The Tax Code of Ukraine (hereinafter − CLE) does not contain such definition as “withholding tax”, but in practice it is called the tax on incomes of non-residents from a source of origin from Ukraine. It should be noted that not all the non-resident-legal entities need to pay the withholding tax. As well as not all the business entities are required to pay it. Who, in fact, is under the obligation to pay such a tax?
According to the sub-para.141.4.2 of the Tax Code of Ukraine (hereinafter − TCU), “resident or permanent establishment of non-resident, which performs in favour of a non-resident or a person authorized by him/her (except for non-resident permanent representative in the territory of Ukraine) any payment of income with a source of origin from Ukraine, thus obtained by the non-resident from economic activities (including on the accounts of non-residents that are conducted in the national currency), withhold the tax from such incomes specified in sub-paragraph 141.4.1 of this paragraph, at the rate of 15 percent (except for income indicated in sub-paragraphs 141.4.3−141.4.6 of this paragraph) their amounts and at their expense, which is paid into the budget at the time of such payment, unless otherwise provided by the provisions of international treaties of Ukraine with the countries of the persons for whose benefit payments are made, entered into force”. Therefore, residents (or representatives) who pay incomes from sources of origin from Ukraine should withhold the withholding tax from incomes of non-resident-legal entities.
According to general rules, residents are a wide range of individuals including individuals, whose place of residence is in Ukraine, and legal entities located in the territory of Ukraine and others.
However, for the purposes of sec.III of TCU (where the rules of income taxation of non-resident-legal entities prescribed) the definition “resident” has a different content. Thus, according to sub-para.14.1.213 of TCU, “if in Section III of this Code the term “resident” is used in appropriate cases, this term refers to persons defined by paragraph 133.1 of Article 133 of this Code” (this definition appeared in 2014 due to the Law of Ukraine of 24.10.2013, № 657-VII). At the same time, in sub-paragraphs 133.1.1 of TCU, the payers of the unified tax on the non-profit institutions are excluded from their number (it is said: “except for legal entities, determined by paragraphs 133.4 and 133.5 of this article”, and it is said about the unified tax payers and non-profit institutions).
The tax authorities came to a strange conclusion in the letter of the State Fiscal Service of Ukraine (hereinafter – SFSU) of 07.04.2016, № 7782/6/99-99-19-02-02-15: “According to paragraph 297.1 of Art. 297 of the Code, the unified tax payers are exempt from the obligation of calculation, payment and submission of tax reporting, in particular, under the company income tax, but are not exempt from payment of tax on income of non-residents originating from Ukraine”. The controllers did not remember in the letter about the definition “resident” from the sub-para.14.1.213 of TCU. Therefore, in spite of this explanation, we do not exclude that the tax authorities will talk about the need of unified tax payers to withhold taxes on the repatriation from incomes of non-residents. It is better for unified tax payers- legal entities that pay the incomes to non-resident companies to ask for personal tax advice (Articles 52, 53 of TCU).
As for the freight, the withholding tax from it is to be paid by legal entities that pay income in the form of freight to non-resident, regardless of the tax system (including legal entities- unified tax payers). But in relation to other incomes, the obligation to pay the withholding tax falls on the shoulders of taxpayers of income tax and the permanent missions.
It is also worth noting that the individuals-entrepreneurs, who pay income from sources originating from Ukraine to non-resident-legal entity, should not withhold the tax on the repatriation. It should be noted that for the purposes of sec.III of TCU, by residents obliged to pay the income tax they mean legal entities - income tax payers. However, earlier the controllers come to the conclusion in sub-category 102.23.02 ZIR contrary to the TCU (now the explanation is not valid). When asked: “Does the self-employed individual have the obligation to withhold tax on incomes of non-residents originating from Ukraine (including being on a simplified system of taxation) in case of income payments to non-residents − LE or person authorized by him/her and what reporting should be submitted by the self-employed individual?”, they answered: “Thus, business entity − individual − entrepreneur, who, according to the results of economic relations, exercises payment of income with a source origin from Ukraine for the benefit of non-resident − legal entity is obliged to withhold taxes on such income and at their own expense, unless otherwise provided by the provisions of the international treaty of Ukraine with the country of residence of the person in whose favour the payment is made”.
Thus, it could be said that all income tax payers − legal entities, except for those who are on the simplified tax system and those who have no profit, are the payers of the withholding tax in case of payment of income from sources of origin from Ukraine (the list contains paragraphs 141.4.1 of TCU) to non-residents-legal-entities. Only the payment of freight to non-resident has its particular qualities − legal entities responsible for withholding tax in this situation should pay such income irrespective of the tax system.
