Ukraine: The Private Wealth And Private Client Review 2016: Ukraine

Last Updated: 14 November 2016
Article by Alina Plyushch and Dmitriy Riabikin

Most Read Contributor in Ukraine, October 2017

I  INTRODUCTION

Following Ukraine's 2014 announcement of its intention to create a single economic and social space with the European Union, Ukrainian legislation is undergoing fundamental changes aimed at its harmonisation with EU Law. Following simultaneous ratification of the Association Agreement with the EU by the Verkhovna Rada (the parliament of Ukraine) and the European Parliament, on 16 September 2014, the government of Ukraine commenced substantial reforms of the law, with new taxation, corporate and banking law bills being passed into law on an almost monthly basis. Implementation of the Association Agreement is designed to create new opportunities both for Ukrainian businesses in Europe and for foreign investors in Ukraine.

In 2015, the EU decided to open a formal process that will result in the introduction of a visa-free regime for Ukrainian citizens. The EU has set a number of strict criteria, including substantial changes in the regulation of border control passport rules and exchange of information, which will create a regulatory framework for visa liberalisation with the EU. The introduction in 2016 of a new electronic declaration system for politically exposed persons is aimed at fighting corruption, which is one of the key targets in the EU's path before the visa liberalisation decision is taken.

On 18 December 2015, the EU Commission in its Sixth Progress Report on the Implementation by Ukraine of the Action Plan on Visa Liberalisation confirmed that Ukraine has fulfilled all of its obligations on the path to visa liberalisation with the EU.

Ukraine is also seeking to increase transparency of its business and ownership in line with the recent global trend to increase transparency and accountability of business. As part of this process, Ukraine has recently introduced a public register of ultimate beneficial owners of bodies corporate.

In April 2016, in line with the global de-offshorisation trend, the president of Ukraine created the Special Working Group on de-offshorisation. The group aims to develop a de-offshorisation law by the end of 2016.

Another substantial international instrument that influences Ukrainian legislative reforms is the Extended Fund Facility (EFF) between Ukraine and the International Monetary Fund (IMF), approved on 11 March 2015 by the IMF Executive Board, which superseded the previous stand-by arrangements. In accordance with the EFF, Ukraine is obliged to implement a number of fiscal, economic and legislative measures under the IMF's supervision.

In compliance with the EFF, significant changes were introduced to the regulation of banking and energy sectors, anti-money laundering, anti-corruption and investor protection regimes. The general drive of these reforms is aimed towards the introduction of recognised international standards (including those of the IMF, the EU and the FATF) in these areas. However, practical achievements of these reforms remain modest.

In recent years, Ukrainian business people were primarily focused on effective wealth protection and management mechanisms. The armed conflict in the eastern Ukrainian region of Donbas and the still substantial level of corruption continues to make wealth preservation and protection a number one priority.

II TAX

Taxation of individuals in Ukraine depends on the tax residence, source and type of income.

i Tax residency

The Tax Code of Ukraine (the Tax Code) provides the following residency tests to determine the individual's tax residency: (1) residence (permanent residence in Ukraine for a period exceeding 183 days); (2) centre of vital interests (close economic and personal ties); and (3) citizenship.

Registration of an individual as an entrepreneur in Ukraine is also sufficient to recognise this individual as a Ukrainian tax resident. In addition, an individual may voluntarily accept to become a tax resident in Ukraine in accordance with the procedures set out in the Tax Code.

Despite the above tests, in practice the main test to determine the tax residency regularly applied by the Ukrainian tax authorities is the number of days spent by an individual in Ukraine in a calendar year.

For the purposes of the Tax Code any person who fails to qualify as a Ukrainian tax resident is considered to be a non-resident of Ukraine for tax purposes.

ii Source of income

Tax residents of Ukraine pay tax on their aggregate worldwide income. Non-residents pay tax on Ukrainian-sourced income only. Non-resident individuals are not eligible for certain deductions and exemptions available to residents for personal taxation purposes.

iii Types of taxable personal income

The Tax Code recognises both monetary and non-monetary personal income.

The Tax Code provides for the following taxable types of personal income (irrespective of residency): employment income, interest and dividends income, gifts, inheritance, investment income, insurance payments, rental income, fringe benefits, amounts of punitive damages paid and written-off payment obligations to third parties, etc.

The Tax Code specifically excludes certain types of income from the taxable basis of both residents and non-residents.

In addition, certain categories of low-income taxpayers are entitled to reduce their respective incomes by an amount of the 'social tax benefit'.

The Tax Code prescribes that if so provided by the respective international tax treaties, amount of taxes paid by a tax resident outside Ukraine may be used as credit against the amount of taxes to be paid in Ukraine, provided that the taxpayer submits a written confirmation from the foreign tax authority acknowledging that such foreign taxes have in fact been paid. However, the total amount of such foreign tax credit may not exceed the total amount of the personal income tax (PIT) due in Ukraine.

iv Rates

In 2016, a flat rate of 18 per cent personal income tax was introduced for most types of income for both residents and non-residents.

Passive income, such as dividends, interest and royalties, is generally taxable at the rate of 18 per cent, except for dividends distributed (accrued) by corporations that are subject to corporate income tax at the 5 per cent rate. Notwithstanding, the 18 per cent rate applies if the dividends are distributed (accrued) by collective investment schemes.

Income derived from disposal of real estate is taxed at the rate of either zero per cent or 5 per cent depending on (1) the type of property, (2) the frequency of disposals, and (3) the duration of the seller's title to such property. However, disposal of real estate made by a non-resident is taxed at the rate of 18 per cent.

Standard rate for disposal of moveable property (such as vehicles) is 5 per cent. A single disposal of a car or a motorcycle within a year is non-taxable. An 18 per cent tax rate applies to the non-resident's income from a disposal of moveable property in Ukraine.

v Gift and succession taxes

Gifts and inheritance are taxable income and both are subject to the PIT at the rate of zero per cent, 5 per cent or 18 per cent. The exact applicable rate depends on the residency status of the donator or the testator and on the degree of relation between the donator or the testator and the recipient or the heir (varying from zero per cent for spouses and children to 18 per cent for inheritance or gifts received from or by non-residents).

Tax residents shall pay income tax on inheritance and gifts irrespective of the location of the acquired assets.

vi Assets tax

Currently, the Tax Code has a consolidated assets tax that consists of land tax, non-land real estate tax and transport tax.

The land tax is payable by individuals holding title to or right of permanent use of land plots in Ukraine, irrespective of their tax residency. Particular land tax rates are determined by the municipal authorities and shall not exceed 12 per cent of the cadastral value of a land plot, depending on the type of land plot and the particular rights of its holder (i.e., either title or right to permanent use). The Tax Code provides for a number of tax exemptions regarding land tax depending, inter alia, on the status of an individual, the type of land plot, its size and the purpose of its use.

Residual and non-residual real estate owned by an individual is subject to a non-land real estate tax. The tax rates are set forth by the municipal authorities but shall not exceed 3 per cent of the minimum wage as of 1 January of the reporting (calendar) year per square metre. At the same time, the Tax Code sets forth certain exemptions for the real estate tax (e.g., the minimum size of a real estate, which is exempt from the real estate tax).

The first 60 square metres (for an apartment), 120 square metres (for a house) or 180 square metres (where an apartment and house are under the same ownership) are exempt from taxation. This exemption applies only once, irrespective of the number of properties in ownership.

If the taxpayer owns an apartment of more than 300 square metres or a house of more than 500 square metres, the amount of tax due increases by 25,000 hryvnas. Owners of vehicles registered in Ukraine, irrespective of their residency, are subject to transport tax in the amount of 25,000 hryvnas per vehicle that is less than five years old and has an average market value exceeding 750 minimum wages. The average market value for each type of vehicle is determined by the Ministry of Economic Development and Trade of Ukraine.

vii Military duty

To provide the Ukrainian armed forces with additional funding in view of the current political situation in Ukraine, the Verkhovna Rada has introduced a military duty. Military duty is levied on Ukrainian-sourced income of non-residents and on the worldwide income of the tax residents of Ukraine at the rate of 1.5 per cent.

viii Issues relating to cross-border structuring

Ukraine has a wide network of the double taxation treaties with approximately 70 countries. However, the double taxation treaties with such jurisdictions as Malta and Luxembourg are still pending ratification. The majority of the double taxation treaties entered into by Ukraine is based on the OECD model convention.

Currently while considering trans-border structuring options Ukrainian private business is focused on such jurisdictions as the Netherlands, Estonia, Hungary, Slovakia, Latvia and the UAE due to the favourable provisions of the respective double taxation treaties between Ukraine and these countries. While Cyprus remains to be one of the most popular and attractive cross-border structuring option for the majority of Ukrainian businessmen in tax planning and private wealth protection and preservation, the interest in structuring through the Netherlands, Estonia, Hungary, Malta, Luxembourg, the UAE and other jurisdictions with favourable tax regimes for holding, financial and operational companies will continue to grow for the observable future.

As a part of the tax reform the transfer pricing rules set in the Tax Code were significantly amended, in particular with regard to the list of transactions that are subject to the transfer pricing regulation (the TP Rules). The TP Rules are based on the OECD Transfer Pricing Guidelines. These regulations require that prices for goods and services in certain transactions shall be set on an arm's length principle.

To view the full article please click here.

* Alina Plyushch is a counsel and Dmytro Riabikin is an associate at Sayenko Kharenko.

Previously published in Law Business Research

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.