On January 1, 2021, Amendments to the Tax Code of Ukraine with respect to the registration of non-resident companies with the Ukrainian tax authorities came into force. Companies, being non-residents of Ukraine, are now obliged to register as corporate income tax (CIT) payers at the Ukrainian tax authorities (“CIT registration requirements”) in the following cases:
1. A non-resident company has a registered permanent establishment (a separate subdivision) in Ukraine
Non-residents that have registered permanent establishments or separate subdivisions in Ukraine are required to register as CIT-payers until March 31, 2021.
For tax purposes, "permanent establishment" includes:
1. A permanent place of business through which a non-resident company carries out business activity (e.g., production/sale of goods, works, services aimed at earning income) in Ukraine (in full or in part).
2. A construction site and related works, if the duration of such works exceeds 12 months.
3. Provision of services by a non-resident (except for staffing services) through employees in Ukraine, if the total duration of such services exceeds 183 days.
4. Persons who actually exercise authority to negotiate the essential terms and conditions of transactions and/or execute agreements (contracts) on behalf of a non-resident.
5. Persons who keep (store) and deliver goods owned by a non-resident.
If a foreign company’s activity in Ukraine meets the permanent establishment’s requirements above and such foreign company fails to register as a CIT payer in Ukraine, such a foreign company may be deemed to be evading taxes in Ukraine.
2. A non-resident company acquires corporate rights (shares) in a company that owns real estate property in Ukraine
The CIT-registration requirements apply if a non-resident company (buyer) acquires from another non-resident company (seller) that has no permanent establishment in Ukraine (a) corporate rights (shares) in a Ukrainian company (target), of which 50%+ of the value is derived from real estate property located in Ukraine, or (b) shares in a foreign company that owns such a target.
In addition, the seller should pay withholding tax in such a case, unless otherwise is provided by a respective international treaty on avoidance of double taxation.
3. A non-resident company purchases real estate property (acquires property rights to it) located in Ukraine
A non-resident company that purchases real estate property (acquires property rights to it) located in Ukraine is required to register as a CIT payer.
4. A non-resident opens a bank account at a Ukrainian bank
A non-resident that opens a bank account in a Ukrainian bank is required to register as a CIT payer
Once the Law of Ukraine “On Currency and Currency Transactions” came into force back in 2019, non-residents could open bank accounts with Ukrainian banks (both in UAH and foreign currency) which can be used for a wide range of transactions (e.g, import-export payments, credit financing, debt security, etc.). Previously, non-residents could only open investment accounts, which had a limited operation regime. More information on the Law of Ukraine "On Currency and Currency Transactions" is available at this linkFNew rules for registration of non-resident companies as CIT-payers in Ukraine effective as of January 1, 2021: potential impact on cross-border lending transactions.
5. Possible impact on cross-border lending transactions
A foreign lender may be required to register as a CIT payer in the following cases:
- Foreclosure on mortgaged real estate property located in Ukraine
- Foreclosure on pledged shares in a foreign (Ukrainian) company, of which 50%+ of the value is derived from real estate property located in Ukraine; and
- In case of foreclosure on a debtor’s assets located in Ukraine within enforcement (bankruptcy) proceedings, a foreign lender may be required to open a bank account at a Ukrainian bank, which would also require CIT registration with the Ukrainian tax authorities.
It is advisable to discuss the above issues in advance with your legal counsel.
6. What income of a non-resident company will be subject to CIT taxation in case of registration?
As a general rule, non-resident companies are obliged to pay CIT in Ukraine from incomes with their source derived from Ukraine. There are no requirements with respect to CIT taxation of a non-resident’s incomes derived from other jurisdictions (i.e. global incomes). Therefore, the registration with the Ukrainian tax authorities should not create any additional tax implications for non-resident companies, except for those related to the taxation of income originating in Ukraine. At the same time, non-resident companies would likely be required to comply with tax and financial reporting requirements in Ukraine.
Source: Law of Ukraine “On Amendments to the Tax Code of Ukraine Regarding Improvements of Tax Administration, Elimination of Technical and Logical Inconsistencies in Tax Legislation” No. 466-IX dated 16 January 2020 and Law of Ukraine “On Amendments to the Tax Code of Ukraine and other Laws of Ukraine regarding Data and Information Collection, required for Declaring certain Tax objects” No. 1117-IX of 17 December 2020