Individual Entrepreneur Conducting Business Abroad

Is it necessary to notify the tax authorities?

An individual entrepreneur may leave Ukraine as a private individual, provided they have the legal right to do so. At the time of departure, it may not yet be clear whether they will continue operating their business remotely or seek employment in the country of residence. Therefore, there is no obligation to notify the tax authorities of the move abroad. If the entrepreneur continues to conduct their business activities, there is generally no need to inform the tax authorities about their departure from Ukraine.

Tax Residency

When moving abroad, a Ukrainian citizen generally remains a tax resident of Ukraine, even if they have been living abroad for several years, rent an apartment there, and their children go to a local school. According to the provisions of the Tax Code of Ukraine, an individual entrepreneur (FOP) remains a tax resident of Ukraine if:

·      they hold Ukrainian citizenship and maintain a permanent place of residence in Ukraine (even if they also have a temporary place of residence abroad);

·      they maintain close economic or personal ties with Ukraine. Entrepreneurial activity itself may serve as evidence of such ties.

Therefore, from the perspective of the State Tax Service of Ukraine, nothing changes for the individual entrepreneur and they continue to be treated as a tax resident of Ukraine.

Is it necessary to pay taxes and file reports in Ukraine?

Yes. An individual entrepreneur may conduct business activities remotely. This way of doing business is suitable for individual entrepreneurs who provide services online. Examples include services rendered in Ukraine in the IT industry, graphic design, social media marketing (SMM), marketing, journalism, online course development, coaching, consulting in various areas, psychotherapy, management of Ukrainian brands’ social media pages, content creation, advertising, analytics, and similar activities. It also applies to entrepreneurs who still have employees at their place of registration in Ukraine and whose business operations continue at their previous business locations, including retail outlets, service points, and other facilities that remain operational in Ukraine. Furthermore, where income is earned in Ukraine, the entrepreneur is generally required to pay taxes and file tax reports in accordance with Ukrainian legislation and the rules applicable to the chosen tax regime. This option is most commonly used by individual entrepreneurs operating under the simplified taxation system, Group 3, at the 5% tax rate. Such individual entrepreneurs may receive income into accounts held with Ukrainian banks, both in hryvnias and in foreign currencies, as an individual entrepreneur is entitled to receive income from foreign clients as well. However, to do so, the entrepreneur must open a foreign currency business account with a Ukrainian bank and account for income received from business activities in foreign currency in accordance with the rules of the Tax Code of Ukraine, converting such income into hryvnias at the official exchange rate of the National Bank of Ukraine.

Is it necessary to change the address in the registration documents?

No changes are required, since at the time of leaving Ukraine it is impossible to know where the entrepreneur will temporarily reside, how often they may change their place of stay, whether they intend to return after the end of hostilities in Ukraine, or whether they own real estate in Ukraine. Ukrainian law permits this.

Is it necessary to change the place of business activity in the Single Tax Payers Register?

If an individual entrepreneur (FOP) was providing services remotely before moving abroad and the place of business activity in the Single Tax Payers Register was indicated as “Throughout the territory of Ukraine”, no changes are required after relocation. If the entrepreneur’s place of business activity was specified as a particular address (for example, their place of residence in Ukraine), it is advisable to change it to “Throughout the territory of Ukraine.” According to the clarifications issued by the tax authorities, where services are provided outside Ukraine via the Internet (for example, in the IT sector, consulting, etc.), the place of performance of work or provision of services is considered to be throughout the territory of Ukraine or outside Ukraine as part of export activities. It is necessary to change the place of business activity in the Single Tax Payers Register only when an individual entrepreneur opens an offline point of sale, shop, warehouse, or office at a specific location in Ukraine. In such a case, a notification in Form No. 20-OPP must also be submitted.

Is it necessary to pay taxes in the host country?

Unfortunately, an individual entrepreneur (FOP) may face a situation where they are required to pay taxes in their host country as well. This is because, in the event of a prolonged stay abroad, an individual, including one who holds temporary protection or collective protection status, may automatically acquire tax residency in the country where they spend more than 183 calendar days per year, without submitting any applications. In the event of receiving income while staying in that country, the tax authorities of the country of residence may consider that such entrepreneur is obliged to pay taxes in accordance with its legislation and register as an individual entrepreneur with its tax authorities. However, in practice, this occurs only rarely.

How Should Documentation Be Managed?

In the event of moving abroad, an individual entrepreneur (FOP) will be required to manage their documentation in electronic form. To do so, they should obtain a Qualified Electronic Signature (QES) in a timely manner. This is necessary to ensure that the tax authorities do not have questions as to how, for example, a paper-based contract was signed by the entrepreneur while they were abroad. After all, it is now easy for the tax authorities to determine when an individual entrepreneur crossed the border, as they can obtain the necessary information from the relevant border control registers without leaving their office.

How to Avoid Double Taxation

Ukraine has double taxation avoidance agreements with most European countries (such as Poland, Germany, the Czech Republic, Italy, etc.). A complete list of countries with which double taxation avoidance agreements have been concluded is available on the website of the Ministry of Finance. Such agreements make it possible either to credit taxes paid in Ukraine against tax liabilities in another country or, conversely, taxes paid in the country of residence may reduce the amount of taxes payable in Ukraine. However, unfortunately, this does not apply to the Single Tax, the Military Levy, or the Unified Social Contribution (USC).

 If an entrepreneur receives income not only in Ukraine but also abroad (either as an individual entrepreneur or as salary from a foreign employer), they must, at the end of the year, submit a Declaration of Property Status and Income indicating their foreign-source income. Such declaration must be filed no later than 1 May of the following year. To avoid double taxation, a certificate confirming payment of taxes (issued by the local tax authorities of the host country and translated into Ukrainian) must be attached to the declaration. In that case, the amount of personal income tax may be reduced by the amount of taxes paid in the host country. In some countries, the amount of taxes payable may be reduced if the individual entrepreneur provides a certificate confirming payment of taxes in Ukraine. Such a certificate may be obtained from the State Tax Service of Ukraine.

How Can Funds Held Abroad Be Used in Ukraine?

The official position of the State Tax Service and the National Bank of Ukraine is unequivocal: funds derived from business activities that remain in a foreign bank account and are not transferred to Ukraine lose their status as income of an individual entrepreneur. The tax authorities require such remaining funds to be taxed as ordinary foreign-source income of an individual at a rate of 18% personal income tax plus a 5% military levy, instead of the standard 5% single tax applicable to Group 3 taxpayers.

To use these funds in Ukraine, they must be transferred to the entrepreneur’s foreign currency business account, as it is not permissible to simply transfer foreign currency from a personal foreign account to a personal (physical) bank card in Ukraine. Therefore, an individual entrepreneur should have a foreign currency business account in Ukraine and transfer the funds from the foreign bank account to the Ukrainian foreign currency business account via a SWIFT transfer (or SEPA transfer within the Eurozone). It is advisable to specify in the payment reference: transfer of the entrepreneur’s own funds received from business activities (or provide a reference to the contract/invoice under which the funds were credited to the foreign account).

According to Ukrainian foreign exchange legislation, settlements within Ukraine must be made exclusively in the domestic currency. Therefore, the law does not permit the withdrawal of foreign currency in cash or its transfer to an individual entrepreneur’s own foreign currency card account they hold as an individual in Ukraine. To use such funds in Ukraine, the foreign currency must be converted into hryvnia by selling it through the online banking system of the Ukrainian bank where the foreign currency account is maintained. The proceeds from such sale will be credited to the individual entrepreneur’s hryvnia account, from which the funds may be used for needs in Ukraine.

Natalia Shcherbak, accounting and tax consultant