Since the beginning of the full-scale invasion of the Russian Federation on the territory of Ukraine, many millions of people were forced to leave the territory of Ukraine, businesses were forced to move and adapt to new conditions of doing business in new territories.
Such a large number of IT specialists are abroad for more than 183 days, so the country of stay considers them their tax residents.
Depending on the specifics of the tax legislation of each country, the place of tax payment depends on many factors.
In connection with the great complexity of this issue, you and I will consider the conditions of tax residence in Ukraine and Spain, and as a result, we will determine where IT specialists still have the right to pay taxes.
Tax resident of Ukraine
As a general rule, the Tax Code of Ukraine recognizes a person as a tax resident as a natural person who has a place of residence in Ukraine.
However, this is not the only criterion, additional criteria are (the list is not exhaustive):
- staying in Ukraine for at least 183 days (including the day of arrival and departure) during the period or periods of the tax year;
- presence of closer personal or economic ties (center of vital interests) in Ukraine;
- place of permanent residence of family members in Ukraine;
- registration of a business entity, etc.
The recognition of a person as a tax resident of Ukraine has an individual character, everything depends on the situation of the person in which he found himself.
The criteria for determining residency are the same in most countries, and therefore we additionally take into account the provisions contained in conventions on the avoidance of double taxation between countries.
Cancellation or loss of the status of a tax resident of Ukraine.
Taxpayers of other countries believe that staying in the territory of another country for more than 183 days is a reason to lose the status of a tax resident of Ukraine. However, this is not true from the point of view of Ukrainian legislation.
In Ukraine, at the legislative level, there is no order or procedure for canceling or losing the status of a tax resident, but this does not mean that everyone has stopped and resigned to this.
Thus, the decision of the Pechersk District Court of Kyiv dated 19.12.2016 in case No. 757/15441/16-ts (the Court of Appeal of Kyiv dated 12.04.2017 left the decision unchanged) satisfied the claimant’s application to confirm the fact of the loss of the status of a citizen of Ukraine – resident and obtaining the status of a citizen of Ukraine — a non-resident.
Why is this court decision so important? The court found that confirmation of the status of a resident of Ukraine is carried out in accordance with the order of the State Tax Administration of Ukraine “On confirmation of the status of a tax resident of Ukraine” dated 04/12/2002 No. 173. At the same time, the court established that domestic legislation does not provide for a similar legal procedure for confirming the fact that a citizen of Ukraine has lost the status of a resident of Ukraine and acquired the status of a non-resident.
Thus, the status of a tax resident is not lost or canceled automatically. One can talk about loss of status if a person changes Ukrainian citizenship or moves abroad for permanent residence.
Proof of the fact that the IT specialist is a tax resident of Ukraine.
In order to confirm the status of a tax resident, you can obtain a certificate for confirming the status of a tax resident of Ukraine.
This certificate is issued to confirm that the person is a taxpayer in Ukraine and is a resident of Ukraine within the meaning of the treaty on avoidance of double taxation between Ukraine (the government of Ukraine) and the relevant country. You can get such a certificate at the tax inspectorate at the place of registration in Ukraine.
The main criteria for proving the fact of tax residence in Ukraine:
- 1.Availability of permanent housing (in particular, but not exclusively, extracts from the demographic register, real estate sales contracts, long-term housing lease contracts, utility bills);
- 2.Confirmation of the period of stay (foreign passport with notes on the dates of departure/entry to Ukraine);
- 3.Life interests center (marriage certificate, birth certificate, pension certificate, student card, certificates of receiving a scholarship, social assistance, subsidy, etc.);
- 4.The existence of a business (agreements on the provision of services/performance of works, extracts from the register of legal entities, individual entrepreneurs and public organizations, statutory documents of legal entities, orders on appointment to positions, employment contracts/contracts, bank statements, certificates of insurance payments, royalties, dividends, etc.).
Please note that all collected documents must be translated into the official language of the country of residence and certified by a notary public. Some countries require an additional apostille. Next, this package of documents must be submitted as evidence to the tax service of the host country.
Thus, having collected the appropriate package of documents, you confirm that you have a legal relationship with Ukraine. And it is Ukraine that is the country of your tax residency. Accordingly, all tax obligations are fulfilled in Ukraine.
Tax resident of Spain.
According to Article 9 of Law 35/2006 of Spain, the Tax Agency considers a person to be a tax resident if he meets any of the following conditions:
a)if individuals stay for more than 183 days during a calendar year in Spain. To determine this period of stay in Spain, temporary absences will be calculated, unless the taxpayer proves his tax residency in another country. In the case of countries or territories considered to be tax havens, the tax administration may require proof of stay there for 183 days in a calendar year.
To determine the period of stay specified in the previous paragraph, the temporary stay in Spain, which is the result of obligations concluded in agreements on cultural or humanitarian cooperation, free of charge with the Spanish public administrations, will not be taken into account.
b)if the main nucleus or center of activity of such person or his economic interests, directly or indirectly, resides in Spain.
It is assumed, unless proven otherwise, that the taxpayer has his habitual residence in Spain when, according to the above criteria, the spouse who does not live separately and the minor dependent children usually live in Spain.
A. Staying more than 183 days a year in Spain
This is the most frequently applied rule and the most important. If at the end of the year (considering the calendar year, from January to December) you add up all the days you were in Spain and they add up to more than 183, you are a tax resident.
This amount is not calculated on a continuous number of days, but on the total number of days spent in the country, regardless of whether you were on vacation or not. Keep in mind that a temporary absence does not count.
В. Having the core of your interests in Spain
This point is key because you can spend less than 183 days a year in Spain and still be considered resident for tax purposes.
When will it happen?
Let’s give an example: an IT specialist of a Spanish company with Spanish headquarters and offices in Spain, who frequently travels outside the country for work and as a result spends more than 183 days a year, even if he spends more time outside the country, he still, is a tax resident of Spain, since his main interests are in Spanish territory.
The same applies to the spouse and/or dependent children. If your spouse and/or dependent children ordinarily reside in Spain, you are considered tax resident.
The question arises, what should an IT specialist do in this case, who is more attracted to pay taxes at the rate of 2 or 5% in Ukraine than according to the progressive scale from 19 to 47% in Spain, but at the same time be in Spain?
Point a, part 1, article 9 of Law 35/2006 of Spain contains a caveat: “if the taxpayer does not prove his tax residency in another country.”
There is proof that allows you to justify yourself to the Spanish Tax Agency and not be considered a resident for tax purposes, thereby avoiding paying many taxes in Spain.
Proof issued by the country of origin or in which you have the main economic interest, which confirms that you actually live there and therefore do not have to pay taxes as a Spanish resident.
In the event that a person can obtain a so-called tax resident certificate in his country, the tax agency will not consider that person a tax resident, even if he is in Spain for 183 days a year. This certificate is valid in accordance with the provisions of the agreement between Spain and this country, created through the agreement for the avoidance of double taxation, so it does not have the same interpretation in all countries.
In addition, it is valid only and exclusively for one year. This means that it is valid for the year in which you apply for it and you will have to apply for it year after year to continue to take part in this exemption if you wish and it is applicable in your situation.
Thus, it is possible to obtain a certificate to confirm the status of a tax resident of Ukraine according to the procedure described above.
Tax consequences depending on tax residency
Now that you understand in which cases you will be considered a Spanish tax resident and in which cases you will not, let’s see what the consequences are in each case. Essentially, these consequences are related to the taxes you ultimately pay in the country, with the exact percentages applicable.
Taxes for non-residents
Foreigners and non-foreigners who are considered non-residents of Spain must pay mainly 2 taxes:
a)Non-resident income tax
A. Non-resident income tax
Due to double taxation agreements, it is most common for a non-resident in Spain to pay income tax as a non-resident only on real estate (excluding shares, money in the bank, etc.).
So, if you own a property in Spain, you will have to pay this tax. And we find two different situations:
1.If you have an apartment in Spain for rent. In this case, you will have to declare your rental income every quarter and you will pay 19% on it if you are from an EU member state and 24% if you are not.
2.If the apartment or house is not rented out and you use it when you come to Spain (that is, it is usually empty), then you will not declare anything every quarter. The only tax liability you will have will be on an annual basis, and you will have to pay the income delivered.
In both cases, you will have to file your taxes using Form 210.
B. Wealth tax
On the other hand, if you are a non-resident, you will also have to pay wealth tax on the property you own in Spain if its purchase price exceeds €700,000. Note that you only pay the applicable percentage of the value above this limit, i.e., from €700,001.
It is a personal and progressive tax that varies from 0.2% to 2.5% depending on the specific value of the property.
And if a mortgage? If you mortgaged the property to buy it, you can deduct the remaining amount from the total value. It is paid annually using form 714.
Separately, we draw attention to the temporary protection granted to Ukrainian IT specialists and tax residency.
Obtaining temporary protection by IT specialists in Spain is not a reason for the loss/cancellation of tax residence in Ukraine.
A change of tax residency will be possible, for example, if temporary protection is changed to:
- permanent residence permit;
- obtaining citizenship;
- in case of business registration in Spain (individual entrepreneur or company), etc.
CONCLUSION: When changing the status of a tax resident, it is very important to understand the ultimate goal of such actions. We recommend that IT specialists, in order to avoid possible risks associated with a change in tax residency status, carry out tax planning in advance, which will allow them to correctly declare and receive income from activities in other jurisdictions in the future.