The advance payment paid in connection with the accrual and payment of dividends is an integral part of the income tax. It can not be regarded as a tax levied when the repatriation of dividends. Therefore, in the case of dividends payment to a legal entity, which is not a resident of Ukraine, the issuer of corporate rights must not only transfer to the state budget of Ukraine an advance payment of the income tax, but also a tax from the income of the non-resident (the so-called repatriation tax). Accordingly, the non-resident will receive the amount of dividends, reduced by the amount of this tax. More details about the taxation of dividends under such conditions are in the following.
Basic rules
The procedure for taxation of dividends paid in favour of legal entities − non-residents is defined in para. 141.4 of the Tax Code of Ukraine (hereinafter − TCU, sub-para.57.11.5 of TCU).
Dividends paid by the issuer − resident in favour of the non-resident are considered to be income of this non-resident with a source of their origin from Ukraine. As the functions of the tax agent are entrusted to the resident, it is he/she who withholds the tax at the rate of 15% from the amount of such payment. The tax is paid to the budget at the time of such payment and at its expense, provided that it is not otherwise stipulated by the provisions of international treaties of Ukraine with the countries of residence of persons, in favour of which the payments are made.
It should be reminded that non-residents are foreign companies, organizations formed in accordance with the laws of other states, their branches registered (accredited or legalized) in accordance with the legislation of Ukraine, representative offices and other separate units located in the territory of Ukraine; diplomatic missions, consular offices and other official representative offices of other states and international organizations in Ukraine; individuals who are not residents of Ukraine.
Appliance of international treaties
The procedure for the application of Ukraine’s international agreements on the avoidance of double taxation regarding the full or partial exemption from taxation of incomes of non-residents with the source of their coordination with Ukraine is contained in Art.103 of TCU.
A person considered as a tax agent of a non-resident has the right to independently apply exemption from taxation or a reduced tax rate provided for by the relevant international treaty of Ukraine for the period of payment of income to a non-resident, if such non-resident is the beneficiary (actual) recipient (owner) of income and resident of the country with which International treaty of Ukraine is concluded.
The appliance of the international treaty of Ukraine regarding exemption from taxation or the application of a reduced tax rate is permitted only if the non-resident provides the submittal of the document confirming the status of the tax resident to the tax agent. Such a document is a certificate (or a notarized copy thereof) confirming its non-resident status, as well as other documents provided for by the international treaty of Ukraine (para.103.2 of TCU).
However, the effect of international treaties does not apply to the payment of an advance contribution on the income tax. The amount of dividends payable is not reduced by the amount of the advance payment, and therefore, in case of paying dividends to its non-resident founders, the issuer accrues and deposits an advance contribution to the income tax at the rate of 18% according to the rules established by para. 57.11 of TCU.
As we can see, in fact, a non-resident does not pay the tax independently, but only in fact receives a reduced amount of income on this tax. The responsibility for the completeness of the retention and timeliness of transfer of the tax to the budget in this case is imposed by para.137.3 of TCU on the payers making such payments.
Taxation of dividends paid in foreign currency has its own specifics and is controlled by the National Bank.
