Ukraine tax:
New tax interpretation for taxation of non-residents

State Tax Administration of Ukraine (STAU) issued a Letter interpreting the approach for taxation of payroll income (salary and other compensation items) received by foreign assignees from Ukrainian employers.

In its previous Letters, the STAU confirmed that the Ukrainian-sourced income of a foreign employee not qualifying as a Ukrainian tax resident, which is paid via Ukrainian payroll (by a Ukrainian employer), is subject to regular tax rate of 15% regardless of the tax residency of the individual in the respective reporting year.

Now the STAU changed its position and asserts that all Ukrainian-sourced income received by foreign employees not qualifying as Ukrainian tax residents, either from Ukrainian or foreign employers, should be taxed at a double rate of 30% unless the special Tax residency certificate is received from the tax authorities.

In particular, STAU refers to the Tax residency certificate as the only document confirming the tax status of an individual. The new approach of the STAU clearly demonstrates its intention to tax all compensation items considered as Ukrainiansourced (related to assignment in the Ukraine) of foreign individuals.

As a result the Ukrainian companies employing foreign assignees could be faced with the situation where they will not be able to obtain residency certificates at the beginning of the year and, therefore, will have to apply 30% up to the moment when an individual qualifies as a Ukrainian tax resident.

At the same time, obtaining of the Tax residency certificate could mean that worldwide income should be subject to tax in

The position of the STAU is not supported by the wording of the Law on Personal Income Tax. However, the Letter may result in the application of the 30% rate to the income paid through Ukrainian payroll before the Tax residency certificate is received. Moreover, tax authorities will inquire about compensation items and employment structure in more details asking for data on foreign part on income. This is likely to have a great impact on inbound assignees.

TAX NEWS - October 2009

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