Business relations of foreign companies with non-residents have their own peculiarities, in particular, it concerns the terms of contracts and tax rules. More about the payment of income tax – below.
Terms of tax payment at a reduced rate
The procedure for taxation of income of non-residents with the source of their origin from Ukraine is regulated by item 141.4 of Art. 141 of the Tax Code of Ukraine (hereinafter – the Tax Code).
The tax at a reduced rate is withheld when a foreign legal entity pays passive income in favor of a non-resident, provided that the recipient is actually entitled to such income and provides a certificate confirming residency of the country with which Ukraine has an international agreement and other documents, if provided by the international agreement of Ukraine.
According to subitem 141.4.2 item 141.4 Art. 141 of the Tax Code, a resident or permanent establishment of a non-resident, making in favor of a non-resident or authorized person (except for a permanent representative office of a non-resident in Ukraine) any payment from income originating in Ukraine, received by such non-resident from business activities (including to non-resident accounts maintained in the national currency), withhold tax on such income specified in subitem 141.4.1 of the Tax Code at a rate of 15% (except for income specified in subitems 141.4.3-141.4.6 and 141.4.11 of the Tax Code) their amount and at their expense, which is paid to the budget at the time of such payment, unless otherwise is provided by the provisions of international agreements of Ukraine with the countries of residence of persons in whose favor the payments that have entered into force are made. The requirements of this paragraph do not apply to the income of non-residents received by them through their permanent representative office in Ukraine.
According to Art. 3 of the Tax Code, existing international agreements, the binding nature of which has been approved by the Verkhovna Rada of Ukraine and which regulate taxation issues, are part of the tax legislation of Ukraine. If an international agreement, the binding nature of which has been approved by the Verkhovna Rada of Ukraine, establishes rules other than those provided for by the Tax Code, the rules of the international agreement shall apply.
According to item 103.2 Art. 103 of the Tax Code, which establishes the procedure for applying the international agreement of Ukraine on avoidance of double taxation in respect of full or partial exemption from taxation of income of non-residents originating in Ukraine, a person (tax agent) has the right to apply tax exemption or reduced tax rate, provided by the agreement of Ukraine at the time of payment of income to a non-resident, if such non-resident is a beneficial (actual) recipient (owner) of income and is a resident of the country with which Ukraine has concluded the international agreement of.
The application of an international agreement of Ukraine in terms of exemption from taxation or the application of a reduced tax rate is allowed only if the non-resident provides a person (tax agent) with a document confirming the status of a tax resident.
The basis for exemption (reduction) from taxation of income with its source of origin from Ukraine is the submission by a non-resident to a person (tax agent) who pays income, a certificate (or its notarized copy) confirming that the non-resident is a resident of the country with which Ukraine concluded the international agreement (hereinafter – the certificate), as well as other documents, if provided by an international agreement of Ukraine (item 103.4 Art. 103 of the Tax Code).
In accordance with item 103.5 Art. 103 of the Tax Code the certificate is issued by the competent (authorized) body of the country, defined by an international treaty of Ukraine, in the form approved by the legislation of the country, and must be properly legalized, translated in accordance with the laws of Ukraine.
