A non-resident enters property in the share capitalof Ukrainian limited liability company.
Should such a transaction be subject to VAT?
The State Fiscal Service of Ukraine in its letter considered several options of entering immovable property, located at the territory of Ukraine, to the share capital of Ukrainian LLC by the non-resident - through a permanent representation or directly. The conclusions of the letter refer to VAT and in general they are clear and transparent.
Thus, if the property is entered through a permanent representation registered by the VAT payer, such transaction is to be taxed by VAT.
If the property is entered directly by a non-resident, who does not have a permanent representation in Ukraine, then the transaction is not subject to VAT.
We do not argue about these conclusions
But it is interesting what exactly the SFSU did not mentioned. The point is that if the property located in Ukraine is entered in the share capital, then from the point of view of the repatriation tax, such a transaction can be regarded as a sale by a non-resident of Ukrainian property (sub-para. “д” of para. 141.4.1 of TCU). This means that, despite the fact that such a transaction is not subject to VAT, it should be taxed by the repatriation tax. Moreover, since, in accordance with the Double Taxation Avoidance Conventions on transactions for the property sale are taxed where such property is located, this transaction must be taxed in Ukraine in full, at a rate of 15%. Therefore, as you can see, saving on VAT in this case leads to overpayment of the repatriation tax.
