Tax residency of Ukrainians abroad: what matters

The determination of tax residency for Ukrainians who have been living abroad for an extended period depends on the combination of their personal and economic ties to each country. The established status determines the procedure for reporting income, paying taxes and fulfilling CFC reporting obligations.

This was discussed on September 15 during the webinar «Tax residency of Ukrainian citizens in wartime: determination criteria, dual residency, tax consequences and CFC reporting», organized by the UNBA Committee on customs and tax law.

In his opening remarks, Committee chairman Yakov Voronin drew attention to the legal uncertainty faced by Ukrainians living and working abroad. He cited the refusal to issue a certificate of Ukrainian tax residency as one possible mechanism for confirming residency status: in his view, such a document could serve as evidence that an individual does not meet the residency criteria and could give rise to corresponding legal consequences.

At the same time, practices among regional tax authorities vary. According to the advocate, some authorities refuse to issue the certificate if a person does not meet the residency criteria, while others consider the ownership of an apartment or house in Ukraine to be a defining characteristic of Ukrainian residency. Therefore, the tax authorities’ position regarding the uniform application of these rules requires harmonization.

He identified the fulfillment of CFC obligations following a change in residency as a separate issue. A person who becomes a tax resident of another country ceases to be a CFC controller under Ukrainian rules; however, the law does not provide for a specific mechanism to report this change. In practice, some taxpayers or their representatives submit applications or notifications regarding the loss of residency, so this issue requires separate regulation.

Committee Council member Viktoria Bublichenko explained that status is initially determined according to the national laws of each country. If both countries recognize a person as their resident, an international treaty is applied, under which permanent residence, center of vital interests, habitual residence, and citizenship are assessed in sequence.

Ownership of an apartment or house does not always mean that a person has a permanent residence: what matters is whether they can use it on a permanent basis. The center of vital interests is determined by a combination of circumstances, including the family’s place of residence, business activities, real estate, bank accounts, and place of business. Under the conventional approach, no single factor is decisive on its own.

The 183-day criterion in Ukrainian law is based on the actual number of days spent in Ukraine. Under international treaties, however, the regularity of the stay and whether it has become part of the individual’s established way of life are assessed.

Advocate and international tax expert Olena Kuznechikova advised compiling a body of evidence regarding the center of vital interests. This may include information on border crossings, housing documents, bank statements, and data on children’s education, employment, business activities, and asset management.

Information from government agencies, banks, and third parties carries greater evidentiary weight. Personal statements and explanations carry less weight if not supported by external documents.

To have tax paid abroad credited toward tax liability in Ukraine, a document from a competent foreign authority specifying the income and the amount of tax is required. State Tax Service representative Vyacheslav Dotsenko cited common mistakes such as submitting an employer’s certificate instead of a document from a competent authority, the absence of information regarding the tax paid, or the lack of a translation or proper formatting of the document.

The webinar moderator, Committee member Oleksandr Gyurzy drew attention to court precedent regarding individual tax consultations. He cited a case involving Germany, in which the court upheld the tax authority’s position, as well as cases concerning residency in Cyprus and Estonia, where the courts ruled in favor of the taxpayers and overturned the State Tax Service’s consultations. In the latter cases, the courts reasoned that the tax authority must assess residency, as it is directly related to taxation.

According to O. Gyurzy, requests for individual tax consultations often contain only an explanation of travel abroad without documents confirming the actual circumstances. Therefore, it is advisable to submit, along with the request, evidence of the family’s residence, children’s education, receipt of medical services, payment of housing and living expenses, and other ties to the relevant country.

In this regard, V. Dotsenko clarified that an individual tax consultation is prepared based on the information and documents provided by the specific taxpayer. If, during a court appeal, an individual submits new evidence, it may differ from the materials on which the State Tax Service based its consultation. At the same time, a consultation provided to one individual cannot be used by other taxpayers to confirm their own status.

Ukrainian law does not require the State Tax Service to issue a certificate of loss of residency. This was noted by the deputy chairman of the Committee Dmytro Yurovsky. In some EU countries, after an application and supporting evidence are submitted, the change in status is recorded in the tax registry.

Deputy director of the Department of international taxation at the Ministry of Finance Nadiya Goreva explained that a certificate of resident status is intended for the application of an international treaty in another country. Ukrainian law does not provide for a separate procedure for recognizing an individual as a non-resident or for issuing a universal document confirming such status.

The Ministry of Finance representative reported that the agency has begun work on updating the definition of a tax resident as part of preparations for legislative changes. Various proposals have been submitted regarding the draft law published in February: some suggest leaving the current definition of a resident unchanged, while others propose making 183 days the key or sole criterion. Work on this issue will continue throughout the year with the involvement of experts.

A representative of the State Tax Service Ihor Kulish noted that the current CFC reporting requirements do not allow for the loss of resident status to be reported. The State Tax Service will propose that the Ministry of Finance consider a corresponding amendment while preparing a draft law to improve CFC rules.

Y. Voronin proposed that the Ministry of Finance involve the UNBA Committee in further work on tax residency rules and establish a joint working group to discuss legislative proposals. N. Goreva supported this proposal and noted that it would be possible to resume such work after the completion of priority legislative initiatives related to Ukraine’s European integration commitments.