Simple Tax Guide for Americans in Ukraine
At Taxes for Expats we have been preparing U.S. tax returns for U.S. Citizens and green card holders working in Ukraine for over 8 years. Our clients hail from all parts of the country - Kiev (Kyiv) and Kharkiv, Dnipropetrovsk, Odessa and Lviv.
As a U.S. Citizen or green card holder you are legally required to file a U.S. tax return each year regardless of whether you already pay taxes in your residence country.
We offer professional tax services. That means we figure out the best and most optimal way to file your U.S. tax return and avail you of all possible exclusions and deductions. But just as importantly - avoid the errors that would allow IRS to disallow your return and levy fines & penalties on top. You can also do them yourself - not that we recommend it. For more information please see IRS.
The expatriate Foreign Earned Income Exclusion can only be claimed if you file your tax return on a timely basis. It is not automatic if you fail to file and can even be lost.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the calendar year as is standard in Ukraine for U.S. tax purposes). You must, however, pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these form or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
We have helped hundreds of expats around the world catch up with their past U.S. taxes because they have failed to file U.S. tax returns for many years. This is, in fact, our specialty and we offer a 10% discount to clients to wish to file multiple tax returns at once and get in full compliance with the IRS.
Work with a recognized expert to help you prepare your American tax return. We can also provide tax planning and advice with other expatriate tax; we look forward to working with you.
Below we include information on the Ukrainian Tax System for the American Expatriates.
The general rate of individual income tax in Ukraine is a flat 15%.
Income paid to nonresident individuals is subject to a 30% rate, as is income from gambling and winnings. Ukraine-source income (from a Ukrainian or foreign employer) received by a foreign employee who does not qualify as a Ukraine tax resident will be taxed at the 30% rate unless a tax residence certificate is received from the Ukraine tax authorities, i.e. until the time the individual qualifies as a Ukrainian tax resident. An exception to the double rate on nonresidents exists in respect of dividends, royalties and interest payments, which are taxed at the same rates and under the same rules as those applicable to resident individuals.whether it is received in cash or in kind. Nonresidents are taxed on income received from Ukrainian sources.
Residence - An individual is tax resident if he/she has a permanent home in Ukraine. If an individual has a permanent home in more than 1 country, he/she is considered a tax resident of the country with which he/she has closer personal and economic ties. If it is impossible to determine residence under either of the preceding tests, an individual is a tax resident if he/she is present in Ukraine for at least 183 days cumulatively during a calendar year (to separately include the day of arrival and departure). If tax residence still cannot be determined, the individual is a tax resident if he/she has Ukrainian citizenship or if the individual "self recognises" tax residence. Foreign citizens who are considered tax residents in Ukraine are taxed in the same manner and under the same rules as Ukrainian resident citizens.
Tax Filing status - Joint filing of tax is not permitted.
Taxable income - Taxable income includes employment income (including most employment benefits); proceeds from trading or professional activities (including proceeds from intellectual property); proceeds from the alienation of property; gifts and prizes; insurance payments; and contributions to unqualified pension plans made in favour of a taxpayer by another person/employer.
Taxation of Capital gains - Although taxed at the 15% personal income tax rate, financial results from investment asset transactions (e.g. securities, corporate rights) are accounted for separately from other personal income. Tax losses from such transactions cannot be offset against taxable income from other sources (and vice versa) and must be carried forward to offset future investment income.
Tax Deductions and allowances - Limited deductions may be taken for such items as mortgage interest, contributions to registered charities, educational expenses for the taxpayer and his/her immediate relatives and medical expenses. A special annex to the tax return must be submitted to claim the deductions.
Tax Basis - Resident individuals are taxable on their worldwide income. Income is taxable irrespective of
Other taxes on individuals:
Capital duty - No
Stamp duty - No
Capital acquisitions tax - No
Net wealth/net worth tax - No
Real property tax - Income earned from the sale of a house, flat (including part of a flat), room or village house (including a land plot) is not subject to tax if the sale takes place once during the year and the total size of the house, flat or apartment does not exceed 100 square metres (a 1% tax on the amount received attributable to the excess area applies). A 5% rate applies regardless of the area if the taxpayer makes more than 1 sale per year.
Land tax is imposed on owners/users, with the rate determined according to the location and use of the land. Land under settlement that has an assessable value is taxed at 1% of the estimated value. Otherwise, the rate starts at UAH 0.075 per square metre in towns populated by less than 200 and increases up to UAH 1.05 per square metre in cities of over a million. For regional centres, zone coefficients from 1.2 to 3 are applied. Agricultural land is taxed at rates of 0.03% to 0.1% of the estimated value.
Inheritance/estate tax - Inheritances (real estate, chattels, securities, corporate rights, etc.) are taxable at the following rates: 15% if the recipient is not a relative or is a nonresident; 5% if the recipient is a resident relative not classified as a close relative; and 0% when the recipient is a resident classified as a close relative (i.e. parent, spouse, parents of spouse or children).
Social security contributions - Subject to monthly caps, employee contributions (withheld by the employer) are as follows: 0.5% of salary falling below the annual cost of living (COL) amount and 2% of salary at or above COL is paid to the state pension fund; 0.5% on salary below COL and 1% on salary at or above COL is paid to the temporary disability state social security fund; and 0.6% of salary is paid to the state unemployment fund.
Ukraine Tax year - Ukranian tax year is the calendar year
Filing and payment of tax - Employers and other taxable entities are considered the tax agents of individuals and are responsible for withholding personal income tax and state pension and social security contributions from salaries and other types of remuneration. These taxes must be remitted within 20 calendar days following the reporting date. If income is paid in kind, the tax agent must remit tax to the government on the following banking day after the payment has been made. It is the tax agent's responsibility to make timely payments of withholding taxes on salaries and file personal income tax reports on a quarterly basis. However, to claim a tax credit in respect of certain expenses incurred during the calendar year, individual taxpayers must file an annual tax return. Further, if an individual receives taxable income from sources other than from a tax agent (e.g. foreign income), he/she is required to file a personal income tax return by 1 April of the year following the reporting year.
Penalties - Late payments are subject to interest of 120% of the effective National Bank discount rate calculated on a daily basis. Additional penalties apply for understatements (ranging from 10% to 50% of the understated liability). If an employer fails to withhold personal income tax while paying salary, a penalty equal to 200% of the amount of tax due will be imposed. The same penalty applies to underpayments of social security contributions.
Ukraine Corporate TaxCorporate income tax rate in Ukraine is a flat 25%, while certain types of businesses taxed at a lower rate (e.g. insurance, banks, agriculture, etc.).
Surtax - A 20% surtax applies to the proceeds from advertising services rendered by nonresidents in Ukraine.
Residence - Legal entities incorporated and operating according to Ukrainian law are normally treated as tax resident. Legal entities incorporated abroad and operating according to the law of another country are normally treated as nonresident.
Basis - Resident entities are taxed on worldwide income received or accrued within the reporting period. Nonresident companies are taxable on business income derived from carrying out trade or business activities in Ukraine and other non-business income received from Ukraine sources. A branch or PE of a nonresident is treated as a separate entity in Ukraine for tax purposes.
Taxable income - Taxable income is determined by subtracting allowable deductible expenses and depreciable and amortizable items from gross income.
Taxation of dividends - Dividends paid by a Ukrainian company are subject to a 25% advance corporate income tax (ACT) at the time the dividends are paid. The tax is accrued on a gross dividend basis and is made from the funds of the paying company.
The Ukrainian company may use the ACT to reduce its corporate income tax liability for future periods. If the taxpayer does not have sufficient corporate income tax liability for the period, the amount of ACT paid may be carried forward indefinitely. There are also some exemptions (see, e.g., "Holding company regime" below).
Taxation of Capital gains - Capital gains are treated as ordinary income and taxed at the standard corporate rate.
Losses - Tax losses generally may be carried forward indefinitely, but carryback is not permitted. Restrictions are sometimes imposed for certain periods.
Alternative minimum tax - No
Participation exemption - No
Foreign tax credit - Foreign tax paid may be credited against Ukrainian tax or deducted from taxable income in accordance with an applicable tax treaty. The credit or deduction is limited to the amount of Ukrainian tax payable on the foreign income.
Holding company regime - The 25% ACT on dividends does not apply to dividends distributed by a Ukrainian taxpayer whose income consists substantially (i.e. more than 90%) of dividends received from other controlled Ukrainian legal entities.
Ukraine Tax Incentives - Net income earned by a corporate taxpayer from domestic sales of energy-saving equipment manufactured by the taxpayer is exempt from corporate income tax, provided the tax benefit is reinvested to increase production. Qualified companies (as listed in a national registry) may receive a 50% exemption of profits if engaged in the development, implementation and utilisation of energy-saving and energyefficient technologies. This benefit is available for 5 years, starting from the time the company earns its first profits attributable to such technologies. Other entities may be subject to special tax regimes, such as the unified tax (USD 4 to USD 40 per month for sole entrepreneurs and 6% (where there is payment of VAT) or 10% (where there is no VAT payment) of total revenue for small companies).
Dividends - A 15% withholding tax is levied on dividends paid to nonresidents, unless the rate is reduced by a tax treaty.
Interest - A 15% withholding tax is levied on interest paid to nonresidents, unless the rate is reduced by a tax treaty.
Royalties - A 15% withholding tax is levied on royalties paid to nonresidents, unless the rate is reduced by a tax treaty.
Branch remittance tax - Although the Corporate Income Tax Law of Ukraine does not specifically impose a branch remittance tax, the Ukraine tax authorities tend to require payment of a 15% tax on the repatriation of after-tax branch profits (unless treaty protection is available).
Other taxes on corporations:
Capital duty - No
Payroll tax - No
Stamp duty - No
Real property tax - A land tax of up to 1% applies on the assessed value of land (or at a fixed amount per hectare if the value cannot be properly assessed). Land tax is imposed depending on the location of the land and how it is used.
Social security contributions - Salary or similar employment compensation paid to domestic employees is subject to the following social security taxes: social security fund (1.4%); unemployment fund (1.6%); pension fund (33.2%); and the professional accident and sickness fund (0.66/13.6%).
Transfer tax - No, but see "Other", below for state duty and mandatory pension fund contributions triggered by real estate or vehicle transfers.
Other - Corporations are subject to fees for licences and patents and local taxes. Corporate employers must pay an annual municipal tax capped at UAH 1.7 per employee per month (provided the tax does not exceed 10% of the annual salary fund). A state duty is imposed on the transfer of real estate (1%) and vehicles (5%), while mandatory pension fund contributions of 1% (land and buildings) and 3% (vehicles) apply. The purchase of foreign currency on the interbank currency market is subject to a 0.5% contribution to the Ukrainian pension fund.
Transfer pricing - Income received in transactions between related parties or with a nonresident may not be less than the "normal" value (price) of property transferred or services provided. Deductible expenses incurred in such transactions may not exceed the normal value of property or services acquired. The burden of proof is on the tax authorities to determine the normal/regular price and fair market price. A quasi-advance pricing agreement procedure is available for certain transactions.
Thin capitalisation - Interest may be partially disallowed if a taxpayer is an entity and 50% or more of its statutory capital is owned or managed, directly or indirectly, by a nonresident or a tax-exempt legal entity and a loan is granted by the nonresident or a party related to the nonresident, or by a taxexempt legal entity. Interest expense will be deductible to the extent of the taxpayer's interest income, plus 50% of net non-interest income. Net non-interest income is defined as all taxable revenue (excluding interest income) reduced by deductible expenses (excluding interest and depreciation and amortisation expenses). The disallowed portion of the interest expense may be carried forward indefinitely. Interest is fully deductible if the creditor is a Ukrainian resident corporate income taxpayer.
Controlled foreign companies - No
Other - Ukraine does not have a general anti-avoidance rule. However, as an antiavoidance measure, Ukraine has set restrictions on the deductibility of expenses incurred by resident taxpayers as consideration for goods or services received from or provided by nonresident entities located in offshore jurisdictions. The restriction applies to expenses paid with respect to nonresidents with "offshore status" or settlements made through such nonresidents. If a payment is made to a resident of an offshore jurisdiction, only 85% of the expenses incurred or paid are deductible or depreciable/amortisable. The official list of offshore jurisdictions is published by the Cabinet of Ministers and updated periodically.
Disclosure requirements - No
UKranian Tax year - Ukraine tax year is calendar year
Consolidated returns - Consolidated returns are not allowed; each entity must file a separate tax return.
Tax Filing requirements - Corporate income tax returns must be submitted within 40 days following the quarterly reporting period, with tax due within 10 days of submission of the return. The returns for the year are cumulative, such that all income from the beginning of the year to the close of the period is accounted for and credit given for taxes paid in the tax year's preceding periods.
Penalties - Penalties and/or fines apply for: late payments (120% of the National Bank's discount rate); failure to file (a 10% to 50% penalty); accuracy-related penalties (10% of the underpaid amount, not to exceed 50% of the entire corporate income tax liability); mathematical errors (5% of understated corporate income tax liabilities). Additional, more severe penalties may apply if the understatement is significant or if the taxpayer is convicted of a tax offence. If the taxpayer reveals the understatement, the penalty will be 5% of the amount of the tax liability for the entire understatement period, regardless of the number of tax periods that have passed. A penalty equal to 200% of the understated tax liability will be imposed for failure to remit withholding tax to the government.
Rulings - Taxpayers may present their specific facts to the tax authorities to obtain an explanation of the tax treatment of their particular case. Rulings are not binding on the tax authorities, although the taxpayer may be protected from penalties during the period the ruling is effective if the tax authorities revoke or annul the ruling due to changes in the interpretation of the law.
Ukraine vat (Value Added Tax) rateThe standard rate of VAT in Ukraine is 20% for domestic supplies and imported goods and auxiliary services. Exported goods and auxiliary services are zero rated. For VAT purposes, auxiliary services are considered services that are included in the customs value of imported/exported goods.
Taxable transactions - VAT is levied on the supply of goods and services in Ukraine and the import/export of goods and auxiliary services. Certain supplies are not subject to VAT (e.g. the issuance of securities, insurance services, payments of dividends and royalties and services (except for transport services) that have their place of supply outside Ukraine). VAT-exempt supplies include certain medical or medicalrelated products, domestically produced baby food products, published periodicals, student notebooks, textbooks and books.
VAT Registration - Registration is required (for residents and nonresidents) if turnover is at least UAH 300,000 during any rolling 12-month period. Taxpayers involved in import transactions (goods or services) also are required to register for VAT.
Filing and payment of VAT - The tax period (and associated filing and payment) is either a calendar month or calendar quarter (depending on turnover). Monthly returns must be submitted within 20 days of the last calendar day of each reporting month. Quarterly returns must be submitted within 40 days of the last calendar day of each reporting quarter.