CRS in 2023. The tax office will soon find out the truth about the foreign accounts of Ukrainians

Intro

In August 2022, Ukraine became part of the CRS Multilateral Agreement, which provides for the automatic exchange of information on financial accounts. The next step was the implementation of the CRS Standard in Ukraine - an international model for reporting and checking the financial accounts of individuals and businesses for tax purposes.

As of January 2023, more than 110 jurisdictions, including all European Union countries, participate in the CRS Multilateral Agreement.

A draft of the Law of Ukraine, "On Amendments to the Tax Code of Ukraine and other Legislative Acts of Ukraine on the Implementation of an International Standard for the Automatic Exchange of Financial Account Information" was developed to implement the CRS Standard. This Law will contribute to more effective control of tax authorities and the prevention of tax evasion at the international level.

What about the CRS Law now?

On April 20, 2023, the President of Ukraine signed the Law of Ukraine, “On Amendments to the Tax Code of Ukraine and other Legislative Acts of Ukraine on the Implementation of an International Standard for the Automatic Exchange of Financial Account Information,” adopted by the Parliament of Ukraine on March 20, 2023.

How CRS works

According to the CRS Standard, participating countries must audit the financial accounts of persons who are tax residents of partner jurisdictions. Information about these accounts will be sent to the relevant body of the participating state, where their owners and controlling persons are residents.

What information is subject to exchange within CRS?

According to the CRS Standard, financial institutions and authorized bodies will collect such information:

• Data about an individual or legal entity: surname, first name, patronymic; address of residence or address of a legal entity; jurisdiction of residence; tax number; date and place of birth

• Account information: name of the financial institution; balance of funds as of the end of the year

• The total gross amount received during the year

There are exceptions for legal entity owners:

• accounts with an aggregate balance of up to USD 250,000 at the end of the calendar year will not be subject to verification and reporting;

• accounts of legal entities (or trusts, partnerships) will not be subject to reporting if more than half of its income is derived from active activities.

Regarding the deadlines for checking financial accounts and submitting reports on them in Ukraine

Starting from July 1, 2023, the CRS standard is applied in Ukraine. The first reporting period will last from July 1 to December 31, 2023. Therefore, Ukraine will receive data on the foreign accounts of its residents in July 2023.

The CRS standard requires appropriate verification procedures for accounts opened before and after the implementation of the standard, as well as separately for accounts of individuals and non-financial organizations.

Financial accounts can be classified as "new" or "existing," depending on when they were opened. Depending on the type of account, there are specific due diligence rules and due dates.

Solutions offered by Icon.Partners

• Don't ignore CRS. Ignoring the CRS can lead to severe consequences and fines. Instead, use a "transition period" to adapt to the new requirements.

• Ensure compliance of personal accounts by July 1, 2023. Check your compliance with residency rules, make a checklist of all accounts, analyze for CRS applicability, and restructure them if necessary.

• Conduct comprehensive business analysis and develop optimization strategies. Analyze the structure of your business and declaration rules, study the country's laws where the corporate account is located, and the regulations of controlled foreign companies, which are closely related to CRS. Based on the analysis results, develop ways to optimize your business to minimize the adverse effects of CRS. This may include a change in ownership structure, transfer of assets, or change of location.

By following these steps, you can bring your accounts into compliance with CRS, avoid fines and grow effectively in the new environment.