Passive income (dividends, interest, royalties) from Ukrainian sources that is paid to non-resident entities is generally subject to 15% WHT. Other payments, including payments for engineering services, lease payments, and agency and brokerage fees, are also subject to 15% WHT, but payments for most other services are not subject to withholding. WHT rates may be reduced under a relevant tax treaty.
The 15% WHT rate applies to income (rather than capital gain) on the sale of real estate and on profits from the sale of securities.
Capital gains from disposal of interest-free (discounted) bonds and treasury bills are taxed at an 18% rate.
Payments for freight services (including sea freight) are subject to 6% WHT.
А special 5% WHT rate on qualifying Eurobond yield applies (excluding payment of interest to residents of low-tax jurisdictions).
Interest payable under a syndicated loan through the organising bank may be subject to reduced WHT rates under the DTTs between Ukraine and the country of residence of each participating bank.
The non-resident recipient of income sourced in Ukraine must also be considered the beneficial owner of such income in order to benefit from the reduced tax rates under relevant tax treaties. According to the Tax Code, agents, nominee holders, and other intermediaries in respect of received income cannot be beneficial owners of income sourced in Ukraine, and, therefore, are not entitled to favourable treaty provisions.
As a general rule, the WHT due should be withheld and remitted to the tax authorities by the Ukrainian taxpayer that makes respective payment to a non-resident and no later than the date of such payment.
Payments to non-residents for advertising services are not subject to WHT. However, the resident payer is required to pay, from its own funds, a 20% remittance tax based on the value of such services.
A resident payer is similarly required to pay, from its own funds, a 12% remittance tax if a payment is made to a foreign insurer or reinsurer whose rating of financial reliability does not meet the requirements set by the authorised state agency. Otherwise, 0% or 4% rates apply depending on the type of reinsured risk.
As taxes on advertising and insurance are levied on a resident party, they cannot be relieved using a tax treaty.
On 1 December 2019, the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) came into force for Ukraine. However, certain new rules will take effect later. The rules concerning WHTs (e.g. the 365-day rule for capital gains) may be applied not earlier than 1 January 2020. The changes to the PE definition will take effect six months after the MLI's entry into force for Ukraine.
Ukraine decided that the MLI should cover all of its DTTs (except for the recently signed treaty with Qatar), but not all other countries choose to apply the MLI to their treaties with Ukraine. Therefore, not all treaties with Ukraine will be modified by the MLI.
Ukraine chose the following MLI novelties/amendments to apply to its treaties:
- Principal purpose test (PPT).
- Changes to the PE definition.
- Anti-abuse rule for PEs located in third jurisdictions.
- 365-day rule for capital gains.
- Improvements to the mutual agreement procedure.
It is noteworthy that the new rules apply to a certain treaty only if the other signatory thereto also chooses to apply the same rules.
Reduced treaty rates
|Dividends||Interest (2)||Royalties (3)|
|Non-resident individuals||5/18 (4)||5/18 (4)||18||18|
|Austria (18)||5||10||2/5 (5)||0/5|
|China, People’s Republic of||5||10||10||10|
|Finland||0/5 (8)||15||5/10 (7)||0/5/10|
|France||0/5 (9)||15||2/10 (5)||0/5/10|
|Korea, Republic of||5||15||5||5|
|Netherlands (20)||0/5 (11)||15||2/10 (5)||0/10|
|Qatar (rates effective starting from1 January 2020)||5||10||5/10 (17)||5/10|
|Russian Federation||5 (13)||15||10||10|
|Sweden||0/5 (14)||10||0/10 (5)||0/10|
|Switzerland (21)||5||15||0/10 (5)||0/10|
|United Arab Emirates (23)||5||15||3||0/10|
|United Kingdom (22)||5||10||0 (15)||0 (15)|
- The ownership threshold for the non-portfolio rate is 10%, 20%, 25%, or 50%, depending on the specific provisions in the treaty.
- Several treaties contain a rate of 0% on interest paid to or guaranteed by a government or one of its agencies.
- If more than one rate is shown, this means that the rate will depend on the type of royalties paid.
- The 18% rate applies to dividends from privileged shares or other fixed payments on shares, as well as to disguised employment income. Dividends received from a Ukrainian legal entity CIT payer (other than collective investment arrangement) are subject to the 5% rate. Dividends received from collective investment funds are subject to the 9% rate.
- The lower rate applies to interest paid on certain credit sales and on loans granted by a financial institution.
- The treaties with Japan, Malaysia, and Spain were entered into by the USSR before it dissolved. Ukraine will continue to honour these treaties, unless they are superseded. A new treaty with Malaysia has already been signed and awaits ratification from the Malaysian side. Ukraine has already ratified the new treaty. This new treaty provides for 5%/15% rate for dividends, 10% for interest, and 8% for royalties. A new treaty with Spain is announced to be signed soon.
- The lower rate applies to interest paid in connection with the sale on credit of any industrial, commercial, or scientific equipment, unless the debenture is between associated enterprises.
- The 0% rate applies if the investor holds at least 50% of the capital of the company paying the dividends and the capital invested is at least 1 million United States dollars (USD); the payer of dividends should not operate in the field of gambling, show business or an intermediation business, or in auctions.
- The 0% rate will apply if a French company or companies hold, directly or indirectly, at least 50% of the capital of the Ukrainian company, and the aggregate investments exceed 5 million French francs.
- The lower rate applies to interest paid on any loan granted by a bank.
- The 0% rate applies if the investor directly holds at least 50% of the capital of the company paying the dividends, and the capital invested is at least USD 300,000.
- The 10% rate applies if the company receiving the dividend has, for an uninterrupted period of two years before the dividend is paid, owned at least 25% of the capital stock of the company paying the dividends.
- The 5% rate applies if the capital invested is at least USD 50,000.
- The 0% rate applies if the Swedish company directly holds at least 25% of the voting power of the company paying the dividends and at least 50% of the Swedish company is held by Swedish residents.
- The 0% rate applies only if the interest/royalties are taxable in the United Kingdom.
- The 5% rate on dividends applies if the Cypriot company holds at least 20% of the capital of the Ukrainian company paying the dividends and the capital invested is at least 100,000 euros (EUR).
- The lower rate applies in the case of interest paid in connection with the sale on credit of industrial, commercial, or scientific equipment or on any loan granted by a bank.
- The Protocol amending the treaty with Austria is announced to be signed soon. Under the draft Protocol, the WHT rates will rise as follows: for dividends from 10% to 15%; for interest from 2% to 5%; for royalty from 0%/5% to 5%/10%.
- Ukraine signed a treaty with former Yugoslavia before it dissolved. Ukraine applies this treaty in its relations with current Montenegro and Serbia, unless the treaty is superseded.
- The treaty with the Netherlands is amended by a Protocol, which awaits ratification. Under the amended treaty, there will be no WHT exemption for dividends. The new WHT rates will be as follows: 5%/15% for dividends, 5%/10% for interest, and 5%/10% for royalty.
- The treaty with Switzerland is amended by a Protocol that has been already ratified by Ukraine, but still awaits finalisation of the ratification procedures from the Swiss side. Under the amended treaty, there will be a unified 5% WHT rate for all types of interest and royalty payments.
- The treaty with the United Kingdom is amended by a Protocol that awaits the finalisation of ratification procedures. Under the amended treaty, WHT rates will be as follows: 5%/15% for dividends, 5% for interest, and 5% for royalty.
- The Protocol amending the treaty with the United Arab Emirates is announced to be signed soon. Under the draft Protocol, the WHT rates will rise as follows: for interest from 3% to 5%; for royalty from 0%/10% to 5%/10%.