New Financial Accounts Check Requirements Come into Force on July 1

From July 1, 2023, in accordance with the new rules introduced by Law No. 2970-IX “On Amendments to the Tax Code of Ukraine and Other Legislative Acts of Ukraine Regarding the Implementation of the International Standard of Automatic Exchange of Information on Financial Accounts”, financial institutions of Ukraine will apply due diligence measures to financial accounts to determine whether the accounts are accountable under the automatic exchange of financial information standard.

We remind you that the CRS Standard provides for the annual automatic exchange of information on certain types of financial accounts between jurisdictions that have joined the Multilateral Agreement of Competent Authorities on the Automatic Exchange of Information on Financial Accounts. State Tax Service of Ukraine joined the Multilateral Agreement in 2022.

Concepts of “Comprehensive Due Diligence” and “Controlling Person”

In accordance with Article 39 of the aforementioned Law, due diligence measures for the purposes of the Agreement are the measures defined in Annex 1 to the FATCA Agreement, and for the purposes of the CRS Multilateral Agreement, the measures defined in Chapters II-VII of the CRS Common Reporting Standard.

For due diligence purposes, the Agreement and Standard also define the terms “account holder” and “controlling person” (“controlling persons”). To establish a controlling person, the controlling share of participation in a legal entity is determined in accordance with the degree (level, share) of the exercise of decisive influence (control), established by the Law of Ukraine “On Prevention and Countermeasures against Legalization (Laundering) of Proceeds Obtained through Crime, Financing of Terrorism and Financing Proliferation of Weapons of Mass Destruction”.

Report on Accountable Accounts 

If the account is accountable (subject to exchange), the financial institution is required to include information about the account in the report on accountable accounts and submit it to the State Tax Service.

The requirement to report applies to the following types of entities defined in section VIII of the Common Reporting Standard:

– depository institution (banks , credit unions, etc.);

– custodial institution (depository institutions performing depository activities, nominal holders);

– investment company (investment firms, joint investment institutes, asset management companies, etc.);

– designated insurance company (insurers, non-state pension funds).

What Information Must the Account Holder Provide to the Financial Agent?

In cases defined by the FATCA Agreement and/or the CRS Standard, financial agents must request, and account holders must provide to financial agents:

1) self-assessment documents regarding themselves and/or regarding controlling persons in accordance with the requirements of Annex 1 to the FATCA Agreement;

2) a document of self-assessment of the status of tax residency in relation to oneself and/or in relation to controlling persons in accordance with the requirements of the CRS Standard to establish the state (territory) of which the account holder and/or controlling person is a resident;

3) other information and/or documents requested by the financial agent.

How Is Tax Residency Determined Based on Due Diligence?

If, during the application of due diligence measures, the financial agent has a reason to believe that a person is simultaneously a resident of Ukraine and at least one other jurisdiction, for the purposes of the CRS Multilateral Agreement and the CRS Standard, such a person is considered a resident of the relevant other jurisdiction.

If there have been changes in the status of tax residency or controlling person, the account holders are obliged to notify the financial agent about them within 30 calendar days.

If, during or after due diligence, the financial agent learns or has a reason to believe that the account belongs to the accountable ones, but the information (self-assessment) provided by the account owner indicates the opposite, the financial agent is obliged to send a request to the address of the account owner with a requirement to provide explanations, which the holder must provide within 30 days.

Failure to provide information on a change in tax residency status or failure to provide the requested information and/or documents within 30 calendar days from the date of receipt of the financial agent’s request is a reason for the financial agent’s refusal to establish business relations, refusal to provide financial services or further provision of services, up to the termination of contractual relations with the account holder.

Law No. 2970-IX https://zakon.rada.gov.ua/laws/show/2970-20#Text 

Common Standard on Reporting and Due Diligence for Financial Account Information (in Ukrainian)
https://mof.gov.ua/storage/files/

Agreement between the Government of Ukraine and the Government of the United States of America on Improvement of the Implementation of Tax Rules and Application of the Provisions of the US Foreign Account Tax Claims Act (FATCA) (in Ukrainian) https://zakon.rada.gov.ua/laws/show/840_005-17#Text