Regarding the income taxation of individuals – residents, received from sources outside Ukraine

Article 1 of the Law of Ukraine No. 959-XII as of 16.04.1991 "On foreign economic activity" (hereinafter – Law No. 959) stipulates that foreign economic activity is, in particular, activity of economic entities of Ukraine and foreign economic entities, built on relations between by them, which takes place both on the territory of Ukraine and outside its borders.

Individuals, who have permanent place of residence on the territory of Ukraine, have a right to conduct foreign economic activity if they are registered as entrepreneurs according to the Law of Ukraine No. 698-XII as of 07.02.1991 "On entrepreneurship" (Part 2 Article 5 of the Law No. 959).

Relations arising in currency operations, currency regulation and currency supervision are regulated by the Constitution of Ukraine, Law of Ukraine No. 2473-VIII as of 21.06.2018 "On currency and currency operations " (hereinafter – Law No. 2473), other laws of Ukraine, as well as by regulations of the National Bank of Ukraine, adopted according to the Law No. 2473.

Principles of currency regulation, which are set forth in Article 2 of the Law No. 2473, provide, in particular, right of individuals and legal entities – residents to enter into agreements with residents and (or) non-residents and fulfill obligations related to these agreements in national or in foreign currency, including opening accounts in financial institutions of other countries.

Part 3 Article 4 of the Law No. 2473 provides that residents have a right to open accounts in foreign financial institutions and carry out currency operations through such accounts, subject to restrictions set by the Law No. 2473 and other laws of Ukraine.

Settlement procedure for currency operations is determined by the National Bank of Ukraine (Part 4 Article 5 of the Law No. 2473).

Resolution No. 5 of Board of the National Bank of Ukraine as of 02.01.2019 approved Regulation on protection measures and determining procedure for carrying out certain operations in foreign currency, which defines protection measures introduced by the National Bank of Ukraine, procedure for their application (procedure for carrying out currency operations under conditions of protection measures introduced by this Regulation), as well as procedure for carrying out individual operations in foreign currency (further – Regulation No. 5).

Paragraph 16 Section I of Regulation No. 5 stipulates that settlements for foreign economic operations are carried out exclusively through the bank accounts.

Paragraph 23 of Regulation No. 5 stipulates that funds from the non-resident for operations of resident for export of products are credited to resident's bank account in Ukraine.

Herewith, term "product" is used in sense defined by the Law of Ukraine No. 959-XII as of 16.04.1991 "On foreign economic activity",  Article 1 stipulates that product – is any products, services, works, intellectual property rights and other non-property rights intended for sale (paid transfer) (Paragraph 2 Section I of Regulation No. 5).

Based on the above specified, current legislation does not prohibit individuals – residents from opening accounts in financial institutions of other countries.

At the same time, funds from operations of business entities – residents, in particular from export of products (services), are subject to being credited to residents’ accounts in Ukrainian banks.

Currency supervision and application of influence measures for violation of requirements of currency legislation are carried out according to norms regulated by Articles 11 and 15 of the Law No. 2473, respectively.

Procedure for applying the simplified system of taxation, accounting and reporting is regulated by Chapter 1 Section XIV of the Tax Code of Ukraine.

Paragraph 292.1 Article 292 of the Tax Code of Ukraine stipulates that income of individual – entrepreneur is income received during the tax (reporting) period in monetary form (cash and/or non-cash); material or non-material form, defined in Paragraph 292.3 Article 292 of the Tax Code of Ukraine.

At the same time, income does not include passive income received by such individual in the form of interest, dividends, royalties, insurance payments and compensation, income in the form of budget grants, as well as income received from sale of movable and immovable property owned by individual and is used in its economic activity.

Income in the form of foreign currency is recalculated in UAH at the official exchange rate of UAH to foreign currency established by the National Bank of Ukraine on the date of receipt of such income (Paragraph 292.5 Article 292 of the Tax Code of Ukraine).

Date of receipt of income by the single tax payer is date of receipt of funds by the single tax payer in monetary (cash or non-cash) form, the date of signing by the single tax payer of an act of acceptance and transfer of products (works, services) received free of charge.

Therefore, for individual – entrepreneur, all value indicators included in income are reflected in the national currency of Ukraine.

Indicators in the form of foreign currency are converted into national currency at the official exchange rate of UAH to foreign currencies established by the National Bank of Ukraine on the date of their receipt.

At the same time, please note that if funds received under foreign economic contracts are credited to account opened in the WISE system and not to the foreign currency account for economic activities at the bank of Ukraine, then such funds are not included in income of individual–entrepreneur – single tax payer, but are taxed according to rules established for taxpayers – individuals.

Income taxation procedure of individuals is determined by Section IV of the Tax Code of Ukraine, according to Sub-paragraph 163.1.3 Paragraph 163.1 Article 163, which stipulates that subject of resident taxation is foreign income, namely income received from sources outside Ukraine.

Taxation of foreign income is established by Paragraph 170.11 Article 170 of the Tax Code of Ukraine.

Also, the specified income is subject to taxation with the military levy (Sub-paragraph 1.2 Paragraph 16¹ Sub-section 10 Section XX "Transitional provisions" of the Tax Code of Ukraine).

Paragraph 164.4 Article 164 of the Tax Code of Ukraine stipulates that during accrual (receipt) of income received in the form of currency values or other assets (value of which is in foreign currency or international units of account), such income is converted into UAH at the exchange rate of the National Bank of Ukraine in effect at the time of accrual (receipt) of such income.

Therefore, income received by individuals – residents from sources outside Ukraine is included in the total annual taxable income as a foreign income and is subject to personal income tax and military levy on the general basis.

Please note that issue of transferring transfers using the WISE/REVOLUT/PAYONEER services to monetary settlements falls under authority of the National Bank of Ukraine.