For­eign­ers strug­gle to file Ukrainian tax dec­la­ra­tions

Kyiv Post - - Business - BY JAKUB PARUSINSKI

Ukraine’s tax ad­min­is­tra­tion has gone out of its way this year to warn for­eign­ers re­sid­ing in the na­tion that they are re­quired to file tax dec­la­ra­tions and pay their fair share. But com­pli­ance has proven in­cred­i­bly dif­fi­cult.

Un­clear leg­is­la­tion and dis­ar­ray at tax ad­min­is­tra­tion of­fices across Ukraine has made fil­ing tax re­turns for for­eign­ers dif­fi­cult ahead of the May 3 fil­ing dead­line. Those who man­age to nav­i­gate past the ad­min­is­tra­tive hur­dles could find that their tax re­turns are filled out in­cor­rectly – es­pe­cially if they fol­lowed in­struc­tions from the tax au­thor­i­ties them­selves.

The prob­lems lie in sev­eral ar­eas, ex­perts say.

Lo­cal tax dis­tricts are re­fus­ing to re­ceive tax re­turns from for­eign­ers claim­ing they are not in their data­bases, warns Ok­sana Lapii, who man­ages ex­pa­trate tax is­sues at au­dit­ing gi­ant Ernst & Young’s Kyiv of­fice.

The prob­lem, as was made clear in re­cent days, is that ex­pats usu­ally reg­is­ter at the cen­tral Kyiv tax ad­min­is­tra­tion to ob­tain iden­ti­fi­ca­tion num­bers but then have to file dec­la­ra­tions at dis­trict tax of­fices. The lat­ter, how­ever, do not have them in their data­bases and thus refuse to ac­cept the dec­la­ra­tions.

This is likely due to the fact that the tax ad­min­is­tra­tion adopted a new elec­tronic fil­ing sys­tem this year, Lapii ex­plained, and the data is not shared be­tween var­i­ous of­fices.

Nor has ef­fi­ciency been im­proved, as dec­la­ra­tions still have to be phys­i­cally brought to the of­fices where em­ploy­ees re-file them elec­tron­i­cally – a pro­ce­dure that takes around half an hour per dec­la­ra­tion.

Un­less some­thing is done by the fil­ing dead­line of May 3 the state bud­get, which is al­ready far from over­flow­ing, could find it­self even shorter on cash.

Ex­perts es­ti­mated the po­ten­tial loss of tax rev­enue could go into the hun­dreds of thou­sands of dol­lars for just the Kyiv-based ex­pats.

An­driy Sokolov, a spokesper­son for the State Tax Ad­min­is­tra­tion, said that there should be no prob­lems with the re­turns. If a for­eigner is not reg­is­tered at a dis­trict of­fice, then fill­ing in a sim­ple ques­tion­naire should solve the prob­lem. It’s the same pro­ce­dure as for when a woman mar­ries and takes her hus­band’s name, he added.

The ex­pe­ri­ence of nu­mer­ous for­eign­ers in Ukraine por­trays a far dif­fer­ent picture.

In one case brought to the at­ten­tion of the Kyiv Post, a for­eigner spent two days run­ning from of­fice to of­fice within a Kyiv dis­trict tax ad­min­is­tra­tion hear­ing mostly the same mes­sage from lo­cal of­fi­cials: You should pay, tech­ni­cally can’t, but are still li­able and can be fined for not com­ply­ing.

Scant ex­pe­ri­ence with for­eign­ers is part of the prob­lem. Many lo­cal tax of­fi­cials sim­ply don’t know the pro­ce­dures of how to help for­eign­ers com­ply.

The prob­lem can in­deed be re­solved by fil­ing an ap­pli­ca­tion to the lo­cal tax au­thor­i­ties to­gether with doc­u­ments prov­ing one re­sides there – a tempo- rary res­i­dence per­mit or pass­port with the OVIR im­mi­gra­tion of­fice stamp.

But the doc­u­ments re­quire per­sonal sig­na­tures and ex­pats, who of­ten hold top man­age­rial po­si­tions and travel fre­quently, can­not be flown in at the week’s no­tice which the tax ad­min­is­tra­tion pro­vided.

“If we were talk­ing about one per­son, this would not be such a huge prob­lem,” Lapii said. But with hun­dreds of ex­pats to cover and just days to go the sys­tem will be over­whelmed.

The case of short-term work­ers with­out res­i­dence but who still pay some taxes in Ukraine is even more dif­fi­cult, Lapii em­pha­sized. Ac­cord­ing to her, tax au­thor­i­ties are try­ing to be more flex­i­ble and said they will ac­cept ho­tel cer­tifi­cates or lease agree­ments in lieu of res­i­dency doc­u­ments, but this in­for­ma­tion was only ver­bal and is not legally-bind­ing.

Yet the fil­ing trou­ble is not the only prob­lem in one of the coun­try’s most chaotic tax sea­sons.

“The tax leg­is­la­tion changed, the tem­plate changed, and be­came long, complicate­d and ir­rel­e­vant for the way of cal­cu­lat­ing taxes,” Lapii ex­plained.

Un­til the first of April the tax au­thor­i­ties did not is­sue any clar­i­fi­ca­tions on how to cal­cu­late the tax li­a­bil­ity based on the small pro­gres­sive tax rate.

Mean­while, the tax dec­la­ra­tion tem­plate it­self is mis­lead­ing. It sug­gests that monthly for­eign-earned in­come should be taxed at 15 per­cent un­til the level of Hr 9,410 (just over $1,000), and at 17 per­cent there­after, Lapii said. This is also what for­eign­ers will hear if they ask lo­cal tax of­fices.

But this is wrong ac­cord­ing to the cen­tral tax ad­min­is­tra­tion ex­perts, Lapii said. In­stead, for­eign­ers should cal­cu­late the to­tal in­come they earned in a given month – for­eign and do­mes­tic – and then ap­ply the 15 per­cent rate to only to the first Hr 9,410.

If the ac­counts are cal­cu­lated sep­a­rately, as the tem­plate sug­gests, there will be an un­der­pay­ment of Hr 188.2, the dif­fer­ence be­tween ap­ply­ing the 15-17 per­cent pro­gres­sive sys­tem for both rather than just one ac­count (as­sum­ing both for­eign and do­mes­tic in­come ex­ceeds Hr 9410).

Ever-chang­ing tax leg­is­la­tion and gen­eral dis­ar­ray in gov­ern­men­tal ser­vices mean that avail­able in­forma- tion is of­ten stale or does not take into ac­count the fluid com­plex­ity of Ukrainian law.

Don’t ex­pect to get ac­cu­rate con­sul­ta­tion and ad­vice from re­gional tax of­fi­cials or the tele­phone hot­lines. When asked about the sit­u­a­tion of for­eign­ers pay­ing taxes on for­eign-owned in­come, a hot­line set up by the State Tax Ad­min­is­tra­tion to in­form tax­pay­ers about ap­pli­ca­ble reg­u­la­tions had a cu­ri­ous an­swer.

“In­come earned out­side of Ukraine is not sub­ject to tax­a­tion in Ukraine,” the State Tax Ad­min­is­tra­tion hot­line in­formed, firm and clear. But ex­perts say this clearly con­tra­dicts Ukrainian tax leg­is­la­tion which states that any for­eigner re­sid­ing over 183 days per year in Ukraine is con­sid­ered a tax res­i­dent and as such has to pay taxes on their global in­come.

For such tax res­i­dents, any in­come earned abroad that was not taxed in an­other ju­ris­dic­tion and does not fall un­der dou­ble tax­a­tion treaties should be taxed in Ukraine, con­firmed Scott Brown, a se­nior part­ner at the Fr­ish­berg & Part­ners law firm.

The prob­lem is that, for all its best in­ten­tions, the hot­line car­ries no le­gal weight what­so­ever. Nor does ad­vice from tax au­thor­i­ties, emails from the ad­min­is­tra­tion or state­ments on gov­ern­ment web­sites. The only way to re­ceive legally-bind­ing in­struc­tions is to ap­ply for a for­mal in­quiry pe­ti­tion, which can take weeks to be re­viewed.

On a some­what more pos­i­tive note, the typ­i­cal penalty for late or even ab­sent dec­la­ra­tions is from Hr 51 to 136, ac­cord­ing to the hot­line.

Sec­ond time of­fend­ers, how­ever, will see the fine mul­ti­plied by ten, warned Brown. Third time of­fend­ers will face a crim­i­nal case. “Three strikes you’re out,” he summed it up.

For those who want to play it safe, tax au­thor­i­ties mer­ci­fully con­firmed that over­pay­ing one’s taxes is also pos­si­ble.

Kyiv Post staff writer Jakub Parusinski can be reached at [email protected] com.

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