The issue of tax residency for Ukrainians who migrated abroad in connection with the war has become highly relevant. This is also connected with the fact that many Ukrainians “stayed” on certain states’ territories for objective reasons. In most cases, Ukrainians are abroad with the legal status of temporary protection.
In this case, it is essential to distinguish the migration status from the tax-legal status of an individual. The tax legislation of foreign countries has remained the same in establishing specific rules to determine the residency status of Ukrainians who have acquired a level of temporary protection.
A kind of “tax residency test”, based on the criteria of tax residency, has a two-level character: 1) the level of national legislation of an individual state; and 2) the international level – the level of conventions on the avoidance of double taxation. Any state first applies the criteria for determining resident status established at the level of national legislation. And after an individual begins to appeal to the presence of ties to the residency of another state, the criteria laid down in the conventions are applied. The following rule is generally recognized: the bars of conventions have a prevailing character over the requirements of national legislation.
First, let’s consider the criteria for establishing residency status at the level of the national legislation of individual states. Thus, in Poland, the primary measure is the center of personal or economic interests, and only after it is the “183-day rule” applicable (clause 1a of Article 3.1 of the Statute “On Taxation of Individual Incomes”). A slightly different system of criteria applies in Austria: a) permanent place of residence (Wohnsitz); or b) habitual residence (gewöhnlichen Aufenthalt) (§ 1 of the Income Tax Act). “Usual residence” means a stay in Austria for more than 183 days. The approach to determining resident status, which is fixed at the level of the tax legislation of Georgia, is fascinating. Thus, Georgian tax legislation defines only one criterion for determining the resident status of a person – the “183-day rule” (clause (4) of Chapter II of the Tax Code of Georgia).
At the same time, it is generally accepted that the criteria for determining resident status and the procedure for their application coincide at the level of the actual national legislation and bilateral conventions on the avoidance of double taxation concluded by the respective state. For example, in Hungary, at the level of federal legislation, the following criteria are provided for establishing the residency status of natural persons who are not citizens of Hungary (Clause 2 of Chapter III of Law CXVII of 1995 “On Tax on the Income of Natural Persons”): a) the place of permanent residence of such a person is exclusively in Hungary; b) the center of vital interests of such a person is located in Hungary; c) the person’s usual place of residence is in Hungary (over 183 days are spent in Hungary during the calendar year). The criteria established in the Convention on the Avoidance of Double Taxation between Ukraine and Hungary are similar to those mentioned above.
In the future, it is logical to analyze the criteria fixed at the level of bilateral conventions to avoid double taxation. Conventional criteria are relatively unified because they are content- and structurally based on the Model (model) conventions of the OECD and the UN. As a rule, bilateral conventions provide for the first three (priority to be applied) criteria for determining a person’s resident status:
1) permanent residence: a person is considered a resident of the state where he has a permanent home;
2) center of vital interests: a person is considered a resident of the state where he has closer personal and economic ties;
3) place of habitual residence: a person is considered a resident of the state where he resides for at least 183 days during a particular calendar year.
The criteria mentioned above are applied sequentially (from the first to the last) according to the rule “if this one does not fit, then we move to the next”. The first three criteria are functional because the third criterion (the 183-day rule) is the only objective criterion that, as a rule, helps to determine a person’s resident status finally. In practice, the “183-day rule” is a favorite criterion of tax authorities.
Even though neither at the level of the EU nor at the level of individual states specific changes have been adopted in terms of determining the tax residency status of natural persons who have received temporary protection, there are several states that, at the level of departmental explanations, declare a liberal approach (subject to compliance with certain conditions) to determine the tax obligations of Ukrainians who migrated abroad in connection with the war (for example, Ireland, Lithuania, Slovakia, etc.). At the same time, specific categories of citizens can minimize tax and legal risks associated with acquiring tax residency in another state or generally avoid them by using special migration tools, for example, by obtaining so-called “digital nomad” visas (Hungary, Spain, Croatia, Portugal, etc.).
In any case, the issue of determining tax residency is very complex and characterized by increased evaluability; accordingly, each actual composition must be considered separately.