In Ukraine, there is a permanent representation of a foreign company that carries out economic activity of the production of goods for animals in the territory of Ukraine. What tax nuances should be remembered?
Definition
We should first find out what “permanent representation” is. Consequently, permanent establishment is a permanent place of business through which the non-resident’s economic activity is fully or partially carried out in Ukraine, in particular: place of management; branch; office; factory; workshop; installation or construction for exploration of natural resources; mine, oil/gas well, mine or any other place of extraction of natural resources; warehouse or premises used for the delivery of goods, server (para. 1 of sub-para. 14.1.193 of the Tax Code of Ukraine, hereinafter − TCU).
Taxation
According to para. 133.2.2 of TCU permanent representations are the income tax payers.
According to para. 3.4.1 of the procedure for accounting of payers of taxes and fees, approved by the order of the Ministry of Finance of Ukraine dated 09.12.2011, No. 1588, separate subdivisions of legal entities − non-residents, which correspond to the definition of permanent missions in accordance with sub-para. 14.1.193 of para. 14.1 of Art. 14 of sec. I of TCU, before the beginning of their economic activity, should be registered (registered by payers of the income tax) in the supervisory authorities at their location.
At the same time, if the representation of a non-resident does not conduct business in Ukraine, it does not fall under the definition of “permanent representation”, given in sub-para. 14.1.193 of para. 14.1 of Art. 14 of TCU, and does not receive income from a source of origin from Ukraine or does not fulfil agency (representative) and other functions related to such non-residents or their founders, then it should not be registered by the taxpayer and submit a tax return of the company income tax.
If a non-resident carries out his/her activities in Ukraine and abroad and does not determine the income from his/her activities carried on through the permanent representation in Ukraine, the amount of taxable income in Ukraine is determined on the basis of a separate balance sheet drawn up by a non-resident for a financially- economic activity, agreed with the controlling body at the location of the permanent representation.
In case of impossibility to determine by direct calculation of incomes received by non-residents with a source of its origin from Ukraine, the taxable income is calculated by the controlling authority as the difference between income and expenses determined by applying the coefficient 0.7 (Calculation No. 2) to the amount of received income.
In accordance with the requirements of TCU in the case of carrying out or taxable transactions for the supply of goods, services for more than UAH 1 million, or free delivery within 12 calendar months, any entity must necessarily register as the value added tax payer (hereinafter − VAT ) and to keep records and reporting on this tax.
Salary and taxation
The Labor Code of Ukraine (hereinafter − the Labor Code) defines the legal principles and guarantees of obtaining citizens of Ukraine the right to dispose of their abilities to productive and creative work. This means that the citizens of the state and those with a work permit in Ukraine are subject to the norms and rules for the accruing of income in the form of salary and other payments.
In accordance with para. 10 of sec.I of Art. 1 of the Law of Ukraine “On the Collection and Registration of the Unified Contribution to the Mandatory State Social Insurance” of July 8, 2010, 2464-VI (hereinafter − Law No. 2464), policy holders are the employers and other persons who are obliged to pay the Unified social contribution (hereinafter − USC).
Insured person is an individual who, according to the law, is subject to mandatory state social insurance and pays (paid) and/or for whom the USC is/was paid according to the procedure established by the law (para. 3 of sec. I of Art. 1 of the Law No. 2464).
The USC payers are defined in sec. I of the Art. 4 of the Law No. 2464, which included, in particular, employers: diplomatic representations and consular offices of foreign states, branches, representative offices and other separated divisions of foreign enterprises, institutions and organizations (including international ones), located at the territory of Ukraine.
That is, the norms of the Law of Ukraine No. 2464 apply to the citizens of Ukraine, and the representations (both permanent and non-permanent) are obliged to carry out accrual of the USC, but foreign citizens (non-residents) who work in representative offices of foreign enterprises located at the territory of Ukraine, they are not subject to norms of art. 253 of the Labor Code of Ukraine (hereinafter − the Labor Code), therefore, are not subject to compulsory state social insurance. Accordingly, these representations are not policyholders for foreigners in the event of accrual and payment of wage income in Ukraine.
Another situation is with the income of individuals, which is taxed in accordance with para. IV of TCU. The taxation of income received by non-residents is regulated by para. 170.10 of TCU, which specifies that income from the source of their origin from Ukraine, which is accrued (paid, provided) in favor of non-residents, is taxed according to the rules and rates determined for residents (taking into account the specifics set some standards of TCU).
If an international agreement, the consent to which the Verkhovna Rada of Ukraine has made binding, establishes other rules of taxation than those provided for by TCU, the Rules of the international agreement should be applied.
According to the TCU, the taxpayer’s total monthly (annual) taxable income includes income in the form of wages accrued (paid) to the payer in accordance with the terms of the employment agreement (contract).
Salary is the basic and additional wages, other incentive and compensatory payments that are paid (provided) to the taxpayer in connection with the employment relationship. Accordingly, a tax agent who accrues (pays, provides) taxable income in favour of the payer is obliged to withhold the tax from the amount of such income at his/her expense, using the tax rate specified in Art. 167 of TCU.
The tax rate is 18% of the tax base in respect of income accrued in the form of wages, other incentive and compensatory payments, or other payments and rewards accrued to the payer in connection with the employment relationship.
If income from a source of origin in Ukraine is paid to a non-resident by a resident − a legal or self-employed individual, such a resident is considered as a tax agent of a non-resident in respect of such income. When concluding a contract with a non-resident, the conditions of which provide for receipt of income from sources of origin in Ukraine, the resident is obliged to indicate in the contract the tax rate to be applied to such income.
