Structuring Investments In / From Ukraine through Cyprus
Cyprus and Ukraine signed a Protocol which is amending the existing Double tax avoidance agreement on income and capital taxes.
The provisions are going to enter into force on 1
st January 2018.
The aim goal of the Protocol is the engagement of the developing of trade between the two countries.
The protocol is based on the OECD Model Tax Convention for the avoidance of double taxation of income and capital.
Main changes of the new Protocol are:
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Ukraine – Cyprus Double Tax Treaty main provisions applicable up to 1 January 2019
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Tax rate on profits on 5%, if the beneficial owner of the shares is a company with at least 20% capital or has invested at least € 100,000 in the acquisition of shares
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Withholding tax rate on interest 2%
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Withholding tax rate on royalties 5%. This applied on a copyright of scientific work, a patent, trademark, secret formula, and 10% applies on all other cases
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Capital Gains Tax – The shares of the company are liable without taxation in the country of the company is holding the property. The taxing right rests with the country of the seller.
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Ukraine – Cyprus new protocol effective as from 1 January 2019
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Tax rate on profits on 5%, if the beneficial owner of the shares is a company with at least 20% capital and has invested at least € 100,000 in the acquisition of shares.
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Withholding tax rate on interest 5%
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Withholding tax rate on royalties 5%. This will be applied on a copyright of scientific work, a patent, trademark, secret formula, and 10% applies on all other cases
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Capital Gains Tax – Shares in a company owing immovable property (deriving at least 50% of their value from immovable property) are disposed without taxation in the country in which the immovable property is situated (subject to exemptions i.e. for entities listed on an approved stock exchange, where the immovable property is used in the company's business of public companies, Real Estate Funds etc.)
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Other important considerations
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If Ukraine agreed a Double Tax Treaty with another country that provides for more favorable provisions for dividends, interest, royalties and capital gains than those provided to Cyprus, then the Cyprus-Ukraine Double Tax Treaty should be amended accordingly.
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Changes of the definition of Permanent Establishment, the adoption of the beneficial ownership principle, the exchange of information in tax matters i.e. information will be as much information as is foreseeably relevant etc.