Foreign accounts of Ukrainians are now under the control of the Ukrainian tax authorities. What is CRS and what should you prepare for?

Has bank secrecy been canceled? Probably YES!

On April 28, 2023, the Law of Ukraine dated 20.03.2023 No. 2970-IX “On Amendments to the Tax Code of Ukraine and Other Legislative Acts of Ukraine on the Implementation of the International Standard for the Automatic Exchange of Information on Financial Accounts” (hereinafter - Law 2970-IX) came into force.

This law was adopted in connection with Ukraine's accession to the Common Standard on Reporting and Due Diligence for Financial Account Information (CRS). This is an international standard approved by the Council of the Organization for Economic Cooperation and Development on July 14, 2014, which requires implementing countries to collect information from financial institutions about the financial accounts of account holders and to exchange such information annually on an automatic basis with exchange partner countries under the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information (MCAA CRS).

This means that Ukraine will report on foreigners and foreign companies operating in its territory, and in return will have information on Ukrainians and Ukrainian companies operating abroad.

To answer the question, has bank secrecy been abolished? According to this law, yes, but only insofar as it concerns the tax authorities of the Member States, which control all income of all citizens of their countries, including foreign income.  As for other entities, banking secrecy is still in effect.

What accounts and information will be transferred under the CRS agreement?

All accounts in financial institutions that are licensed to conduct financial activities. These are all bank accounts, including accounts in payment systems, custodial accounts, investment accounts in banks, investment companies, insurance companies, brokerage companies, and collective investment funds.

The following information will also be transmitted:

Name of the account holder, his/her address, tax residence, tax number, date and place of birth;

Name of the institution where the account was opened;

Account data: account number, account balance. It is assumed that the account balance at the end of the year will be transferred, but it is also possible that certain countries, if provided for by their domestic legislation, may transfer extended account information: account turnover for the reporting year, dividends, interest, etc. There is no reliable information about this yet, it will only be known after the exchange in 2024.

Will accounts opened in the payment systems PayPal, Wise, Revolut, Payoneer be reported?

Regarding accounts in payment systems, it is worth noting that in order to exchange information, these institutions must be subject to the standards of the CRS.     Providers of electronic money and other payment services, for example, PayPal, although not having a banking license, declared their readiness to exchange information, but it is not yet known how the tax authorities will accept such information from them if they are not a financial institution and do not have a license from the European Commission.

There is no definite answer to this question yet, everyone is waiting to see how this will happen in practice and, possibly, adopt some amendments to the CRS agreement on accounts in payment systems.

Only Payoneer has a license from the European Commission, which gives it the status of a financial institution, so information from this payment system will be accepted within the CRS.

When information taking and transferring will begin?

According to Art. 39 subpara. 3 of the Tax Code of Ukraine, for the purposes of the CRS multilateral agreement, the first reporting period is the period starting July 01, 2023 and ending December 31, 2023.

The first exchange of information should take place in July-September 2024 for the year 2023.

Countries that take a part in an automatic exchange of information and financial reports

These will be all countries that have joined the Multilateral Agreement on Automatic Exchange of Information (CRS) - EU countries and others.

However, it is worth noting that Ukraine and the United States have a separate agreement on the exchange of financial information (FATCA), which is similar to the CRS, but there is a difference, and it is that under this agreement only Ukraine is obliged to submit financial information about US residents. In its turn, the US does not disclose financial information about Ukrainian residents.

What will the tax authorities do with the information they receive?

The Ukrainian tax authorities are interested in information about money, not income, as they say. But at least they say that it is possible to automatically receive information from a foreign account, but it is not possible to automatically charge additional personal income tax and military duty in Ukraine.

The law expressly prohibits the tax authorities from using information received through auto-exchange for the purpose of additional personal income tax, provided that two conditions are met:

First: Balances on accounts abroad do not exceed USD 250 thousand. As of December 31 of the respective year, the balances on foreign accounts do not exceed USD 250 thousand.

Second: If this date falls within the period of martial law.

For example, if martial law is extended until the end of the year and next year Ukraine receives data on foreign accounts of our residents for 2023, the tax authorities will not be able to directly use the information on balances as of December 31, 2023 to charge additional personal income tax (if the balance does not exceed USD 250 thousand).

This is the information as of June 20, 2022. Of course, there is still a little more than a year before the exchange takes place, so the information may change or be clarified, but if you do not declare income on foreign accounts, you need to take care of it today.