Taxes for Ukrainians After Their Relocation Abroad

Partner,
Tax and Customs

Tomasz Darowski

Partner

Tomasz.Darowski@dzp.pl

Joanna Wierzejska

Tax Partner

Joanna.Wierzejska@dzp.pl

+48 22 557 76 00

www.dzp.pl

1. Tax residency and tax obligations in Ukraine and Slovakia

1.1. Tax residency in Slovakia

Tax residency is a status defined based on the level of connections of individual with a particular country which shows in which country an individual is subject to taxation on his/her worldwide income (unless country of tax residence taxes only locally earned income). An individual may be tax resident of only one country. If an individual is considered as a tax resident by two or more countries, his/her tax residency status should be defined based on a Double Tax Treaty (if present).

For tax residents of Slovakia, all income earned by them is taxed in Slovakia. In the case of non-Slovak tax residents, only income earned from Slovak sources is taxed in Slovakia. Similarly, for tax residents of Ukraine, all income earned by them is taxed in Ukraine. In the case of non-Ukrainian tax residents, only income earned from Ukrainian sources is taxed in Ukraine.

Under Slovak law, a Ukrainian will be considered a tax resident of Slovakia (with unlimited tax liability) if at least one of the following conditions is met:

A An individual has a permanent residence (meaning registered as a permanent resident) in Slovakia;

B An individual has a permanently available dwelling in Slovakia and plans to move his/her centre of vital interests to Slovakia (an individual has a permanently available dwelling in Slovakia, if he/she has the possibility of accommodation that does not serve only for occasional accommodation, while taking into account all related facts and circumstances, including personal connections and economic connection of the individual to the territory of the Slovak Republic, there is an obvious intention of the natural person to permanently stay in this residence); or

C An individual has been in Slovakia for 183 days or more in the relevant calendar year, continuously or in several periods.

Most Ukrainian were tax residents of Ukraine before they moved to Slovakia due to war. Therefore, if any of the above local criteria is met, tax residency of Ukrainians should be defined based on the Double Tax Treaty between Ukraine and Slovakia (the "DTT"). The following criteria should be applied step-by-step under the DDT in order to define individual's state of tax residence: (i) permanent home (dwelling available for permanent living irrespective of how long individual stays in this permanent home); (ii) if permanent home is available in both states, then centre of vital interests (family location, business location, employment, etc.); (iii) if centre of vital interest cannot be identified or permanent home is absent, then habitual abode (depends on regularity and duration of individual's stays); and (iv) if an individual has habitual abode in both states / does not have in any state, then citizenship.

The Financial Administration of the Slovak Republic has clarified that if an individual's stay and residence (accommodation) in Slovakia does not have a sufficient degree of permanence and continuity (residence is temporary and arose on the basis of an emergency situation), while such an individual is considered a tax resident of Ukraine, then this individual is generally not considered a tax resident of Slovakia, even in the case of obtaining a temporary protection in Slovakia. At the same time, each situation may require separate assessment, taking into account personal circumstances.

If an individual becomes a tax resident of Slovakia in a particular year, then he/she is considered as a tax resident for the whole year when a residency criterion is met (e.g., not only for the period after satisfying this criterion).

Humanitarian aid and donations provided in 2022-2023 at expenses of Slovak budget funds to Ukrainians who suffered from the war and obtained a temporary protection in Slovakia is exempt from taxation by personal income tax (PIT) in Ukraine.

1.2. Registration with the tax authorities of Slovak Republic

Foreign individual must register with Slovak tax administrators only if he/she plans to perform business activities in Slovakia. Non-registration does not release an individual from the obligation to pay taxes and respective penalties for non-payment.

1.3. Tax Return and Payment

1.3.1. For a tax resident of Ukraine

An individual must file an annual tax return and pay taxes only if he/she obtains income which is subject to taxation in Slovakia, unless tax is withheld by income payer. The procedure and deadlines are the same as described for Slovak tax residents below.

An individual must file an annual tax return and pay tax in Ukraine only if he/she obtains income which is subject to taxation in Ukraine, unless tax is withheld by an income payer (tax agent). A tax return should be filed by 1 May of the year following the reporting year, while taxes should be paid by 1 August of the same year when the return is filed.

Specific deadlines for tax returns and payments are established for sole traders (private entrepreneurs).

1.3.2. For a tax resident of Slovakia

An individual must file an annual tax only if he/she obtains taxable income during a year. The return should be filed by 31 March of the year following the reporting year – with a possibility of postponing the deadline until June 30 of the respective year. Tax is payable as advance monthly or quarterly tax installments, while final tax is assessed as tax calculated under a tax return less installments. The final tax is payable by the date of submission of a tax return.. If income is taxed through a payroll, then to be exempt from tax return filing obligation an individual must obtain a reconciliation statement from the employer; otherwise, an individual is obliged to submit an annual tax return.

An individual may be required to file an annual tax return and pay tax only if he/she obtains income which is subject to taxation in Ukraine, unless tax is withheld by income payer (tax agents). Deadlines are the same as described for tax residents of Ukraine. However, in most cases taxes for non-Ukrainian tax residents are withheld by tax agents or are payable by non-residents personally before / when implementing certain transactions (when it comes to sale of property) without the need to submit a tax return by an individual.

1.3.3. Fines

The following fines and penalties apply for violation of the rules for filing returns and paying taxes:

(i) for late filling a tax return – a fine in the amount from EUR 30 to EUR 16,000

(ii) for non-filling a tax return (if tax return submission is requested by tax authorities because the obliged person did not file within the deadline) – a fine in the amount from EUR 60 to EUR 32,000

(iii) for late payment of tax – a late fee in the amount of 15% of the underpaid tax per annum, with a maximum accrual period of 4 years.

In Ukraine:

(i) non-submission or late submission of a tax return may result in a fine in amount of UAH 340 – 1 020 (approximately from EUR 9 to EUR 29);

(ii) incorrect determination of taxes (duties) may result in fine in amount of 10% / 25% / 50% of tax (duty) amount if tax authority finds violation and requires to pay extra tax (duty)

(iii) late payment of taxes (duties) may result in fine in amount of 5%-50% of tax (duty) amount plus daily late fee in amount of 120% of a discount rate established by the National Bank of Ukraine

(iv) specific tax fines may apply to some categories of taxpayers.

1.4. Bank account

An individual is in general required to open a bank account with a Slovak bank to receive a salary from a Slovak employer and/or to pay taxes in Slovakia, although the valid legal regulation also allows the individuals to receive the salary in cash and also taxes to be paid in cash.

Slovak tax authorities can access information about the fund flow on an account opened with a Slovak bank only within tax inspection, or tax enforcement proceedings.

Information about the fund flow on an account opened with a Slovak bank can be also disclosed to the other public authorities in the proceedings prescribed by law (such as criminal proceedings, enforcement proceedings, bankruptcy proceedings, residence permit proceedings, etc.).

Individuals must maintain a bank account with Ukrainian bank in order to receive wages from a Ukrainian employer.

Sole traders are generally allowed to open bank accounts abroad, but for payers of single tax it is important for such an account to be opened as for sole trader (private entrepreneur), not as a private account of individual. In the latter case, there is a risk that business income will be taxed by PIT (18% rate) and military duty (1,5% rate) instead of single tax.

2. Taxation of wages in Slovakia and Ukraine

2.1. Taxation of wages received from a Ukrainian employer due to remote work in Slovakia

2.1.1. For a tax resident of Ukraine

These wages are not subject to tax in Slovakia, provided that (i) a Ukrainian individual stays in Slovakia not longer than 183 days in a year, (ii) Ukrainian company is non-Slovak tax resident, and (iii) wages are not attributed to Slovak permanent establishment / permanent base of Ukrainian company. If these criteria are not simultaneously met, then wages from a Ukrainian employer will be considered as having Slovak source and the whole amount of wages (not only this one earned after 183 days stay) should be taxable in Slovakia by PIT at the following tax rates:

- income up to 176.8 subsistence minimums (EUR 38,553.01 for 2022) – 19% rate;

- income more than 176.8 subsistence minimums – 25% rate of that part of the tax base which exceeds 176.8 substance minimums

(Usual Tax Rates).

As a general rule, the Ukrainian employer is obliged to register with Slovak tax authorities and pay Slovak PIT at expense of the employee by transferring advance payments. The employee must submit an annual tax return and pay tax as described in section 1.3 of the guide; in case of receiving a reconciliation statement from the employer, the employee may be exempt from the obligation to submit a tax return.

Despite the fact that Ukrainian company withhold PIT in Ukraine, this Ukrainian tax cannot be credited against Slovak tax because under the DTT Slovakia has first-priority right to tax this income.

In Ukraine these wages are taxed by PIT at 18% rate and Military duty at 1,5% rate. PIT and Military Duty are withheld by an employer, no tax return should be submitted by employees.

If these wages are also subject to taxation in Slovak Republic, in practice some difficulties with avoidance of double taxation may occur, which may lead to double taxation of wages.

2.1.2. For a tax resident of Slovakia

These Ukrainian wages is always subject to taxation in Slovakia under the Usual Tax Rates and according to the same procedure as described for Ukrainian tax residents, irrespective of the above criteria applicable to Ukrainian tax residents. Ukrainian tax cannot be credited against Slovak tax.

According to the DTT in Ukraine these wages should not be subject to taxation.

In practice some difficulties with avoidance of double taxation may occur, which may lead to double taxation of wages.

2.1.3. Social / health security

Considering the Social Security Agreement between Ukraine and Slovakia (Social Security Agreement), in both cases (i.e., either individual is Ukrainian or Slovak tax resident) Ukrainian who receives wages from Ukrainian employer and his/her employer are subject to the following rules on social / health security contributions:

During first 24 months after Ukrainian employee moved to Slovakia, he/she is subject to Ukrainian social / health security rules (in case the circumstances allow it, it is recommended for the employer to receive official confirmation from state authorities on this matter);
After this period Ukrainian is subject to Slovak social / health security rules if he/she is considered as publicly insured person. This applies to individuals who has Slovak permanent residence permit and/or works for Slovak employer. Ukrainians who applied for temporary protection in Slovakia are not considered as publicly insured persons for social / health contribution purposes;
The competent authorities of both parties of Social Security Agreement (Social Insurance Agency in Slovakia and Ministry of Social Policy in Ukraine) may agree to grant exceptions from the rules above if it is beneficial to the citizens. In order to be granted such an exemption, a joint request of the employee and his employer is necessary.

If an individual receiving wages from Ukrainian employer is subject to Slovak social / health insurance, Ukrainian employer must register with the Slovak Social Insurance Agency and pay contributions in the same order as described in section 2.2 of this guide.

In Ukraine standard social security rate is 22% of wages, payable monthly at employer's expense. Basis for accrual of social security may not be lower than one minimum monthly wage (from 1 October 2022 minimum wage is UAH 6,700, which is approximately EUR 175) and should not exceed fifteen monthly minimum wages (from 1 October 2022 this amount constitutes UAH 100,500, which is approximately EUR 2,625).

During martial law exemption from social security in Ukraine is available for private entrepreneurs and some other categories of individuals (employers).

2.2. Taxation of wages received from a Slovak employer due to work in Slovakia

These wages are always subject to taxation by PIT in Slovakia, irrespectively of individual's tax residency. This income is taxable at Usual Tax Rates. An employer pays tax on behalf of an employee at employee's expense. The employee must submit an annual tax return and pay tax as described in section 1.3 of the guide; in case of receiving a reconciliation statement from the employer, the employee may be exempt from the obligation to submit a tax return.

Also, an individual and his employer must pay social contributions at the following rates (Usual Social Contribution Rates):

13.4% (9.4% Social Contribution (capped at EUR 745.51 per month in 2022) and 4% Health insurance) at employees' expense; and
35.2% (24.4% for Social Contribution (caped at EUR 1,935.14 per month in 2022), 0.8% injury contribution and 10% for Health insurance) at employer's expense.

If an individual is a tax resident of Ukraine, these wages are subject to taxation in Ukraine by PIT at 18% rate and military duty at 1,5% rate. Social security does not apply. Subject to compliance with tax formalities, Slovak PIT may be credited against Ukrainian PIT which may lead to decrease or absence of PIT in Ukraine. However, Slovak PIT cannot be credited against military duty in Ukraine, thus military duty should be payable from foreign wages in any case.

If an individual is a tax resident of Slovakia, these wages are not subject to taxation in Ukraine.

2.3. Taxation of income of a director of a Ukrainian company

The physical presence of a director of a Ukrainian company in Slovakia may result in (a) recognition of a permanent establishment of the Company in Slovakia or (b) recognition of the Company as a tax resident of Slovakia under the place of effective management criterion.

Director's fee received as a director / member of board of directors is subject to taxation in Slovakia only if a director is a tax resident of Slovakia. In this case tax consequences are the same as described in section 2.1 of this guide, however PIT withheld in Ukraine may be credited against Slovak PIT. For this purpose, a director must obtain a certificate of paid taxes in Ukraine, get apostille for the certificate and translate it into Slovak with notarial certification of the translation.

At the same time, if a director also exercises ordinary employment function (including day-to-day management) / provides services to the company, his/her income should be taxed as wages (as described in sections 2.1 – 2.2. of this guide).

Social / health security consequences applicable to director's fees are the same as described for employees / freelancers (sole traders), depending on how contractually relationships with director are structured.

In Ukraine these wages are taxed by PIT at 18% rate and military duty at 1,5% rate. PIT and Military Duty are withheld by employer, no tax return must be submitted by a director in respect of this wages.

Social security is payable by employer at its expense at 22% rate of wages (subject to minimum and maximum thresholds as described in section 2.1 of this guide).

2.4. Taxation of income of a freelancer / sole trader in Slovakia who receives income from clients in Slovakia / outside Slovakia

2.4.1. For a tax resident of Ukraine

Business income is subject to taxation in Slovakia to the extent it is (i) classified as income from “professional services or other independent activities” and (ii) derived due to use of permanently available base in Slovakia. Depending on circumstances, place of permanent residence may be considered as such a base. This business income is taxed in Slovakia under the Usual Tax Rates (19% / 25%).

However, Ukrainian tax resident can be registered as a sole trader in Slovakia voluntarily. In this case his/her whole profit (income less expenses) from business activities is subject to taxation in Slovakia at Usual Tax Rates. An individual registered as a sole trader in Slovakia is required to pay social / health contributions at Usual Social Contribution Rates from taxable profit (33,15 % for Social Contribution and 14% for Health insurance Contribution).

An individual's income is subject to taxation in Ukraine as follows:

PIT at 18% rate plus military duty at 1,5% rate plus social security calculated on a monthly basis at 22% rate of the profit (subject to minimum and maximum thresholds as described in section 2.1 of this guide) – for individuals registered as sole traders at general tax regime or as independent professionals;
Single tax at 2% / 3% / 5% of income plus monthly fixed minimum social security (from 1 October 2022 minimum social security is UAH 1,474, which is approximately EUR 41 at official exchange rate) or at 22% rate of income (subject to minimum and maximum thresholds as described in section 2.1 of this guide) (at individual's choice) calculated on a monthly basis – for individuals registered as a single taxpayers of the 3rd group.

2.4.2. For a tax resident of Slovakia

An individual must be registered as a sole trader in Slovakia. He/she must declare all his worldwide income in the tax return and the Usual Tax Rates will be applied (19% / 25%). However, if annual business income does not exceed EUR 49,790, then 15% tax rate may apply.

Tax will apply to freelance or sole trade profits (i.e. an individual can deduct business expense for tax purposes; there are two options for the freelancers/ sole traders in Slovakia – to deduct the actual expenses or to use the lump-sum expenses in the rate of 60% of the revenues).

An individual registered as a sole trader in Slovakia is required to pay social / health contributions from taxable profit at Usual Social Contribution Rates (33,15 % for Social Contribution and 14% for Health insurance Contribution; additionally, an individual may pay extra 2% social contribution at his/her choice).

If an individual is not registered as a sole trader (private entrepreneur) in Ukraine, his / her income is generally not subject to taxation / social security in Ukraine, except for certain types of income with Ukrainian source.
If an individual is registered as a sole trader (private entrepreneur) in Ukraine, his/her business income is formally considered as subject to taxation / social security in Ukraine. It is recommended to cancel registration as a sole trader (private entrepreneur) in Ukraine if an individual becomes tax resident in Poland.

2.4.3. VAT

If a freelancer / sole trader's turnover for a period of a maximum of 12 previous calendar months reaches EUR 49,790 he/she shall be obliged to apply for the mandatory VAT registration at the latest by the 20th day of the calendar month following the month in which such turnover was achieved. If annual supplies are below the specified threshold, voluntary VAT registration is available.

3. About the guide

3.1. Authors

CREDIS Law is a prominent Slovak law firm based in Bratislava and established in 2005. The team offers a wide range of legal expertise in company law, real estate, employment law, acquisitions, criminal law, and tax law.

The firm has gained extensive experience representing international clientele and large corporations before the state and regional authorities, in courts.

The top-level legal services of CREDIS Law have been recognized in international lists of top law firms such as IFLR1000, PLC Which Lawyer, and Legal 500.

CREDIS Law is a member of the International Practice Group and the European Immigration Lawyers Network. The firm is also a member of the executive committee of the ISA (Investment Support Association) established by the Slovak Investment and Trade Development Agency (SARIO).

In addition to legal services provided in English, CREDIS Law communicates in Korean, German, and Russian.

3.2. Get in touch

Partner,
Tax and Customs

daniel.grigel@credislaw.sk

JUDr. Daniel Grigeľ

Managing Partner

+ 421 2 5263 3161
+421 908 139 562

www.credislaw.sk | LinkedIn

1. Tax residency and tax obligations in Ukraine and Spain

1.1. Tax residency in Spain

Under Spanish laws, a Ukrainian individual will be considered a tax resident of Spain if at least one of the following conditions is met:
(i) If said individual spends more than 183 days per calendar year in Spain; or
(ii) If said individual has the center of economic interests in Spain.
In the absence of proof to the contrary, it shall be presumed that the taxpayer has his/her habitual residence in Spanish territory when his/her non-legally separated spouse and underaged children habitually reside in Spain.
In order to determine the period of stay in Spanish territory, sporadic absences will be taken into account, unless tax residence in another country is proven. In order to determine this period of stay, stays due to cultural or humanitarian collaborations, free of charge, with the Spanish authorities will not be taken into account.
However, the Directorate General of Taxes (“DGT”), whose resolutions are binding on the STA, has recently concluded that even the lockdown period during FY 2020 due to COVID-19 is regarded as time spent in Spain for the purposes of determining tax residence. In this regard, there are no special rules on force majeure circumstances that disregard time spent in Spain for tax residence purposes.

Most Ukrainians were tax residents of Ukraine before they moved to Spain due to the war. Therefore, if any of the above Spanish criteria are met along with the criteria set forth in the Tax Code of Ukraine, the tax residence of Ukrainians should be defined based on the Double Tax Treaty signed between Ukraine and Spain (the “DTT”; the Double Taxation Agreement applicable to Ukraine is the one signed between Spain and the USSR until the Double Taxation Agreement currently being processed between Spain and Ukraine enters into force). The following criteria (“tie-breaker” rules) should be applied step-by-step under the DDT (if one of the criteria is met in both countries, the following should apply), so an individual would be resident where he/she has his:
(i) Permanent home (dwelling available for permanent living irrespective of how long the individual stays in this permanent home); or
(ii) Center of vital interests, as opposed to the center of economic interest foreseen in the Spanish Personal Income Tax (PIT) Law (family location, business location, employment, etc.); or
(iii) Habitual abode (depends on regularity and duration of individual`s stay in a particular country); or
(iv) Nationality. In the cases in which tax residence cannot be determined according to the above criteria, both States would have to come to a mutual agreement to decide on this matter.

Note that DTT tie-breaker rules would apply only if an individual is considered tax resident in both jurisdictions. Therefore, if Ukrainians only have a temporary home available in Spain (e.g., an apartment rented for up to 1 year), while retaining a permanent home available in Ukraine, they could be considered as Spanish tax residents according to Spanish law provided they comply with the above mentioned requirements (i.e. over 183 days or economic interests in Spain) and could also be considered as Ukrainian tax residents according to the Tax Code of Ukraine. In this case, there is a tax residence conflict which must be solved according to the rules in the DTT.

If an individual becomes tax resident in Spain in a particular year, then he/she is considered as a tax resident for the whole year when the residence criterion is met (i.e., not from the 183`s day). The following year the residency criteria would need to reevaluate.

For the time being the Spanish Authorities have not issued any specific regulations / clarifications as to the tax residence status of Ukrainians. Thus, Ukrainians should be subject to general Spanish and DTT rules.

1.2. Registration with the tax authorities of Spain

Individuals of foreign nationality who, due to their economic, professional or social interests, have a connection with Spain, will need to apply for a Foreigner’s Identity Number (“NIE” by its Spanish abbreviation) at the Offices for Foreigners of the Ministry of Home Affairs and must provide certain documentation for this purpose. Legal entities having similar interests in Spain should obtain a Tax Identification Number (“NIF”).

In the event that a legal person or entity operates in Spanish territory through a permanent establishment carrying out activities other than those of the non-resident person or entity, it will need to obtain its own NIF.

In both cases, an application may be made to the tax authorities for the assignment of a provisional NIE or NIF until the final one is obtained.

Obtaining this NIE or NIF is essential for dealings of a legal/tax nature or with tax implications (i.e., among other cases, to file tax returns and deal with the Spanish tax authorities).

In the area of tax administration, in principle, the following tax censuses should be mentioned, which allow the authorities to control and monitor compliance with tax obligations:

Census of taxpayers: made up of individuals or entities that must have a NIF or National Identity Document, in the case of Spaniards ("DNI" by its Spanish abbreviation), or a NIE.
Registration in the census must be communicated for dealings of a tax nature or with tax implications (i.e. change of address, change of personal details, etc.).
Census of business people, professionals and withholding agents: this will be made up, among others, of individuals and entities that carry out or will carry out in Spanish territory (i) business or professional activities, (ii) pay income subject to withholding tax, (iii) although they do not reside in Spanish territory, operate therein through a permanent establishment or pay income subject to withholding in Spain, etc.
The main purpose of the declaration of registration in this census is to notify the tax authorities of the registration, as well as of any modification or variation that occurs in the different taxes (VAT, withholdings, Corporate Income Tax, etc.), option for special regimes, registration in the register of intra-Community operators, etc.

For further details on the tax obligations of entrepreneurs and professionals resident in Spanish territory, please see the guide posted on the website of the Spanish Tax Agency ("STA") in Spanish and English.

1.3. Tax Return and Payment

1.3.1. For a tax resident of Ukraine

An individual must file an annual tax return and pay taxes in Spain only if he/she obtains income which is subject to taxation in Spain according to Spanish Non-Resident Income Tax rules, unless tax is withheld by the income payer.

In this case, as he/she is considered a non-resident in Spain, he/she will only be taxed, if applicable, when he/she obtains income from Spanish sources. This tax regime applies to non-residents (individuals or legal entities) who do not operate in Spain through a permanent establishment. In such a case, permanent establishments located in Spanish territory will be taxed on all the income attributable to the establishment regardless of the place where it is obtained and, in general, their taxable income will be determined in accordance with the rules applicable to companies resident in Spain.

In any case, it will be necessary to determine, in accordance with the DTT, whether Spain has the power to tax such income and whether, in accordance with Spanish domestic legislation, such income is effectively subject to taxation in Spain.

The tax filing procedure and deadlines for non-residents are not the same as described below for Spanish tax residents. Depending on the type of income obtained the deadlines are the following:

For income that derives from real estate transfers, within three months after said transfer. The buyer should have previously withheld a 3% tax over the transfer price (to be credited against the non-resident tax)
For income that derives from real estate ownership or rental, December 31st of the following FY
For other income:

(i) Self-assessments with payment obligations will be due the 20th of April/July/October/January for the income obtained the previous quarter;

(ii) Self-assessments with no payment obligations (zero tax payable) will be due January 20th of the following FY;

(iii) Self-assessments requesting a tax refund have to be filed between February 1st of the following FY and the statute of limitations period.

An individual must file an annual tax return and pay tax in Ukraine only if he/she obtains income which is subject to taxation in Ukraine, unless tax is withheld by an income payer (tax agent). A tax return should be filed by 1 May of the year following the reporting year, while taxes should be paid by 1 August of the same year when the return is filed.

Specific deadlines for tax returns and payments are established for sole traders (private entrepreneurs).

1.3.2. For a tax resident of Spain

An individual must file an annual tax return and pay tax by June 30th in the year following the tax year.

If an individual only receives a salary from a Spanish employer and is considered tax resident in Spain, then he/she needs to file a tax return only if his/her annual employment income exceeds EUR 22,000, or EUR 15,000 if employment income is received from two or more employers and the annual salary amount received from the second and subsequent employers exceeds EUR 1,500.

An individual may be required to file an annual tax return and pay tax in Ukraine only if he/she obtains income which is subject to taxation in Ukraine, unless tax is withheld by income payer (tax agents). Deadlines are the same as described for tax residents of Ukraine. However, in most cases taxes for non-Ukrainian tax residents are withheld by tax agents or are payable personally before / when implementing certain transactions (when it comes to sale of property) without obligation to submit a tax return by a person.

1.3.3. Fines

If the rules on submitting tax returns are violated an individual may be subject to penalties:

(i) for late submission of a tax return –prior to a tax procedure initiated by the Spanish Tax Authorities – a penalty ranging from 1% to 15% of the tax due, plus late-payment interest after the 12-month period;

(ii) for non-submission of a tax return and/or non-payment of taxes – when the violation is detected by the Spanish Tax Authorities – a penalty ranging from 50% to 150% of the tax due.

In Ukraine non-submission or late submission of a tax return may result in a fine in amount of UAH 340 – 1 020 (approximately from EUR 9 to EUR 29). Incorrect determination of taxes (duties) may result in fine in amount of 10% / 25% / 50% of tax (duty) amount if tax authority finds violation and requires to pay extra tax (duty). Late payment of taxes (duties) may result in fine in amount of 5%-50% of tax (duty) amount plus daily late fee in amount of 120% of a discount rate established by the National Bank of Ukraine.

Specific tax fines may apply to some categories of taxpayers.

2. Taxation of wages in Spain and Ukraine

2.1. Taxation of wages received from a Ukrainian employer

2.1.1. If an individual is a tax resident in Ukraine and does not qualify also for tax residence in Spain

In Spain these wages are not subject to tax provided that individual`s work is not carried out in Spain and does not constitute a permanent establishment, according to Non-Resident Income Tax (“NRIT”) provisions. However, according to the DTT, if the work is carried out in Spain, the wages could still be only taxed in Ukraine if (i) the individual does not stay in Spain for more than 183 days in a year, (ii) the Ukrainian company is non-Spanish tax resident, and (iii) the wages are not attributed to Spanish permanent establishment of a Ukrainian company. If these criteria are not simultaneously met, then the wages from a Ukrainian employer will be considered as Spanish source income and the full amount of Spanish-sourced wages would be taxable in Spain under NRIT.

The PIT rate for Ukrainians as non-residents is 24% (Non-Resident PIT rate).

Such an individual must submit tax return and pay tax as described above in the "Tax Return and Payment" section for Ukrainian tax residents.

The DGT has recently analyzed and disregarded that a home office can constitute a PE if (i) the activity previously performed by the employee did not change as a result of his/her move to Spain; (ii) moving to Spain was a pure personal decision; (iii) the foreign company did not bear any cost triggered by the employee´s stay in Spain and the home office is not at the disposal of the company; and (iv) the foreign company has an office abroad which could have been used by the employee to do his daily work without the need to be in Spain. Nevertheless, a case-by-case analysis must be performed to see if these circumstances relate to the ones at hand to determine if there is a PE.

2.1.2. For a tax resident of Spain

In Spain these wages are subject to taxation by PIT at the progressive tax rate. The tax rate is composed of both state and autonomous community’s rates. Autonomous communities’ rates can vary depending on the territory in which the individual is a resident. Approximate total PIT rates (considering both state and autonomous communities rates; state rate is separately specified in brackets) are as follows:

up to EUR 12,450 - 19% (state rate is 9,5%)
EUR 12,450.01 – 20,200 - 24% (state rate is 12%)
EUR 20,200.01 – 35,200 - 30% (state rate is 15%)
EUR 35,200.01 – 60,000 - 37% (state rate is 18,5%)
EUR 60,000.01 – 300,000 - 45% (state rate is 22,5%)
more than EUR 300,000 - 47% (state rate is 24,5%)

(Standard PIT Rates)

It is possible to be taxed individually or jointly (based on the concept of family unit). However, the tax scale above is applicable to both types of taxation.

To identify the precise effective rate applicable to an individual`s income the autonomous community rate should be consulted.

Certain income (interest, capital gains, etc.) is taxed according to a different scale of taxation applicable to savings income. With effect from January 1, 2023, the General Budget Law for 2023 amends this scale of taxation.

Such an individual must submit a tax return and pay tax as described above in the "Tax Return and Payment" section. If Ukrainian company withheld personal income tax in Ukraine (or it was directly paid by the individual), this Ukrainian tax could be credited against the Spanish tax taking into account certain specific rules set out in the PIT Law.

According to the DTT wages received by an employee from a Ukrainian employer due to remote work in Spain should generally not be subject to taxation in Ukraine.

In practice some difficulties with avoidance of double taxation may occur which may lead to double taxation of wages.

2.1.3. Social / health security

According to the Social Security Agreement between Ukraine and Spain (Social Security Agreement), in both cases (i.e., whether the individual is a tax resident of Ukraine or Spain) the Ukrainian who receive wages from a Ukrainian employer and the employer itself are subject to the following rules on Social / Health Security contributions:

after moving to Spain, the Ukrainian employee will be subject to the Ukrainian Social / Health Security rules for the first 2 years, unless he/she has been sent in replacement of another person whose posting period has expired;
during the next 2 years (after the 2 first ones), the Ukrainian employee may remain subject to the Ukrainian Social / Health Security rules provided that the competent Spanish Authority gives its agreement. Otherwise, the Spanish Social / Health Security rules will apply;
after those first 2 years (or after the subsequent 2 years, if authorized), the Spanish Social / Health Security rules will apply for all intents and purposes (unless Spain introduces special exemptions for Ukrainians).

However, these rules will only apply if the employee is relocated to Spain on a temporary basis, as confirmed by the respective employment documents, and provides a certificate that says the Ukrainian laws apply to him/her. Otherwise, the Spanish Social / Health insurance rules will apply once the individual becomes subject to taxation on his / her wages in Spain.

If an individual is liable to the Spanish Social / Health Security contributions, the Ukrainian employer must register with the Social Security Authority in Spain (“TGSS” by the Spanish abbreviation) and pay Social Security monthly. The amount is the same as described below for individuals working for a Spanish employer.

In Ukraine standard social security rate is 22% of wages, payable monthly at employer's expense. Basis for accrual of social security may not be lower than one minimum monthly wage (from 1 October 2022 minimum wage is UAH 6,700, which is approximately EUR 185) and should not exceed fifteen monthly minimum wages (from 1 October 2022 this amount constitutes UAH 100,500, which is approximately EUR 2,775).

During martial law exemption from social security in Ukraine is available for private entrepreneurs and some other categories of individuals (employers).

2.2. Taxation of wages received from a Spannish employer due to work in Spain

If an individual is tax resident in Spain the Standard PIT Rates will be applied to his/her wages.

If an individual is tax resident in Ukraine, then the NRIT rate applies.

Additionally, these wages are subject to:
- Social Security at a 6.35% rate on gross wages, borne by the employee;
- Social Security at a 29.90% rate on gross wages, borne by the employer;
Although the minimum and maximum monthly social security contribution base is caped (EUR 1,166.70 and EUR 4,139.40 respectively in 2022, EUR 1,166.70 and EUR 4,495.50 respectively in 2023, changing yearly).

The registration of employees for Social Security purposes must be done by a Spanish employer, so no separate registration by employees is needed.

Such an individual must submit a tax return and pay tax as described above in the "Tax Return and Payment" section. The Spanish employer withholds PIT on employment income.

If an individual is a tax resident of Ukraine, these wages are subject to taxation in Ukraine by PIT at 18% rate and military duty at 1,5% rate. Social security does not apply. Spanish PIT may be credited against Ukrainian PIT which may lead to decrease or absence of PIT in Ukraine. However, Spanish PIT cannot be credited against military duty in Ukraine, thus military duty should be payable from foreign wages in any case.

If an individual is a tax resident of Spain, these wages received by an employee from due to physical work in Spain are not subject to taxation in Ukraine.

2.3. Taxation of income of a director of a Ukrainian company

Depending on circumstances, the physical presence of a director of a Ukrainian company in Spain may result in the recognition of the Spanish tax residence of the company under the “place of effective management” criterion or to the Ukrainian company being deemed to have a permanent establishment in Spain under the “fixed place of business” or the “dependent agent PE” criteria.

Director`s fees are subject to taxation in Spain if a director is a tax resident of Spain. In this case, the tax consequences are the same as for a Spanish tax residents receiving a salary from a Ukrainian employer. However personal income tax withheld in Ukraine may be credited against Spanish personal income tax. For this purpose, a director must obtain a certificate of taxes paid in Ukraine, and get it apostilled and translated it into Spanish language with a notarial certification of the translation.

The withholding tax rate applied to directors resident in Spain for tax purposes is, in general, 35%.

The Social Security consequences are the same as those described for Ukrainians receiving a salary from a Ukrainian employer.

In Ukraine these wages are taxed by PIT at 18% rate and military duty at 1,5% rate. PIT and Military Duty are withheld by employer, no tax return must be submitted by a director.

Social security is payable by employer at its expense at 22% rate of wages (subject to minimum and maximum thresholds as described in section 2.1 of this guide).

2.4. Tax residents of Spain: Exemption for work carried out abroad

Notable among the exemptions included in the PIT Law for tax residents of Spain who pay PIT, is the exemption relating to employment income received for work carried out abroad.

This exemption applies to remuneration earned during the days spent abroad (physical travel abroad is required). The amount of the exemption applicable to employment income is subject to a maximum limit of EUR 60,100 per year, provided that certain requirements are met:

The worker must be a Spanish PIT taxpayer;
The employment income must be paid for work actually carried out abroad;
The work is carried out for a company or entity not resident in Spain or a permanent establishment located abroad. When the entity receiving the work is related to the employee’s employing entity, the service must produce an advantage or benefit for the receiving entity;
In the territory in which the work is carried out, a tax of an identical or analogous nature to personal income tax has to be applied and it should not be a country or territory considered a tax haven. This requirement is considered to be met when the country or territory in which the work is carried out has signed an agreement with Spain to avoid double international taxation that contains an information exchange clause.

2.5. Special tax regime applicable to workers, professionals, entrepreneurs and investors posted to Spanish territory (known as the “inbound expatriate regime”)

This regime has recently been amended by Law 28/2022 of December 21 on the promotion of the start-up ecosystem (known as the “Startups Law”).

This regime already existed in the Personal Income Tax Law. However, from January 1, 2023, certain amendments are introduced in order to make the application of this special tax regime more flexible.

This regime is characterized by allowing individuals who acquire their tax residence in Spanish territory to opt to be taxed during the year of change of residence and the following five tax periods under Non-Resident Income Tax (instead of Personal Income Tax) with certain special features.

The requirements to be eligible for the application of this special regime are as follows:

Individuals should not have been resident in Spain during the 5 tax periods prior to their new relocation to Spanish territory (prior to 2023, 10 tax periods were required);
The relocation to Spanish territory has to take place, either in the first year of application of the regime or in the previous year, as a result of the following circumstances:
- As a consequence of an employment contract, with the exception of the special employment relationship of professional sportsmen and women (regulated in Royal Decree 1006/1985);
- As a consequence of acquiring the status of director of an entity.
However, until now it was required that the director did not have a shareholding in the entity; or that, if he/she did have a shareholding, the entity was not related. This limitation is removed unless the entity is an asset-holding entity, in which case the director may not have a shareholding in the entity that gives rise to its treatment as a related entity.
With effect from January 1, 2023, the subjective scope of application of the regime is extended to the following cases:
(i) Telework not instructed by the employer, when the work is carried out remotely, by means of the exclusive use of computer, electronic and telecommunications means and systems. In particular, this circumstance will be understood to be fulfilled in the case of employees who have the visa for international teleworking provided for in Law 14/2013, of September 27, on support for entrepreneurs and their internationalization;

(ii) Individuals carrying out an entrepreneurial economic activity in Spain, in accordance with the procedure provided for in Law 14/2013, of September 27;

(iii) Highly qualified professionals who provide services to emerging companies or who carry out training, research, development and innovation activities, receiving remuneration that represents more than 40% of their total income (business, professional or personal work).

In the latter two cases ((ii) and (iii)), obtaining income that would be classified as obtained through a permanent establishment in Spanish territory will not (unlike the other cases) prevent the application of the regime;
No income is obtained that would be classified as being obtained through a permanent establishment in Spanish territory, except in cases (ii) and (iii) above.

The tax liability will be determined in accordance with the rules established in the non-resident regulations (NRIT Law) for income obtained without the intermediation of a permanent establishment, with various special features:

The exemptions provided for in the non-resident regulations will not apply, except for remuneration in kind exempt under Article 42.3 of the PIT Law;
All the taxpayer’s employment income will be deemed to have been obtained in Spanish territory;
Income obtained by the taxpayer in Spanish territory during the calendar year will be taxed cumulatively, without any offset being possible;
Dividends, interest and capital gains deriving from the transfer of assets will be taxed separately from other income, in accordance with the tax scale for savings income (rates from 19% to 26% in 2022 and from 19% to 28% in 2023 for a net taxable income of more than EUR 300,000);
Other income will be taxed: (i) the first EUR 600,000 at a rate of 24% and (ii) from EUR 600,000.01 onwards at a rate of 47%.

The option to be taxed under this special regime must be exercised by notifying the tax authorities within a maximum period of six months from the date of commencement of the activity as recorded in the Social Security registration.

As a new feature, with effect from January 1, 2023, the possibility of opting for the special regime is established for the taxpayer’s children under 25 years of age (or whatever their age in the case of disability) and their spouse or, if there is no marital relationship, the parent of the children, provided that certain conditions are met.

2.6. Taxation of income of a freelancer / sole trader in Spain who receives income from clients in Spain / outside Spain

2.6.1. For a tax resident of Ukraine

An individual`s business profit (income less expenses) is subject to taxation in Spain to the extent it is derived from the use of a fixed place of business in Spain (Articles 4, 5 of the DTT). Place of permanent residence (e.g., dwelling rented for a long term), rented office or coworking space may be considered as such a fixed place of business. As a general rule, the taxable income of the permanent establishment is determined in accordance with the same provisions as those applicable to companies’ resident in Spain and is taxed generally at a 25% rate on business profit. Where applicable, permanent establishments are required to make instalments payments on account of Corporate Income Tax.

The return must be filed within 25 calendar days following the six months after the end of the tax period (in general, with tax years from January 1 to December 31, the deadline for filing is July 25 of the following year).

If the individuals business activities do not fall within the definition of "permanent establishment", his/her income would not subject to taxation in Spain provided it does not fall within any of the definitions set out in the NRIT Law for Spanish income (i.e. royalties). No special tax regime is available for sole traders.

However, in the case of Spanish-source income, it will be necessary to analyze the type of income received by the freelancer / sole trader to determine whether under the DTT, Spain can tax such income. For example, in the case of business profits, in principle, they will be taxed in the place of residence of the service provider as long as he/she provides a certificate of tax residence for the purposes of the relevant DTT.

An individual's income is subject to taxation in Ukraine as follows:

PIT at 18% rate plus military duty at 1,5% rate plus social security calculated on a monthly basis at 22% rate of the profit (subject to minimum and maximum thresholds as described section "Taxation of wages received from a Ukrainian employer") – for individuals registered as sole traders at general tax regime or as independent professionals;
Single tax at 2% / 3% / 5% of income plus monthly fixed minimum social security (from 1 October 2022 minimum social security is UAH 1,474, which is approximately EUR 41 at official exchange rate) or at 22% rate of income (subject to minimum and maximum thresholds as described section "Taxation of wages received from a Ukrainian employer") (at individual's choice) calculated on a monthly basis – for individuals registered as a single taxpayers of the 3rd group.

2.6.2. For a tax resident of Spain

An individual must be registered as a sole trader in Spain. The full amount of profit (income less expenses) is subject to taxation under PIT at the Standard PIT Rates. Such individuals must pay quarterly tax advances on business income unless over 70% of their income from their professional activities are subject to withholding tax. The final tax liability is settled with the annual tax return as described in the "Tax return and payment" section.

The most common reductions (expenses) are: Spanish social security contributions; accounting and tax service expenses; professional subscriptions; office expenses; phone and internet expenses. In addition to these deductions, the freelancer / sole trader can also claim depreciation / amortization on their business assets.

If an individual is not registered as a sole trader (private entrepreneur) in Ukraine, then his / her income from activities in Spain is generally not subject to taxation / social security in Ukraine, except for certain types of income from Ukrainian source.
If an individual is registered as a sole trader (private entrepreneur) in Ukraine, his / her business income from activities in Spain may formally be considered as subject to taxation / social security in Ukraine. It is recommended to cancel registration as a sole trader (private entrepreneur) in Ukraine if an individual becomes tax resident in Spain.

2.6.3. VAT

In general terms, freelancers/sole traders established in the Spanish VAT territory are subject to VAT obligations in Spain.

Non-established freelancers/sole traders rendering services/supplying goods to other taxable persons in Spain will not be obliged to comply with VAT obligations in Spain as long as the tax payer of this transactions would in principle be the recipient (due to the so-called reverse charge mechanism).

If the recipients of the non-established freelancers/sole traders were not taxable persons (i.e. end costumers) the tax payer of such transactions would be the supplier and, consequently, it would be necessary to comply with VAT obligations in Spain.

Note that the compliance with VAT obligations can be also conditioned to the type of activity to be performed in Spain (for example, taxable persons performing only VAT exempt transactions are not obliged to file VAT returns). Thus a case by case analysis should be done to verify the concrete VAT obligations of each taxable person.

In Spain the general tax rate is 21% (although there are reduced VAT rates that apply for certain supplies of services/goods).

2.6.4. Social / Health Security

According to the Social Security Agreement, a freelancer / sole trader (both resident and non-resident) will be subject to the Ukrainian Social / Health security rules during the first 2 years of his/her stay in Spain. After this period, he/she will be subject to Spanish Social Security rules.

The Spanish Social Security rate for a freelancer / sole trader is 30.6% of his/her gross income. The minimum Social Security monthly base is EUR 960.60, while the maximum base is EUR 4,139.40. Social Security is payable monthly. The freelancer / sole trader must register with Social Security Authority in Spain (TGSS) in order to accrue and pay Social Security. In the event of non-payment of these contributions, there may be a penalty ranging from 10% to 20% of the underpaid amount.

Furthermore, according to the new Law on the promotion of the start-up ecosystem, the employees included in the Special Social Security Regime for Self-Employed or Freelance Employees who have effective control, directly or indirectly, of a start-up company regulated in the aforementioned Law, and who, simultaneously, work for another employer, will be entitled to a bonus of one hundred percent of the contribution corresponding to the minimum base established in general terms, at any given time, in the referred special regime during the first three years.

2.7. Wealth Tax and Solidarity Tax

Ukrainian individuals who are tax resident in Spain are subject to Wealth Tax on their total assets (located worldwide) provided they surpass certain thresholds. Nonresidents are taxed only on the assets located or the rights exercisable in Spain (the same for the taxpayers who choose to be taxed under the special regime for posted workers - inbound expatriate regime).

This tax is levied by the autonomous communities, which can establish their own regulations and even apply a 100% reduction in the tax payable so that no tax is levied (e.g. Madrid, or more recently Andalucía and Murcia).

In the absence of autonomous community regulations, the maximum exemption envisaged is EUR 700,000. Thus, this tax is levied whenever an individual’s net wealth is over EUR 700,000. The taxpayer’s principal residence is also exempt, up to a maximum amount of EUR 300,000.

However, there will be an obligation to file a wealth tax return even if no tax is payable, where the value of the assets or rights exceeds EUR 2,000,000.

The Solidarity Tax, approved at the end of December 2022, is foreseen as a complementary tax to the Wealth Tax and would be levied on individuals whose net wealth were over EUR 3,000,000. Wealth Tax paid would be deductible from the Solidarity Tax quota.

2.8. Reporting obligations relating to assets and rights abroad (Form 720)

The Spanish law regulates an obligation to report assets and rights abroad that applies to individuals and legal entities (including pass-through entities) resident in Spain or nonresident with a permanent establishment.

Taxpayers who choose to be taxed under the special regime for posted workers (inbound expatriate regime) indicated above are not obliged to file this return.

This obligation affects accounts, securities (including insurance and life or temporary annuities) and real estate or rights over real estate, with certain quantitative and qualitative exceptions.

This is an information return on assets and rights abroad and the deadline for filing it is 31 March of the year following the year to which the assets refer.

3. About the guide

3.1. Authors

Garrigues, covering every angle of business law.

Garrigues is an international legal and tax services firm that advises clients locally, regionally and globally from every angle of business law.

Garrigues' strength lies in its team of over 2,000 people working cross-functionally to resolve their clients' problems.

And in the values that it shares in the 12 countries across 4 continents where it operates: unparalleled service quality, ethical commitment and an innovative approach that enables it to anticipate market needs.

The ultimate goal is to help build a climate of trust and security that fosters business development in a fairer, more ethical, responsible and sustainable society.

3.2. Get in touch

Partner,
Tax and Customs

Mª Ángeles Pérez de Ayala

Partner,
Tax Department

m.angeles.perez.de.ayala@garrigues.com

+34 91 514 52 00

www.garrigues.com | FB | LN

1. Tax residency and tax obligations in Ukraine and Czech Republic

1.1. Tax residency in Czech Republic

Tax residency is a status defined based on the level of connections of an individual with a particular country which shows in which country an individual is subject to taxation on his/her worldwide income (unless the country of tax residence taxes only locally earned income). An individual may be tax resident of only one country. If an individual is considered as a tax resident of two or more countries based on local tax legislation rules at the same, his/her tax residency status should be defined based on a Double Tax Treaty (if present).

For Czech tax residents, worldwide income from all sources is taxed in the Czech Republic. In the case of non-Czech tax residents, only income earned from Czech sources is taxed in the Czech Republic. Similarly, for tax residents of Ukraine, worldwide income from all sources is taxed in Ukraine. In the case of non-Ukrainian tax residents, only income earned from Ukrainian sources is taxed in Ukraine.

Under Czech law, a Ukrainian will be considered a tax resident of the Czech Republic if at least one of the following criteria is met:
- An individual has a permanent home in the Czech Republic (own or rented dwelling, where he/she intends to stay permanently); or
- An individual stays in the Czech Republic for 183 or more days in a year.

At the same time, most Ukrainians were tax residents of Ukraine before they moved to the Czech Republic due to war. Therefore, if any of the above Czech criteria is met, tax residency of those Ukrainians should be defined based on the Double Tax Treaty between Ukraine and the Czech Republic (the “DTT”).

The following criteria should be applied step-by-step under the DTT (each subsequent criterion is applied if it is impossible to determine tax residency on the basis of the previous criterion): (i) permanent home (dwelling available for permanent living irrespective of how long individual stays in this permanent home); (ii) if permanent home is available in both states, then a centre of vital interests (family location, business location, employment, etc.) is decisive; (iii) if the centre of vital interest cannot be identified or permanent home is absent, then habitual abode (depends on regularity and duration of individual's stays) should be used; and (iv) if an individual has habitual abode in both states / does not have in any state, then citizenship is the final decisive criterion.

The Czech Republic has not issued specific regulations / clarifications as to the tax residency treatment for Ukrainians who moved to the Czech Republic because of war in Ukraine. Thus, such Ukrainians should be subject to general Czech and DTT tax residency rules.

Humanitarian aid and donations received to counter the effects of hostilities in Ukraine received by Ukrainians in the Czech Republic are exempt from taxation in the Czech Republic. Taxpayers from Ukraine are also allowed to use the possibility of deduction provided from the tax base, if their taxable income from sources in the Czech Republic constitutes 90% of taxable income. Such aid (donations) provided in 2022-2023 at expenses of Czech budget funds to Ukrainians who applied for a temporary protection in the Czech Republic is also exempt from taxation by personal income tax (PIT) in Ukraine.

If an individual becomes a tax resident of the Czech Republic in a particular year, then he/she is considered as a Czech tax resident for the whole year.

1.2. Registration with the tax authorities of Czech Republic

Ukrainians must register in the Czech Republic for tax purposes of taxation if they (i) are tax residents of the Czech Republic and they have commenced an activity representing a source of income from independent activity or has earned income from independent activity that is subject to taxation in the Czech Republic or they (ii) are tax non-residents of the Czech Republic and obtain income from independent activity which is subject to tax in the Czech Republic (e.g. by means of the permanent establishment, which exists based on the activities performed). Upon the tax registration, Ukrainians are granted with a tax identification number (Tax ID).

If Ukrainians applied for a long-term visa, long-term residence permit, permanent residence permit or temporary protection in the Czech Republic, they are granted with a Tax ID upon approving their application and issuing the local individual's ID by the Department for Asylum and Migration Policy of the Ministry of Interior of the Czech Republic. No separate tax registration is required in this case.

In most cases, it is compulsory to register for health insurance purposes in the Czech Republic, whether through a public or private health insurance provider. Czech citizens / permanent residents and anyone employed by and working for a Czech employer are automatically insured under the Czech public healthcare system and pay monthly contributions from their salary/remuneration. There are exceptions for students, for persons who takes care of children all day, job seekers registered on the employment office.

1.3. Tax Return and Payment

1.3.1. For a tax resident of Ukraine

An individual must file an annual tax return only if he/she obtains income which is subject to Czech taxation and only with respect to this income. The annual personal tax return is not required, if he/she just earned employment type of income subject to monthly payroll tax withholdings performed by the employer. In such as case, the tax liability can be reconciled by the employer on annual basis by means of annual payroll tax advances reconciliation. The procedure and deadlines for the filing the annual personal income tax return are the same as described below for Czech tax residents.

An individual must file an annual tax return and pay tax in Ukraine only if he/she obtains income which is subject to taxation in Ukraine, unless tax is withheld by an income payer (tax agents). A return should generally be filed by 1 May of the year following the reporting year, while taxes should be paid by 1 August of the same year when the return is filed.

Specific deadlines for tax returns and payments are established for sole traders (private entrepreneurs).

1.3.2. For a tax resident of Czech Republic

An individual must file an annual tax return and declare all his/her worldwide taxable income. Similarly to Czech tax non-residents, the annual personal tax return is not required, if he/she just earned employment type of income subject to monthly payroll tax withholdings performed by the employer. In such as case, the final income tax liability can be reconciled by the employer on annual basis by means of annual payroll tax advances reconciliation.

As indicated above, if is the individual received employment type of income (e.g., a salary from one Czech employer), then he/she may ask the employer to perform the annual payroll tax advances reconciliation, notwithstanding an individual's tax residence. In this case, the individual is exempt from submitting separate annual personal income tax return. This is not applicable when such individual works during the tax year for several employers simultaneously.

The annual personal income tax return must be submitted, and final tax liabilities must be settled: (i) by 1 April of the year following the reporting year - a basic rule; (ii) by 2 May of the year following the reporting year - if the tax return is submitted electronically, and (iii) by 1 July of the year following the reporting year - if the tax return is submitted by the taxpayer's tax advisor. At the taxpayer's individual request, tax authorities may extend the deadline for submitting the tax return by three calendar months. Also, a taxpayer receiving income from foreign sources may apply for a deadline extension until the 1st day of the 11th month following the end of the tax period subject to reporting.

At the same time, individuals whose income is not subject to monthly payroll tax withholding at source (employment, etc.) must pay quarterly / semi-annual tax advances (prepayment) based on the tax liability assessment for the previous year. In this case, final tax liability balance (calculated as personal income tax on annual taxable income less tax prepayments made) is settled within the deadlines described in the previous paragraph.

1.3.3. Fines (or penalties, or late payment interest)

Late submission or non-submission of tax return, non-declaring of the total income may result in financial penalties. For these violations daily penalty applies which equals to 0.05% of the assessed tax but cannot exceed 5% of the assessed tax. This penalty may be waived if the return has been ultimately submitted and the reason for the delay was accepted as serious. Late payment or non-payment of tax may further result in late payment interest charges which equal to a repo rate set by the Czech National Bank for the 1st day of the calendar half year when the delay took place plus 8%. This interest may also be waived if the tax has been ultimately paid and the penalty is considered as severe punishment.

In Ukraine non-submission or late submission of a tax return may result in a fine in amount of UAH 340 - 1 020 (approximately from EUR 9 to EUR 29). Incorrect determination of taxes (duties) may result in fine in amount of 10% / 25% / 50% of tax (duty) amount if tax authority finds violation and requires to pay extra tax (duty). Late payment of taxes (duties) may result in fine in amount of 5%-50% of tax (duty) amount plus daily late fee in amount of 120% of a discount rate established by the National Bank of Ukraine.

Specific tax fines may apply to some categories of taxpayers.

1.4. Bank account

In practice, an individual is required to open a bank account with a Czech bank to receive wages from a Czech employer. It is not necessary to open local bank account for the sole purpose of paying tax, as tax obligations transfers are acceptable from foreign bank accounts.

Czech tax authorities can access information about the funds flow on an individual's account opened with a Czech bank only if there is an official investigation of tax offence.

2. Taxation of wages received from a Ukrainian employer due to remote work in the Czech Republic

2.1. Taxation of wages received from a Ukrainian employer due to remote work in Czech Republic

2.1.1. For a tax resident of Ukraine

then based on the DTT rules, the wages are not subject to taxation in the Czech Republic, provided that (i) a Ukrainian individual stays in the Czech Republic for a period not exceeding 183 days in any 12 calendar months period of time, (ii) a Ukrainian employing company is non-Czech tax resident, and (iii) wages are not attributed to Czech permanent establishment of a Ukrainian employing company. If these criteria are not simultaneously met, then the whole amount of wages received for the work performed in the territory of the Czech Republic (not only wages earned after the lapse of 183 days) should be taxable in the Czech Republic by PIT according to the following tax rates: 15% rate - for income from all sources up to CZK 1,935,552 (in 2023); 23% rate - for the excess amount (the “Tax Scale”).

Such an individual must submit a tax return and pay tax as described in section 1.3 of this guide. Despite the fact that Ukrainian company withholds PIT in Ukraine, this Ukrainian tax cannot be credited against Czech tax because under the DTT the Czech Republic has first-priority right to tax this income.

In Ukraine these wages are taxed by PIT at 18% rate and Military duty at 1,5% rate. PIT and Military Duty are withheld by employer, no tax return should be submitted by employees.

If these wages are also subject to taxation in the Czech Republic, in practice some difficulties with avoidance of double taxation may occur which can lead to double taxation of wages.

2.1.2. For a tax resident of Czech Republic

His/her worldwide income inclusive of Ukrainian wages is subject to taxation in the Czech Republic at the same Tax Scale (15% / 23%) and according to the same procedure as specified above, irrespective of the above criteria applicable to Ukrainian tax residents (criteria for staying in the Czech Republic 183+ days, etc.).

According to the DTT wages received by an employee from a Ukrainian employer due to remote work in the Czech Republic should generally not be subject to taxation in Ukraine.

In practice some difficulties with avoidance of double taxation may occur which may lead to double taxation of wages.

2.1.3. Social / health security

Under the Czech Republic social security / health insurance rules, Ukrainian working for and receiving wages from Ukrainian employer, notwithstanding his/her tax residency status (Ukraine or the Czech Republic), will not be subject to payment of mandatory social security / health insurance contribution in the Czech Republic, unless the Ukrainian employer has a branch office registered in the Czech Republic and/or he/she is a permanent resident of the Czech Republic. Ukrainian employing company whose employees work remotely from the Czech Republic may have the obligation to register for social security / health insurance in the Czech Republic, unless Ukrainians remain subject to home country mandatory social security/health insurance systems in accordance with the Social Security Agreement between Ukraine and the Czech Republic.

2.2. Taxation of wages received from a Czech employer due to work in Czech Republic

Wages are subject to taxation by personal income tax in the Czech Republic according to the Tax Scale (15% / 23%), irrespectively of individual's tax residency status. In case of Czech tax non-residents, just wages attributable to work performed in the territory of the Czech Republic will be reflected for tax purposes.

Additionally, these wages are subject to:

health insurance contribution at 4.5% rate of wages payable at employee's expense;
health insurance contribution at 9% rate of wages payable at employer's expense;
social security contribution at 6.5% rate of wages payable at employee's expense;
social security contribution at 24.8% rate of wages payable at employer's expense.

Annual social security assessment base is capped at 48 times of the average monthly wage per year (CZK 1,935,552 for 2023). Health insurance assessment base is not caped and has no minimum / maximum amounts.

Registration of employees for health insurance / social security purposes is made by a Czech employer, thus no separate registration by employees is needed.

If an individual is a tax resident of Ukraine, these wages are subject to taxation in Ukraine by PIT at 18% rate and military duty at 1,5% rate. Social security does not apply. Czech Republic PIT may be credited against Ukrainian PIT which may lead to decrease or absence of PIT in Ukraine. However, Czech Republic PIT cannot be credited against military duty in Ukraine, thus military duty should be payable from foreign wages in any case.

If an individual is a tax resident of Czech Republic, these wages received by an employee from due to physical work in the Czech Republic not subject to taxation in Ukraine.

2.3. Taxation of income of a director of a Ukrainian company

Director's fee received as a director / member of board of directors of a Ukrainian company is subject to taxation in the Czech Republic only if a director is a tax resident of the Czech Republic. In this case tax consequences are the same as was described in section 2.1 for Czech tax resident receiving salary from Ukrainian employer, however PIT withheld in Ukraine may be credited against Czech PIT. For this purpose, a director must obtain a certificate of paid taxes in Ukraine and translate it into Czech language with notarial certification of the translation.

At the same time, if a director also exercises ordinary employment function (including day-to-day management), his/her income should be taxed as wages as descried in section 2.1 of this guide.

The physical presence of a director of a Ukrainian company in the Czech Republic under certain circumstances may result in (a) recognition of a permanent establishment of the Company in the Czech Republic under the place of management criterion or (b) recognition of the Company as a tax resident of the Czech Republic under the place of effective management criterion.

Social security / health insurance. Under the Czech Republic social security / health insurance rules, director of a Ukrainian company, notwithstanding his/her tax residency status (Ukrainian or Czech), will not be subject to payment of social / health security contribution in the Czech Republic, unless he/she is a permanent resident of the Czech Republic. Ukrainian company whose director works remotely from the Czech Republic may have the obligation to register for social security / health insurance in the Czech Republic, unless Ukrainians remain subject to home country mandatory social security/health insurance systems in accordance with the Social Security Agreement between Ukraine and the Czech Republic.

2.4. Taxation of income of a freelancer / sole trader in Czech Republic who receives income from clients in Czech Republic / outside Czech Republic

2.4.1. For a tax resident of Ukraine

An individual's income is subject to taxation in the Czech Republic to the extent it is (i) classified as income from “professional services or other independent activities” and (ii) attributable to a freelancer's / sole trader's fixed base (place of residence, office, cabinet etc.) regularly available to him/her in the Czech Republic or (iii) derived from his/her activities performed in the Czech Republic, subject to his/her length of stay in this country exceeds 183 days in a year.

If according to the previous paragraph freelancer's / sole trader's income is taxable in the Czech Republic, the tax consequences may be as follows:

If freelancer / sole trader receives income for technical services (including managerial, technical and/or consultancy services) from a Czech legal entity / Czech registered sole trader, then this income will be subject to Czech WHT at 15% rate. General PIT at 15 % / 23% rate does not apply;
If freelancer / sole trader receives any income other than specified in the previous paragraph, then this gross income shall be taxed by PIT under the same tax rates (15% / 23%) and regime as specified in section 2.1 of this guide for wages from Ukrainian employer.

An individual's income is subject to taxation in Ukraine as follows:

PIT at 18% rate plus military duty at 1,5% rate plus social security calculated on a monthly basis at 22% rate of the profit (subject to minimum and maximum thresholds as described in section 2.1 of this guide) - for individuals registered as sole traders at general tax regime or as independent professionals;
Single tax at 2% / 3% / 5% of income plus monthly fixed minimum social security (from 1 October 2022 minimum social security is UAH 1,474, which is approximately EUR 41 at official exchange rate) or at 22% rate of income (subject to minimum and maximum thresholds as described in section 2.1 of this guide) (at individual's choice) calculated on a monthly basis - for individuals registered as a single taxpayers of the 3rd group.

2.4.2. For a tax resident of Czech Republic

Overall self-employment income will be subject to taxation in the Czech Republic.

A Czech tax resident freelancer / sole trader shall officially register him/herself in the Czech Republic as a sole entrepreneur. Also, he/she must obtain the so-called trade license before the business commencement - depending on the business category, that will be either notification on intended activity submitted to the relevant authority (“notifiable” trades) or written permission for carrying out of the business activity (“concession” trades). It is also mandatory to register for personal income tax purposes, including as payer of mandatory social security and public health insurance.

The taxable profit may be calculated either as (i) gross business income less actual business expenses or (ii) gross business income less lump sum cost deduction (an amount of this deduction depends on type of sole trader's activities, but usually this is 60% of business income and applies for a maximum of CZK 2 million; for some activities 30%, 40% or 80% deduction out of income applies).

Generally, there are two tax regimes available for sole trader registered in the Czech Republic:

Tax Scale. Business profit is taxed according to the Tax Scale (15% / 23%). Additionally, sole trader must pay social security contributions at a rate of 29.2% and public health insurance contributions at a rate of 13.5%. The social security and public health insurance assessment bases are calculated as 50% of the annual self-employment tax base, i.e. difference between self-employment income and expenses (either actual or lump sum). Annual social security assessment base is capped at 48 times of the average monthly wage per year (CZK 1,935,552 for 2023); minimum monthly social security contribution in 2023 is CZK 2,944. Health insurance assessment base is not caped; minimum monthly public health insurance contribution in 2023 is CZK 2,722. A sole trader must pay monthly instalments, while final tax, social security contributions, and public health insurance contributions are assessed based on the annual tax return according to procedure described in section 1.3 of this guide.
Flat lump sum tax. Sole trader may opt to pay flat lump sum income tax, depending on his/her business income amount. According to general rule, lump sum tax in 2023 is CZK 6,208 / month for annual business income up to CZK 1 million; CZK 16,000 / month for annual business income up to CZK 1,5 million; CZK 26,000 / month for annual business income up to CZK 2 million. The said flat-rate tax covers personal income tax, social security, and health insurance. This lump sum tax is payable in equal monthly installments. In this case, a sole trader must not submit annual tax return as described in section 1.3 of this guide. Taxation using the flat lump sum tax regime is applicable to freelancers receiving self-employment income only, hence it cannot be applied, if the freelancers receive other types of income subject to Czech taxation (e.g. employment income, rental income, capital gains etc.).

If an individual is not registered as a sole trader (private entrepreneur) in Ukraine, then his / her income from activities in the Czech Republic is generally not subject to taxation / social security in Ukraine, except for certain types of income from Ukrainian source.
If an individual is registered as a sole trader (private entrepreneur) in Ukraine, his / her business income from activities in the Czech Republic may formally be considered as subject to taxation / social security in Ukraine. It is recommended to cancel registration as a sole trader (private entrepreneur) in Ukraine if an individual becomes tax resident in the Czech Republic.

2.4.3. VAT

If a freelancer / sole trader registered as a sole trader in the Czech Republic and supplies goods / services which are subject to VAT in the Czech Republic, then he / she is obliged to register for VAT if such supplies exceed CZK 2 million during 12 consecutive months. In case of annual supplies below the specified threshold, voluntary VAT registration can be applied. The standard VAT rate is 21%. Reduced VAT rates 10% and 15% are applicable to supplies of certain goods / services. The tax period for VAT is a calendar month or quarter, based on the annual supplies turnover. For newly registered VAT payers a monthly VAT period applies for at least a year of VAT registration and the subsequent calendar year.

If a freelancer / sole trader is not registered as a sole entrepreneur in the Czech Republic, then he/she must register for VAT if he/she makes VAT-able supplies in the Czech Republic, unless VAT is reverse-charged by the services recipient in the Czech Republic.

3. About the guide

3.1. Authors

INTEGRITES is a full-service law firm with offices in Ukraine and Kazakhstan, contact offices in Germany and the UK.

In 18 years INTEGRITES has served more than 1600 clients from around the globe, including Fortune 500 companies and international financial institutions. The firm's clients are recognized leaders in various industries: from real estate and construction, infrastructure, and agriculture to manufacturing, pharmaceuticals, and retail.

INTEGRITES is highly recommended for its cross-border work - investment deals, sophisticated transactions, complex dispute resolution, and for projects which require in-depth industrial expertise.

Alongside the countries of presence, INTEGRITES makes its legal expertise available to clients from other jurisdictions through two foreign desks - teams of qualified lawyers with unique German- and French-speaking competence. The firm closely cooperates with a well-established partner network of over 100 international law firms.

In 2022 INTEGRITES got shortlisted as Law Firm of the Year: Ukraine by Chambers Europe Awards and The Lawyer European Awards.

PRK Partners, one of the leading Central European law firms, has been helping clients achieve their business objectives for 30 years. The team of lawyers, based in Prague, Ostrava, and Bratislava offices, has a unique knowledge of Czech and Slovak law and of the business environment.

Firm's lawyers studied at top law schools in the United States, United Kingdom, Switzerland and elsewhere. They also have experience working for leading international and domestic law firms in a number of jurisdictions.

The legal team is fluent in more than 15 languages, including all the key languages of the region.

3.2. Get in touch

Partner,
Tax and Customs

jan.burger@prkpartners.com

Jan Bürger

Senior Tax Advisor,
Prague, Czech Republic

+420 - 221 430 111

www.prkpartners.com | FB | IN

1. Tax residency and tax obligations in Ukraine and Germany

1.1. Tax residency in Germany

Tax residency is a status defined based on the level of connections of individual with a particular country which shows in which country an individual is subject to taxation on his/her worldwide income (unless country of tax residence taxes only locally earned income). An individual may be tax resident of only one country. If an individual is considered as a tax resident by two or more countries, his/her tax residency status should be defined based on a Double Tax Treaty (if present).

For tax residents of Germany, all income earned by them is taxed in Germany. In the case of non-German tax residents, only income earned from German sources is taxed in Germany. Similarly, for tax residents of Ukraine, all income earned by them is taxed in Ukraine. In the case of non-Ukrainian tax residents, only income earned from Ukrainian sources is taxed in Ukraine.

Under German law, a Ukrainian will be considered a tax resident of Germany if at least one of the following conditions is met:

A - An individual has a permanent residence in Germany, i.e. a residence that he/she uses or that is permanently available to him/her (e.g., for 6 months or longer period). Ukrainians who obtained temporary protection in Germany may be deemed to have permanent residency in Germany based on their registered address from the date of submitting their application for such a protection; or
B - An individual has habitual abode in Germany, i.e., he/she lives in Germany 183 or more days during a calendar year.

Most Ukrainian were tax residents of Ukraine before they moved to Germany due to war. Therefore, if any of the above German criteria is met, tax residency of Ukrainians should be defined based on the Double Tax Treaty between Ukraine and Germany (the “DTT”). The following criteria should be applied step-by-step under the DDT in order to define individual`s state of tax residence: (i) permanent home (dwelling available for permanent living irrespective of how long individual stays in this permanent home); (ii) if permanent home is available in both states, then centre of vital interests (family location, business location, employment, etc.); (iii) if centre of vital interest cannot be identified or permanent home is absent, then habitual abode (depends on regularity and duration of individual`s stays); and (iv) if an individual has habitual abode in both states / does not have in any state, then citizenship.

If an individual becomes tax resident of Germany during a particular year, then he/she is considered as a tax resident from the date when the residency criterion is met.

German tax authorities did not issue any specific regulations / clarifications as to the tax residency status or taxation of Ukrainians. Thus, Ukrainians should be subject to general German and DTT rules.

1.2. Registration with the tax authorities of Germany

Foreign individuals must register with German tax authorities and get a tax ID if they plan to work in Germany or are staying in Germany for more than 3 months, regardless of the reasons for such a stay. There is no penalty or fine for non-registration, however, non-registration may be an obstacle to open a bank account.

Self-employed individuals (including sole traders / freelancers) must also obtain tax number (in addition to a tax ID).

Ukrainians who applied for temporary protection in Germany are assigned a tax ID automatically upon approving their application and granting a residency permit, thus they do not need to file separate application with tax authority.

1.3. Tax Return and Payment

1.3.1. For a tax resident of Ukraine

An individual must file an annual tax return and pay taxes only if he/she obtains income which is subject to taxation in Germany. The procedure and deadlines are the same as described for German tax residents below.

An individual must file an annual tax return and pay tax in Ukraine only if he/she obtains income which is subject to taxation in Ukraine, unless tax is withheld by an income payer (tax agents). A return should generally be filed by 1 May of the year following the reporting year, while taxes should be paid by 1 August of the same year when the return is filed.

Specific deadlines for tax returns and payments are established for sole traders (private entrepreneurs).

1.3.2. For a tax resident of Germany

An individual must file an annual tax return only if he/she obtains taxable income during a year. The return must be filed by July 31 of the year following the reporting year. Certain extensions of the filing deadline apply for the tax years 2021 to 2023 or if the individual is represented by a tax consultant.

In some cases, an individual may be exempt from tax return submission (e.g., if he/she receives solely salary income from one employer without additional benefits).

Tax is payable according to assessment notice issued by the tax authority based on the individual`s tax return. If an individual receives income which is not subject to withholding taxes, he/she is required to pay advance quarterly installments.

1.3.3. Fines

Late submission / non-submission of tax returns may result in penalties of 0.25% of the amount of underpaid taxes per month (the penalty is limited to 10% of the amount of underpaid taxes or EUR 25,000, whichever is greater). Late payment / non-payment of taxes may result in additional penalty of 1% of the amount of underpaid taxes per month. For significant tax evasion criminal liability (fine or imprisonment) may arise.

1.4. Bank account

An individual is in general required to open a bank account with a German bank to receive a salary from a German employer and/or to pay taxes in Germany.

German tax authorities can access information about the fund flow on an account opened with a German bank if they suspect tax fraud / evasion

2. Taxation of wages received from a Ukrainian employer due to remote work in the Germany

2.1. Taxation of wages received from a Ukrainian employer due to remote work in Germany

2.1.1. For a tax resident of Ukraine

These wages are not subject to tax in Germany, provided that (i) a Ukrainian individual stays in Germany not longer than 183 days in a year, (ii) Ukrainian company is non-German tax resident, and (iii) wages are not attributed to German permanent establishment / permanent base of Ukrainian company. If these criteria are not simultaneously met, then wages from a Ukrainian employer will be considered as having German source and the whole amount of wages (not only this one earned after 183 days stay) should be taxable in Germany by personal income tax (PIT) at the following tax rates for 2023:

for income up to EUR 10,908 – 0%;
for income from EUR 10,908.01 up to EUR 62,809 – from 14% to 42% (rates apply progressively)
for income from EUR 62,809.01 up to EUR 277,825 – 42%
for income above EUR 277,825 – 45%

(Usual Tax Rates).

For individuals who file tax return jointly with spouse, amount of income subject to a particular PIT rate is doubled.

Additionally, solidarity surcharge (Solidarity Surcharge) at a rate of 5,5% of PIT liabilities (i.e., not of income) applies to individuals whose income tax liability exceeds EUR 17,543 in case of single filing or EUR 35,086 in case of joint filing (amounts for 2023). A church tax (Church Tax) at a rate of 8% to 9% of PIT liabilities may be levied on church members.

An individual must submit tax return and pay tax as described above in section 1.3 of this guide. Despite the fact that Ukrainian company withhold PIT in Ukraine, this Ukrainian tax cannot be credited against German tax because under the DTT Germany has first-priority right to tax this income.

In Ukraine these wages are taxed by PIT at 18% rate and Military duty at 1,5% rate. PIT and Military Duty are withheld by employer, no tax return should be submitted by employees.

If these wages are also subject to taxation in Germany, in practice some difficulties with avoidance of double taxation may occur which can lead to double taxation of wages.

2.1.2. For a tax resident of Germany

These wages is always subject to taxation in Germany by PIT, Solidarity Surcharge and Church Tax as described above, irrespective of the above criteria applicable to Ukrainian tax residents. An individual is subject to German social security rules. In this case Ukrainian employer may be required to appoint a representative in Germany responsible for paying social contributions. Social contributions are charged at Usual Social Contribution Rates (as described in section 2.2 of this guide).

According to the DTT, wages received by an employee from a Ukrainian employer due to remote work in Germany should generally not be subject to taxation in Ukraine.

In practice some difficulties with avoidance of double taxation may occur which may lead to double taxation of wages.

2.1.3. Social / health security

If the work in Germany for Ukrainian employer is not of a temporary nature, an individual is subject to German social security rules. In this case Ukrainian employer may be required to appoint a representative in Germany responsible for paying social contributions. Social contributions are charged at Usual Social Contribution Rates (as described in section 2.2 of this guide).

In Ukraine standard social security rate is 22% of wages, payable monthly at employer`s expense. Basis for accrual of social security may not be lower than one minimum monthly wage (from 1 October 2022 minimum wage is UAH 6 700, which is approximately EUR 185 at official exchange rate) and should not exceed fifteen monthly minimum wages (from 1 October 2022 this amount constitutes UAH 100,500, which is approximately EUR 2,775 at official exchange rate).

During martial law exemption from social contribution in Ukraine is available for private entrepreneurs and some other categories of individuals (employers).

2.2. Taxation of wages received from a German employer due to work in Germany

These wages are always subject to taxation in Germany, irrespectively of individual`s tax residency. This income is taxable by PIT at Usual Tax Rates and may be subject to Solidarity Surcharge and Church Tax.

Also, an individual and his employer must pay social contributions at the following rates of employer`s income:

in the amount of 19.325% at employer`s expense (which includes 9.3% Pension Contribution, 7.3% Healthcare, 1.525% Long-term care and 1.2% Unemployment Contribution)
in the amount of 19.325% at employee`s expense (which includes 9.3% Pension Contribution, 7.3% Healthcare, 1.525% Long-term care and 1.2% Unemployment Contribution)

(Usual Social Contribution Rates).

The social contribution amounts are capped. The exact cap depends on the region.

If an individual is a tax resident of Ukraine, these wages are subject to taxation in Ukraine by PIT at 18% rate and military duty at 1,5% rate. Social security does not apply. German PIT may be credited against Ukrainian PIT which may lead to decrease or absence of PIT in Ukraine. However, German PIT cannot be credited against military duty in Ukraine, thus military duty should be payable from foreign wages in any case.

If an individual is a tax resident of Germany, these wages received by an employee due to physical work in Germany are not subject to taxation in Ukraine.

2.3. Taxation of income of a director of a Ukrainian company

The physical presence of a director of a Ukrainian company in Germany may result in (a) recognition of a permanent establishment of the Company in Germany or (b) recognition of the Company as a tax resident of Germany under the place of effective management criterion.

Director`s fee received as a director / member of board of directors is subject to taxation in Germany only if a director is a tax resident of Germany. In this case tax consequences are the same as for German tax resident receiving wages from Ukrainian employer, however PIT withheld in Ukraine may be credited against German PIT. For this purpose, a director must obtain a certificate of paid taxes in Ukraine, get apostille for the certificate and translate it into German with notarial certification of the translation.

At the same time, if a director also exercises an ordinary employment function (including day-to-day management) / provides services to the company, his/her income should be taxed as wages / sole trader income respectively.

Social / health security consequences applicable to director`s fees are the same as described for employees / freelancers (sole traders), depending on how contractually relationships with director are structured.

2.4. Taxation of income of a freelancer / sole trader in Germany who receives income from clients in Germany / outside Germany

2.4.1. For a tax resident of Ukraine

This income is subject to taxation in Germany to the extent it is (i) classified as income from "professional services or other independent activities" and (ii) derived due to use of permanently available base in Germany (Articles 14, 21 of the DTT). Place of permanent residence may be considered as such a base. Ukrainian sole trader cannot be recognized as having permanent establishment in Germany and taxed accordingly. Such an individual must submit tax return and pay PIT (at Usual Tax Rates), Solidarity Surcharge (if applicable) and Church Tax (if applicable) as described above in section 1.3 of this guide.

However, Ukrainian tax resident can be registered as a sole trader in Germany voluntarily. In this case his/her whole income from business activities is subject to taxation in Germany as described below for German tax residents.

An individual's income is subject to taxation in Ukraine as follows:

PIT at 18% rate plus military duty at 1,5% rate plus social security calculated on a monthly basis at 22% rate of the profit (subject to minimum and maximum thresholds as described in section 2.1 of this guide) - for individuals registered as sole traders at general tax regime or as independent professionals;
Single tax at 2% / 3% / 5% of income plus monthly fixed minimum social security (from 1 October 2022 minimum social security is UAH 1,474, which is approximately EUR 41 at official exchange rate) or at 22% rate of income (subject to minimum and maximum thresholds as described in section 2.1 of this guide) (at individual's choice) calculated on a monthly basis - for individuals registered as a single taxpayers of the 3rd group.

2.4.2. For a tax resident of Germany

An individual must be registered as a sole trader in Germany (get a tax number). He/she must declare all his/her worldwide business income in the tax return and pay PIT (at Usual Tax Rates), Solidarity Surcharge (if applicable) and Church Tax (if applicable) as described above in section 1.3 of this guide. PIT will only apply to freelance or sole trade profits (i.e. an individual can deduct business expenses for tax purposes and apply tax-free allowance). Additional municipal taxes may apply to freelancer / sole trader's income at a rate of up to 20.3% of his/her business profit (depending on the type of activities and income amount).

Freelancers / sole traders are not required to pay social security.

There are no special tax regimes for freelancers or sole traders in Germany, however some exceptions for small income are available.

If an individual is not registered as a sole trader (private entrepreneur) in Ukraine, then his / her income from activities in Germany is generally not subject to taxation / social security in Ukraine, except for certain types of income from Ukrainian source.
If an individual is registered as a sole trader (private entrepreneur) in Ukraine, his / her business income from activities in Germany may formally be considered as subject to taxation / social security in Ukraine. It is recommended to cancel registration as a sole trader (private entrepreneur) in Ukraine if an individual becomes tax resident in Germany.

2.4.3. VAT

Freelancer / sole trader must register as a VAT payer and charge VAT if the amount of his/her VAT-able supplies exceeds EUR 22,000 per calendar year. Before reaching this threshold, voluntary registration is available.

3. About the guide

3.1. Authors

INTEGRITES is a full-service law firm with offices in Ukraine and Kazakhstan, contact offices in Germany and the UK.

In 18 years INTEGRITES has served more than 1600 clients from around the globe, including Fortune 500 companies and international financial institutions. The firm's clients are recognized leaders in various industries: from real estate and construction, infrastructure, and agriculture to manufacturing, pharmaceuticals, and retail.

INTEGRITES is highly recommended for its cross-border work - investment deals, sophisticated transactions, complex dispute resolution, and for projects which require in-depth industrial expertise.

Alongside the countries of presence, INTEGRITES makes its legal expertise available to clients from other jurisdictions through two foreign desks - teams of qualified lawyers with unique German- and French-speaking competence. The firm closely cooperates with a well-established partner network of over 100 international law firms.

In 2022 INTEGRITES got shortlisted as Law Firm of the Year: Ukraine by Chambers Europe Awards and The Lawyer European Awards.

With more than 400 lawyers, tax advisors and notaries providing legal services across eight offices in Germany as well as an office in Zurich, Heuking Kühn Lüer Wojtek is one of the major commercial law firms in Germany.

Founded more than 50 years ago, Heuking Kühn Lüer Wojtek is one of Germany's top 20 law firms in terms of annual revenues according to industry analyst JUVE.

The spectrum of the Firm's legal advice ranges from German and foreign medium-sized companies to international (including listed) large corporations in all matters of commercial law.

Another focus of the Firm's client support lies in public law in which Heuking Kühn Lüer Wojtek counsels decision-makers on all levels of administration.

3.2. Get in touch

Partner,
Tax and Customs