Earning income abroad offers great opportunities—higher salaries, more diverse clients, and the freedom to work globally. However, with this freedom comes complexity, especially when it comes to taxes. Citizens of Ukraine who earn income outside the country often find themselves struggling to understand the rules of reporting these foreign earnings and how to avoid double taxation.
This article will guide you through the rules of reporting foreign income, understanding tax obligations, and effectively planning your financial load.
According to Ukrainian tax laws, all citizens of Ukraine are required to report their income, including income earned abroad, if they are considered residents for tax purposes. A tax resident of Ukraine is someone who spends more than 183 days a year in the country or has their center of vital interests (such as family or property) in Ukraine.
Thus, even if you live or work abroad for extended periods, your foreign income must be reported in Ukraine. This is true for anyone who works or runs a business overseas.
Ukrainians who receive foreign income are required to file an annual tax return. Depending on the type of income and the source, the reporting process may differ. Here are the main things you need to know:
Ukrainians receiving foreign income must file an annual tax return for individuals—residents. This return should include all income earned abroad, regardless of whether taxes were paid in the foreign country.
The tax return should report not only income earned from foreign companies or individuals but also income from investments abroad (such as rental income, dividends from stocks, etc.). It is also important to specify the currency in which the income was earned and convert it into Ukrainian hryvnias using the official exchange rate of the National Bank of Ukraine on the date the income was received.
Depending on the existence of Double Taxation Avoidance Agreements (DTAs) between Ukraine and other countries, taxpayers may be eligible for tax credits or reductions. These agreements help reduce the tax burden if taxes have already been paid in another country where the income was earned.
Regardless of where you earn your income, it is taxable in Ukraine. Here's how it works:
Ukraine has a progressive tax system for individuals, where income is taxed at a rate of 18%. However, some types of income may be taxed at different rates. For example, capital gains are taxed at a rate of 5%.
If you have already paid taxes in another country, you can apply for a tax credit. This allows you to reduce your tax obligations in Ukraine based on the taxes already paid abroad.
Income from foreign sources is subject to Personal Income Tax (PIT) in Ukraine. You need to file an annual tax return and report your foreign income.
Ukraine has Double Taxation Avoidance Agreements with many countries, including the U.S., the U.K., Germany, Canada, and others. These agreements ensure that you are not taxed twice on the same income—once in Ukraine and once in the foreign country. If you have already paid taxes abroad, you may be entitled to reduce your tax burden in Ukraine.
Oleksandr is a freelancer living in Ukraine who works with clients in Germany and the U.K. Throughout the year, he earned 200,000 UAH, with 100,000 UAH coming from a German company and 100,000 UAH from a British company. Oleksandr paid taxes in both countries, but now he needs to file his tax return in Ukraine.
Thanks to Double Taxation Avoidance Agreements, Oleksandr can file his return in Ukraine and apply for tax credits for taxes paid abroad. This will reduce his tax liability in Ukraine and help him avoid double taxation.
Reporting foreign income is a crucial aspect for Ukrainian citizens who work or earn income abroad. Properly filing your tax return, understanding taxation rules, and taking advantage of available deductions and credits can help you reduce your tax burden.
If you earn foreign income and want to learn more about how to report it properly and optimize your taxes, reach out to our experts. We will help you file your return correctly and reduce your tax load. Schedule a consultation today!
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Serhii Floreskul
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Violetta Loseva
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