Remote work abroad: when Ukrainians may face tax risks

After the full-scale war began, millions of Ukrainians were forced to leave the country, yet many carried on working for Ukrainian employers or running a business as private entrepreneurs. At the same time, as missile and drone attacks on Ukrainian cities intensify — Kyiv above all — more and more people are considering a temporary move to safer countries. Another factor is the approaching autumn and winter season, traditionally accompanied by concerns about possible disruptions to electricity, heating and other critical utilities. Whatever the reason for relocating, Ukrainians should keep one thing in mind: remote work abroad can carry not only practical consequences, but legal and tax ones too.

Remote work from abroad is not prohibited

Ukrainian law contains no ban on working remotely from the territory of another state. If an employee is in an employment relationship with a Ukrainian employer and performs the work remotely, being outside Ukraine is not in itself a breach of the law.

Likewise, a private entrepreneur does not lose that status merely because of temporary residence abroad. They remain registered in Ukraine and are obliged to comply with Ukrainian tax law on paying taxes and filing reports.

When tax risks arise

The main legal questions arise not from Ukrainian legislation, but from the rules of the state where the person actually lives.

Under subparagraph 14.1.213 of paragraph 14.1 of Article 14 of the Tax Code of Ukraine, tax residency is determined by a number of criteria. The first is the person’s place of permanent residence. Where permanent residence exists in several countries at once, the decisive factor becomes the centre of vital interests — that is, the place where the person’s personal and economic ties are concentrated. If that cannot be established, the criterion of staying in Ukraine for at least 183 days during a calendar year applies.

At the same time, almost every state has its own rules for determining tax residency. In many countries it is enough to live there for more than 183 days, or to meet other criteria, to acquire the status of a local tax resident.

This is why a situation can arise in which a person continues to receive income from a Ukrainian employer while also having to meet tax obligations in the country of actual residence.

Will you have to pay tax twice

Not necessarily.

Ukraine has concluded international conventions on the avoidance of double taxation with most European states. Under Article 3 of the Tax Code of Ukraine, where an international treaty of Ukraine establishes rules other than those set out in the Tax Code, the provisions of the international treaty apply.

Such conventions determine which state has the right to tax particular types of income, and also provide mechanisms for crediting tax already paid.

However, an international treaty does not mean automatic release from tax obligations. In many countries, even where there is no need to pay the tax again, a person must still file a tax return or notify the local tax authorities of the income received.

Specific issues for private entrepreneurs

For private entrepreneurs the question can be even more complex.

If a private entrepreneur in fact conducts business from the territory of another state over a long period, the local tax authorities may conclude that the activity is carried out on their territory. As a result, obligations may arise to register the business locally, to pay taxes and social contributions, or to file reports under the law of the country of stay.

Every situation is assessed individually and depends on the national legislation of the particular state, as well as on the provisions of the international convention between Ukraine and that country.

What liability is possible

In most European states, failure to file a tax return, concealing income or paying tax late can lead to additional tax assessments, fines and penalty interest. Where the unpaid amounts are significant, some countries also provide for administrative or criminal liability.

For that reason, it is unwise to assume that paying tax in Ukraine automatically removes any obligations in the country of residence.

What to do before relocating

If you plan to stay abroad not for a few weeks but for months or years, it is advisable to establish before you go:

• whether you may acquire tax resident status in the country of stay;
• whether a Convention on the Avoidance of Double Taxation is in force between Ukraine and that state;
• whether an obligation arises to file a local tax return;
• whether local taxes or social contributions have to be paid;
• whether the terms of running your business change if you work as a private entrepreneur.

A legal review carried out in advance makes it possible to avoid double taxation, penalties and disputes with the tax authorities. Given that the rules differ substantially from country to country, it is sensible to obtain individual advice from a lawyer at Strategic Advocacy before a long-term move — one who will analyse your particular situation in the light of the law of the country of stay and Ukraine’s international treaties.