Updated audit plan: individuals move to the forefront

In recent years, tax control in Ukraine has been associated primarily with businesses: scheduled on‑site audits, desk audits of sole proprietors, and analysis of optimisation schemes. Individuals, especially non‑entrepreneurs, often felt “outside the tax authorities’ focus”. The situation is gradually changing: the state is moving to a model where attention is paid not only to companies but also to ordinary citizens, their income in Ukraine and abroad, their assets, and high‑value transactions. The updated audit plan is one of the clear signals of this trend.

Why the focus is shifting to individuals
There are several obvious reasons why individuals are increasingly coming into the spotlight of the tax authorities.

First, there is the fight against “nominee” sole proprietors and cash‑based schemes. Part of the business community has traditionally used individuals — both registered entrepreneurs and “ordinary people” — to withdraw funds, pay salaries “in envelopes”, and formally hold assets or loan agreements. For the tax authorities, it is a logical step to look not only at the company itself but also at the circle of related individuals: founders, directors, key employees, and connected family members.

Second, digitalisation and data exchange enable the tax service to analyse much larger datasets on citizens: banking transactions, customs declarations, real estate and vehicle registers, information on foreign income, and movements of funds on payment cards. What was technically difficult to track in the past is now turning into analytical dashboards and automated risk profiles.

Third, there is growing attention to citizens’ foreign income — salaries earned abroad, work for IT companies, freelancing, investments through international platforms, and crypto transactions. This is driven both by wartime budget needs and by Ukraine’s move towards global standards for the automatic exchange of tax information.

All of this logically results in an updated audit plan in which individuals are no longer treated as a “secondary” category.

Which individuals fall into the risk zone
The tax authorities always work on the basis of risk prioritisation: auditing everyone is expensive and inefficient, so they form groups of taxpayers with a higher likelihood of violations. For individuals, the typical risk markers include:

1. Significant assets with relatively modest official income.
   If a person owns several pieces of real estate, expensive cars, and equity stakes in companies, but their declared income does not explain this, it is a classic trigger for in‑depth analysis.
2. Substantial inflows to bank accounts from unclear sources.
   Regular or large one‑off transfers from other individuals, foreign inflows, and active work with crypto exchanges without reflecting the income in tax returns can all attract the attention of the authorities.
3. Links to businesses that already have tax risks.
   Founders, directors, beneficiaries, or de facto managers of companies that are under audit, facing additional assessments, or subject to criminal proceedings often become a focus as individual taxpayers as well.
4. Large transactions with real estate and other valuable assets.
   Purchases and sales of property, gifts, inheritance, and systematic resale transactions may be treated as entrepreneurial activity or require detailed verification of the source of funds.
5. Systematic non‑declaration of foreign income.
   Many citizens work remotely for foreign companies and receive remuneration into foreign bank accounts, cards, or e‑wallets. Formally, such income is taxable in Ukraine (as part of the person’s worldwide income), and this area is becoming one of the main priorities of control.

What tools do the authorities use
Updating the audit plan is only the tip of the iceberg. Behind it are tools that allow the authorities to “select” individuals of interest:

• Analysis of banking operations. Banks are obliged to report suspicious transactions and conduct financial monitoring; this data can be used by the tax authorities as a basis for further analysis.
• Register data. Real estate, vehicles, corporate rights, land, encumbrances, and mortgages — open and semi‑open registers make it possible to see the real volume of a taxpayer’s assets.
• Information from other states and international platforms. An automatic exchange of tax information (CRS) is being gradually introduced, and some jurisdictions are already sending data on the accounts of Ukrainian tax residents.
• Cross‑checks against business data. If a company records substantial payments to individuals (fees, civil‑law contracts, rent, consulting services), the tax service may check whether those individuals have declared the corresponding income.

As a result, even a person who has never been a sole proprietor but actively conducts financial transactions can end up on the list of taxpayers selected for audit.

What questions will individuals most often face
The updated audit plan means that the authorities will more frequently ask individuals specific questions, such as:

• Where did the money come from? The key issue is documenting the source of funds for major purchases, investments, or savings. Without contracts, statements, and tax returns, it is difficult to provide a lawful explanation.
• Has all income been declared? This is especially relevant for foreign income, freelancing, cryptocurrency gains, rental income, and informal side jobs.
• Does the declared income match the person’s lifestyle? The tax service increasingly looks at consistency between income, expenditure, and assets; a substantial discrepancy is always a risk.
• Is there any hidden business activity? Systematic online sales, property or car flipping, and continuous provision of services may be treated as business activity with corresponding tax consequences.

For many taxpayers, the main challenge is not so much “bad” transactions as the lack of documentary proof that everything was done properly.

What individuals should do now

1. Perform a self‑audit of income and assets.
   Compare your major assets (real estate, cars, large deposits, investments) with your official income over recent years. Ask yourself honestly whether you could document the origin of these funds.
2. Collect documents for key transactions.
   Gather contracts of sale, gift and loan agreements, bank statements, and evidence of salaries and other lawful income. In many cases the documents exist but are scattered across different sources — it is better to systematise them.
3. Reconsider your approach to foreign income.
   If you work abroad, freelance for foreign clients, or hold accounts with foreign banks or exchanges, calculate whether you are obliged to file a tax return and pay tax in Ukraine. It is better to do this voluntarily and on time than to explain everything after the fact.
4. Assess the risks of past periods.
   If in the past you had transactions with imperfect documentation or “grey” logic, consult a lawyer to assess your residual risks and whether it makes sense to use mechanisms for correcting mistakes, such as amended tax returns.
5. Act according to the principle “better to prevent than to fix”.
   Before entering into major or complex transactions (investments, asset structuring, transfers from abroad), it is advisable to consult a tax specialist in advance rather than waiting for questions from the authorities.

The role of a lawyer in the new reality
Greater attention to individuals does not mean that every citizen will automatically become a “target”. However, for people with significant income, assets, or complex financial flows, the tax reality is already changing. A lawyer’s role is not only to “put out fires” when an audit begins, but also to:

• design a safe structure for holding assets
• set up transparent accounting of income, including foreign income
• prepare for possible tax inquiries and respond correctly
• support appeals against tax decisions in administrative and court procedures

Competent prevention is often cheaper and calmer than fighting additional assessments, penalties, and asset freezes.

If you have questions or problems related to tax audits of individuals, declaring income in Ukraine or abroad, proving the origin of funds, or defending yourself in a tax dispute, consult experienced lawyers who specialise in tax law and audit support.

Author: Ihor Yasko, Managing Partner of WINNER Law Firm, PhD in Law.