Foreign income declaration

It is a citizen’s constitutional duty to declare income (Part 2 Article 67 of the Constitution of Ukraine). Norms of the Tax Code of Ukraine (hereinafter – the Code) regulate that an individual – resident of Ukraine, who receives income from both the source of its origin in Ukraine and foreign income – is a personal income tax payer.

According to Sub-paragraph 14.1.55 Paragraph 14.1 Article 14 of the Code, income received from sources outside Ukraine is any income received by residents, including from any of their activities outside the customs territory of Ukraine, as well as including interests, dividends, royalties and any other types of passive income, inheritance, gifts, winnings, prizes, income from the performance of works (services) under civil and employment contracts, from the provision of property lease (use) to residents located outside Ukraine, income from the sale of property located outside Ukraine, income from the alienation of investment assets, including corporate rights, securities, etc. and other income from any activities outside the customs territory of Ukraine.

Herewith, if the source of payment of any taxable income is foreign, the amount of such income is included in the total annual taxable income of taxpayer – recipient, who is obliged to submit an annual property and income tax declaration (hereinafter – the annual tax declaration) which is a taxation subject at the rate specified in Paragraph 167.1 Article 167 of the Code, as well as a military levy’s taxation subject.

At the same time, the taxpayer can reduce amount of annual personal income tax liability by the amount of taxes paid abroad, in accordance with norms of international agreements, the binding nature of which has been approved by the Verkhovna Rada of Ukraine.

It should be noted that according to norms of international agreements on avoidance of double taxation and in accordance with norms of the Code, the term “resident” is defined on a basis of certain conditions, particularly “resident of Ukraine” should be considered a person staying in Ukraine for at least 183 days (including arrival and departure day) during the period or periods of the tax year. At the same time, norms of the Code stipulate that if it is impossible to determine individual’s resident status, using provisions of Item “c” of Sub-paragraph 14.1.213 Paragraph 14.1 Article 14 of the Code, an individual is considered a resident if he / she is a citizen of Ukraine.

And non-residents are individuals who are not residents of Ukraine (Item “c” of Sub-paragraph 14.1.122 Paragraph 14.1 Article 14 of the Code).

As follows, citizens of Ukraine – workers who are outside Ukraine for less than 183 days during the reporting year and receive income outside Ukraine, fall under the definition of “resident of Ukraine” and are required to submit an annual tax declaration according to Section IV of the Code.

Herewith, in accordance with the norms of tax legislation, the taxpayer has a right to submit tax declaration either in person or by an authorized individual and in the electronic form, taking into account legislative requirements on documenting management activities (Paragraph 49.3 Article 49 of the Code).

Sending a declaration by electronic means, citizens can use electronic service “Electronic Cabinet” in section “Electronic Cabinet for Citizens” sub-section “Property and income tax declaration”, which provides partial automatic filling of declaration based on the payer’s credentials, information regarding accrued (paid) incomes available in the State Register of Individuals – Taxpayers and information on the real estate (movable) property.

This service is available to individuals who have a personal key of electronic digital signature, in particular: Accredited Key Certification Center of the Information and reference department of the State Tax Service; Accredited Key Certification Center JSC CB “PRIVATBANK”; Accredited Key Certification Center PJSC “UkrSibbank”; Accredited Key Certification Center JSC “Oschadbank”; Accredited Key Certification Center “MASTERKEY” LLC “ART-MASTER”, etc.

It is possible to learn how to use this service by watching video instructions posted on the official web portal of the STS. At the same time, when filling in the annual tax declaration, there is an automatic control of its filling, which consists in automatic calculation of the tax liabilities’ amount and indication of automatically detected errors.

That is, the STS has created all conditions for the possibility of filing an annual tax declaration in the electronic form or online, specifically for individuals who are outside of Ukraine.

However, please note that according to Article 47 of the Code, the responsibility for violation of procedure for filling in the tax reporting documents and the inaccuracy of information provided in these documents are borne by individuals – taxpayers.

Additionally we inform that individuals – taxpayers who on the territory of Ukraine receive income from sources outside Ukraine, in particular from citizens of Ukraine who are outside the territory of Ukraine (“workers”) according to tax legislation may be considered as individuals obliged to declare such foreign income, depending on the degree of individual’s kinship from whom such income is received. Whereas, according to the Family Code of Ukraine, the object of joint ownership is a salary, pension, scholarship, other income received by one of the spouses (Article 61 of the Family Code of Ukraine), wife and husband who must financially support each other (Article 75 of the Family Code of Ukraine) and the child – adult daughter or son are obliged to take care of parents, take care of them and provide them with assistance (Article 172 of the Family Code of Ukraine) then receiving funds from family members from sources outside of Ukraine may not fall under the definition of foreign income (depending on circumstances of the case). At the same time, when receiving foreign income from individuals who are not family members within the Family Code of Ukraine, the taxpayer is obliged to declare received foreign income on the general grounds.