The 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) has introduced certain changes regarding the non-residents taxation. Which exactly – below.
The list of taxable income has been expanded
Law No. 466 introduced a number of changes regarding the taxation of income of non-residents, in particular, the list of income received by a non-resident with the source of their origin from Ukraine, which are subject to taxation in accordance with paragraph 141.4.1, item 141.4 of Art. 141 of the Tax Code of Ukraine (hereinafter – Tax Code).
Such incomes are:
- leasing/rent paid by residents in favor of a non-resident lessor/landlord under operating lease/rental agreements;
- income from the sale of real estate located on the territory of Ukraine, which belongs to a non-resident;
- brokerage, commission or agency fees received from residents or permanent offices of other non-residents in respect of brokerage, commission or agency services provided by a non-resident in Ukraine for the benefit of residents;
- income from the alienation of rights to mining and development of mineral deposits, mineral springs and other natural resources located on the territory of Ukraine, which belong to a non-resident;
- other income from non-resident economic activity on the territory of Ukraine, except for income in the form of revenue or other types of compensation for goods, work performed, services rendered, transferred, performed, provided to a resident (permanent establishment of another nonresident) from such nonresident, including value of international communication services or international information support.
These incomes are taxed at a rate of 15%, unless otherwise provided by international treaty with the country.
If the income is paid to a non-resident in any form other than cash, or if the non-resident's income tax has not been deducted from the relevant income at the time of payment, such tax must be accrued and paid based on the calculation established by paragraph 141.4.2, item 141.4 of Art. 141 of the Tax Code.
Taxation of the amount of freight
The amendments introduced by Law No. 466 provide for the taxation of the amount of freight paid to a non-resident by a resident, including a sole proprietor, a natural person engaged in independent professional activity, or a business entity (legal entity or sole proprietor) who have chosen simplified taxation system, or another non-resident who conducts business activities through a permanent office under freight agreements.
Such amount of freight is taxed at the rate of 6% in the source of payment of such income at the expense of this income.
The basis for taxation is the base rate of such freight, and the persons authorized to collect the tax and pay it to the budget are the resident who pays such income, regardless of whether this person is a taxpayer or a subject of simplified taxation.
Production and distribution of advertising
Also paragraphs 141.4.6 of item 141.4 of Art. 141 of the Tax Code provides for the payment of tax by residents (including sole proprietors, natural persons engaged in independent professional activity, or business entities (legal entities or sole proprietors) who have chosen a simplified taxation system) when paying income to a nonresident for the production and/or distribution of advertising.
During such payment, tax is paid at the rate of 20% of the amount of such payments at own expense.
Permanent offices
Please note that Law No. 466 has also amended the procedure for taxation of income of non-residents who operate in Ukraine through a permanent office.
Thus, in accordance with paragraph 133.2.2, item 133.2 of Art. 133 of the Tax Code income tax payers are non-residents who carry out economic activities in Ukraine through a permanent office and/or receive income from a source in Ukraine, and other non-residents who are required to pay tax in the manner prescribed by this section.
The amounts of income of non-residents who carry out their activities on the territory of Ukraine through a permanent establishment are taxed in the general order. In this case, such a permanent establishment is equated for tax purposes to a taxpayer who conducts its activities independently of such a non-resident.
The permanent office determines the amount of taxable income received during the reporting (tax) period, in accordance with the arm’s length principle. The taxable income of a permanent office must correspond to the income of an independent enterprise carrying on the same or similar activities in the same or similar conditions and acting in complete independence from the non-resident which it represents.
The amount of taxable income of the permanent office is calculated in accordance with the provisions of Art. 39 of the Tax Code.
Thus, from May 23, 2020, permanent office of non-residents determine the taxable income in the general order established for corporate income taxpayers, but taking into account the arm’s length principle.
