On October 6th 2016, the Ukrainian State Fiscal Service
("USFC") released Guidance Letter
("Letter"), which clarifies the terms of
application of the reduced rate of withholding tax
("WHT") on dividends, paid by an
Ukrainian legal entity to a Cypriot legal entity according to the
provisions of the effective double-tax treaty
("DTT"), signed between Cyprus and
Ukraine in 2012.
In accordance with the Letter, a reduced rate of WHT - 5 %,
instead of 15 % standard rate - can be applied to dividends paid by
an Ukrainian tax resident legal entity to a Cypriot legal entity,
which a) owns 100% of the share capital of such entity and b) is a
beneficial owner of such income.
The position of the USFS was based on the following facts:
According to article 10 of the DTT, a reduced rate of WHT levied
on dividends paid by Ukrainian legal entity, (namely 5%) can be
applied if the beneficial owner, i.e. a Cypriot legal entity, holds
at least 20% of the capital of the paying company or has invested
in the acquisition of the shares or other rights of the company in
equivalent of at least €100,000.
Based on article 103 of the Tax Code of Ukraine
("TCU"), a reduced tax rate foreseen by
a DTT can be applied if the Cypriot legal entity is a beneficial
recipient (owner) of the income and is a tax resident of a country
with which Ukraine has signed a DTT. Proof of tax residency should
be provided in this case.
Pursuant to the decision of the High Administrative Court
К/800/52155/13 from March 24, 2014, beneficial ownership
should not be treated in a narrow technical sense, but rather it
should be considered within a context of tax avoidance and tax
treaty abuse. Thus, a real beneficial owner is a person who
possesses not only a legal ownership over the profits received, but
economic ownership as well, i.e. can determine the subsequent
economic "fate" of such income.
If a recipient of the dividends does not meet those
requirements, the standard 15% rate of the WHT should be
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.
The signing of a double taxation agreement between the UK and the UAE in April 2016 was undoubtedly much anticipated and marks a new milestone in the successful expansion of the UAE's international tax treaty network.
Compared with the previous year, which saw the introduction of significant new incentives, including exemption of investment income of non-domiciled individuals...
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”
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).