Living and working in UkraineTax and Legal Consequences2017

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Welcome to Ukraine!

Living and working in Ukraine will have tax and legal consequences for yourself and your family members. Work permit issues, residency permits, declaring Personal Income Tax in Ukraine, social security contributions, tax deductible expenses, taxes on interest, dividends, capital gains, and the taxation of real estate in Ukraine and your home country are mere examples of issues that need to be resolved before you relocate to Ukraine, or shortly hereafter.

In this brochure we will address the key tax and legal issues around working and living in Ukraine.

Needless to say, things may get complicated... and things deserve tailor made advice and solutions.

We therefore strongly advise to discuss with us your tax and legal position in Ukraine position in detail, in order to "get it right from the start", and to avoid unexpected surprises. Our team of experienced specialists will be pleased to discuss with you and advise you on all aspects related to working and living in Ukraine.

With best regards,

Camiel van der Meij

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Andrey PronchenkoPartner

+38(044) 354 04 04andrey.pronchenko@pwc.com

PwC International Mobility team:

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Yury ZakharchenkoSenior Manager

+38(044) 354 04 04yury.zakharchenko@pwc.com

Kristina KochetkovaManager

+38(044) 354 04 04kristina.kochetkova@pwc.com

Bogdana ParkhomchukSenior Consultant

+38(044) 354 04 04bogdana.parkhomchuk@pwc.com

Olga MelnychenkoManager

+38(044) 354 04 04olga.melnychenko@pwc.com

Camiel van der MeijPartner

+38(044) 354 04 04camiel.van.der.meij@pwc.com

PwC

Agenda1. Tax Residency2. Taxable Income3. Tax Rates4. Tax Exemptions5. Disposal of Property6. Rental Income7. Passive Income8. Compliance Obligations9. Penalties10. 2017 Tax Filing11. Immigration requirements for

business visitors12. Immigration procedure in Ukraine13. Novelties in immigration

procedure. 2017

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Determination of tax residency

Determination of your Tax residency is a very important first step in discussing and planning your tax obligations.

An individual is a Ukrainian tax resident in a given tax (i.e. calendar) year if he/ she meets following criteria:

• has a place of abode (i.e. a house/ apartment, rented or owned, permanently or temporarily) in Ukraine; AND/OR

• has his/ her centre of vital interests (family/ business/ social relations) is in Ukraine; AND/OR

• spends more than 182 days in Ukraine during the calendar year; AND/ OR

• has a Ukrainian citizenship

Please note:when registered as a Ukrainian private entrepreneur, or a freelancer, you are deemed to be resident of Ukraine irrespective of the above criteria.

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Taxable income

Non-Residents:• Only income “sourced in

Ukraine” is taxable. This includes mainly income from employment ( including salary paid by a Ukrainian or foreign employer for work carried out in Ukraine), and income from real estate property located in Ukraine

Residents:• Worldwide income is taxable, meaning

income from employment (irrespective where exercised), income from investments (interest, dividends, capital gains, income from real estate etc.)you may claim a credit (i.e. deduction) for taxes paid in a country, with which Ukraine has a valid double tax treaty (legalised certificate of foreign income and taxes paid is required), e.g. withholding tax on interests, dividends etc., so that no double taxation occurs

• May apply for an extension for tax return filing deadline (until 31 December of the year following the reporting one)

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Personal Income Tax (PIT) rates

A flat rate of 18% personal income tax rate applies to practically all types of income of both tax residents and tax non-residents, e.g. income from employment, interest, dividends, directors fees, independent professional services.

Very few items are tax deductible expenses in Ukraine

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Military tax (MT)

Tax rate – 1.5%.

It affects all residents and non-residents whose income is subject to PIT.

As a result:

Basically most types of income are taxed at a (combined) flat rate of 19,5 %

Specific tax rates of 0-5-9% may apply to some types of income (e.g., to dividends paid by a Ukrainian CPT-payer)

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Tax exemptions and deductions

Generally, all employment-related income, including allowances and benefits, is taxable, specifically: housing (unless the house/ apartment is owned by the employer), medical insurance, company cars, school-fees etc. and other benefits in kind, paid by the employer in Ukraine or abroad

There are very few tax deductible expenses in Ukraine, e.g.

• Provision of accommodation, owned by an employer, for use free of charge when it is an essential condition for performing labour functions by an employee

• Limited amounts paid by employers to specific Ukrainian educational institutions for training/re-training of employees

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Taxable benefits include

Pension / Social / Health insurance paid by foreign employers to foreign social security fund / administration

Any personal expenses / services compensated / paid by employer (e.g. relocation, housing, education, transportation costs, etc.)

Stock options, incentive plans under work conditions

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Disposal of real estate and movable property located in Ukraine or abroad

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Rates for Residents: Rates for Non-Residents:

Exemption is available only for the first sale of specific types of property registered in Ukraine

PIT 5%; MT 1.5% on gross sales proceeds PIT 18%; MT 1.5%

PIT 18%; MT 1.5% (on gross sales proceeds of real estate property located abroad). Income tax paid in source treaty country can be credited, if properly documented

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Renting out property

Non-Residents:

Tax non-resident individuals are allowed to rent out their real estate located in Ukraine only through a Ukrainian private entrepreneur, or a Ukrainian legal entity which should act as a tax agent. Failure to do so will be considered tax evasion. More detailed information available on request

Residents:

Annual income tax return

Gross rental income is taxable (at 18% PIT and 1.5% MT), no deductions (e.g. mortgage interest, maintenance) can be made

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Passive income

18% PIT and 1.5% MT are applied to:

Investment profit (e.g. capital gain on the sale of shares, bonds etc.)

Interest (with some exemptions related to Ukrainian state securities)

Royalties

Dividends

The lower 5% PIT rate is applied to dividends paid by a Ukrainian corporation; 9% PIT rate is applied to dividends paid by foreign corporations to Ukrainian tax residents

Other passive income (e.g. insurance benefit paid by a non-resident of Ukraine)

DTT foreign tax credit is applicable to certain types of passive income, if properly documented

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Compliance obligations

For salary paid through the local payroll, the Ukrainian employer is responsible for payroll taxes (wage withholding taxes and social security contributions)

Foreign payments cannot not be made through the local payroll (e.g., compensation, foreign pension, insurance and social security payments), but you need to self declare this income on an annual basis in your annual tax return in Ukraine

Tax returns are due by 30 April of the next calendar year (filing extension till 31 December is possible for tax residents under certain conditions)

Tax payments are due by 31 July of the next calendar year (can be only in UAH). Tax assessments are not issued. You may be subject to a tax audit. There is a 3 year “claw back”- period for income tax in Ukraine. Obtaining a certificate of good standing after the tax is paid is strongly recommended

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Penalties

For individuals

UAH 170-1,020 (EUR 6 – 36) – for non-submission or late submission of a tax return by an individual, and also an administrative penalty up to UAH 136 (EUR 5)

10/20% of tax underpaid – for tax on a self-assessment basis, which is paid late (depending on the period of delay: 30 days or more)

25/50%, when an additional tax is assessed by the tax authorities after an audit of the tax return

Late payment interest (currently 0.04% per day)

Criminal responsibility for the avoidance of a tax payment

No penalties are applied to the individuals resided at free economic zone “Crimea” for violation at this zone

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Practical considerations

Salary paid via a foreign payroll to tax non-residents coming to Ukraine to work for a short period (less than 6 months) may be exempt from Ukrainian tax under a relevant double tax treaty. Special rules apply

Salary paid via a foreign payroll to tax residents should be declared by yourself in your annual tax return in Ukraine

Consideration needs to be given to: 100% Ukrainian payroll vs. Split payroll (part of income paid abroad by foreign employer)

Local payroll income to (expats and non-expats) can be paid in Ukrainian Hryvnia only, but can be linked to another currency (e.g. USD, EUR, etc.)

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2017 tax filing season: practical issues

Investment income from foreign sources – talk to your bank in your home country regarding gross (interest, dividend, capital gains)-income, and whether or not domestic withholding tax was withheld. This tax may be creditable in Ukraine

Declaring “additional benefits” in tax returns

E-filing is still not likely to be implemented in full

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Communication with you

PwC provide on-line calendar to expatriates at MyTaxes.pwc.com for their workdays/non-workdays records

PwC provide on-line annual Tax Questionnaire to authorized expatriates via MyTaxes.pwc.com

PwC prepare tax return based on the tax questionnaire completed by expatriate; PwC provides bank details for tax payments to be made to the tax authorities, and confirms the receipt of tax payments with the Ukrainian tax authorities

But you remain personally responsible for providing all relevant information, for signing the tax return and for paying the income tax due.

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Immigration requirements for foreign nationals who are assigned to visit Ukraine for business purposesFor most foreign nationals a g eneral visa free regime is applicable for the period of stay of up to 90 days cumulatively within each 180 day periodTypes of Ukrainian visas for business visitors from non-visa free countries:- Short term single entry type C visa - can be

obtained by citizens of the several defined countries (e.g. Chinese, Indian nationals, etc.) at the checkpoints of Ukrainian border in several airports in Ukraine with the term of allowed stay in Ukraine for no more than 15 calendar days

- Single or multiple entry type C visa - can be obtained in Ukrainian Consulate abroad. This visa can be issued with term of validity of up to 5 years. The allowed term of stay in Ukraine according to such visa should not exceed 90 days cumulatively within each 180 day period.

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Immigration compliance procedure for expatriate employees

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• Work permit enables to work in Ukraine

•Should be obtained by UA host company

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•Enables to receive remuneration and pay taxes in Ukraine

•To be obtained by the foreigner (or representative based on a PoA) in Ukraine

Tax ID

•Is a ground for entering Ukraine for long-term stay

•To be obtained by the foreigner in Ukrainian Consulate abroad

Visa D

RRRR•Temporary residence permit

•Is a ground for stay in Ukraine for more than 90/180 days

•To be obtained by a foreigner in Ukraine after arrival based on a type D visa

TRP

•Registration of place of residence in Ukraine is a mandatory requirement of Ukrainian law

•Should be done within 30 calendar days starting from the date of TRP obtaining

RPR

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Work permits in Ukraine

A foreign national can be employed in a Ukrainian legal entity only after the respective work permit is obtained by the employer

A foreign national can be employed in more than one Ukrainian company (subject to separate work permit per each employment)

Ukrainian work permit can be obtained with term of validity of up to 3 years (can be prolonged unlimited number of times)An employer is obliged to sign an employment agreement (contract) with a foreign employee within 90 calendar days from the date of issuing the workpermit

Current penalty for employment of a foreign national without the appropriate work permit –20 minimum salaries (UAH 64,000 – approx.EUR 2,157) applicable per each individual

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Novelties in immigration compliance procedures starting from 27 September 2017 according to the new legislation

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Key novelties

Possibility to work in several

companies at the same time

Minimal salary in the amount of 10

minimal wages

(currently UAH 32,000)

Differentiated terms of

validity/duration for work permits and temporary residence permitsConcept of

“seconded employee” and “highly

paid employee” introduced

No more mandatory

requirements on specific

qualification/experience of

foreigners

Significant shortage of the list of

documents required

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Thank you!

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