Today, foreign investments have become not only accessible but also popular among Ukrainian citizens. The ability to invest money in foreign assets and earn profits from them is an essential part of financial literacy. But do you know that taxation of income from foreign investments can have its own nuances and hidden risks? In this article, we will examine the key legal aspects of taxing such income so that you can avoid unnecessary problems with tax authorities.
Investing in foreign assets is often connected to international tax agreements that can either help or complicate the situation for the investor. Regardless of whether it’s about stocks, bonds, real estate, or cryptocurrency, income from such investments is subject to taxation both in the country where it is earned and in the investor's country of residence. This makes tax reporting a particularly important issue.
One of the main tools for investors is double taxation agreements (DTAs). Ukraine has such agreements with many countries, which allows for reducing the tax burden on income earned from foreign investments.
Provided that the rules of such agreements are followed, the investor can avoid double taxation — meaning, they will not pay taxes both in the country where the income was earned and in Ukraine. However, to do this, it’s essential to correctly report income and use the provisions of the agreement.
For example, if you earn income from investments in stocks of a U.S.-registered company, the U.S. may impose a tax on this income, and then you have the right to claim a tax credit in Ukraine to avoid double taxation. However, this requires following the procedures outlined in the agreement.
In Ukraine, citizens are required to file an annual tax return on income, including income from foreign investments. If you earn profit from foreign sources, it is important to report this income correctly on the tax return.
You will need to report income earned from foreign investments in the section "Income from Foreign Sources." Here, it’s important to provide the exact amount of income, the currency in which it was received, and the country where the income was earned.
If you want to benefit from the provisions of double taxation agreements, you will need to provide supporting documents that prove tax payment abroad. These could be tax certificates or other documents confirming that tax was paid in the country where the income was earned.
Depending on the agreement, you may be entitled to a tax credit or deduction, which allows you to reduce your tax burden in Ukraine. This means that you can reduce the amount of tax you owe in Ukraine by the tax paid abroad.
Incorrect reporting of income from foreign investments or failure to apply the provisions of the double taxation agreement can lead to serious consequences. Tax authorities may impose fines and penalties for incorrect reporting, which increases your financial costs.
For example, if you fail to report income from foreign investments, tax authorities may uncover this during the exchange of information with the foreign country, and you may face penalties for tax evasion. In addition, you will have to pay a fine for late filing of your tax return.
Oleksiy is a Ukrainian investor who decided to invest in Canadian government bonds. He received regular payments from the investments but did not submit a tax return in Ukraine. A year later, tax authorities discovered this income during an information exchange with Canada, and Oleksiy received a fine for non-compliance with his tax obligations. He had to pay the fine and penalty and also submit a retroactive tax return.
Investing abroad can be profitable, but it also requires careful attention to taxation. Using double taxation agreements and correctly reporting income allows you to minimize tax risks and ensure proper compliance with tax obligations. However, it’s important to remember that even small mistakes in reporting can lead to fines and additional costs.
If you invest abroad or plan to do so, consult with our experts! We’ll help you properly report your income, minimize tax risks, and avoid unpleasant sanctions.
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Contact us: business@avitar.legal
Serhii Floreskul
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Violetta Loseva
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