Law of Ukraine “On Amendments to the Tax Code of Ukraine to Improve Tax Administration, Eliminate Technical and Logical Inconsistencies in Tax Legislation” No. 466-IX of January 16, 2020 (hereinafter – Law No. 466) changes the approach to determining dividends, makes adjustments to the list of income received by a non-resident with a source of origin from Ukraine, as well as investment assets. More about this below.
Dividends
As of January 1, 2020, the approach to determining dividends will change. Thus, for the purpose of taxation, namely income tax the following are considered as dividends (subitem 14.1.49 of the Tax Code):
- cash or non-cash payment made by legal person in favor of its founder and/or participant(s) in connection with the distribution of net profit (its part);
- the amount of income in form of payment for securities (corporate rights), that are paid in favor of non-resident specified in paragraphs “a”, “c”, “d” of subitem 39.2.1.1 of the Tax Code, in controlled transactions excessing the amount that complies with the arm’s length principle;
- the value of goods (works, services), except for securities and derivatives that are purchased from non-resident specified in paragraphs “a”, “c”, “d” of subitem 39.2.1.1 of the Tax Code, in controlled transactions excessing the amount that corresponds to the arm’s length principle
- the amount of understatement of goods (works, services) sold to non-resident specified in paragraphs “a”, “c”, “d” of subitem 39.2.1.1 of the Tax Code, in controlled transactions compared to the amount corresponding to the arm’s length principle
- cash or non-cash payment made by legal person in favor of owner and/or participant – non-resident of Ukraine in connection with reduction of authorized capital, buy-out of corporate right by legal person in its capital, withdrawal of a participant from business entity or other similar transaction between the legal person and its participant in amount that leads to a decrease in retained profit of the legal person.
Income in kind
Law No. 466 expands a bit the list of income received by non-resident with its source of origin in Ukraine. As of January 1, 2020, such income will be also other income from business activity in Ukraine, except for income in kind or other types of compensation for the value of goods, works performed or services rendered, transferred, completed or provided to the resident (permanent representative office of another non-resident) by such non-resident including the value of services for international communication services of international information support.
Withholding tax will continue be collected from this and other income with their source of origin in Ukraine. The procedure for determining income that is paid to non-resident in any form other that cash or when the non-resident income tax is not deducted from the relevant income at the time of payment (including during the payment of income that equals to dividends) will change. Such tax is accrued and paid based on the following calculation:
Пс = СД × 100 ÷ (100 – СП) – СД, where:
Пс – amount of tax to be paid;
СД – amount of income paid;
СП – tax rate set by this subitem.
Investment assets
Paragraph “g” of subitem 141.1.1 of the Tax Code lays down the list of investment assets of non-residents, selling which the non-resident receives income that is subject to withholding tax at 15% rate and non-resident income tax. These rules are effective as of July 1, 2020.
