Taxation of foreign income in Ukraine: rules and practical tips

During the period of globalization and remote employment, more and more Ukrainians are receiving income from abroad — from work for foreign companies, investments, rental of real estate or dividends. At the same time, taxation of such income often remains unclear, which creates risks of additional tax assessments, fines and disputes with the tax authorities. This article examines what is considered foreign income, who must declare it, how to avoid double taxation, and what to pay attention to when completing the annual personal income and assets tax return.

Concept of foreign income
According to sub‑paragraph 14.1.55 of the Tax Code of Ukraine (TCU), foreign income is any income received by a taxpayer from sources outside Ukraine. Such sources include salaries, dividends, royalties, rental payments, business income, investment income, interest on bank accounts, pensions, winnings, inheritance, etc.

At the same time, the currency in which the income is received does not matter — whether in US dollars, euros or even cryptocurrency. For tax purposes, such income must be converted into hryvnia at the official exchange rate of the NBU on the date of its receipt.

Who must declare foreign income
The obligation to declare foreign income lies with individuals who are tax residents of Ukraine. The term “resident” has clear criteria in the TCU:

• the person has a place of residence in Ukraine;
• or the person’s centre of vital interests is located in Ukraine (family, property, business);
• or the person stays in Ukraine for more than 183 days during a year.

If a person meets at least one of these criteria, they are considered a tax resident and must declare all their worldwide income, regardless of where it is received. For non‑residents of Ukraine another rule applies: they pay tax only on income whose source is located in Ukraine.

Declaration and payment of tax
Tax liabilities on foreign income are determined when filing the annual personal income and assets tax return. The deadline for filing is 1 May of the year following the reporting year, and the deadline for paying the tax is 1 August.
The tax rates are standard for personal income:

• personal income tax (PIT) — 18%;
• military levy — 1.5%.

At the same time, if there is a Double Tax Treaty between Ukraine and the country where the income was received, the taxpayer has the right to reduce the amount of Ukrainian tax by the amount of tax actually paid abroad. To do so, it is necessary to have a proper supporting document — a certificate from the foreign tax authority confirming payment of the tax. The document must be legalised (apostilled) and translated into Ukrainian.

Avoiding double taxation
Ukraine has double tax treaties with more than 70 countries, which determine which state taxes a particular type of income and allow foreign tax paid to be credited against Ukrainian tax. For example, on dividends from a US company, the United States withholds 10–15% tax, and this income is also taxable in Ukraine, but the amount paid in the US is credited towards the Ukrainian tax liability. It is essential to have documentary proof of tax paid abroad; otherwise no credit will be granted.

Specifics for different income categories

1. Salary or freelance income.
   Many Ukrainians work remotely for foreign clients. Even if the client pays in foreign currency to Payoneer or Wise, this is considered foreign income and must be declared in Ukraine.
2. Investment income.
   Sale of shares or cryptocurrencies abroad is a common situation. In this case, taxable profit is determined as the difference between the sale proceeds and the documentary confirmed acquisition costs.
3. If a Ukrainian resident holds corporate rights or shares in a foreign company, dividends received are also subject to taxation.
4. Passive income — interest, rent, royalties.
   Such income is taxed at the general rates, although in some cases double tax treaties provide for preferential conditions.

Exchange rate and evidence base
It is important to remember that all foreign income is converted into hryvnia at the NBU exchange rate on the date of its actual receipt. If income is credited to a foreign account several times during the year, a separate exchange rate is applied to each transaction.
The tax authorities are entitled to request proof of the receipt of funds (bank statements, contracts, invoices, payment orders). Failure to provide such documents may result in additional tax assessments or even fines.

Practical recommendations

1. Collect and keep all documents confirming the receipt and taxation of foreign income.
2. Check whether Ukraine has a double tax treaty with the country where you received the income.
3. If you work for a foreign client, formalise the contract properly — this is important for correctly determining the tax base.
4. Do not postpone filing the tax return until the last day — preparation of documents and legalisation of certificates may take several weeks.
5. In case of doubt, consult a tax adviser or an international taxation lawyer.

Conclusion
The system of taxation of foreign income in Ukraine is based on the residence principle: all foreign‑source income of a Ukrainian tax resident is subject to declaration in Ukraine. International treaties make it possible to avoid double taxation, provided that proper documentary evidence is available and the tax return is filed on time. Ignoring these requirements may lead to substantial fines and even criminal liability, so it is important to assess tax risks in advance and approach declaration responsibly.

Author: Ihor Yasko, Managing Partner at Winner Law Firm, PhD in Law.
If you have any questions or issues related to taxation of foreign income, consult professionals — qualified advice will help you avoid mistakes and protect your financial interests.