U.S. FEDERAL INCOME TAX REGIME OF THE UKRAINIAN CITIZEN TEMPORARY RESIDING IN THE USA DUE TO THE WAR
1. Common tax issues for Ukrainian refugees in the USA
On February 24, 2022, Russia invaded Ukraine. Since then,?millions of Ukrainian citizens have left the country seeking a temporary place to stay until the war ends. As of September 24, 2024, the United Nations (UN) High Commissioner for Refugees recorded 6,725,300 refugees from Ukraine globally.[1] U.S. CBP’s Office of Field Operations (which runs the ports of entry) has encountered more than 267,000 Ukrainian nationals since February 2022.[2]
From a socioeconomic perspective, one would expect that most Ukrainian refugees in the USA either have relatives there or are of the middle-class level because of the absence of substantial financial support (compared with 1.2m of Ukrainians living in Germany now, where hefty aid is given), distance from Ukraine and difficulty with finding a job (compare with 1m of Ukrainian refugees in Poland – a country with a common border with Ukraine, close language and demand in Ukrainian workforce).[3] From this paper's perspective, this means that Ukrainian refugees in the USA are expected:
Another assumption would be that the refugees are planning to return to Ukraine. Even those considering permanent stay in the USA, considering lengthy and complicated U.S. immigration rules, could be expected not to have officially started the process of permanent immigration to the USA.
It is expected that the majority of Ukrainians escaping the war entered the USA under the Uniting for Ukraine program (U4U), while few of them were able to secure work or student visas.
On April 21, 2022, the USA announced the U4U program. It provides a pathway for Ukrainian citizens and their immediate family members who are outside the United States to come to the United States and stay temporarily in a 2-year period of parole. The program duration was further extended, but the future of the program is unclear. Under this program, Ukrainians were eligible to apply for an employment authorization document (EAD) to legally work in the USA.[4]
The temporary nature of such stay in the USA, combined with the dominating intention of Ukrainians to return to Ukraine after the war is over, results in the duality of their interests: On the one hand, they retain close economic connections with Ukraine, deriving employment, entrepreneurial or passive income from Ukrainian sources; On the other hand, with the third year of war, Ukrainians have growing economic ties with the U.S. as the welcoming state as well as getting into the loop of sophisticated U.S. tax rules as U.S. temporary residents.
This paper is devoted to the analysis of the U.S. federal income tax regime of the most common types of income Ukrainian citizens temporarily residing in the USA may incur:
2. Legislative framework
2.1. US-Ukraine Double Tax Treaty
?The most recent US-Ukraine Double Tax Treaty (DTT), including the Protocol thereof, whose main function is to limit the extent of domestic taxation imposed by each of the treaty countries on transactions that touch on both, came into force on January 1, 2001.[5]
The DTT generally follows the U.S. model of double tax treaties.[6] However, as the DTT was signed in 1994, the model used is different from the one the USA is currently using. The major differences are addressed throughout the paper to the extent that they may have a material impact on interpretation.
2.2. Other tax legislation adopted in both countries regarding the topic under analysis
Currently, there are no U.S. or Ukrainian rules implemented to address specifically the tax regime of Ukrainian citizens temporarily residing in the USA due to the war.
From the U.S. perspective, there is no substantial need to implement the specific rules.
From the Ukrainian perspective, generic refugees’ tax policy and administration aim two specific targets:
3. Tax residence
3.1. USA
A U.S. tax resident is an individual who is considered a resident for U.S. tax purposes. This means that the individual is subject to U.S. income tax on his worldwide income, regardless of where it is earned.
As per I.R.C. §7701(b)(1)(A), there are three primary tests used to determine U.S. tax residency[7]:
Based on the above determination, since the war has been in place since February 2022, most Ukrainian citizens temporarily residing in the USA due to the war should have already met the U.S. tax residency test under the Substantial Presence Test.
There is no special U.S. tax regime for Ukrainians who arrived in the USA under the U4U program.
Those Ukrainians who arrived under student visas may still be considered as U.S. tax non-residents (see section “Peculiarities of tax regime of the students” below for more detail).
3.2. Ukraine
As per Article 13.3 of the Tax Code of Ukraine (TCU)[8], a Ukrainian resident is also subject to tax on his worldwide income except for income from foreign sources that is not subject to taxation in Ukraine under the provisions of Ukrainian tax legislation or international agreements in force in Ukraine.
The following decision tree should be followed to determine if a person is a tax resident in Ukraine[9]:
There is no clear guidance or practice for the application of the above test. In this respect, the following may be considered.
There is a regime of residence address registration in Ukraine established and used for non-tax purposes. The procedure of cancellation of such registration and legal formalities of a permanent move to a permanent residency outside of the country is complicated. Considering that leaving Ukraine due to the war was an emergency, we can assume that the vast majority of Ukrainian refugees in the USA did not complete these procedures and:
In this respect, the typical consideration of Ukrainian tax residence for a Ukrainian refugee would look as follows:
Consequently, from the practical perspective, the majority of Ukrainian refugees are expected to be considered Ukrainian tax residents unless they can prove the following conditions are met:
Consequently, except for the students, there is a conflict of residence rules as both the USA and Ukraine would claim Ukrainian refugees as their tax residents based on the domestic rules.
3.3. Tie-breaker rules
This conflict should be resolved under Article 4 of DTT “Residence” which is specifically designed for this and says:
“1. For the purposes of this Convention, the term "resident of a Contracting State" means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, Citizenship, place of incorporation, or any other criterion of a similar nature.
However, this term does not include any person who is liable to tax in that State in respect only of income from sources in that State or property situated therein.
2. Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then his status shall be determined as follows:
a) he shall be deemed to be a resident of the State in which he has a permanent home available to him; if he has a permanent home available to him in both States, he shall be deemed to be a resident of the State with which his personal and economic relations are closer (center of vital interests);
b) if the State in which he has his center of vital interests cannot be determined, or if he does not have a permanent home available to him in either State, he shall be deemed to be a resident of the State in which he has an habitual abode;
c) if he has an habitual abode in both States or in neither of them, he shall be deemed to be a resident of the State of which he is a citizen;
d) if each State considers him as its citizen or if he is a citizen of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.”
These tests are to be applied in the order in which they are stated.
Permanent home
The first test is based on where the individual has a permanent home.
Using the OECD Model Treaty Commentary on Article 4 (OECD Commentary)[11] which is in practice used to interpret the same terms used in the U.S. Model agreements unless U.S. Model Treaty Commentary (U.S. Commentary)[12] provides otherwise, the following should be taken into consideration:
From the Ukrainian refugees’ perspective, we can assume they would always have a permanent home available to them in the USA (owned or rented).
Regarding Ukraine, they may be considered to retain their permanent home in Ukraine (even though they might not intend to use it as home due to the war) in the following cases:
However, it may be argued they no longer have a permanent home in Ukraine if these conditions are not met.
Consequently, considering the socioeconomic categorization of Ukrainian refugees in the USA as middle-class with now-vacant residential property in Ukraine, we can expect that only a few of them would be considered as US-only tax residents under this tie-breaker rule.
Instead, the majority would be seen as having dual personal homes available and thus would be subject to the next tie-breaker rule.
Centre of Vital Interests
If the permanent home test is inconclusive because the individual has a permanent home available to him in both states, he will be considered to be a resident of the state where his personal and economic relations are closest (i.e., the location of his "centre of vital interests").
We have already touched upon this test above when analyzing the Ukrainian domestic law provisions. So, similar considerations would be used here with proper attention to p.15 of the OECD Commentary on Article 4, which inter alia says:
“… it is necessary to look at the facts in order to ascertain with which of the two States his personal and economic relations are closer. Thus, regard will be had to his family and social relations, his occupations, his political, cultural or other activities, his place of business, the place from which he administers his property, etc. The circumstances must be examined as a whole, but it is nevertheless obvious that considerations based on the personal acts of the individual must receive special attention. If a person who has a home in one State sets up a second in the other State while retaining the first, the fact that he retains the first in the environment where he has always lived, where he has worked, and where he has his family and possessions, can, together with other elements, go to demonstrate that he has retained his centre of vital interests in the first State.”
Similarly, the conclusion under Ukrainian domestic rules, is likely, that the majority of Ukrainian refugees with several permanent homes under the above-mentioned test would not have sufficient arguments to claim their centre of vital interests is outside of Ukraine. If they retain the permanent home in Ukraine, their chances to claim the absence of Ukrainian tax residence would be further reduced considering what the above-mentioned OECD Commentary says in respect of the “first” and the “second” home.
It is expected that only a few Ukrainian refugees would be able to substantiate their centre of vital interest in the USA by leveraging any of the following arguments:
If the respective arguments of a dual-home Ukrainian refugee are solid but not convincing, this test is also inconclusive, and he will be treated as a resident of the Contracting State where he maintains a habitual abode.
Habitual abode
?The OECD Commentary on Article 4 describes this test as follows:
“In the first situation [the case where the individual has a permanent home available to him in both Contracting States and it is not possible to determine in which one he has his centre of vital interests], the case where the individual has a permanent home available to him in both States, the fact of having an habitual abode in one State but not in the other appears therefore as the circumstance which, in case of doubt as to where the individual has his centre of vital interests, tips the balance towards the State where he stays more frequently. For this purpose regard must be had to stays made by the individual not only at the permanent home in the State in question but also at any other place in the same State.”[13]
For obvious reasons, under this test Ukrainian refugees would have their habitual abode in the USA as they are expected to only occasionally visit Ukraine due to the war (it is worth mentioning that it would be legally prohibited for most of men, aged 18 to 60, to legally leave Ukraine if they even come to visit it now).
Citizenship
If a Ukrainian refugee has a habitual abode in both states, he will be treated as a resident of the state of which he is a national. Under this test, he is likely to be seen as a Ukrainian tax resident – being a Ukrainian resident and unlikely at this stage to reach the U.S. citizenship status. Still, it is very unlikely that analysis of the specific Ukrainian refugee’s case would ever come to this test due to the expectation that previous tests would cover almost all statistically viable situations.
Conclusion
Based on the above analysis, it is expected that most Ukrainian refugees in the USA would be qualified as Ukrainian tax residents.
Consequently, further analysis of their tax regime would be based on this conclusion, and we will not comment on the opposite scenario where an individual could be seen as a U.S. resident.
To claim the U.S. nonresidence status under DTT’s tie-breaker rules, the taxpayer might need to attach to his tax return filed with the USA tax authorities (Internal Revenue Service or IRS) a Form 8833 “Treaty-Based Disclosure statement Under Section 6114 or 7701(b)”.[14]
4. Employment income
4.1. Compensation for physical work in the USA
As stated above, the U4U program provides Ukrainian refugees with the legal right to work in the USA.
Under I.R.C. §871(b)(1), a nonresident alien is taxable, as provided under I.R.C. §1 or 55, on his taxable income that is effectively connected with the conduct of a U.S. trade or business. I.R.C. §894(a)(1) states that the provisions of I.R.C. shall be applied to any taxpayer with due regard to any U.S. treaty obligation that applies to such taxpayer.
Under the DTT, the employment income is covered by Article 15 “Dependent Personal Services”[15] which states the following:
“1. Subject to the provisions of Articles 18 (Government Service), and 19 (pensions), salaries, wages, and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State.
2. Notwithstanding the provisions of paragraph 1 of this Article, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if
a) the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 [163][16] days in the taxable year concerned; and
b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State; and
c) the remuneration is not borne by a permanent establishment or a fixed base that the employer has in the other State.”
The general rule of Article 15 is contained in paragraph 1. Remuneration derived by a resident of a Contracting State (i.e., Ukraine) as an employee may be taxed by the State of residence (i.e. Ukraine), and the remuneration also may be taxed by the other Contracting State (i.e. USA) to the extent derived from employment exercised (i.e., services performed) in that other Contracting State (i.e. USA).
We can assume that this work would be performed for the U.S. employer while staying in the USA.
It is also expected that this remuneration is derived from the U.S. source as the employer is a U.S. person.
Paragraph 2 sets forth an exception to the general rule that employment income received by the resident of a Contracting State (i.e. Ukraine) may be taxed in the State where it is exercised (i.e. USA). Under paragraph 2, the State where the employment is exercised (i.e. USA) may not tax the income from the employment if three conditions are satisfied:
a). the individual is present in the other Contracting State (i.e. USA) for a period or periods not exceeding 183 days in the relevant taxable year – this condition is expected not to be met as we assume that Ukrainian refugees are present in the USA for more than 183 days during the current calendar year;
b).?the remuneration is paid by, or on behalf of, an employer who is not a resident of that other Contracting State (i.e. USA) – this condition is also assumed not to be met under the scenario analyzed; and
c).?the remuneration is not borne as a deductible expense by a permanent establishment that the employer has in that other State (i.e. USA) – not met same as b).
For the remuneration to be exempt from tax in the source state (i.e., USA), all three conditions must be satisfied. As this is not expected, the exception will not apply to the scenario analyzed. So, this employment income can be taxed in the USA.
This employment income may also be subject to taxation in Ukraine. Under Article 24 of DTT “Relief from Double Taxation”, potential double taxation of this income should be mitigated as follows:
“In accordance with the provisions and subject to the limitations of the law of each Contracting State (as it may be amended from time to time without changing the general principle hereof), each State shall allow to its residents (and, in the case of the United States, its citizens), as a credit against the tax on income, the income tax paid to the other Contracting State by such residents (and, in the case of the United States, also such citizens).”
Consequently, Ukrainian refugees should be allowed to decrease the Ukrainian income tax from employment by the amount of income tax paid in the USA.
4.2. Compensation for remote work in Ukraine while residing in USA
When the war exploded, many Ukrainian businesses introduced remote work opportunities to the valuable employees they wished to retain who left the country. For the USA specifically (considering the risks of starting a business there without thorough preparation, not possible in an emergency), we do not expect this would presuppose the creation of the branch or registration of a Permanent Establishment (PE) in the country of the employee’s physical residence and the work continued to be performed remotely leveraging the experience gained during COVID times.
Article 15 of DTT “Dependent Personal Services” mentioned above, would apply in this case as well.
The initial question to resolve here would be to determine the country in which the work is executed under the scenario analyzed.
In this respect, p.1 of the OECD Commentary for Article 14 says:
Employment is exercised in the place where the employee is physically present when performing the activities for which the employment income is paid. One consequence of this would be that a resident of a Contracting State who derived remuneration, in respect of an employment, from sources in the other State could not be taxed in that other State in respect of that remuneration merely because the results of this work were exploited in that other State.
While the Commentary is definite in this question, it is not the law, and the mentioned COVID experience showed that remote work is possible to be exercised for a substantial period. Some U.S. court disputes dealt with the concept of a place of remote employment – not in an international context but involving different U.S. states. In such cases, the mentioned approach was challenged.[17] However, to the best of our knowledge, the respective practice is not settled yet. Accordingly, we assume it is likely that employment would be seen to be exercised in the USA.
Once the war began, one of the Ukrainian IT sector associations submitted a letter to the Prime Minister of Ukraine, where they justified the need to eliminate taxation of such relocated employees in the host countries considering that:
– it is critical that financial flows remain in Ukraine as they form the budget revenue, GDP, affect bank liquidity, and add foreign exchange earnings;
– the centre of vital interests of displaced persons and companies should remain in Ukraine (the vast majority of displaced persons plan to return as soon as it becomes safe in Ukraine, as they feel part of Ukrainian society); and
– the economic base for income is the economy of Ukraine and not the economy of the country of temporary stay (displaced persons and companies, as a rule, work remotely for Ukrainian customers or exporting services so the formation of value added is not due to the economy of the host country).[18]
Paragraph 2 of Article 15 DTT exemption will not apply here as well - based on the assumption that Ukrainian refugees stay in the USA for more than 183 days in the current year.
Consequently, the remote work employment income under the scenario analyzed will be taxable in the USA with the same regime as outlined in the previous section.
Under Article 24 of DTT “Relief from Double Taxation”, potential double taxation of this income should be mitigated as Ukrainian refugees should be allowed to decrease the Ukrainian income tax from employment by the amount of income tax paid in the USA.
5. Ukrainian entrepreneurial income
This paper is devoted to the taxation of individuals only. Thus, the U.S. tax regime of Ukrainian companies, as well as the risk of the creation of a U.S. PE of the Ukrainian company through activities of its owner or employee living in the USA is beyond our analysis.
Considering the implications of starting an individual business in the USA as a non-resident alien, we do not analyze this option in our paper as well.
Consequently, the scenario would include only the case of a Ukrainian refugee remotely running from the USA the private entrepreneur business he established in Ukraine.
As mentioned before, it is quite common in Ukraine to use the private entrepreneur umbrella to substantially reduce the salary tax burden in some industries – IT, consulting, tutoring, marketing, design, etc.
In addition, the private entrepreneur model is widely used by Ukrainians earning income through online marketplace platforms.
We believe these two cases would be the dominant ones as the presence of a guaranteed purchaser of services (e.g., software development company) or of the independent marketplace advertising your services in Ukraine (e.g., an online platform meeting tutors with their potential students) can provide a so needed local actor for the activities being run remotely for a substantial period without visiting Ukraine.
For these models, the first question would be to decide if respective income is to be treated as business income or income from employment.
Ukrainian practice is currently agreeing to accept the business nature of such a model due to the difficulty of challenging them and agreeing to get at least a minimal tax burden from the “grey” model instead of getting nothing if it goes totally “underwater”.
However, it is the USA that would conduct the qualification of the respective relationship. In this respect, the OECD Commentary to Article 15 says:
Without going into much detail, U.S. tax legislation provides criteria allowing to distinguish the actual employment relationship from the contractual provision of services.
If, based on the analysis of the case, it would be considered to be the employment relationship, the related compensation would be taxed following the model described above for the remote work for the Ukrainian employer.
If the case would be treated as a provision of services by an independent entrepreneur, it would be potentially subject to double taxation in both the USA (as the place of service performance) and Ukraine (as the place of the entrepreneur registration) and this should be resolved either under Article 14 of DTT “Independent services”, which says:
“1. Income derived by an individual who is a resident of a Contracting State from the performance of personal services in an independent capacity shall be taxable only in that State, unless
a) such services are performed or were performed in the other Contracting State; and
b) the income is attributable to a fixed base that the individual has or had regularly available to him in that other State.
In such a case, the income attributable to that fixed base may be taxed in that other State in accordance with principles similar to those of Article 7 (Business profits) for determining the amount of business profits and attributing business profits to a permanent establishment.
2. The term "independent personal services" includes especially independent scientific, literary, artistic, educational or teaching activities, as well as the independent services of physicians, lawyers, engineers, architects, dentists, and accountants.”
Consequently, income derived by a Ukrainian refugee who is a resident of Ukraine from the performance of personal services in an independent capacity shall be taxable in Ukraine.
However, this income should also be taxable in the USA as such services are performed in the USA and the income is attributable to a fixed base that the individual has or had regularly available to him in the USA. Considering the nature of activities, we expect the income to be predominantly allocated to the USA.
Under Article 24 of DTT “Relief from Double Taxation”, potential double taxation of this income should be mitigated as Ukrainian refugees should be allowed to decrease the Ukrainian income tax from entrepreneur activity by the amount of income tax paid in the USA. This, however, could be problematic considering their entrepreneurial activity is likely subject not to income tax, but a simplified tax in Ukraine which is charged on gross proceeds without deduction of expenses. Thus, the risk exists that Ukrainian tax authorities would refuse to provide the credit arguing this tax is not covered under DTT. The solution here (subject to a cost-benefit analysis) could be promptly shifting from the simplified tax to the “normal” income tax regime.
As a separate note, we assume that the type of activities that such an entrepreneur may run would generally exclude the use of real estate dedicated to such activity, but may include the use of movable property (e.g., laptop).
The risk exists that income derived from such assets may be also taxed in the USA under the “Independent services” rules described in this section provided it could be allocated to the fixed place of business we expect Ukrainian entrepreneurs would have in the USA to run such business.[19]
In this respect Article 13(3) of DTT “Gains from the Alienation of Property” says for the sale of movable property:
“3. Gains from the alienation of personal property that are attributable to a permanent establishment which an enterprise of a Contracting State has in the other Contracting State, or that are attributable to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, and gains from the alienation of such a permanent establishment (alone or with the whole enterprise) or such a fixed base, may be taxed in that other State.”
6. Ukrainian pensions
While it is complicated now for those residing outside Ukraine, some Ukrainian refugees may continue to receive pensions paid by the Ukrainian State Pension Agency.
Under Article 19 of DTT “Pensions”, it is expected that these payments will not be taxable in the USA:
“2. Subject to the provisions of Article 18 (Government Service), pensions and other similar remuneration derived and beneficially owned by a resident of a Contracting State in consideration of past employment may be taxed only in that State. .”
7. Rent from the Ukrainian real estate
While some Ukrainian refugees may purchase real estate in the USA, for our analysis we assume they are still using it for their residence considering the three years perspective of the war. Consequently, we do not consider renting in the USA here.
As we stated before, while many Ukrainian refugees in the USA may own real estate in Ukraine, it is not expected that renting it out is substantial due to difficulties in managing such activities fully remotely.
Article 6 of DTT “Income from Real Property” says:
“1. Income derived by a resident of a Contracting State from real property (including income from agriculture or forestry) situated in the other Contracting State may be taxed in that other State.”
Consequently, as we assume that Ukrainian refugees are tax residents of Ukraine only, this article would not apply.
As the rent for Ukrainian real estate is paid to a Ukrainian resident without a PE in the USA, the scenario would be purely domestic (i.e., governed by the Ukrainian domestic tax rules) and DTT will not enter into play. Accordingly, these payments will not be taxable in the USA, but in Ukraine only.
8. Interest
Ukrainian refugees may earn interest income from both Ukrainian and U.S. bank accounts.
In this respect, regardless of the U.S. domestic tax rules, under Article 11 of DTT “Interest” it is expected that these payments will not be taxable in the USA, but in Ukraine only:
“1. Interest derived and beneficially owned by a resident of a Contracting State [i.e., Ukraine] may be taxed only in that State [i.e., Ukraine]."
9. Dividends
Ukrainian refugees may earn dividends income from both U.S. and Ukrainian entities.
Article 10 of DTT “Dividends” states that:
“1. Dividends that are paid by a company that is a resident of a contracting State and that are beneficially owned by a resident of the other Contracting State may be taxed in that other State.
2. However, such dividends may also be taxed in the first Contracting State, and according to the laws of that State, but the tax so charged shall not exceed:
a) 5 percent of the gross amount of the dividends, if the beneficial owner is a company that owns at least 10 percent of the voting stock (or, if the company does not have voting stock, at least 10 percent of the authorized capital) and, in the case of Ukraine, nonresidents of Ukraine own at least 20 percent of the voting stock (or if the company does not have voting stock, at least 20 percent of the authorized capital);
b) 15 percent of the gross amount of the dividends in all other cases. This paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid.”
Consequently, for the dividends paid by a U.S. entity to the Ukrainian refugee who is the tax resident of Ukraine, both the USA and Ukraine can tax them, but the U.S. rate cannot exceed 15% (we assume the refugee is an individual and do not consider the scenario when the shares are owned through a company).
Under Article 24 of DTT “Relief from Double Taxation”, potential double taxation of this income should be mitigated as Ukrainian refugees should be allowed to decrease the Ukrainian income tax from dividends by the amount of income tax paid in the USA.
If the dividends are paid by a Ukrainian entity to a Ukrainian resident without a PE in the USA, the scenario would be purely domestic (i.e., governed by the Ukrainian domestic tax rules) and DTT will not enter into play. Accordingly, these payments will not be taxable in the USA, but in Ukraine only.
10. Capital gains
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10.1 Sale of real estate
While some Ukrainian refugees may purchase real estate in the USA, considering the three-year perspective of the war, for our analysis we assume they are still using it for their residence. ?However, in the event they derived gains from the alienation of real property, the following provision would regulate the allocation of taxing rights between the United States and Ukraine:
“1. Gains derived by a resident of a Contracting State [i.e., Ukraine] from the alienation of real property referred to in Article 6 (Income from Real Property) and situated in the other Contracting State [i.e., USA] may be taxed in that other State [i.e., USA].
Ukrainian refugees in the USA may own real estate property in Ukraine. It is practically difficult to sell this property fully remotely. Still, such activities are possible (especially, if the owner is a single woman[20]). If the case, the taxation of capital gains would be regulated by Article 13(4) of DTT “Gains from the Alienation of Property” which reads:
4. Gains from the alienation of any property other than property referred to in paragraphs 1 through 3 shall be taxable only in the Contracting State of which the alienator is a resident.”
Consequently, it is expected that this capital gain will not be taxable in the USA, but in Ukraine only.
10.2 Sale of shares
Ukrainian refugees may earn capital gains income from the sale of shares of both U.S. and Ukrainian entities. For this analysis, we assume that this activity is not done as a part of running a business in the USA.
Article 13 of DTT “Gains from the Alienation of Property” in this respect states that:
“2. Gains from the alienation of:
a) shares of the stock of a company (whether or not a resident of a Contracting State) the property of which consists principally of real property situated in a Contracting State; or
b) a participation in a partnership, trust, or estate (whether or not a resident of a Contracting State) to the extent attributable to real property situated in a Contracting State may be taxed in that State. For the purposes of this paragraph, the term "real property" includes the shares of company referred to in subparagraph (a) or a participation in a partnership, trust, or estate referred to in subparagraph (b), and in the case of the United States include a United States real property interest, as defined in section 897 of the Internal Revenue Code (or any successor statute).
3. Gains from the alienation of personal property that are attributable to a permanent establishment which an enterprise of a Contracting State has in the other Contracting State, or that are attributable to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, and gains from the alienation of such a permanent establishment (alone or with the whole enterprise) or such a fixed base, may be taxed in that other State.
4. Gains from the alienation of any property other than property referred to in paragraphs 1 through 3 shall be taxable only in the Contracting State of which the alienator is a resident.”
For the purposes of our analysis, we assume it is an unlikely scenario for the Ukrainian company the shares of which are sold to be considered as a company owning U.S. real estate subjecting it to the U.S. taxation under the above rule. Consequently, we do not analyze this scenario.
For all other situations, based on the above provision of DTT, it is expected that this capital gain will not be taxable in the USA, but in Ukraine only.
10.3 Sale of movable property
Ukrainian refugees may earn income from the sale of movable property (e.g., currency[21], cars, furniture, jewelry, investment metals, etc.) both in the USA and Ukraine.
For all these transactions, based on Article 12 (4) of DTT quoted in the previous section, it is expected that this income will not be taxable in the USA, but in Ukraine only.
11. Other income (free benefits)
Ukrainian refugees may earn income provided in cash or through free goods or services from the U.S. or Ukrainian governments, organizations, or individuals.[22]
Provided this income does not fall under any category analyzed before or in other Articles of DTT not mentioned in this paper, for all these transactions, based on Article 21 of DTT “Other Income”, it is expected that this income will not be taxable in the USA, but in Ukraine only:
“1. Items of income of a resident of a Contracting State [i.e., Ukraine], wherever arising [i.e., in Ukraine or in the USA], not dealt within the foregoing Articles of this Convention shall be taxable only in that State [i.e., Ukraine].
2. The provisions of paragraph 1 shall not apply to income if the beneficial owner of the income, being a resident of a Contracting State, carries on or has carried on business in the other Contracting State through a permanent establishment situated therein, or performs or has performed in that other State personal services in an independent capacity from a fixed base situated therein, and the income is attributable to such permanent establishment or fixed base. In such case the provisions of Article 7 (Business Profits) or Article 14 (Independent Personal Services), as the case may be, shall apply.”
12. Peculiarities of tax regime of students
For our analysis, we will consider the scenario of a Ukrainian refugee studying in a U.S. university under a “student” type of visa, working part-time in the USA, and obtaining grants both from the university and external persons.
The analysis of tax residency outlined above is generally applicable in this case as well. The only difference would be the reduced expected scale of economic activity both in the USA and Ukraine (including the unlikely ownership of real estate that can be claimed as a permanent home).
The domestic US tax rules provide additional tax residency relaxations for students which are beyond our analysis, but taken together with “standard refugee” considerations, they support our assumption the Ukrainian refugee who studies in the USA remains a tax resident of Ukraine only.
We also assume that based on our previous analysis, the students would retain their Ukrainian domestic tax residency status for the whole period of study due to strict domestic tax residency rules in Ukraine.[23]
Article 20 of DTT “Students, Trainees and Researchers” specifically resolves the potential double taxation of students as follows:
“1. An individual who is a resident of a Contracting State at the beginning of his visit to the other Contracting State and who is temporarily present in that other State for the primary purpose of:
a) studying at a university or other accredited educational institution in that other State, or
b) securing training required to qualify him to practice a profession or professional specialty, or
c) studying or doing research as a recipient of a grant, allowance, or other similar payments from a governmental, religious, charitable, scientific, literary, or educational organization,
shall be exempt from tax by that other State with respect to payments from abroad for the purpose of his maintenance, education, study, research, or training, and with respect to the grant, allowance, or other similar payments.
2. The exemption in paragraph 1 shall apply only for such period of time as is ordinarily necessary to complete the study, training or research, except that no exemption for training or research shall extend for a period exceeding five years.”
Assuming that the conditions (of Ukrainian tax residency at arrival, primary purpose (i.e., full-time), accreditation, and duration[24]) mentioned in the article are met, it only exempts from the U.S. taxation:
Different from some other tax treaties, DTT does not contain the exemption for compensation paid by a U.S. employer. Consequently, these (and all other) types of potential income, will be governed by the domestic U.S. tax legislation and the general provisions of DTT analyzed earlier in this paper.
Please also consider that activities of the practical training, while allowed to stay in the USA after graduation, would also not be covered by this Article of DTT.
13. Major tax considerations for married taxpayers
Generally, U.S. tax nonresidents may only file using single status or, if they are married, married-filing-separately (which has the highest tax rates).
In Ukraine, married persons are generally viewed as jointly owning the property they gained during marriage. Accordingly, the bifurcation of income between marriage partners is crucial.
The related tax issues are not addressed in DTT.
Accordingly, the U.S. taxation of married persons would be defined under the U.S. domestic tax rules. This is called the “community property” regime in the USA.
While the question is beyond the scope of the paper, we believe it is important to mention the following for practicality.[25]
Married taxpayers who are U.S. tax non-residents and have community property should apply their Ukrainian community property legislation with the major exemption that trade or business income (e.g., see employment and entrepreneur income sections of this paper) must be treated as received by the spouse carrying on the trade or business.[26]
14. Conclusion and tax policy recommendations
It would be overoptimistic to expect that such a high-level analysis could empower me to provide any “hard” tax policy recommendations.
And, by any means, I do not want to limit them to the Ukrainian scenario only (hopefully, a temporary one).
However, there are a few questions that I believe are worth further consideration:
1.???? The tax regime of refugees appears to be under-addressed in the international tax doctrine and practice
It is important to address the tax regime of refugees for two main reasons. First, there is evidence of a high political rating of refugees’ overall regime (see, for example, the attention to the matter in the most recent U.S. elections). Second, the refugees have peculiarities that distinguish them from other individuals which are not specifically addressed in tax policy or administration – economic hardship, disconnection from the state they left, limited initial integration to the host state’s language and tax rules[27], unplanned relocation eliminating ability to normal tax planning available to other immigrants, assets and activities spread between different countries, and limited documentation on economic transactions at hand.
While preparing this paper, I spent substantial time on research - by far exceeding the time one would expect the refugee to spend on just this element of the U.S. integration – and did not find clear guidance.
I do not know how many Members of Boards are residing outside of their companies’ countries of incorporation - and have their own Article “Directors’ Fees” in the US and OECD Model Conventions. But, as per the UN, there are 117 million[28] people worldwide are forcibly displaced as of the end of 2023 – having none.
Search in the OECD Commentary for the word “refugee” reverts 2 mentioning - both in respect of stateless people which does not cover the variety of situations we see in practice. The same search in the U.S. Commentary reverts none.
At a minimum, the refugees require support from the hosting country in their “tax integration” – such as comprehensive overviews with practical examples (like this paper), free tax compliance advice, training, and assistance – preferably in their native languages.
2.???? Some of the “classical” international tax approaches reverted to sub-optimal results when applied to the refugee scenario
Just a few examples.
The tie-breaker rules linked a refugee’s tax residence to the country he was willing to (in our case – at least, not forced to) leave, while the host country supported this leave by accepting the refugee.
The taxing rights of the country left are not supported by the practical instruments to enforce such taxation. This may increase the risk of the refugee becoming tax non-compliant in the country he left, thus reducing the chances he will return in the future even if the reason for leaving is resolved.
The elimination of double taxation is widely leveraged on the country’s left willingness to provide a credit for the tax paid in the host country, thus increasing the refugee’s economic hardship as his practical ability to arrange such a refund remotely and, likely, against the interest of the country he left, is limited.
The remote work taxation concept is not updated to its current stage and seems more reliant on the suspicion there is a “brick and mortar” office in the host country. This limits refugees’ ability to get financing from abroad.
For example, analyzing the place of work criterion, one of the researchers suggested the following alternatives to consider to secure the revenues of countries that faced a crisis:
While the paper was initially sought as a high-level practical and comprehensive overview of the basic refugee scenarios, 29 pages did not allow to even touch upon many tax compliance issues: U.S. domestic tax rules, reporting requirements, application for tax credit in both contracting states. This once again supports my recommendation of dedicated free/subsidized compliance support to the refuges as the only measure that can empower their mass tax compliance, which may be followed by the simplification of refugees’ taxation at a later stage (provided there is political interest for such a move).
Bibliography
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1.???? Convention between the Government of the United States of America and the Government of Ukraine for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital, Mar. 4, 1994, https://www.state.gov/wp-content/uploads/2019/02/00-605.1-Ukraine-Tax-Convent-w-Protocl-and-Notesd.pdf
3.???? Tax Code of Ukraine, as of November 1, 2024, https://zakon.rada.gov.ua/laws/show/2755-17#Text
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4.???? Zaporizky District Administrative Court. Decision [on revocation of Ukrainian tax residency of the entrepreneur residing abroad], September 24, 2019, Case No. 280/2725/19, https://reyestr.court.gov.ua/Review/84489173
5.???? The Court of Appeal of the Lviv region. [on revocation of Ukrainian tax residency of the person residing abroad], Aug 1, 2017, Case No. 462/5276/16-ts, https://reyestr.court.gov.ua/Review/68202034
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2.???? Ex. Rept. 104-5 - INCOME TAX CONVENTION WITH UKRAINE, Ex.Rept.104-5, 104th Cong. (2024), https://www.congress.gov/congressional-report/104th-congress/executive-report/5/1
3.???? Irish Tax and Customs. Advice for Ukrainian nationals working in Ireland, Dec. 20, 2023, https://www.revenue.ie/en/life-events-and-personal-circumstances/moving-to-or-from-ireland/advice-ukrainian-nationals-working-ireland/index.aspx
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13.? Response of the competent authority of Germany to the Questionnaire regarding the tax implications for companies and individuals who may arise in connection with the forced transfer of such persons from Ukraine to Italy as a result of the Russian invasion, May 2, 2023, https://mof.gov.ua/storage/files/%D0%9D%D1%96%D0%BC%D0%B5%D1%87%D1%87%D0%B8%D0%BD%D0%B0.pdf
14.? Response of the competent authority of Greece to the Questionnaire regarding the tax consequences for companies and individuals that may arise in connection with the forced relocation of such persons from Ukraine to Greece as a result of the Russian invasion, May 2, 2023, https://mof.gov.ua/storage/files/%D0%93%D1%80%D0%B5%D1%86%D1%96%D1%8F.pdf
15.? Response of the competent authority of Italy to the Questionnaire regarding the tax implications for companies and individuals who may arise in connection with the forced transfer of such persons from Ukraine to Italy as a result of the Russian invasion, May 2, 2023, https://mof.gov.ua/storage/files/%D0%86%D1%82%D0%B0%D0%BB%D1%96%D1%8F(1).pdf
16.? Response of the competent authority of Italy to the Questionnaire regarding the tax implications for companies and individuals who may arise in connection with the forced transfer of such persons from Ukraine to Italy as a result of the Russian invasion, May 2, 2023, https://mof.gov.ua/storage/files/%D0%9B%D0%B8%D1%82%D0%B2%D0%B0(2).pdf
17.? Response of the competent authority of Latvia to the Questionnaire regarding the tax implications for companies and individuals who may arise in connection with the forced transfer of such persons from Ukraine to Italy as a result of the Russian invasion, May 2, 2023, https://mof.gov.ua/storage/files/%D0%9B%D0%B0%D1%82%D0%B2%D1%96%D1%8F(1).pdf
18.? Response of the competent authority of Poland to the Questionnaire regarding the tax implications for companies and individuals who may arise in connection with the forced transfer of such persons from Ukraine to Italy as a result of the Russian invasion, May 2, 2023, https://mof.gov.ua/storage/files/%D0%9F%D0%BE%D0%BB%D1%8C%D1%89%D0%B0.pdf
19.? Response of the competent authority of Portugal to the Questionnaire regarding the tax implications for companies and individuals who may arise in connection with the forced transfer of such persons from Ukraine to Italy as a result of the Russian invasion, May 2, 2023, https://mof.gov.ua/storage/files/%D0%9F%D0%BE%D1%80%D1%82%D1%83%D0%B3%D0%B0%D0%BB%D1%96%D1%8F(1).pdf
20.? State Tax Service of Ukraine. Letter No. 12299/6/17-0716. About consideration of the letter (regarding the tax residence self-determination), Nov. 18, 2010, https://zakon.rada.gov.ua/rada/show/v1229225-10#Text
21.? State Tax Service of Ukraine. Letter No. 12744/0/71-12/12-1017. On recommendations on the application of double taxation avoidance conventions, December 27, 2022, https://zakon.rada.gov.ua/go/v1274810-12
22.? State Tax Service of Ukraine. Letter No. 2625/7/12-0117. About the approval of the status of a tax resident of the United States, Feb. 17, 2004, https://zakon.rada.gov.ua/go/v2625225-04
23.? State Tax Service of Ukraine. Letter No. 5651/5/12-0016, No. 6826/6/12-0016. About consideration of the letter (regarding the tax residence certificate), Apr. 18, 2012,? https://zakon.rada.gov.ua/go/v5651837-12
24.? State Tax Service of Ukraine. Letter No. 6506/6/17-0715. About consideration of the letter (regarding the tax residence determination), Apr. 5, 2011, https://zakon.rada.gov.ua/go/v6506837-11
25.? State Tax Service of Ukraine. Private tax ruling No. 818/IPK/99-00-24-03-03IPK. Regarding resident status and taxation of income in the form of wages for remote work performed from abroad, Feb. 20, 2024, https://ibuhgalter.net/material/1641/30631
26.? United States Model Technical Explanation accompanying the United States Model Income Tax Convention of November 15, 2006, https://home.treasury.gov/system/files/131/Treaty-US-Model-TE-2006.pdf
Books
1.???? Herzfeld, Mindy. International Taxation in a Nutshell, 2023, https://subscription.westacademic.com/Book/Detail/28052#search-in-book-tab
2.???? IBFD Global Tax Commentaries, https://www.ibfd.org/ibfd-academic/publications/global-tax-treaty-commentaries-gttc
3.???? Kuntz & Peroni: U.S. International Taxation (WG&L), https://1.next.westlaw.com/Browse/Home/SecondarySources/TaxSecondarySources/WarrenGorhamLamontWGL/InternationalTaxTreatisesWGL/KuntzPeroniUSInternationalTaxationWGL?transitionType=Default&contextData=(sc.Default)&firstPage=true&bhcp=1
4.???? Paula N. Singer. International Aspects of Individual U.S. Tax Returns. 2010. Widnstar Publishing. ISBN:978-0-9801793-8-5
5.???? Svitlana Buriak, Chapter 31: The Impact of Tax Treaties on International Mobility of Work in Ukraine in Mobility of Work (G. Kofler et al. eds., IBFD 2024), https://www.ibfd.org/shop/book/mobility-work
?Articles and Other Law Journal Writing
1.???? Andriy Servetnyk, Natalya Rudenko, Maria Sibiryakova, Svitlana Tutovska. Deloitte. Where do emigrants from Ukraine pay taxes?, July 31, 2022, https://www2.deloitte.com/ua/uk/pages/press-room/deloitte-press/2022/where-should-emigrants-from-ukraine-pay-taxes.html
2.???? Joshua M. Sivin, Jason Turner, The Convenience of the Employer Rule: A Taxing Issue for Remote Workers — Part I (Nov. 4, 2024) https://www.taxnotes.com/tax-notes-state/employment-taxes/convenience-employer-rule-taxing-issue-remote-workers-part-i/2024/11/04/7mg17
3.???? Kateryna Drobiazko.? The Law Journal. Taxation of Ukrainians abroad. Trap or need?, Feb. 29, 2024, https://yur-gazeta.com/publications/practice/podatkova-praktika/opodatkuvannya-ukrayinciv-za-kordonom-pastka-chi-potreba.html
4.???? Kateryna Garmetska. KPMG. Double taxation of Ukrainian refugees, May 2023, https://kpmg.com/ua/uk/home/media/press-releases/2023/05/podviyne-opodatkuvannya-ukrayinskykh-bizhentsiv-za-kordonom.html
5.???? Lewis Grunfeld. Guide to the US Ukraine Tax Treaty, Dec. 7, 2023, https://www.cpasforexpats.com/post/us-ukraine-tax-treaty
6.???? Lindsey Jordan, Ute Krudewagen, Lyudmyla Dzhurylyuk. DLA Piper.? 183 days of war in Ukraine: Tax considerations for refugees and their employers, September 19, 2022, https://www.dlapiper.com/en-us/insights/publications/2022/09/tax-considerations-for-ukrainian-refugees-and-their-employers
7.???? Nadiya Bondarenko. RFI. Tax returns and taxes: what is important for Ukrainians abroad to know, May 10, 2023,? https://www.rfi.fr/uk/%D1%83%D0%BA%D1%80%D0%B0%D1%97%D0%BD%D1%86%D1%96-%D0%B7%D0%B0-%D0%BA%D0%BE%D1%80%D0%B4%D0%BE%D0%BD%D0%BE%D0%BC/20231005-%D0%B4%D0%B5%D0%BA%D0%BB%D0%B0%D1%80%D1%83%D0%B2%D0%B0%D0%BD%D0%BD%D1%8F-%D1%82%D0%B0-%D0%BF%D0%BE%D0%B4%D0%B0%D1%82%D0%BA%D0%B8-%D1%89%D0%BE-%D0%B2%D0%B0%D0%B6%D0%BB%D0%B8%D0%B2%D0%BE-%D0%B7%D0%BD%D0%B0%D1%82%D0%B8-%D1%83%D0%BA%D1%80%D0%B0%D1%97%D0%BD%D1%86%D1%8F%D0%BC-%D0%B7%D0%B0-%D0%BA%D0%BE%D1%80%D0%B4%D0%BE%D0%BD%D0%BE%D0%BC
8.???? Olena Makeieva. How to pay taxes in Ukraine if you left due to the war and work abroad, Mar. 21, 2022, https://www.ap-center.com/publikatsiyi/yak-platyty-podatky-v-ukrayini-yakshho-vy-vyyihaly-cherez-vijnu-i-pratsyuyete-za-kordonom/
9.???? Olga Pishulina. Razumkov Center think tank. Analitical paper. Refugees and the “tax trap” the issue of retaining Ukrainian tax residence when going abroad, Sep. 1, 2022, https://razumkov.org.ua/images/2022/09/01/2022_ANALIT_ZAPIS_PISHULINA_6.pdf
10.? Ruslan Kyslyak. Payback time. How many taxes will have to be paid by Ukrainian refugees abroad and in Ukraine, May 9, 2023, https://finance.liga.net/ua/ekonomika/article/vremya-rasplaty-skolko-nalogov-budut-platit-ukrainskie-bejentsy-za-granitsey-i-v-ukraine
11.? Viktor Nevmerzhycki. BDO. Double taxation of Ukrainian refugees, May 19, 2023, https://www.bdo.ua/uk-ua/insights-2/information-materials/2023/on-double-taxation-of-ukrainian-refugees
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1.???? Azola Legal Services. Tax residency: double taxation and its avoidance, Jun. 5, 2024, https://azolalegal.com/blog/podatkova-rezydentnist-podvijne-opodatkuvannya-ta-jogo-unyknennya/
2.???? Intuit Turbotax. Blog. Income reporting for Ukrainians arrived with U4U program and having UHP status, Jan. 12, 2023, https://ttlc.intuit.com/community/taxes/discussion/income-reporting-for-ukrainians-arrived-with-u4u-program-and-having-uhp-status/00/2815624
3.???? IT Ukraine Association, on the necessity to save the tax residency of Ukrainian taxpayers during the war conflict (May 10, 2022), https://bit.ly/Appeal_Text
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6.???? Telegram post: Contact @ninayuzhanina. The Head of the Committee of the Parliament of Ukraine on Tax and Customs Policy. It is necessary to remind that, despite the war, Ukrainian refugees need to declare their income. The declaration of property status for 2022 must be submitted by May 1, 2023. Mar. 13, 2023, https://t.me/ninayuzhanina/621
7.???? The UN Refugee Agency. Key facts and figures, as of the end of 2023, https://www.unhcr.org/us/?gad_source=1&gclid=Cj0KCQiA0MG5BhD1ARIsAEcZtwRJaEJfQIkxw2GkX35IaSd5HMPC0G5s0RNa7EircB9fZtKgdfDR6qEaAg-uEALw_wcB
8.???? U.S. Citizenship and Immigration Services. Uniting for Ukraine, https://www.uscis.gov/ukraine
9.???? U.S. Customs and Border Protection (CBP) Encounters, data is extracted from live CBP systems and data sources as of September 24, 2024, https://www.cbp.gov/newsroom/stats/nationwide-encounters
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?
Notes
[1] United Nations High Commissioner for Refugees. Ukraine Situation Flash Update #73, September 25, 2024, https://data.unhcr.org/en/documents/details/111432
[2] U.S. Customs and Border Protection (CBP) Encounters, data is extracted from live CBP systems and data sources as of September 24, 2024, https://www.cbp.gov/newsroom/stats/nationwide-encounters
[3] Statista. Estimated number of refugees from Ukraine recorded in Europe and Asia since February 2022 as of July 2024, by selected country, July 2024, https://www.statista.com/statistics/1312584/ukrainian-refugees-by-country/
[4] U.S. Citizenship and Immigration Services. Uniting for Ukraine, https://www.uscis.gov/ukraine
[5] Convention between the Government of the United States of America and the Government of Ukraine for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital, Mar. 4, 1994,
[6] Ex. Rept. 104-5 - INCOME TAX CONVENTION WITH UKRAINE, Ex.Rept.104-5, 104th Cong. (2024), https://www.congress.gov/congressional-report/104th-congress/executive-report/5/1
[8] Tax Code of Ukraine, as of November 1, 2024, https://zakon.rada.gov.ua/laws/show/2755-17#Text
[9] TCU Article 14.1.213
[10] See, for example, Zaporizky District Administrative Court. Decision [on the revocation of Ukrainian tax residency of the entrepreneur residing abroad], September 24, 2019, Case No. 280/2725/19, https://reyestr.court.gov.ua/Review/84489173
[11] OECD (2019), Model Tax Convention on Income and on Capital 2017 (Full Version), OECD Publishing,
[12] United States Model Technical Explanation accompanying the United States Model Income Tax Convention of November 15, 2006, https://home.treasury.gov/system/files/131/Treaty-US-Model-TE-2006.pdf
[13] Commentary to Article 4 of the OECD Model Tax Convention, p. 17
[14] IRS. About Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b), as of September 11, 2024, https://www.irs.gov/forms-pubs/about-form-8833
[15] DTT was drafted before 2020 when the OECD Model Treaty changed the article title to Employment Income.
[16] It seems to be a mistake of automatic image recognition on the official IRS website stating 163 days: https://www.irs.gov/businesses/international-businesses/ukraine-tax-treaty-documents. No other reason for this was found. The Department of State website contains 183 days: https://www.state.gov/wp-content/uploads/2019/02/00-605.1-Ukraine-Tax-Convent-w-Protocl-and-Notesd.pdf. Similarly, the Ukrainian government portal presents a copy of the signed English text stating 183 days.
[17] Joshua M. Sivin, Jason Turner, The Convenience of the Employer Rule: A Taxing Issue for Remote Workers — Part I (Nov. 4, 2024) https://www.taxnotes.com/tax-notes-state/employment-taxes/convenience-employer-rule-taxing-issue-remote-workers-part-i/2024/11/04/7mg17
[18] IT Ukraine Association, on the necessity to save the tax residency of Ukrainian taxpayers during the war conflict (May 10, 2022), https://bit.ly/Appeal_Text (translation quoted from Svitlana Buriak, Chapter 31: The Impact of Tax Treaties on International Mobility of Work in Ukraine in Mobility of Work (G. Kofler et al. eds., IBFD 2024), https://www.ibfd.org/shop/book/mobility-work)
[19] The types of businesses we analyzed in our scenarios do not require any substantial assets (e.g., laptop, router, table, and chair) so the fixed place of business is expected to be easily created in the USA
[20] As we mentioned, it would be legally prohibited for most men, aged 18 to 60, to leave Ukraine after they return there. So, this would not fall under scenarios analyzed in this paper where we have a refugee continuing to temporarily reside in the USA. This may be the case for a single man owning the real estate, or a married woman, where the physical presence of her husband in Ukraine might be needed to co-certify a legal transfer of ownership on the real estate they jointly own under the domestic civil legislation.
[21] Under domestic U.S. tax rules, because foreign currency is treated as property, a taxpayer may be taxable on his gains (losses) on exchanging one foreign currency for another foreign currency, buying something and paying for it in a foreign currency, or converting a foreign currency into U.S. dollars
[22] Under p. 27 of subsection 1 of chapter XX "Transitional provisions" of the TCU, the taxpayer's taxable income for 2022 and 2023 does not include income in the form of money or free goods (services) received from foreign countries and their state funds, as well as from foreign companies, organizations that, under the legislation of the relevant foreign jurisdiction, carry out charitable activities, by such taxpayer and his family members of the first degree as persons who suffered as a result armed aggression of the Russian Federation against Ukraine and used the right to temporary protection under legislation of such a foreign state. To date, this rule is not extended to future periods (this still could be done later) and thus does not apply to the benefits received in 2024. In this respect, some of such benefits could be taxable in Ukraine under Articles 164.2, 168.2.1, and 170.11.1 of TCU. Approximately USD 47 of gifts can be excluded from taxation for 2024 under Article 165.1.39 of TCU.
[23] This is important as for some other countries, students who stay in the USA for several years might lose their home country’s domestic tax residency status in which case they would not be eligible for treaty benefits anymore
[24] Please consider that both U.S. and OECD Commentaries are silent on such counting rules. However, under the U.S. domestic tax rules even one day of presence in the USA as an “Exempt Individual” causes that calendar year as one of the exempt calendar years
[25] IRS. About Publication 555, Community Property, as of Feb. 22, 2024, https://www.irs.gov/forms-pubs/about-publication-555
[26] IRS. About Publication 555, Community Property, as of Feb. 22, 2024, p.9, https://www.irs.gov/forms-pubs/about-publication-555
[27] The basic taxpayer’s right is to be able to read and understand the tax law directly
[28] The UN Refugee Agency. Key facts and figures, as of the end of 2023, https://www.unhcr.org/us/?gad_source=1&gclid=Cj0KCQiA0MG5BhD1ARIsAEcZtwRJaEJfQIkxw2GkX35IaSd5HMPC0G5s0RNa7EircB9fZtKgdfDR6qEaAg-uEALw_wcB
[29] Svitlana Buriak, Chapter 31: The Impact of Tax Treaties on International Mobility of Work in Ukraine in Mobility of Work (G. Kofler et al. eds., IBFD 2024), https://www.ibfd.org/shop/book/mobility-work
International Tax at Boeing
1 个月Oleg Shmal Thank you for a very comprehensive article! I suppose many elements of this analysis could also apply to Ukrainians who are now residing in other countries. It will also be interesting to see what legal options might be provided to Ukrainians to stay in the U.S. once the war is over (and how this can be formalized). I would also imagine that, unlike in EU states, many Ukrainians who fled to the U.S. brought their families with them. Due to the still-growing economy and significantly lower language barrier, Ukrainians in the U.S. should not face many problems finding jobs. Hence, the center of vital interest for more Ukrainians is shifting to the U.S. as we speak.
Head of Tax at Masdar
1 个月Amazing analysis, deep and structured????
Partner, Transfer Pricing Leader at PwC in Ukraine
1 个月Oleg, thank you for the analysis - it looks really comprehensive and should be useful for many Ukrainians. The only thing I was struggle to understand is if in most cases the habitual abode of the Ukrainian refugees are in the US (and I totally agree here), which means that this test is met, why was the conclusion made that the UA refugees still keep the Ukrainian tax residency?