Ministry of Finance of Ukraine has published a Draft Law on Criteria for Determination of High Net Worth Individuals

In early January 2018, the Ministry of Finance of Ukraine published a draft law  “On Amendments to the Tax Code of Ukraine and Other Regulatory Acts Regarding Criteria for Determination of High Net Worth Individuals” (hereinafter - the Draft Law).

The Draft Law defines “high net worth individual” and provides the State Fiscal Service (hereinafter - the Fiscal Service) with broad powers to control the proper and timely payment of personal income tax by such persons.

Pursuant to the provisions of the Draft Law, an individual tax resident of Ukraine qualifies as a high net worth individual when he or she meets one of the following criteria:

  • he/she is an ultimate beneficial owner (controller) of a large taxpayer;
  • he/she directly or indirectly holds 10 or more percent of the shares or voting rights of a legal entity as a foreign tax resident and which has declared income of EUR 10 million or more for the preceding tax (reporting) year;
  • he/she has a total income of UAH 50 million (~ EUR 1,445,000) or more for the preceding year.

The Draft Law provides for mandatory filing by high net worth individuals of personal income tax returns. Delay in filing of a tax return is subject to a penalty of 10 percent of the calculated personal income tax. The Fiscal Service may verify the accuracy of the information in tax returns of such persons within a period of up to ten years.

Additionally, commercial banks and other financial institutions will be obliged to provide the Fiscal Service with information on the amount of funds and cash flow in the accounts of high net worth individuals. Such information shall be provided upon written request from the Fiscal Service.

The Draft Law also authorises the Fiscal Service to rely on information received from the authorities of the other states while taking its own decisions. Considering the fact that in 2020, Ukraine intends to join the system of automatic exchange of information in tax matters under the Common Reporting Standard (CRS), the Fiscal Service is expected to actively use these opportunities to verify the information indicated in personal income tax returns of Ukrainian high net worth individuals. 

The Draft Law is in line with a global drive to increase control over tax collection from high net worth individuals. For instance, in the United Kingdom every taxpayer with a net worth of GBP 20 million or more has a personal HMRC customer relationship manager. This manager observes the tax affairs of such individuals and ensures their compliance with tax regulations.

Recent changes urge high net worth individuals to identify all personal or business assets acquired by them in the past, especially those located abroad such as foreign companies held or beneficially owned by them, as well as real estate and investment securities. One should also review the terms of agreements governing the creation of a family office and asset management. Timely legal due diligence of respective assets may significantly ease future risk management.

For more information, please contact Alina Plyushch.