Taxation of Foreigners in Ukraine
In recent years the number of foreign individuals doing business and making foreign investments in Ukraine has increased.
In this article, EVERLEGAL looks at key aspects of taxation for expats in Ukraine in the context of real estate transactions, employment, and taxation of registered individual entrepreneurs.
Real Estate Transactions
Taxation of foreign individuals in real estate transactions depends on whether one is a seller or a purchaser. For example, on the sale of residential real estate the seller has to pay state duty in the amount of 1% of the purchase price. In addition, the seller has to pay personal income tax to the amount of 18% and military tax to the amount of 1.5% of the purchase price. Personal income tax and military tax are not paid if (1) the property is owned by the seller less than three years, and (2) during the year a person sold no more than one piece of real estate. The purchaser has to pay pension fund duty to the amount of 1% of the purchase price.
The taxation rules may also differ depending on the type of real estate (eg land or residential/commercial property) and type of transaction (eg, sale, gift, etc).
If a foreigner hires Ukrainian taxpayers, he or she must calculate and deduct from an individual’s salary their income tax at the rate of 18% and military tax of 1.5%, as well as pay such amount to the overall budget. They also have to pay to the budget a single social contribution of 22% on top of salary (subject to a statutory cap). The relevant reporting must be filed with the tax authority. The same rules apply to a foreign individual hired under Ukrainian law (those employed under a work permit and having a tax identification number).
Expats who are tax residents in Ukraine can benefit from a network of double tax treaties (DTTs) to which Ukraine is party. DTTs can allow reduction of the amount of annual tax in Ukraine by relevant tax paid abroad. For this, a person needs to receive a certificate regarding the amount of tax paid as well as the basis and/or object of taxation.
Taxation of a Registered Individual Entrepreneur’s Business Income
Foreign individuals registered as individual entrepreneurs under Ukrainian law are treated as residents. Individual entrepreneurs can be taxed on their business income under a regular taxation model or the simplified taxation model.
The simplified model is more common for individual entrepreneurs and takes into account four taxation groups to be chosen by an individual entrepreneur subject to meeting certain criteria (basically, number of hired employees and/or turnover). For example, the most flexible and frequently used is the third group, and is for individuals with income up to 5 million UAH. The income is taxed at 3% if the entrepreneur is a VAT payer and at 5% if not. In addition, such entrepreneur must pay a single social contribution of 22% of the statutory minimum wage (819.06 UAH or approximately EUR 28).
It ain’t simple. But it’s getting there.