Legal residency limit: how a Ukrainian individual entrepreneur can work from abroad without double taxation

Ukrainians who were forced to go abroad after the start of a full-scale war often do not stop doing business. Many retain the status of a natural person-entrepreneur in Ukraine, others open a business already in their new country of residence. In these circumstances, several challenges related to tax residency, reporting, double taxation and interaction with the fiscal authorities of two countries arise at once.

Co-founder of CeDePe Group in Ukraine Iryna Kachmarchyk believes, that Ukrainian natural persons-entrepreneurs, who today conduct business abroad, take on themselves not only the risks of entrepreneurial activity, but also double responsibility – before two tax systems. She notes that in 2025, when Ukrainian business continues to adapt to new realities, tax obligations regarding Ukraine and the host country, subtleties of reporting and challenges of double taxation have become a real test of financial literacy. Successfully passing this exam requires compliance with the legislation of both countries, accurate determination of tax status and competent business organization.

Iryna Kachmarchyk explains that according to Ukrainian legislation, a person is considered a tax resident of Ukraine if he has a permanent address or a center of life interests here, or if he stays in Ukraine for more than 183 days a year. If a person stays abroad for more than 183 days and has an official status — for example, a residence permit or temporary protection status — then he can be considered a tax resident of the host country. It is this status that determines the entrepreneur’s tax liability to the two states. If a person remains a resident of Ukraine, he is obliged to declare and pay taxes on all income – both received in Ukraine and abroad. At the same time, this situation creates real prerequisites for double taxation, when the same income is taxed in both countries.

Kaczmarchyk reminds that Ukraine has international agreements on avoiding double taxation with many countries. According to her, these agreements make it possible to avoid double taxation. If the entrepreneur has paid taxes in the host country, and this country has a corresponding agreement with Ukraine, then in Ukraine the tax on the same income will not have to be paid. For this, a certificate from the tax foreign country about the actual payment of tax is required. Without such a certificate, the Ukrainian tax office will not credit the foreign tax and will demand full payment in Ukraine.

She explains the principle of mutual crediting: if 100,000 hryvnias are paid abroad, and in Ukraine the amount of tax on the same income is 80,000, then the payment is not made in Ukraine. If only 80,000 hryvnias were paid abroad, and 100,000 hryvnias would have to be paid in Ukraine, then 20,000 hryvnias will have to be paid in addition.

The expert draws attention to the fact that not all Ukrainian FOPs can work with foreign customers. This right is available to third-group non-profit organizations and non-profit organizations on the general taxation system. They can legally cooperate with foreign companies and receive payment in foreign currency. At the same time, FOPs of the second group have the right to sell goods abroad, but do not have the right to provide services to foreigners. And for FOPs of the first group, foreign economic activity is generally prohibited.

Kaczmarchyk emphasizes that Ukrainian non-profit organizations that remain registered in Ukraine are required to submit reports and pay a single social contribution, even if they are physically located abroad. At the same time, the military levy is also paid to Ukraine and cannot be credited on the basis of payment of foreign taxes. If there is no double taxation agreement between Ukraine and the host country, for example, as in the case of the United Arab Emirates, Thailand or Panama, then the entrepreneur is forced to pay taxes in both countries in full. In such cases, it is worth changing the tax status or changing the format of work, for example, opening a local company in the country of actual residence.

The expert also emphasizes that living abroad does not release the FOP from the obligation to submit reports if the entrepreneur is registered in Ukraine. Entrepreneurs on the simplified taxation system (groups I–III) have simplified reporting. FOPs of the second group pay a single tax every month, submit an annual declaration by March 1, pay military duty and EUV every quarter. For FOPs of the third group, a quarterly declaration is provided (it must be submitted within 40 days after the end of the quarter), payment of 5% or 3% plus VAT, military duty and EUV.

According to her, on the general system, it is mandatory for FOPs to submit an annual declaration of assets and income by May 1 of the following year, as well as to pay personal income tax and military service quarterly in the form of advance payments. The EUV in all systems is 22% of the minimum wage per month and is paid quarterly.

If the FOP has employees, then regardless of the chosen taxation system, it submits a combined tax calculation every month. In this calculation, the amounts of accrued wages, personal income tax, military duty and EUV are indicated. Kachmarchyk reminds that all the rules of reporting and submission of declarations are fixed in the Tax Code of Ukraine, in particular in Articles 177 and 296, as well as in the relevant orders of the Ministry of Finance regarding reporting forms.

She draws attention to the four main risks that FOEs face abroad. The first risk is the wrong definition of tax residency. If an entrepreneur resides in a country where global income is taxed, but does not report his foreign income or does not register properly, this may result in a violation of local law. At the same time, if he does not provide the Ukrainian tax certificate about the residency of another state, Ukraine will continue to consider him a tax resident.

The second risk, according to her, is incorrect or untimely submission of certificates on payment of taxes abroad. In order to take advantage of the right to avoid double taxation, the FPO is obliged to provide proof of tax payment in another state, executed in accordance with the requirements (with translation, apostille or consular legalization). Otherwise, the Ukrainian tax service will not credit the tax paid abroad and will demand full payment of personal income tax or military duty in Ukraine.

The third risk is differences in tax periods. Kaczmarchyk explains that if income is taxed in a different period in the host country than in Ukraine, this can create a legal vacuum: the tax has not yet been paid abroad, but is already subject to declaration in Ukraine. In such cases, she advises documenting the terms and actions.

The fourth risk is the absence of an agreement between Ukraine and the country of residence. The expert notes that in the absence of such an agreement, the FOP will be obliged to pay taxes in full in both countries. Under such conditions, in her opinion, the most reasonable decision is to change the residence status or register a new business entity abroad.

Summarizing, Iryna Kachmarchyk emphasizes that it is extremely important for Ukrainian sole proprietorships working outside the country to clearly define their tax status, adhere to the reporting deadlines and, if possible, use the provisions of international agreements on the avoidance of double taxation. She believes that timely documentation, confirmation of paid taxes and a legally accurate position are the key conditions for safe business conduct without financial and legal complications.