Tax residency is a status that determines in which country a person must pay taxes. If a person is a tax resident of Ukraine, he is obliged to declare and pay taxes on all his income - both received in Ukraine and abroad, notes an accountant for an individual entrepreneur.
The topic of tax residency is not new, but it has become particularly relevant after the start of the full-scale invasion of the Russian Federation into the territory of Ukraine due to the frequent departures of Ukrainian citizens to the territory of foreign countries.
What does tax residency mean?
Tax residency is a legal relationship between an individual and a specific country, which entails the obligation to pay taxes and report to the tax authorities of a specific country. Misunderstanding the issues related to determining tax residency can lead to unjustified tax payments in both countries and possible financial sanctions.
Therefore, based on the results of the consultation, the client can form a vision of whose tax resident he is at the time of the consultation, where he must pay taxes and file reports, what documents should be submitted to the tax office to avoid double taxation. In general, when clarifying the issue of determining tax residency, one should check the availability of a relevant convention on the avoidance of double taxation between Ukraine and the country of residence.
A tax lawyer deals with tax residency issues.
How to determine your tax residency?
Since tax residency determines in which country you must pay taxes on all income, it is very important to correctly determine your status so as not to break the law or fall under double taxation.
The main criteria for tax residency are:
- Country of actual residence. If a person lives permanently in a country or has family, real estate, or a business here, then they are more likely to be a resident of that country.
- Number of days of stay. In many countries, the key rule is the “183 days” rule – if a person has spent 183 or more days in the state in a year, they are considered its tax resident.
- Center of economic and personal interests. It takes into account where a person receives their main income, where their property is located, and where their family lives.
- Double taxation treaties. If you meet the criteria of several countries at the same time, the provisions of international treaties are crucial.
Where can I get a tax residency certificate?
A tax residency certificate is the main document that allows you to confirm that a person is a resident of a certain country. First of all, it is needed so that a person is not subject to double taxation and to receive benefits provided for by international treaties.
In most countries, including Ukraine, you can obtain a certificate through the tax authorities. To do this, you usually need to submit:
- Identity document (passport or other official document).
- Evidence of the center of vital interests, for example, documents about marital status, property, income, or place of employment.
- Tax ID number or similar taxpayer identifier.
The procedure for obtaining a certificate may vary in different countries: in some countries you can obtain it online, while in others you need to apply in person at a tax office.
What can cause double taxation?
Double taxation may arise in cases of: the absence (or termination) of a relevant convention on the avoidance of double taxation between Ukraine and the country of long-term residence of a person (for example, with the Syrian Arab Republic, the Russian Federation) or due to ignorance of the possibilities of avoiding double taxation of a particular taxpayer (if a person independently paid tax twice on the same object of taxation in one period of time).
Is it possible to avoid double taxation?
Double taxation can be avoided by determining your tax residency correctly and in a timely manner. Most countries have concluded bilateral double taxation treaties that allow you to pay taxes in only one country or to take into account taxes paid abroad when calculating your obligations in your own country.
To do this, it is important to officially confirm your tax status (this is done with a certificate of residency), as well as record income received in different countries and have the appropriate supporting documents.
Consulting a tax lawyer helps you to properly prepare documents and avoid situations where you have to pay taxes twice. This is especially important for people who work abroad, receive income from foreign companies, or conduct international business.
How to confirm tax residency in Ukraine
Within the meaning of the Tax Code of Ukraine, tax residents are residents - these are: a resident individual - an individual who has a place of residence in Ukraine. If an individual also has a place of residence in a foreign country, he is considered a resident if such a person has a permanent place of residence in Ukraine; if a person also has a permanent place of residence in a foreign country, he is considered a resident if he has closer personal or economic ties "center of vital interests" in Ukraine.
If the state in which an individual has his center of vital interests cannot be determined, or if an individual does not have a permanent residence in any of the states, he is considered a resident if he stays in Ukraine for at least 183 days (including the day of arrival and departure) during the period or periods of the tax year.
The above provides the criteria by which you determine whether you are a tax resident of Ukraine. It should be noted that each state will make every effort to consider you its tax resident.
According to clause 291.5. of the Tax Code of Ukraine, the following individuals and legal entities - non-residents cannot be payers of the single tax of the first - third groups: individuals and legal entities - non-residents. You should pay attention to the residency criteria specified in clause 14.1.213 of the Tax Code of Ukraine: place of residence in Ukraine; place of permanent residence in Ukraine; center of vital interests; 183 days of stay in Ukraine. Therefore, if there are grounds for maintaining Ukrainian tax residency, you can contact the relevant territorial unit of the State Tax Service, where you are registered, in order to obtain the relevant certificate confirming Ukrainian tax residency.
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