On 28 April 2023, the Law of Ukraine “On Amendments to the Tax Code of Ukraine on Implementation of the International Standard for Automatic Exchange of Information on Financial Accounts” (the “Law”) came into force, except for certain provisions that will come into force on 30 June 2023 and 1 January 2024, respectively.
The Law implements two international standards:
1) Common Standard on Reporting and Due Diligence for Financial Account Information (CRS) – is an international standard that requires countries that implement it to collect information on financial accounts from financial institutions and to exchange such information with exchange partner jurisdictions on an annual basis. In accordance with the CRS General Reporting Standard, financial institutions in a participating country are required to conduct due diligence on financial accounts and identify, among account holders and, in certain cases, their controlling persons, persons who are tax residents of other jurisdictions that are exchange partners. Information about such accounts is submitted by financial institutions to the tax administration of the participating country. The said tax administration then sends information on financial accounts to the jurisdictions where the owners and controlling persons of the financial account holders are resident;
2) Exchange of Information on Request (EOIR) – establishes uniform conditions under which jurisdictions send each other requests for certain information and exchange it on the basis of tax conventions.
In simple terms, the Law requires financial institutions (including banks) to provide all information about their non-resident clients to the State Tax Service once a year, which will then automatically transfer it to the tax authorities of the countries where the standard has been implemented.
Below we explain in detail the key points of the main provisions of the Law.
- Who is a financial agent?
A financial agent is any person (other than an individual) that meets the definition of a reporting financial institution in accordance with the CRS Multilateral Agreement and the CRS General Reporting Standard and is obliged to apply due diligence measures to financial accounts, submit a report on reported accounts to the supervisory authority, and be liable for breach of these obligations.
*The organisation determines its status for the CRS (namely, whether it is a reporting financial institution) independently. This status does not depend on whether the entity is a financial institution (licensed) in accordance with the Ukrainian financial services regulation.
A financial institution may be a depository institution (banks, credit unions, etc.), a custodial institution (depository institutions engaged in depository activities, investment firms, etc.), an investment company, or a designated insurance company.
- Which financial accounts are subject to due diligence?
A financial account is an account opened by a financial agent or a contract entered into by a financial agent. Financial accounts include deposit accounts, custodial accounts, equity accounts, insurance contracts with a surrender value and annuity contracts. Both existing accounts and new accounts that will be opened in the future are subject to review.
However, financial accounts do not include so-called excluded accounts listed in the CRS (e.g., savings/pension accounts or life insurance contracts, etc.).
In addition, with respect to existing accounts of legal entities, it is determined that only those financial accounts with a value exceeding $250,000 are subject to audit. No such restrictions are set for individuals.
*In implementing the Standard, Ukraine applies a “broader approach”, which means that all financial accounts are reviewed.
In relation to persons who are tax residents of Ukraine, the reporting financial institution is required to obtain written confirmation from the account holder that the person does not have the status of a tax resident of any jurisdiction other than Ukraine.
- Which accounts are subject to audit?
The automatic exchange of financial account information is based on the client’s residence. For the purposes of CRS, there are two types of clients:
- Individuals – their tax residency must be verified;
- Organisations (not to be confused with legal entities, as the term “organisation” is broader and includes any legal entity):
- financial – such an account is not subject to CRS rules,
- non-financial (legal entity, partnership, trust or other legal entities) – in addition to the residence of the organisation itself, the tax status of the ultimate beneficial owners (controlling persons) of the organisation is additionally established.
- What information is exchanged?
- name, address, TIN, place of birth of each reporting person;
- account number;
- name and identification number of the financial institution;
- account balances;
- for a custodial account: the total amount of interest, dividends or other income; the total amount of proceeds from the sale or redemption of financial assets;
- for a deposit account: the total amount of interest paid or credited to the account;
- in the case of any account, the total amount credited to the account.
- What documents will the financial institution require from the account holder?
- CRS self-assessment documents in respect of the account holder and, in cases specified in the Standard, in respect of controlling persons (samples of self-assessment documents can be found by link https://tax.gov.ua/baneryi/crs/zrazki-form-dokumentiv-samostiynoi-otsinki);
- documents of self-assessment of the tax residency status in relation to themselves and/or their controlling persons in accordance with the requirements of the CRS General Reporting Standard to establish the state of residence of the account holder and/or controlling person;
- other information and/or documents required by the financial agent to take measures for proper due diligence of financial accounts, establish their accountability and prepare reports on the accounts.
Failure to fulfil the obligation to provide the specified information or submission of inaccurate information shall be grounds for the financial agent to refuse to establish business relations, refuse to provide financial services or refuse to provide further services, including termination of the contractual relationship with the account holder.
- How is information on accountable accounts exchanged?
Financial agents are required to submit to the supervisory authority a report on all accounts for the previous calendar year by 1 July each year. Such reports are subject to desk review.
The first reporting period will start on 1 July 2023 and end on 31 December 2023. In 2024, the Ministry of Finance should set a deadline for the submission of the report on the first reporting period, but not earlier than 01.07.2024.
Further, the supervisory authority shall transfer the relevant information received from financial agents to the competent authority of a foreign jurisdiction annually by 30 September. At the same time, it is prohibited to provide such information to law enforcement or other state authorities, local governments, legal entities and individuals (including those about whom information is provided in the report on the accounts).
- What liability is established for the account holder?
Deliberate submission by the account holder of documents of self-assessment by CRS in respect of himself and or his controlling persons with inaccurate information, which led to the failure to establish accountability of the account – 100 minimum wages.
Important! The penalty does not apply to violations committed before 31 December 2024 inclusive, and for violations committed between 1 January and 31 December 2025, the penalty is half the amount of the relevant fine.
Thus, the obligation to comply with the CRS requirements is mainly imposed on financial institutions. As for Ukrainian residents, the only significant requirement for them is to submit self-assessment documents at the request of a financial institution. In addition, it should be remembered that the exchange of information is bilateral: the Ukrainian tax authorities will also receive information on all bank accounts held by Ukrainian citizens or resident legal entities abroad, which will result in additional checks to identify suspicious bank accounts and transactions.
Smartsolutions is following the developments in this area and will keep you informed. If you have any questions or need advice, you can always contact our specialists.
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