Pursuant to para. 141.4.2 of the Tax Code of Ukraine (hereinafter the TC of Ukraine) a non-resident engaged in business activities in the territory of Ukraine shall be entitled to a certain income (payments out of income) from the resident of Ukraine (or permanent representative office of such a non-resident). At the same time, such resident of Ukraine (or permanent representative office of a non-resident) according to the provisions of the TC of Ukraine is a person responsible for assessment and payment of taxes on income of a non-resident at the relevant rate, i.e. is a tax agent of the non-resident for payment of withholding tax.
It should be noted that in case a contract is concluded between a non-resident and a resident being the single tax payer, then, unlike in the cases of exemption from assessment and payment of certain taxes as specified in para. 297.1 of the TC of Ukraine for a single tax payer, such a counterparty of the non-resident shall also be obliged to assess and pay the withholding tax in such manner, amount and within such time limits as set forth by the TC of Ukraine as if it was a resident of Ukraine paying taxes on a common basis.
Attention! When concluding agreements with non-residents, it is not permitted to include tax covenants therein, according to which income-generating companies undertake to pay taxes on income of non-residents (para. 141.4.9 of the TC of Ukraine).
As regards the withholding tax rate, according para. 141.4.1 of the TC of Ukraine, pursuant to the general rule, an income generated by a non-resident with the source of origin in Ukraine is subject to taxation at the rate of 15 %, unless otherwise provided for by the international treaties of Ukraine with the countries of residence of the persons, for whose benefit the payments are made, that have entered into force.
For example, according to para. 2 of Art. 10 of the Convention between the Government of the Republic of Austria and the Government of Ukraine for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Property ratified by Ukraine on 17.03.1999, a resident of Ukraine shall not tax dividends from income of a resident of the Republic of Austria with the source of origin in Ukraine at the rate 15% as above, but at the rate established in the Convention, i.e. 5% or 10%.
At the same time, according to the provisions of para. 1 of Art. 10 of this Convention, the Republic of Austria may also tax such dividend at the rates in its domestic laws, but subject to the tax paid in Ukraine (Art. 23 of the Convention).
It should be noted that para. 103.2 of the TC of Ukraine also allows an exemption by the tax agent of the non-resident’s income from withholding tax. However, according to the case-law analysis, for this purpose a resident of Ukraine must necessarily have a documented proof of the non-resident status as a beneficiary (original or a notarized copy of the certificate issued by the competent authority of the non-resident’s country). After all, if the appropriate tax reports are received, the control authority, in case of any doubts about the correct application of the withholding tax by a resident of Ukraine, shall have the proper authority to send a special request to the relevant competent authority of the non-resident’s country. As a result of the received reply to such request regarding the non-resident’s status of a beneficial owner of the received income from the resident of Ukraine, the control authority shall send to the resident of Ukraine a tax assessment notice with a request to pay the accrued amount of the non-resident income tax and the appropriate penalties (Decree of the Dnipropetrovsk Administrative Court of Appeal dated 16.03.2017 in Case No. 804/3765/16).
The above is indicative of the need for the resident of Ukraine to comply with tax law requirements, taking into account the provisions of international treaties (conventions) being part of the Ukrainian tax legislation, in order to avoid excessive tax burden later on.