While Ukraine has long been one of my favourite countries in Europe, I have never really considered it a suitable residency option. Until now, that is. On a recent visit, I was blown away by the progress the country has made and the quality of life it is now possible to enjoy in some of the major cities. In this article, I share more about my experience in Ukraine and why I now consider it one of the best residency options.
Why Ukraine is worth considering
I first visited Ukraine in 2012, during my first year as a location independent entrepreneur. I absolutely loved it and went back several times, up until the political crisis made visiting less attractive. Recently I went back, spending a few weeks in Kyiv, and was blown away by the progress I saw everywhere. Lots of new restaurants and cafes, Apple/Google Pay everywhere (even for the metro), Uber and all the apps I have come to rely on, much-improved shopping and a booming startup scene. Not what I was expecting from a supposedly “war-torn country”.
All of the above, combined with a central location between Western Europe and Asia, a low cost of living, fast internet, great summer weather and friendly locals got me thinking, could this be a residency option worth considering?
As it turns out, the answer is yes. With a few caveats…
In most countries, the first step when planning a move is to apply for a long term visa. After spending a number of days in the country under that visa, tax residency is established. To maintain both the long-term visa and the tax residency, a number of days have to be spent in the country every subsequent year.
Ukraine is no different in this regard, except for the rather unique Private Entrepreneur scheme.
Anyone can register as a Private Entrepreneur, regardless of nationality and residency status. Under Ukrainian law, anyone who does register is automatically deemed a Ukrainian tax resident even if no time at all is spent in the country. Maintaining the tax residency is as simple as keeping the PE business active.
This makes this scheme ideal for those who are constantly on the move but want to maintain a tax residency somewhere where the rates are low.
Because under the scheme, the rates are indeed very low. In most cases, the rate you will pay is a flat 5% of your turnover.
This is caveat number one. Because your entire turnover is subject to tax, as opposed to only your profits, this scheme is not suitable for an actual business (unless it is a micro-business). What it is suitable for is for use as a conduit for the payment of personal income from a company based in another country. That is because you can invoice said company for your services and pay only 5% on the income you receive. The 5% tax is final, you will not be taxed again when you transfer the funds to your personal account. In other words, you pay a flat 5% on your personal income.
It is worth noting that while the above makes this scheme ideal for freelancers and remote employees, it can also be used by entrepreneurs (this requires a bit more structuring).
Caveat number two is that the income generated by the PE business must flow through a Ukrainian bank account denominated in local currency (UAH). After the 5% tax has been paid, the funds can be converted back to a more stable currency and moved to any bank account worldwide but keep in mind that this double conversion will likely result in forex losses and transfer fees.
Caveat number three is that you will have to pay social security in Ukraine, at the rate of 22% of the national minimum wage. As of 2020, this will cost you around 40 USD / 35 EUR per month.
None of these caveats are deal-breakers, however, as even including the forex losses mentioned above and the cost of maintaining your PE business, you are unlikely to pay more than 7-8%. This is for a European country, that is not usually considered a tax haven and as a result, is not on any tax blacklist (nor on any greylist).
Because of the language barrier and the need for a locally-issued digital signature, I strongly recommend hiring a Ukrainian lawyer to handle the Private Entrepreneur registration. The lawyer can also explain to you in details how to handle ongoing compliance for both yourself and the PE business. Aleksey Aksenov has been recommended to me by a friend who has significant experience in Ukraine.
If you wish to actually spend more time in Ukraine than what is allowed under a tourist entry, it is possible to apply for a one-year residency permit via a number of routes. The easiest is the investment route, involving an investment of at least 100000 USD equivalent into a local business. The local business can be used as a conduit to invest in local real estate and other types of assets. It can also be used to run an active business.
Banking-wise, I recommend Monobank. It is the Ukrainian equivalent of N26 but with features tailored to the local market.