Ukrainians’ Declared Income Is Shrinking, Foreign Earnings Most of All

The State Tax Service (STS) recently reported that Ukrainian citizens had declared almost 299 billion hryvnia in income under the declaration campaign for the 2025 tax (reporting) year.

The agency noted that almost 176,000 declarations of assets and income had been filed in total—103 percent of the figure for last year’s declaration campaign.

That said, it raised some doubts that the STS did not compare the total amount declared in 2025 with the equivalent figure for 2024. The absence of particular figures can be very telling…

Declaring income

A great deal becomes clear if one turns to the STS’s announcement of a year ago on the results of the 2024 declaration campaign. Last year the agency noted that, for 2024 as a whole, citizens had declared 326 billion hryvnias (170,000 declarations). It follows that the total income declared by citizens for 2025 is 27 billion hryvnias, or 8.3%, lower than the corresponding figure for 2024.

Selectivity in presenting figures is standard practice among Ukraine’s authorities. The example considered here is only one of many. Yet such selectivity shows that the dialogue between the state and business is not entirely open and candid, and that genuine feedback is formal and largely empty of substance. That makes it difficult, if not impossible, for the tax authority to earn taxpayers’ trust.

Declaring foreign income

The picture grows more interesting when one compares the foreign income declared by Ukrainian citizens for the 2024 and 2025 reporting years.

In that same announcement of 21 May, the acting head of the STS, Lesia Karnaukh, said: “Those who received foreign income took an active part in the [2025 declaration] campaign. In total, 12,700 taxpayers declared such income… their number rose by 3,400 compared with last year. The amount of foreign income declared was 20.7 billion hryvnias.”

According to the results of the previous declaration campaign, for the 2024 tax year, reported by Ruslan Kravchenko, then head of the STS, the total foreign income declared by citizens stood at 34.2 billion hryvnias.

In other words, the figure for foreign income declared by Ukrainian citizens for the 2025 reporting year is also lower—this time by 13.5 billion hryvnias (34.2 − 20.7), or by 39.5 percent (20.7/0.342 − 100), than the same figure for income declared by citizens for the 2024 reporting year. And this happened even as the number of those filing declarations rose by 3,400 (from 9,300 to 12,700 taxpayers), or by 36.6 percent (12.7/0.093 − 100).

On the figures supplied by the tax authorities, we are seeing a situation in which, despite a substantial rise in the number of citizens declaring foreign income (+36.6%), the total amount of such income has fallen (−39.5%).

Factor in annual inflation and the fall in the hryvnia’s exchange rate, and the real swing in the foreign income declared by Ukrainian citizens looks sharper still.

The question warrants further study

This picture of citizens’ foreign income is all the more curious when one recalls that, in recent years, tax officials have repeatedly stressed—at public events and through their own communications platform—the strengthening of tax-information exchange with foreign competent authorities, including automatic exchange under the Common Reporting Standard (CRS), as well as a more risk-oriented approach across the STS and the use, to that end, of its tax risk management system (TRMS of the STS).

It seems that the constant reminders to, or rather the intimidation of, taxpayers, in the “Big Brother is watching you” style of George Orwell, are for now having the opposite effect.

Such a manipulative approach by the tax authorities is no substitute for the genuine two-way communication with taxpayers that is largely absent, nor for explanatory work: for instance, on exactly how the STS uses its tax risk management system, introduced under a two-year experiment that is due to end in just a few months.

The lack of transparency in introducing this system raises, on the one hand, many questions and doubts about whether it has truly been rolled out in full and how effective it is; and, on the other, fears that the tax authorities, using the TRMS opaquely, are unilaterally expanding their powers without justification and contrary to the provisions of tax law.

The sharp decline in Ukrainian citizens’ foreign income calls for in-depth analytical study of the matter by the finance ministry and the STS, for the real causes of the negative trend to be established, for well-informed decisions to follow, and for honest communication with taxpayers on the issue.

Such an analysis would best be carried out on a country-by-country basis, including separately for those states with which Ukraine has double-taxation treaties in force.

Any such analysis must, of course, draw on data about where Ukrainians have settled after leaving the country since 24 February 2022 and obtaining temporary protection status.

It would also make sense to take into account the findings of surveys of these citizens on whether they wish to return to Ukraine once the full-scale Russian-Ukrainian war has ended.

The consequences of closer attention from the tax authorities

Let us return to the sharp drop in the total foreign income of Ukrainian citizens for the 2025 reporting year compared with the previous one.

The interrelated consequences of this negative trend for taxpayers are very likely to be as follows:

• closer scrutiny of whether such income is fully reported by citizens who are tax residents of Ukraine;
• attempts to widen the pool of Ukrainian citizens deemed by the supervisory authority not to have declared their foreign income in full;
• more frequent and more extensive use of tax information obtained automatically from foreign competent authorities;
• more active exchange of tax information with foreign competent authorities, including on request;
• a rise in the number of requests from the tax authorities for taxpayers to provide additional information about their activities, transactions and income;
• a rise in the number of penalties relating to citizens’ failure to declare income, or to incomplete and late declaration of it.

These consequences will apply not only to citizens’ income in 2024 and 2025, but also to income both before 2024 and in the reporting years that follow 2025.

An indirect but important factor for understanding the control of Ukrainian citizens’ foreign income—and its proper taxation thereafter—is the way that primary financial monitoring entities (PFMEs) have, in recent years, stepped up their monitoring of citizens’ income (and payments).

Banking institutions, too, are playing an increasingly active part in ensuring the transparency of the payment-services market.

On 14 May, with the involvement of the National Association of Banks of Ukraine and the Association of Ukrainian Banks, a revised version of the Memorandum on ensuring the transparency of the payment-services market was signed; it sets tighter limits on payments and tighter control mechanisms—particularly for newly created and dormant sole traders and for legal entities showing signs of risky activity—and steps up efforts to counter the use of so-called “drops” (money mules).

The revised Memorandum also provides for further work on improving information-exchange mechanisms between market participants; automating anti-fraud systems; and developing tools to verify customers’ income.

The results of these tighter approaches by primary financial monitoring entities, including the banks and the State Financial Monitoring Service itself, to the control of cross-border payments, and hence of Ukrainian citizens’ foreign income, will in turn shape the outcomes of the STS’s tax controls over such income.

Ukrainian citizens, especially those who have spent a long time outside the country but remain tax residents, would, in the view of Ukraine’s tax authorities, do well to bear all this in mind.