Corporate residence is determined by the place of incorporation.
However, starting from 1 January 2021, legal entities established under the laws of other countries, but have an effective management in Ukraine, are recognised as corporate income tax payers in Ukraine on a general basis.
Importantly, such corporate income taxpayers 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 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 the tax purposes in Ukraine.
Note, transactions performed between a non-resident and its PE in Ukraine are considered controlled for transfer pricing purposes if their value exceeds UAH 10 million (net of indirect taxes) for the corresponding tax (reporting) year.