Double taxation of Ukrainians abroad

The legal and practical aspects of the taxation of income and assets for citizens who have economic ties with both Ukraine and Italy.

The central document is an international convention that sets clear rules for eliminating double taxation and preventing tax fraud by dividing taxing rights between the two jurisdictions.

The 2024 reform of Italian legislation changed the priorities for determining resident status, giving precedence to personal and family ties over property interests.

Criteria for determining residence

Under Italian law (in particular Article 2 of the TUIR, the Consolidated Income Tax Act), a person is considered tax resident in Italy if, for the greater part of the tax period (183 days a year, or 184 in a leap year), at least one of the following conditions is met:

• Physical presence: staying in Italy for more than 183 days. Fractions of a day also count: for example, a single hour spent in the country counts as a full day.

• Domicile (domicilio): under the 2024 reform, this is the place where a person’s personal and family relationships are mainly conducted. This means that if a Ukrainian’s family (wife, children) lives in Italy and the children attend a local school, the risk of being treated as resident rises considerably, even if the work remains in Ukraine.

• Place of residence (Residenza): having a home that is used as one’s habitual abode within the meaning of the Civil Code.

• Registration in the register of the resident population (Anagrafe): since 2024 this criterion has become a “rebuttable presumption”, which can be overturned if the other residence conditions are not met.

What this means for Ukrainian citizens’ obligations

1. Taxation of worldwide income (Worldwide Taxation)

◦ Residents must pay tax in Italy on all their income, regardless of the country where it arises (a salary in Ukraine, rent from property, dividends, interest on deposits and so on).

◦ Non-residents pay tax only on income whose source is in Italy itself.

2. Filing tax returns

◦ Residents must file an annual tax return (form 730 or Redditi PF).

◦ Ukrainians who work remotely (smart working) for Ukrainian employers while staying in Italy for more than 183 days automatically become resident and must declare their income and pay Italian taxes.

3. Administrative obligations

◦ The need to obtain an identification code (Codice Fiscale, the Italian tax code), which is compulsory for everyone living in Italy for more than 90 days.

◦ Paying the progressive personal income tax (IRPEF), with rates ranging from 23% to 43% depending on income.

Avoiding double taxation

A dedicated Convention for the Avoidance of Double Taxation is in force between Ukraine and Italy. If both countries consider a person to be their resident, the “tie-breaker” rules apply, which set priority according to the following criteria:

1. Having a permanent home.

2. Centre of vital interests (personal and economic ties).

3. Habitual abode.

4. Citizenship.

Important: to benefit from the Convention (for example, to credit taxes already paid in Ukraine), the citizen must provide the Italian authorities with a certificate of tax residence issued by the Ukrainian tax authorities.

Consequences of non-compliance

Failure to meet income-reporting obligations results in administrative penalties. Failure to file a return carries a penalty of 120% to 240% of the tax due (minimum €250). Late payment of taxes incurs a penalty of 30%.

Taxation in Italy of income from a FOP (Ukrainian sole proprietorship)

If you become tax resident in Italy (you stay there for more than 183 days, or have your centre of interests or a home there), Italy applies the principle of taxing worldwide income (worldwide taxation principle).

This means that:

• The income of your Ukrainian FOP must be included in your Italian tax return.

• Business and professional income earned abroad is added to your total taxable income in Italy.

• As a general rule, it is taxed at the progressive IRPEF (23–43%) rates.

The preferential regime for inbound workers (Lavoratori Impatriati)

This regime is the most relevant one for Ukrainian specialists (for example, in IT) who move to Italy.

• The benefit: only 50% of income is taxed, while the other 50% is exempt.

• Scope: the benefit covers not only salaries but also income from professional activity (which matches the substance of work done through a FOP).

• Condition: you must move your residence to Italy in order to work there and must not have been resident in Italy in the previous years.

You can combine a Ukrainian FOP with Italian residence by using the mechanisms of the Convention between Ukraine and Italy:

• Tax credit: taxes already paid in Ukraine (for example, the 5% single tax) can be credited in Italy to reduce the Italian tax due.

• Supporting documents: to exercise this right and avoid double taxation, you must provide the Italian authorities with a certificate of tax residence issued in Ukraine.

• Filing: even if you pay taxes in Ukraine, you must still file a return in Italy (the Redditi PF form), report the FOP income on it and calculate the difference in tax at Italian rates.

Risks and limitations

• The difference in rates: since taxes in Ukraine are usually lower (5%) than in Italy (even with the 50% IRPEF relief), you will still have to pay the difference to the Italian treasury.

• Currency control: regularly receiving money into Ukrainian FOP accounts while living abroad may cause difficulties with Ukrainian currency control regarding the repatriation of foreign-currency proceeds to Ukraine (a 180-day deadline), if the funds do not actually reach Ukrainian accounts.

• Rebutting residence: if you are on the Italian register of residents (Anagrafe) but actually live in Ukraine, since 2024 you can try to rebut Italian resident status by providing “cast-iron” evidence that you have no other ties.

Conclusion: the two can be combined, and the inbound-worker regime can significantly reduce the tax burden (only half of the income is taxed), but a Ukrainian FOP will no longer be a way of paying a low 5% tax, because Italy will require you to top up to its own level.

Can the single tax paid in Ukraine be credited in Italy?

Yes. Under the Convention between Ukraine and Italy for the Avoidance of Double Taxation, you are entitled to credit the tax paid in Ukraine (including the FOP single tax) when calculating your tax liability in Italy.

Here is how the mechanism works and which conditions must be met:

How the tax credit works

Italy uses the tax credit method to eliminate double taxation. This means that if an Italian resident receives income that is taxable in Ukraine, the amount of Ukrainian tax is deducted from the Italian tax charged on that same income.

Main limitations and specific features

• Credit limit: the tax credit cannot exceed the share of Italian tax proportionally attributable to that foreign income. For example, if the Ukrainian single tax is 5% and the Italian tax (IRPEF) on the same income is 23%, you will be able to credit that 5%, but you will still have to pay the difference in Italy.

• Special regimes: the credit is not granted if, at the taxpayer’s request, the income is subject in Italy to final taxation by withholding at source (for example, the 26% substitute tax on dividends or certain flat rates).

• Types of tax: the Convention covers the taxes in force when it was signed, as well as “identical or substantially similar” taxes introduced later (which allows the single tax to be included in this list).

Documents required for the credit

To claim the tax credit, the Italian authorities require:

1. A certificate of Ukrainian tax residence issued by the Ukrainian tax authorities (it may be electronic, provided it can be verified).

2. Documents proving that the tax was actually paid in Ukraine (tax returns filed abroad, payment receipts, statements showing the amounts of income and tax).

3. Filing the return: the credit must be claimed in the annual Italian tax return (the Redditi PF form) for the year in which the foreign taxes were definitively paid.

An important note for FOP holders

If you stay in Italy for more than 183 days, you are considered tax resident there and must declare all of your worldwide income, including income from business activity in Ukraine.

The Agenzia delle Entrate (Italian Revenue Agency) states that income from professional activity abroad is included in total taxable income and is normally taxed at the progressive IRPEF rates (from 23% to 43%), to which the credit described above then applies.

Can you use Italian tax benefits if your family has stayed in Ukraine?

Whether you can use Italian tax benefits while your family remains in Ukraine depends on whether you can prove your status as an Italian tax resident and whether you meet the criteria of the specific preferential regimes.

Here is a detailed look at how your family’s location affects your rights and obligations:

1. Determining resident status when your family is in Ukraine

Under the 2024 reform, one of the key criteria for residence is domicile, defined as the place where personal and family relationships are mainly conducted.

• If your family (wife/husband, children) remains in Ukraine, the Italian authorities may take the view that your centre of vital interests lies outside Italy.

• However, you can still become tax resident in Italy under the physical presence criterion if you stay in the country for more than 183 days a year (even fractions of a day count).

2. Special preferential regimes

If you establish resident status (for example, through a long physical stay), you may be eligible for the following benefits:

• The inbound-worker regime (Lavoratori impatriati): you can obtain an exemption from tax on 50% of your income if you have moved to Italy to work. Although having your family in Italy usually strengthens a taxpayer’s position, the main legal condition is moving your tax residence and actually working in Italy.

• Benefits for pensioners (in the South): a rate of 7% on all foreign income is available to those who move to small comuni (municipalities) in the southern regions. For this regime, too, it is essential to be tax resident in Italy, which may be challenged if the family remains abroad.

3. Tax deductions for family members (Carichi di famiglia)

The Italian tax system lets residents reduce their tax (IRPEF) on account of the cost of supporting their family.

• Residents’ rights: residents are entitled to personal deductions and to allowances for dependants (for example, for children or for a non-working spouse).

• Documentation: if your family is in Ukraine, to obtain these benefits you will have to provide the Italian authorities with official proof that these people are your dependants (for example, evidence that they have no income of their own and certificates of household composition).

• Restrictions for non-residents: if, because your family is in Ukraine, you are not recognised as resident in Italy (even if you stay there for more than 183 days, because your “centre of interests” in Ukraine prevails), you will lose the right to most of these family deductions.

The risk of conflicting residence (Tie-breaker rules)

Having your family in Ukraine is a very strong argument in a dispute between the tax authorities of the two countries. Under the international Convention, if you have a home in both countries, priority goes to the state with which your personal and economic ties are closer (the centre of vital interests). If Ukraine shows that, because of your family, your vital interests remain at home, you may be treated as non-resident in Italy, which would deny you access to the special Italian preferential regimes.

In short: the benefits can be used if you are registered as an Italian resident (for example, because you have stayed for more than 183 days), but you must be ready to document your status and the cost of supporting your family in Ukraine.