For a country in dire need of both foreign investment and revenue from tourism, Ukraine should tread carefully in the way it treats foreigners doing business or visiting the country for leisure.
Any incentive offered to investors is vital, even more so for a country where fresh ideas could rub off on a stifling economy that has, for two decades or more, suffered from brain drain.
Kyiv does not necessarily need to offer special privileges on taxes, for example, to expatriates – or “expats” – who permanently reside in the country, or foreigners stopping off regularly, be it for business or fun. It just needs to make the rules fair and clear.
Unfortunately, this is not the approach taken by officials. Desperate to fill state coffers amid a widening budget deficit, they have flip-flopped on their interpretation of tax legislation governing foreigners. Authorities are threatening to double the income tax rate from 15 to 30 percent on non-citizens who spend a lot of time in the country, but don’t have the status of permanent tax residents.
This new spin of the law is part of an apparent strategy to force more foreigners residing in Ukraine within the country’s tax jurisdiction. The aim is justified. Few countries can afford anyone to reside and work free of taxes. And foreigners working in Ukraine should pay their fair share.
But don’t expect foreigners to jump in as full-time taxpayers if the country changes the rules on them each year. Apart from the tax rules, visa rules have also been reinterpreted earlier this year, becoming even more confusing and open for abuse.
The time has come for Ukraine’s authorities to adopt clear rules setting out how much foreigners should pay as tax residents, and how they can legally stay in this country. Procedures for getting tax residency, work permits and all other documentation should be clarified and simplified.The new rules should be set for many years to come in order to finally bring some predictability to one aspect of life in Ukraine.
