Business Relocation: Why a “Safe Haven” in the West or EU Can Become a Tax Hell

 

Fleeing the war or jumping into a tax abyss?

For the first three months, we all lived in survival mode. Some moved servers under shelling, some relocated staff to Zakarpattia, others opened emergency accounts in Polish banks. The panic has passed. It is June, and now it is time to count money, not kilometers.

Many LBA clients believe that moving to Lviv or Warsaw automatically resolves all security issues. This is an illusion. While you were saving assets from Russian missiles, you may have exposed them to European fiscal authorities or our local tax officers, who have already recovered from the shock and are returning to their usual methods.

Today we talk about what realtors in Spain and “helpers” at the border remain silent about: the price of your peace of mind.

Myth 1: “We’ll just wait it out in Europe” (The Tax Residency Trap)

You have moved your family and top management to Europe. You opened a company in Poland or Germany to settle with foreign clients. Do you think you are safe?

The European tax machine works slowly but inevitably. If you, as a beneficiary, stay in an EU country for more than 183 days (and for those who left in February-March, this term will expire in the fall), you risk obtaining tax resident status there.

How a European inspector thinks

They see that the center of your vital interests has shifted. Your children attend a local school, you rent housing. Therefore, you must pay taxes on your global income (including dividends from a Ukrainian LLC) to the treasury of, say, Spain or Germany. And these are completely different rates than our 5% + 1.5%.

Legal Hack from LBA:
Do not blindly rely on Double Taxation Avoidance Agreements. They do not work automatically. You need an evidentiary basis that your “center of vital interests” remains in Ukraine. We are already preparing document packages for clients confirming close ties to Ukraine to avoid a double fiscal “haircut”.

Read also LBA practice: Support in international tax disputes and asset structuring.

Myth 2: “The 2% relief is a lifesaver for everyone”

Law № 2120-IX, which allowed the transition to a 2% single tax, became a real hit this spring. Businesses rushed to apply. But did you read the fine print?

Switching to 2% for a VAT payer means suspending VAT payer registration. Your counterparties lose their tax credit. For retail, this is OK. But if you work in the B2B sector or for export, you become a “toxic” partner.

Moreover, the state offered this carrot temporarily. When the relief is cancelled (and this will happen as soon as the budget stabilizes), you will have to return to the general system. And here, cash gaps and questions regarding transitional operations will arise.

Tax authority logic regarding the simplified system

They view those who switched to 2% as potential tax minimizers. After the war (or even sooner), expect inquiries regarding the “business purpose” of such transitions.

Official source: Law of Ukraine № 2120-IX dated 15.03.2022 “On Amendments to the Tax Code…”

Relocation to Western Ukraine: Strangers Among Your Own

Relocating a business to Lviv or Ivano-Frankivsk regions does not always go smoothly either. Local authorities happily welcome relocated businesses in front of cameras, but local tax officers have their own budget targets.

We are recording frequent cases where, after changing the legal address to a western region, companies are visited for “preventive talks” or have their tax invoices blocked, deeming the new address “mass” or fictitious.

What to do to protect assets:

• Real office. No “PO boxes”. The lease agreement must be real, with acceptance-transfer acts.
• Form 20-OPP notification. Submit it immediately after moving. This is your shield.
• Liaison with the military enlistment office. Yes, this is now part of the business process. Legal reservation of employees is possible only with full order in military records at the new location.

Useful on the topic: Protecting business from unlawful actions of controlling authorities.

FAQ: Questions you are asking me in June 2022

 

1. Can I pay salaries in cash if accounts are blocked?

Labor legislation during martial law (Law № 2136-IX) allows delaying salary payments until operations resume, but does not allow paying “off the books”. If you pay cash without paying taxes (ESV, PIT) — this is a crime. War will not write off tax evasion. It is better to officially record the debt to the employee.

2. I moved expensive equipment to Poland without customs clearance. What to do?

This is a classic “evacuation” problem. If you moved assets as “personal belongings” of an individual, but they are on the LLC’s balance sheet — you have a problem. Legally, the property left the customs territory of Ukraine in violation of the export regime. You need to carry out a “post-factum” declaration procedure or process temporary export, otherwise, there will be fines and issues with currency control.

3. Is it true that business inspections are completely cancelled?

No, this is a dangerous myth. Desk audits (those conducted in the inspector’s office based on databases) resumed at the end of May (Law № 2260-IX). They check declarations and the timeliness of tax invoice registration. The moratorium applies only to factual inspections in combat zones, not in relatively safe regions.

Time to act pragmatically

The emotions of the first months of the war must give way to cold calculation. Relocation is a legal operation, not just logistics. While you are building new supply chains, the state is patching holes in the budget. Do not become that patch.

We at LBA are already supporting dozens of relocation cases — both within Ukraine and in the EU. We know where traps await you because we are walking this path together with you.

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