Temporarily abroad. What it people need to know about tax residency

Due to the full-scale aggression of the Russian Federation, millions of Ukrainians and Ukrainian women were forced to stay abroad. They were faced with the problem of how to work in another country and at the same time not leave the Ukrainian budget without taxes, which is a contribution to the victory over Russia.

We talked to experts and tell you what tax residency is, how to avoid double tax residency and continue to pay taxes in Ukraine while in another country.

What is tax residency?

Tax resident — a person who, according to the legislation of a particular state, is subject to taxation in it on the basis of the place of residence, permanent place of stay, place of registration or other similar criteria. Tax residency is a sign that indicates the closest possible contact of a person with the country to which he pays taxes.

There are many criteria for determining the status of tax residency, and all of them are specified in Article 14, paragraph 1, subparagraph 213 of the tax code of Ukraine, tax legislation of other countries and conventions for the avoidance of double taxation. Usually, the main criterion remains the length of stay in the country (mostly more than 183 days in the last year).

In addition to the place of residence, an important criterion is the presence of a center of vital interests in the country (family, work, study, real estate, receiving a pension, subsidies, declaration of medical care, etc.).

How do I get the status of a tax resident?

You can get the status of a tax resident in virtually any state, you do not need to have her passport and citizenship. It is enough to live in the country for the required number of days — for most states, we are talking about 183 days in the last year (half a year). In some cases, the status can be obtained earlier, for example, in Cyprus, this can be done after two months of living here.

Tax residency automatically occurs after the required period of stay in the country is completed and certain conditions are met, such as the place of registration, receiving income from a local source, etc. (the conditions may be individual in different cases). In the classical sense, the status of a tax resident cannot be issued. To get a formal certificate of this, you should contact the tax authorities of the relevant country, which, in turn, check whether the person meets the status of a tax resident.

Ukrainians who have lived and worked in Ukraine in recent years are almost 100% likely to be considered tax residents of Ukraine, and there is no need to prove this status separately. However, difficulties arise if a person has left Ukraine and lives and works in another country for a long time, which may lead to changes in the status of a tax resident.

Can I have the status of a tax resident in several countries at the same time? How to avoid double taxation?

Usually, a person can be a tax resident of only one country, but in practice there are situations when several countries can recognize them as their tax resident. For example, many Ukrainians received temporary protection abroad. Certain countries identify such persons as their tax residents automatically from the date of registration of temporary protection or after 183 days of stay in this country. However, in Ukraine there is no procedure for withdrawing from the status of a resident, respectively, such people remain both tax residents of Ukraine and another state. Then the situation is resolved in accordance with the convention for the avoidance of double taxation between Ukraine and the host country of such a person, if any.

Ukraine has existing conventions and treaties for the avoidance of double taxation with 73 countries of the world. Among them are almost all European countries, as well as Mexico, Saudi Arabia, Morocco, the United States, Canada, Singapore, etc.

According to the UN, more than nine million Ukrainians are out of the country due to the beginning of a full-scale invasion. There are many IT specialists among them. They mostly live in Eastern Europe: Poland, Germany, and the Czech Republic. Significantly fewer people went to Canada or the United States.

However, the status of temporary protection does not actually affect the status of a tax resident. At the same time, tax authorities may make exceptions for Ukrainians. People who come on a work visa may be treated less loyal than refugees.

Even now, the tax authorities of some European countries assure that they will not claim the income of Ukrainians received in 2022. Such exceptions were made, for example, by Ireland.

In a controversial situation, if a person has spent approximately the same time in both countries, when determining tax residency according to the rules of the convention, it is the criterion "center of vital interests" (that is, the place with the closest social and property ties) that can help Ukrainians abroad avoid the status of a tax resident of another state and continue to pay taxes in Ukraine. The main thing is to prove it to the tax service.

An additional, but not decisive, argument may be a certificate of the status of a tax resident of Ukraine. Now you can get it online in the taxpayer's Merchant profile.

Can I be a tax resident in another country and pay taxes in Ukraine at the same time?

If any connection with Ukraine is lost, the person pays taxes in the country where he became a tax resident. However, there is no official procedure for losing or revoking the status of a tax resident in Ukraine. That is, if a person loses Ukrainian citizenship or moves to another country for permanent residence, he actually loses the status of a tax resident of Ukraine, although an official document about this is not issued.

The person himself may be interested in losing the status of a tax resident of Ukraine, for example, to reduce the tax burden on his own income or plan a long-term move to another state. In this case, you can demand that the Tax Service of Ukraine recognize itself as a non-resident and then sue the tax service, which is long and expensive, or do not pay taxes, wait for a hypothetical notification from the tax service, and only then use the convention to prove that the obtained status of a resident in another state eliminates this status in Ukraine.

If a person has ceased to be a tax resident of Ukraine, but still wants to continue paying taxes here, then nothing prevents this. The state is not interested in losing taxes, especially during the war. You can continue to file a return, pay with the tax service, and pay taxes.

How does tax residency work in different countries?

You can find out about the conditions of tax residency in a particular country in the local tax service. They will provide you with all the important information about tax collection.

For example, Ireland allowed not to pay taxes to Ukrainians who work remotely, but there is no question of abolishing taxation of income from local sources. Consequently, Ukrainians who receive income from Ukrainian or foreign companies can continue to pay taxes to the budget of Ukraine.

In July of this year, Poland also allowed Ukrainians not to pay taxes if they come from a Ukrainian source. However, last week the Polish Ministry of Finance denied this information and said:"If a Ukrainian tax resident works in Poland, and his remuneration is paid by a Ukrainian employer who does not have a permanent representative office or permanent representative office in Poland, he is obliged to pay tax in Poland if his stay exceeds 183 days in a calendar year."

In Cyprus, to obtain the status of a tax resident, it is enough to live in the country for two months, provided that the person works there and has not lived for more than six months in another country in the last year. Tax residency can also occur after 183 days of residence in the country. Tax residents here will have to tax income received in any country in the world. If an individual's annual salary does not exceed €19,500 per year, the income is tax-free. If the salary is higher, the tax rate varies from 20% to 35%. Regardless of income, you must pay 8.3% of your salary to the state Social Insurance Fund and from 2.65% to 4% to the general healthcare system.

Tax residency in Germany automatically occurs after 183 days of stay in the country. The tax legislation of this country is quite complex, so each person should individually deal with the taxation of their income with local consultants.

At a difficult time for Ukraine, it is more important than ever that the country's budget receives funds. In addition, the image of displaced persons from Ukraine directly affects the country's image in the international arena. That is why it is important to pay taxes on time and be responsible residents of foreign countries.

Thanks to Barbashyn Law Firm and Konstantin Karayanov for preparing for the text.