Tax amnesty in Ukraine: how to take advantage of the situation for owners of foreign assets
Tax amnesty in Ukraine: how to take advantage of the situation for owners of foreign assets
Business circles are actively discussing Law No 466-IX, which came into force on 1 January 2021. For Ukrainian tax residents, this means that they can participate in a so-called tax amnesty from 1 September 2021 to 1 September 2022. On the one hand, this procedure means the beginning of total control over Ukrainian taxpayers, and on the other hand - the opportunity to declare and legalize their offshore capital, income from cryptocurrency and other foreign assets, paying only 9% tax. Let's find out how tax amnesty works in Ukraine and whether you need this procedure.
First, let's answer the question: "Does tax amnesty in Ukraine apply to you?"
If you are a tax resident of Ukraine - an individual, including a self-employed entrepreneur - then, yes, tax amnesty in Ukraine is of direct relevance to you.
This is particularly relevant for those who have undeclared assets abroad.
Which assets can be declared under tax amnesty?
1. Taxable income undeclared before 1 January 2021.
2. Assets that were acquired with undeclared funds:
3. Other assets that may generate income for you.
- foreign currency;
- real estate (flats over 120 sq.m., houses over 240 sq.m., non-residential premises over 60 sq.m., land plots over 2 ha, motor vehicles over 400 thousand UAH)
- securities and shares in companies;
- intellectual property rights, financial instruments.
Please note: Assets acquired after 1 January 2021 cannot be "legalised" under the tax amnesty.
How much does tax amnesty "cost" in Ukraine?
1.If you own foreign assets, then:
- in the case of a single payment, the tax rate will be 9%;
- in the case of instalments - 11.5% (but if you submit a declaration before 1 March 2022, the rate will be reduced to 7% and 9.5% respectively).
2. In case part of your assets are in Ukraine, you can pay tax on it in two ways:
- pay 5% of the asset value once;
- receive an instalment payment for three years (the first instalment within 30 days of application, the second no later than 1 November 2023, the third no later than 1 November 2024).
Special tax rate on the purchase of Ukrainian domestic government bonds (OVGZ). If you purchase the OVDP before filing your tax return, the tax rate for you will be 2.5% on a one-off payment and 3% on an instalment payment. You can invest in government bonds until 31 August 2022.
Advice from Intelligent Solution: make a list of absolutely all of your foreign assets. The second step is to write down in detail the sources of your assets. Then think about which assets are worth keeping and which could be restructured by investing, for example, in government bonds.
Our experts are always ready to advise you, providing full information based on Ukrainian law, so that you can make the right decision.
What happens if you ignore the tax amnesty? Once this procedure is completed, the focus of the tax service will be on Ukrainian residents who did not want to declare their assets. If they fail to prove that they paid taxes in good faith on the income from which the assets were acquired, they will be forced to pay not 5% or 9% of their value, but 18%. In addition, violators will face penalties of 25% of the additional tax liability.
All secrets will soon be revealed, or how Ukraine will find out about foreign accounts. Ukraine is expected to implement the Common Reporting Standard (CRS) international standard for the automatic exchange of financial account information for tax purposes during 2022-2023. This international standard requires various financial institutions to transmit information to Ukrainian tax authorities about accounts of individuals and even companies, foundations, trusts whose beneficiaries are Ukrainian residents. So you will soon be reminded of foreign assets that you forgot to add to your list for whatever reason.
The authorities are planning to have the first exchange of information with tax authorities of other countries already in September 2023. So all secret foreign assets will soon be revealed to the Ukrainian tax authorities.
We have previously discussed how Law No. 466-IX has affected controlled foreign companies (CFCs). A CFC is any legal entity registered in a foreign country and controlled by a natural or legal person who is a resident of Ukraine. If a controlling person refuses to submit a CFC report, it will incur administrative liability in the form of a fine (100 minimum subsistence incomes - 210 thousand UAH) and even criminal liability under Article 112 of the Criminal Code of Ukraine.
We also told you how you can profitably liquidate a CFC and which CFCs are tax-exempt. Read article
Conclusion.
As we can see, the Small Tax Reform and tax amnesty have brought both many inconveniences and opportunities. Filing a declaration is a new starting point for later accumulation of money and investment, an opportunity to obtain a document according to which the state has no claims to your income, from which certain assets have been or will be acquired. All this will help you to dispose of your funds without fear of prosecution by the law. It is important to prepare for tax amnesty and to carefully consider the pros and cons, as your assets are at stake.
Intelligent Solution specialists are on hand to guide you through the entire process. We guarantee:
- compliance with all legal formalities in notifying the tax authorities about the CFC;
- Full support in the process of tax amnesty, preparation and filing of tax returns;
- Verified by experienced lawyers information based on the legislation of Ukraine to analyse and make the right decision.
At Intelligent Solution you can order:
- An audit of foreign assets and a description of potential risks in case you decide not to declare a CFC;
- advice on restructuring of foreign assets;
- preparation of an IFRS financial report on the CFC's activities.
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