You're reading: Authorities drop planned tax hike on foreigners

Kyiv’s largest business associations achieve policy success.

Tax authorities on March 5 backpedaled on recent tax changes that would have doubled the tax rate for many foreigners working in Ukraine. They also rescinded additional procedures for them to qualify in a lower tax bracket following months of joint advocacy efforts by Kyiv’s two largest business associations.

Initially in December, the State Tax Administration issued a number of letters, orders and clarifications that made it more difficult for foreigners with no residency status in Ukraine to qualify for the 15 percent income tax rate that employers pay, thus applying a 30 percent income tax rate on them.

These measures were seen as a move by authorities to boost state revenues in an already convoluted tax environment.

“Since December, this issue was a priority for the Chamber as it was widely perceived as a move that further harmed the investment environment and highlighted the often changing rules of the game in this market,” a March 9 American Chamber of Commerce in Ukraine news release read.

Ukraine has lacked a single tax code since gaining independence in 1991,leaving accountants and auditors heavily dependent how tax authorities subjectively interpret legislation, bylaws and other government decrees regulating business activities.

The policy success also means that foreign employees are no longer required to provide a package of documents to obtain tax residency. The list used to include a copy of their passport with stamps indicating when they entered Ukraine, a copy of their personal tax identification code, a work permit, a residential lease agreement and a temporary or permanent residence permit.

Since December, the Chamber of Commerce in Ukraine and European Business Association worked closely together and held a number of high-level meetings with tax authorities urging them to cancel their December move that made it difficult for foreign employees to qualify as tax residents and have their employers pay a 15 percent tax rate.

Chamber of Commerce in Ukraine president Jorge Zukoski said his group is urging tax authorities to reinstate an order that simply states that if an individual, foreign or local, is employed by a Ukrainian legal entity their income will be taxed at 15%. The order, according to Zukoski, is more in-line with international practice.

Kyiv Post staff writer Mark Rachkevych can be reached at [email protected].