Corporate residence is determined by the place of incorporation.
However, starting from 1 January 2022, legal entities that are established under the laws of other countries, but have an effective management in Ukraine, are recognised as CIT payers in Ukraine on a general basis.
Importantly, such CIT payers should not be taxed with respect to their foreign income.
Permanent establishment (PE)
The Ukrainian definition of a PE generally follows the PE definition from the Organisation for Economic Co-operation and Development (OECD) Model Tax Convention, but with stronger agency tests.
In particular, a non-resident’s PE is defined as a fixed place of business through which the business activity of a non-resident entity is wholly or partly carried out in Ukraine. A PE includes, among other things, a place of management, affiliate, office, server, etc.
The Tax Code contains the concept of a service PE whereby the provision of services (apart from the provision of personnel), including consultancy services, by a non-resident through its employees or other personnel in Ukraine, shall constitute a Ukrainian PE of this non-resident, provided such activities (within the framework of one project) last more than 183 days in any 12-month period.
A construction site in Ukraine may also give rise to a taxable presence of a non-resident in Ukraine in the form of a PE if the length of the construction activities (within one or few related projects) performed by a non-resident through its employees or other attracted personnel exceeds 12 months.
The Tax Code also provides for the concept of a non-dependent agent, which means, specifically, a Ukrainian agent acting on behalf of more than one non-resident in the ordinary course of its business should not constitute a PE in Ukraine.
Still, there is a list of exclusions from the PE definition. In particular, according to the Tax Code, auxiliary and preparatory services of a non-resident, as well as their combination, should not result in the creation of a PE. However, in practice, the Ukrainian tax authorities usually interpret the term ‘business activity’ in a very broad sense, and, without the DTT protection, may consider any type of activity as giving rise to a taxable presence (i.e. a PE) of a foreign entity in Ukraine.
At the same time, a PE of a non-resident may also be recognised if several non-resident related parties carry out activities in Ukraine and such activities together go beyond the preparatory or auxiliary nature for such group of non-residents. However, this applies only to cases when the activities of non-resident related parties in Ukraine together constitute closely related functions of a business process.
Moreover, if the activity of a non-resident triggers creation of the PE, the Ukrainian tax authorities have the right to perform a mandatory registration of such non-resident for tax purposes in Ukraine. A non-resident carrying out business activities in Ukraine via its PE should also get registered with Ukrainian tax authorities as a CIT payer.
Note that transactions performed between a non-resident and its PE in Ukraine are considered controlled for transfer pricing purposes if their value exceeds 10 million Ukrainian hryvnias (UAH) (net of indirect taxes) for the corresponding tax (reporting) year.