The Ukrainian rules on immigration and the obtaining of work permits for foreign individuals are amended frequently, thus it is advisable for business travelers to clarify these issues with professional advisors prior to committing to extended work periods in Ukraine.
An individual’s tax liability in Ukraine depends on whether the individual is viewed as a Ukrainian tax resident or a non-resident. While Ukrainian tax residents are taxable in Ukraine on their worldwide income, tax non-residents are taxable on their Ukrainian-sourced income which, inter alia, includes remuneration for the work performed in Ukraine, whether paid by a resident or by a non-resident company.
The concept of tax residency incorporated in Ukrainian law is similar to that of most international double taxation agreements. According to the law, an individual can choose Ukraine as the country of his/her tax residency based on the following criteria:
- permanent place of residence (i.e. a domicile (either owned or leased), which is available to the individual for a period exceeding 6 months in a year the individual’s center of vital interest
- presence in Ukraine for more than 183 days during the reporting (calendar) year
- if the individual is a Ukrainian citizen.
Under domestic law, tax liability is triggered upon performing any compensated work in Ukraine and/or receiving personal income (interests, dividends, rental income, etc.) from Ukrainian sources. However, if a relevant double tax treaty provides for different taxation rules, the provisions of the treaty will prevail.
In general, taxable income includes any income received in-cash, in-kind, and in the form of a material benefit. For extended business travelers, the types of income that are generally taxed are employment income and any Ukrainian-sourced income. Fringe benefits such as housing, business car, and moving expenses could be tax-exempt if they are properly structured.
Both Ukrainian tax residents and tax non-residents are taxable at the same tax rates – 15 percent and 17 percent. The 15 percent tax rate applies to the income up to the threshold of 10 minimum wages as of 1 January of the reporting (calendar) year (for 2014 this threshold amounts to 12,180 Ukrainian hryvnias (UAH), approximately 1,116 euro (EUR) at the current exchange rate). The income exceeding this amount is taxable at the 17 percent rate.
Generally, according to the provisions of the Ukrainian legislation, an individual becomes enrolled in the Ukrainian state social security system upon signing an employment agreement with his/her Ukrainian employer. Starting the date of the signing of the employment agreement, the individual’s remuneration received as a result of fulfilling their employment functions under the employment agreement, is subject to the unified social security contribution (USSC) in Ukraine. The USSC is calculated by the employer, who is also responsible for withholding and payment of this contribution to the state budget, along with payments of the remuneration. Payment of the USSC is ceased when the employment is terminated.
The USSC due from an individual per month constitutes 3.6 percent of the monthly gross remuneration. However, the taxable base for the USSC is currently capped at UAH 20.706 (approximately EUR1,898 at the current exchange rate) per month.
Foreign individuals working in the representative office of a non-resident company are not subject to the USSC.
Also, the remuneration paid by a non-resident company to an individual working in Ukraine is not subject to the USSC.
The reporting year in Ukraine is the calendar year.
Income paid by a Ukrainian entity is taxed at the source of payment. Such income is not subject to additional reporting in Ukraine.
Income received from a non-Ukrainian entity is subject to tax based on the tax return, which is due on 30 April of the year following the reporting, or 60 calendar days before departure from Ukraine, whichever happens earlier. The tax is due on 31 July of the year following the reporting year or before the departure from Ukraine.
The tax withholding and reporting requirements with respect to the employment remuneration payable to individuals in the Ukraine arise only for employers, Ukrainian entities, and the representative offices of foreign companies in Ukraine.
Non-resident entities which pay the employment remuneration to individuals working in Ukraine are not subject to tax withholding and reporting requirements in Ukraine.
According to Ukrainian legislation, if an international double tax treaty concluded by Ukraine provides for other taxation rules than those provided in the domestic legislation, provisions of the double tax treaty would prevail. Currently Ukraine has double tax treaties with 69 countries.
There is a potential risk that a permanent establishment could be created in Ukraine as a result of extended business travel, but, if structured properly, this risk may generally be mitigated.
In Ukraine, value-added tax (VAT) at 20 percent is levied on the domestic supply of goods and services and on the importation of goods. Certain supplies are VAT-exempt (e.g. certain medical products, domestically produced baby food products, etc.). Export supplies are zero-rated.
As of 1 January 2013 companies which implement investment projects in the priority sectors defined by the Cabinet of Ministers of Ukraine, temporarily, from 1 January 2013 to 31 December 2022 inclusive, may issue promissory notes to customs authorities, when importing to the customs territory of Ukraine equipment (hardware) and components to it, which are exempt from import duties, provided there has been registration of the requisite customs declarations. Debt recovery under such promissory notes due on the 60 day after its issuance.
Transactions between related parties are subject to transfer pricing rules introduced by the Tax Code of Ukraine.
- Income received by a taxpayer from transactions with a related party is determined based on contractual prices, which cannot be less than the usual market prices on the date of the transaction.
- A taxpayer’s expenses in connection with the purchase of goods or services from a related entity are determined based on contractual prices which cannot exceed the usual market prices on the date of the transaction.
- The tax authorities are entitled to determine the usual market/fair price.
- If a service fee is paid to a related party, it is tax deductible only if there is documentary evidence that the fee was paid in respect of services actually rendered.
However, starting January 2013 several new pricing methods of transactions between the related parties came into force. These methods include the comparable uncontrolled price, profit split and transactional net margin methods. If there is no sufficient information to determine the arm’s length price, the latter can be estimated with reference to the independent valuation of property or property rights.
The transfer pricing rules apply not only to transactions between the Ukrainian companies and their related persons, but also to transactions with persons who are not subject to (or exempt from) the corporate income tax, or pay corporate income tax at privileged tax rates (including non-residents). The arm’s length requirements also apply to barter transactions, transactions with tangible and intangible assets, land and real estate, distributions of dividends in kind, and transactions that involve receipt of goods or services for no consideration.
Based on the recent amendments in the Ukrainian legislation, the tax authorities are enabled to assess additional tax liabilities and penalties only if the price deviates from the arm`s length price by more than 20 percent.
The large taxpayers have the right to conclude transfer pricing agreements (APA’s) with the tax authorities.
Under the Ukrainian law, all foreign nationals have to obtain work permits prior to their work in Ukraine. However, there are certain exceptions, which, inter alia, relate to foreign individuals working in a local representative office of a foreign company.
As a general rule, foreign individuals coming to Ukraine should have a relevant type of visa. However, citizens from visa-exempt countries (citizens of the European Union (EU) and certain other countries, including Bulgaria, the Vatican, Estonia, Iceland, Canada, Cyprus, Latvia, Lithuania, Lichtenstein, Malta, Monaco, Norway, Poland, Portugal, Romania, San-Marino, Slovakia, Slovenia, the US, Hungary, the Czech Republic, Switzerland, and Japan) are allowed to enter Ukraine for a period of up to 90 days in a 180-day period without visas.
Generally, visas are granted by Ukrainian consulates abroad. There are three types of visas for Ukraine.
- Visa of VB type is issued for transit travelling through the territory of Ukraine to other countries.
- A short-term visa of VC type is issued for the purposes of short-term business trips to Ukraine, tourism and for some other purposes. Having such a visa, an individual can stay in Ukraine for 90 days in a 180-day period. To stay longer in the country, the individual is required to register in Ukraine. However this registration will expire with the first departure from Ukraine.
- A long-term visa of VD type is issued for the purpose of obtaining a Ukrainian temporary residence permit. This visa is a single entry visa that is issued abroad, based on the work permit, for 45 days. When the individual enters Ukraine based on this visa, they should not leave the country until the temporary residence permit is obtained, otherwise the visa will be lost.
Please note that the temporary residence permit is a document that allows an individual to travel in/out of Ukraine without any restrictions during the period of validity of said permit, which is usually one year.
According to the Ukrainian law on personal data protection (the Law), any entity can process an individual’s personal data only upon having the individual’s consent. Also, personal databases should be registered by the data processor (the company) in the state service of personal data protection of Ukraine.
Starting 1 July 2012, illegal collection, storage, use, destruction, distribution or change of personal confidential information (including personal data) is subject to both criminal and administrative liability.
The main currency control rules applicable for legal entities in Ukraine are as follows.
- Goods/services imported by a Ukrainian entity or money that is due for goods/services exported from the Ukraine have to be actually delivered/paid to a Ukrainian counterpart within 180 calendar days upon the payment for foreign goods or actual export of Ukrainian goods/services abroad (temporary, for the period of 6 months the 180-day period was reduced to 90-days – this rule is in force until 19 May 2013). There are penalties for non-compliance.
- Payments abroad under certain transactions (supply of services, transfer of intellectual property rights, redemptions of promissory notes, purchasing shares/securities issued by a foreign entity, opening an account with a foreign bank) are subject to bank control. A Ukrainian company transferring money under a contract where the price exceeds EUR100,000 (or its equivalent in another currency) should receive the conclusion of the relevant authority in Ukraine confirming that the contract price corresponds to market prices.
However, starting 19 November 2012 several new regulations came into force. The new rules obliged companies to sell foreign currency earnings are as follows.
- 50 percent of foreign currency proceeds received by residents under cross-border agreements must be sold on the Ukrainian inter-bank foreign exchange market. The foreign currency must be sold not later than the next business day after the relevant proceeds have been credited to the bank account.
- Any payment in foreign currency in the amount equal to or exceeding the equivalent of UAH150,000 per month (approximately 18,770 US dollars (USD)) received by individuals (both residents and non-residents) must be sold on the Ukrainian inter-bank foreign exchange market not later than the next business day after the relevant payment has been credited to the individual’s bank account.
Personal costs would not be tax deductible for the assignee with the exception of the following:
- donations to charitable organizations registered in Ukraine, provided that their total amount is not more than 4 percent of taxable income in the tax year
- expenses on payment for the individual’s and/or family members’ education in Ukrainian universities (with certain limitations)
- life and pension insurance premiums paid by an individual under the agreements with insurance companies and non-state pension funds registered in Ukraine (with certain limitations)
- interests paid under housing mortgage loans obtained with a Ukrainian bank (with certain limitations).