The Parliament of Ukraine ratified the Protocol amending the Double Taxation Agreement between Ukraine and Switzerland on 18 September 2019.
Main changes embedded:
1. Dividends: application of the reduced 5% withholding tax (WHT) rate to a beneficial owner who holds directly a stake of at least 10% of the distributing company capital (instead of the previous 20%). The 15% WHT is applied to all other cases.
- Interest: abolition of 0% and 10% WHT rate is superseded by a 5% WHT rate for all interest payments. The exemption (0% rate application) is still reserved/applied to for interest payments if one transactions‘ party involves State, political subdivision, local authority, or export financing agency.
- Royalties: 5% WHT rate is established for all intellectual property types instead of 0% and 10%.
- The Principal Purpose Test is introduced. This abuse clause verifies the objective of a transaction, and if the tax benefit is proven as the principal purpose of this associated transaction – the tax benefit may not be granted for this particular transaction. However, before a denial of tax benefit, consultations between the State competent authorities are required.
- Exchange of information upon request is prescribed according to the international standard (s).
- These changes to the Double Tax Treaty Agreement come into force after the states notify each other about the completion of the required internal procedures. In case both parties complete all the formalities till the end of 2019, the changes would come into force starting from 1 January 2020.
- Consider your financing, royalty agreements, and payment schedules in the view of WHT rate increasing.
- Keep in mind the decreased qualified participation in the company distributing dividends to 10% in the light of the corporate, financial and operational structure as well.