheltered them, as well as labor income. The option of significant savings, which would be enough to live in any EU country for almost a year, cannot be seriously considered.
The price and exchange rate factor are the main ones here. In addition, the majority of our compatriots even before the start of a full-scale war had savings for three to four months without a job in Ukraine, not to mention the European Union.
Therefore, those Ukrainians who are in EU countries by definition have foreign income, because they live either on social assistance or are already employed and receive labor income. We do not consider those who work informally, since the tax authorities of the countries where they are located will probably help them to declare income and pay taxes.
It should be noted that according to Clause 27 of Subsection 1 of Chapter XX of the PKU, aid from the budgets of the countries that sheltered Ukrainians for 2022 and 2023 is not taxable. However, citizens must declare such funds and submit a declaration, which can be done through electronic account of the taxpayer.
That is why the number of declarations submitted this year may increase significantly. At least up to several million. If this does not happen, it will be a wake-up call for the Ukrainian authorities.
But the most interesting thing concerns labor income, which is already subject to taxation. The tax authorities of the host country and the DPS should pay attention to them. This is where the norms of international tax law come into force, which have a higher legal force than Ukrainian legislation (item 2, article 3, section 1 of the PKU).
Agreements on the avoidance of double taxation, although they are “model”, but contain many nuances in terms of the number of internally displaced persons and entire families. That is, there are a large number of individual stories.
However, all of them can be reduced to several typical situations: ZPO, which receives assistance from state funds; VPOs who receive assistance and/or continue to work in a Ukrainian company; VPOs who work officially for a foreign employer (as a rule, in most countries, assistance is withdrawn in such cases).
For the first in Ukraine, tax obligations do not arise, for the second – taxes have already been paid at the source of income (we do not consider dishonest ones), so again there are no obligations, but the third category of our compatriots may have tax obligations to the state budget of Ukraine .
How much to pay?
In general, everything depends on the model, or rather their differences, between personal income tax and personal income tax in the country of residence, as well as on the presence of the above-mentioned nuances in agreements on the avoidance of double taxation between Ukraine and the country of residence of the foreign worker.
The criteria for determining which country a person is a tax resident of is described in simple language here.
Separately, it is necessary to draw the attention of natural persons – entrepreneurs to the fact that agreements on the avoidance of double taxation concluded by Ukraine usually do not cover the single tax at all (that is, it cannot be counted against the taxes paid). This norm, as a rule, concerns the military levy.
This increases the combined tax burden on a person who has income in different countries. For example, this may apply to a significant number of our compatriots who are non-residents of Ukraine, but are registered in Ukraine as a sole proprietorship and receive income from renting out property.
If you decide to change your tax residency and not submit a declaration in Ukraine, it is your choice. But remember that then the tax authorities of the countries where you are (Germany, Poland, Czech Republic, France, etc.) may be interested in your taxable income. And they, in contrast to DPS, to put it mildly, will not pounce!
So, once again briefly, if you do not plan to remain a tax resident of Ukraine, then your further fate will be dealt with by the relevant regulatory authorities of the countries where you are located. If you do plan to remain a tax resident of Ukraine, you must, at least, submit a declaration by May 1, 2023, provided that you received assistance or official income from work in the country of your stay. I think this applies to most VPOs.
At the same time, it should be remembered that according to paragraphs 1 clause 3 of Article 102 of the Criminal Code “The counting of the limitation period is stopped for any period during which the taxpayer is outside Ukraine, if such stay is continuous and is equal to or greater than 183 days.
In addition, this whole story begins to shine with new colors due to the fact that there are significant differences between the models of personal income taxes in Ukraine and most EU countries. They are of key importance in determining the tax obligations of foreign nationals who have decided to remain tax residents of Ukraine.
Thus, when determining the presence or absence of tax obligations of the ZPO, one should proceed not from a comparison of the first (minimum) tax rates, but from what is written in each separate agreement on the avoidance of double taxation between Ukraine and the specific country of your stay.
There, as a rule, it is written that the tax paid by you abroad will be “a discount in the form of a credit against any Ukrainian tax calculated in respect of the same profit, income or property in respect of which the Ukrainian tax is calculated”.
For some reason, it is accidentally considered that if the rate is higher, then there are no obligations. For example, in Poland, which sheltered the largest of our compatriots, the first tax rate is 12%.
In this regard, your tax obligations, regardless of even the size of the tax rate, in the host country may be significantly lower than if they were calculated according to the rules and regulations of the PKU. This means that you have certain tax obligations to the Ukrainian budget.
The tax paid abroad will be credited when recalculating the payment of personal income tax for the previous year, provided that you have taken the certificate of income, translated it, notarized it and submitted the declaration through the electronic office, but no more.
You can see exactly which model of personal income tax in your country of residence (for the EU). herewhich presents the main elements of the tax that must be taken into account when determining the tax liability of the taxpayer, including rates, deductions, discounts and credits.
But that’s not all. A certain difficult situation for ZPO and many others may arise in connection with the project the law “On amendments to the Tax Code of Ukraine regarding the implementation of the international standard of automatic exchange of information on financial accounts”, which the Verkhovna Rada supported in the second reading on March 20 of this year.
However, this is a topic for a separate conversation.
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