Business proposes to update tax legislation for foreigners

03/ 02/ 2021

The current tax legislation of Ukraine lacks proper regulation of taxation of income originating from Ukraine earned by foreign individuals and foreign individual entrepreneurs. According to the Tax Code of Ukraine, foreign entrepreneurs who receive income in Ukraine are payers of personal income tax and military duty. For example, if a Ukrainian company orders consulting services from an entrepreneur who is not a resident of Ukraine, then, when transferring funds for services, the Ukrainian company acts as a tax agent of such a non-resident and must withhold taxes from such income. Thus, it has to fill in the Tax calculation form for the amounts of income accrued (paid) in favor of such foreigners, and the amounts of tax withheld from such an income indicating the registration number of the taxpayers account card of such non-resident. However, in order to obtain this registration number, a foreigner must personally or through a legal representative submit to the Tax Service of Ukraine his/her original passport or another identity document that contains a border crossing mark. Besides, it is necessary to submit a Ukrainian translation of the document and a copy of such translation certified in accordance with the procedure established by law. Remote services, including those provided for foreigners, are becoming more widespread due to the global pandemic and the spread of COVID-19 coronavirus disease. Thus, modern information technologies allow providing a large number of online services to non-residents without their physical presence in Ukraine. For example, there is currently a discussion on introducing e-residency in Ukraine. The current quarantine conditions restrict businesses from the physical possibility to cross the borders. Therefore, Ukrainian companies cannot pay tax on income earned by non-residents without tax registration of such non-resident in Ukraine. That is, Ukrainian companies become violators of tax legislation through no fault of their own. The business needs support during the economic crisis, not fines for violating obsolete legislation amounting to several thousand hryvnias. Therefore, the European Business Association calls on the Verkhovna Rada and the Government to update tax regulation in the context of new realities. Thus, in the opinion of the business, it is necessary to eliminate the need to obtain a registration number of the taxpayers account card for foreign individual entrepreneurs who are not on the territory of Ukraine when receiving income originating from Ukraine. We propose to tax such income of non-resident individuals similar to the taxation of income paid to non-resident legal entities, namely, to supplement the list of income taxpayers in the Tax Code of Ukraine with “individuals registered as business entities in accordance with the legislation of foreign states that receive income originating from Ukraine. The EBA community addresses the Chairman of the Verkhovna Rada – Mr. Dmytro Razumkov and the Minister of Finance of Ukraine – Mr. Serhiy Marchenko with a proposal to take into account proposals from the business regarding the draft law №4184. Більш оперативно про новини Асоціації можна дізнатися на нашому Telegram-каналі – EBAUkraine.

The current tax legislation of Ukraine lacks proper regulation of taxation of income originating from Ukraine earned by foreign individuals and foreign individual entrepreneurs.

According to the Tax Code of Ukraine, foreign entrepreneurs who receive income in Ukraine are payers of personal income tax and military duty. For example, if a Ukrainian company orders consulting services from an entrepreneur who is not a resident of Ukraine, then, when transferring funds for services, the Ukrainian company acts as a tax agent of such a non-resident and must withhold taxes from such income. Thus, it has to fill in the Tax calculation form for the amounts of income accrued (paid) in favor of such foreigners, and the amounts of tax withheld from such an income indicating the registration number of the taxpayer’s account card of such non-resident.

However, in order to obtain this registration number, a foreigner must personally or through a legal representative submit to the Tax Service of Ukraine his/her original passport or another identity document that contains a border crossing mark. Besides, it is necessary to submit a Ukrainian translation of the document and a copy of such translation certified in accordance with the procedure established by law.

Remote services, including those provided for foreigners, are becoming more widespread due to the global pandemic and the spread of COVID-19 coronavirus disease. Thus, modern information technologies allow providing a large number of online services to non-residents without their physical presence in Ukraine. For example, there is currently a discussion on introducing e-residency in Ukraine.

The current quarantine conditions restrict businesses from the physical possibility to cross the borders.
Therefore, Ukrainian companies cannot pay tax on income earned by non-residents without tax registration of such non-resident in Ukraine. That is, Ukrainian companies become violators of tax legislation through no fault of their own.

The business needs support during the economic crisis, not fines for violating obsolete legislation amounting to several thousand hryvnias.

Therefore, the European Business Association calls on the Verkhovna Rada and the Government to update tax regulation in the context of new realities. Thus, in the opinion of the business, it is necessary to eliminate the need to obtain a registration number of the taxpayer’s account card for foreign individual entrepreneurs who are not on the territory of Ukraine when receiving income originating from Ukraine.

We propose to tax such income of non-resident individuals similar to the taxation of income paid to non-resident legal entities, namely, to supplement the list of income taxpayers in the Tax Code of Ukraine with “individuals registered as business entities in accordance with the legislation of foreign states that receive income originating from Ukraine”.

The EBA community addresses the Chairman of the Verkhovna Rada – Mr. Dmytro Razumkov and the Minister of Finance of Ukraine – Mr. Serhiy Marchenko with a proposal to take into account proposals from the business regarding the draft law №4184.

Більш оперативно про новини Асоціації можна дізнатися на нашому Telegram-каналі – EBAUkraine.