Ukrainian refugees face audits, fines and the suspension of social benefits
Ukrainians living abroad and using social benefits are awaiting new changes that may affect their financial situations. From September 30, Ukraine will join the international financial information exchange system (CRS). This means that information about financial accounts, investments, income from renting and selling real estate of Ukrainian citizens will be available in 120 countries of the world. The first reporting period will cover the second half of 2023, and further annual reporting will be conducted for the previous calendar year. Data exchange will become possible after the adoption by the Verkhovna Rada in March 2023 of Law No. 2970, which amends the Tax Code of Ukraine.
Ukraine joined this system together with 110 foreign tax administrations. The CRS system provides for the exchange of information on non-resident account holders located in the reporting state. This process was launched by a multilateral agreement that Ukraine joined through the State Tax Service in August 2022, after becoming an associate member of the EU. From July 1, 2023, Ukrainian banks began to collect information about non-resident customers in the CRS standard in order to transfer this data to the tax authority, which will exchange it with other states. A similar data collection process takes place in other countries where Ukrainian citizens have accounts.
These innovations especially worried Ukrainians who now live abroad. Many of them opened accounts in foreign banks or started businesses, not knowing that taxes must be paid in Ukraine as well. By May 1, all refugees must submit income declarations to the State Tax Service of Ukraine, in particular, income received abroad. It is also important that refugees of retirement age declare the social assistance they receive abroad. Although this benefit is not taxable, failure to declare it may result in a penalty. Untimely submission of the declaration involves a fine of UAH 340.
Ukrainians who have less than $250,000 in foreign banks should not worry yet. If the information received in Ukraine shows that as of December 31, 2023, less than $250,000 remained in the citizen’s accounts, these funds are not subject to taxation. This applies only to natural persons. However, if the amount exceeds this limit, the tax authorities can ask the citizen to pay taxes.
The situation can hit those who receive social assistance abroad, for example, in Germany, especially acutely. If the German social services discover the presence of significant funds in the refugees’ accounts, they can demand the return of all payments for two years, as well as compensation for the cost of housing and health insurance. Failure to comply with these requirements can result in up to five years in prison under German law.
With the launch of the automatic exchange of financial information, some lawyers began to warn Ukrainian refugees about the risks of losing social assistance if they do not declare their accounts in Ukrainian banks. For example, if a Ukrainian pensioner in Germany declares her pension, the amount of social assistance will be reduced by the equivalent of this pension. Each case is individual and in some cases refugees may face financial difficulties if their Ukrainian accounts are not properly accounted for.
International data exchange refers to financial accounts in banks, insurance, investment and other companies. The reporting period begins on July 1, 2023 and ends on December 31, 2023, so account information prior to July 1, 2023 will not be eligible for exchange. The system is most interesting to Ukrainians who are abroad and receive income in the form of social benefits, dividends or salary. The majority of Ukrainian refugees do not know whether it is necessary to declare these incomes abroad and what taxes must be paid.
Be careful and honest when submitting information to receive social benefits to avoid possible trouble in the future.
