On October 6, 2022, the Verkhovna Rada adopted draft law No. 5270 "On Amendments to the Tax Code of Ukraine and some other legislative acts of Ukraine regarding the peculiarities of taxation of business activities of electronic residents". With this normative legal act, elected representatives of the people introduce a new tool for conducting business - E-residency, which is new for domestic legislation.
The e-residency institute is particularly successfully used in Estonia and has recently been introduced in Lithuania as well.
So, let's figure out what E-residency is and for whom it is intended.
Who is an E-resident?
E-residency is an online tool used by the state to create conditions for foreigners to conduct business in a simplified manner, thereby attracting new investments and revenues to the state budget.
According to generally accepted practice, E-residents can conduct business in the country completely remotely, using all necessary government services.
Basically, the E-residency institute is aimed at IT workers, because:
1. Provides an opportunity to enter the international market with your product;
2. Does not require the person to move abroad;
3. Provides more favorable tax conditions than registration by an individual entrepreneur or company creation.
E-resident in Ukraine
An e-resident of Ukraine is a foreigner who can register himself as a natural person - an entrepreneur, conduct his activities and open an account without being on the territory of Ukraine, i.e. remotely.
E-resident status gives the opportunity to conduct business both in Ukraine and abroad, to use all the conveniences and possibilities of Ukrainian online services, and to have a bank account. These conditions become even more attractive, taking into account the fact that Ukraine received the status of a candidate for EU membership, and in the near future will receive the status of an EU member state itself.
Remote opening of a bank account is not the biggest advantage, because you will not find any European bank that will open a personal account without the physical presence of a person (not to mention a corporate one).
However, it is necessary to distinguish between E-residency and Ukrainian citizenship, because the acquisition of the former does not follow either a temporary or permanent residence permit, or the status of a citizen of Ukraine.
Who can become an e-resident of Ukraine?
Foreigners or stateless persons who have reached the age of 18 at the time of obtaining the status can become e-residents of Ukraine.
The following categories of persons are not entitled to receive the status of E-resident of Ukraine:
• citizens of the terrorist state of the Russian Federation;
• persons blacklisted by the FATF (International Anti-Money Laundering Group);
• persons who have income in Ukraine (except for passive income) and residents and citizens of Ukraine.
What activities can an E-resident conduct?
A person who has acquired the status of E-resident of Ukraine can only carry out the following types of economic activity:
• Publication of computer games (58.21 KVED);
• Publication of other software (58.29 KVED);
• Computer programming (62.01 KVED);
• Other activities in the field of information technologies and computer systems (62.09 KVED);
• Data processing, posting of information on web sites and related activities (63.11 KVED).
For now, this opportunity is available only to specialists in the IT field, but later the lawmakers promise to add some more types of services.
The procedure for obtaining the status of E-resident of Ukraine
1. A foreigner will need to register in the "DIA"* application and pass a financial and security check. To his application, the person will have to add a copy of the passport in electronic form and information from the law enforcement agencies of his state about the facts of bringing him to criminal responsibility;
2. After passing the check, the person acquires the status of E-resident and receives an EDS (electronic digital signature). All communication will be in English.
3. The e-resident opens a bank account remotely and the bank itself becomes the tax agent for the e-resident;
4. Further, the person will be able to conduct his activities completely remotely, using electronic document management, conducting online correspondence with the tax office and conducting all calculations in a non-cash format.
*The state enterprise "DIA" will act as the administrator of E-resident and will carry out measures for the creation, administration, technical support of the "E-resident" system, as well as ensure and be responsible for the protection and security of information in the "E-resident" system.
The location of the administrator (of the State Enterprise "DIA") is recognized as the tax address of the E-resident-entrepreneur.
E-resident taxes in Ukraine
Obtaining the status of E-resident does not make a person a tax resident of Ukraine within the meaning of the Tax Code of Ukraine. Based on this, a person does not acquire the obligation to report his worldwide income to the Ukrainian tax office, and even more so, he should not pay tax on such income (except for the tax provided for the E-resident as part of his activities).
This approach to taxation is similar to that applied by Georgia in the taxation of individual entrepreneurs registered in Georgia.
You can learn more about Ukrainian tax residency and its impact on taxation in today's realities at the link (Link to the article on tax residency).
During state registration as an E-resident entrepreneur, an e-resident of Ukraine chooses an exclusively simplified system of taxation, accounting and reporting and a single tax rate set for the third group, which does not involve the payment of VAT (value added tax).
The single tax rate for E-resident entrepreneurs is set at:
a) 5% of the income received from the implementation of permitted types of activities;
b) 18% of income:
• received from the implementation of other types of activities than those permitted;
• received when applying the cash method of calculation;
• received during the period of employment on the territory of Ukraine;
• received from operations, electronic copies of contracts and / or primary documents, as well as information on the receipt or withdrawal of funds from bank accounts in respect of which they are not posted, posted late, posted not in full and / or with inaccurate information in the information system "E -resident" in accordance with the requirements of this subsection.
In order to carry out correct taxation, the E-resident must timely place in his office on the "E-resident" portal:
• information on opening current accounts in a Ukrainian bank;
• electronic copies of contracts related to the conduct of business activities of the E-resident;
• electronic copies of primary documents that confirm the E-resident's business transactions;
• information on transactions regarding the receipt or withdrawal of funds from the bank accounts of such E-resident entrepreneurs;
• declarations of a single tax payer.
When does a person lose the E-resident status?
The administrator of the e-resident (State enterprise "DIA") has the right to cancel the status of a person if he discovers a violation / non-compliance with the law.
The grounds for cancellation of status and termination of business activity are:
1. Voluntary submission by an E-resident of an application to terminate entrepreneurial activity at his own will;
2. E-resident acquiring the status of tax resident of Ukraine;
3. The administrator receiving information about the death of an E-resident, declaring him incapacitated or missing;
4. Non-submission of tax reporting by an E-resident during four consecutive reporting periods.
In order to make a record of the termination of the business activity of the e-resident, the state enterprise "DIA" sends to the USR (the Unified State Register of Legal Entities, Individual Entrepreneurs and Public Organizations) an application for state registration of the termination of the business activity of the electronic resident-entrepreneur and informs about the person through the information "E-resident" system.
Rights and obligations of an e-resident of Ukraine
E-resident has the following rights:
• E-resident can conclude contracts with legal entities and self-employed persons, including for obtaining accounting and legal services;
• An e-resident can be represented in state and tax authorities either by an administrator or a representative (with whom a contract has been concluded), or he can do it independently;
• An e-resident has the right to open an account in only one Ukrainian bank of his own choosing.
The e-resident has the following duties:
• When carrying out business activities on the territory of Ukraine, a person must not use the labor of hired persons;
• When carrying out business activities, the E-resident is obliged to make payments exclusively in non-cash form.
Interaction of E-resident with state bodies
When the E-resident status is granted to a person, a personal electronic account is automatically created in the tax office.
The e-resident carries out all communication with the controlling bodies using his electronic cabinet, exclusively in electronic form.
Since the E-resident status is designed for foreigners who most likely do not know the Ukrainian language, copies of the person's correspondence with the authorities are sent through the "E-resident" information system to the administrator, who is obliged to translate such correspondence within one day and send it together with the original text back to the person.
The administrator is responsible for providing information on the amount and movement of funds in the account of E-residents, and other information and / or documents related to the calculation and payment of taxes, if the supervisory authorities have addressed to him with a written request.
The administrator is obliged to provide an answer to the request of the supervisory authority within 15 calendar days from the date of receipt of such a request.
E-residency is an institution that is successfully used by some countries to increase revenues to their budgets and attract new investments.
One of them is Estonia, whose practice of using E-resident status we consider to be one of the most successful. The main advantage is that a person with an Estonian E-resident card can remotely register an Estonian company to cooperate with European counterparties. The remoteness of all processes also enables the Estonian company owner to remotely make any changes to his company, communicate with regulatory authorities and manage the company's activities.
Estonia is considered one of the world leaders in digitalization of government processes, optimization of business management processes and successful introduction of electronic document management in the country.
Ukraine successfully actively borrows the foreign experience of leading countries in various spheres and industries.
Do you want to register an e-resident in Ukraine? Contact us.
What will foreigners be able to do when the bill is adopted?
• Register PE of the 3rd group without physical presence in Ukraine;
• Pay a single tax in the amount of 5% of the amount of income;
• Open a bank account.
Taxation and reporting for E-residents will be automated.
Who of the foreigners cannot obtain E-residency?
Citizens of Russia, persons from the "black list" of the FATF and having income in Ukraine (except for passive) will not receive a special status.