Business expects a prompt response from the Ministry of Finance regarding tax changes for foreign companies

05/ 04/ 2021

Thus, the Law of Ukraine №466-IX of January 16, 2020, introduced contradictory provisions on tax registration in Ukraine of non-residents who carry out economic activities on the territory of Ukraine and/or who have duly registered separate units on the territory of Ukraine. To comply with the new obligation, non-residents must submit documents for tax registration to the supervisory authorities within three months starting from January 1, 2021. From January 1, 2021, the list of non-resident income taxpayers excludes permanent establishments of non-residents and includes non-residents who carry out economic activities in Ukraine through a permanent establishment and/or receive income originating from Ukraine and other non-residents who are obliged to pay corporate income tax. The Tax Code of Ukraine requires the independent re-registration of non-residents who have already been duly registered as taxpayers in Ukraine by 2021 through their permanent establishments and separate units according to the rules in force before 2021. On March 19, 2021, Order №62 of the Ministry of Finance of Ukraine “On Approval of Amendments to the Procedure for Taxpayer Registration and Tax Accounting” of February 8, 2021, entered into force. It stipulates that non-residents, operating in Ukraine through separate units, including permanent establishments, who on the date of entry into force of this order are not registered with the supervisory authorities, are obliged to submit certain documents for registration within two months from the date of entry into force of this order (ie by May 19, 2021). In connection with these changes, a number of questions arose about its practical implementation for separate units of non-residents, which as of January 1, 2021, had already carried out the tax registration in accordance with the rules in force before January 1, 2021. Besides, Order № 62 and the State Tax Service in their letters proposed to introduce two tax registrations with different registration (accounting) tax numbers for non-residents and their representative office. According to the European Business Association, this approach is excessively burdensome, and it does not derive directly from the Tax Code of Ukraine and will lead to a significant number of complications in the administration of taxes. We believe that in cases where a non-resident operates in Ukraine through a permanent establishment in the form of a separate unit, the non-resident and its separate unit could have one registration (accounting) tax number, namely the USREOU code provided to the unit. The existence of two tax registrations with different registration numbers for a permanent establishment and a non-resident operating in Ukraine through such a representative office in the form of a separate unit is burdensome and does not comply with the Tax Code of Ukraine where in paragraph 14.1.122 the definition of “nonresident” implies both a foreign company and its separate unit. Therefore, we consider it necessary to make amendments to the Procedure for Taxpayer Registration and Tax Accounting, approved by Order №1588 of the Ministry of Finance dated December 9, 2011, to implement our proposed approach. Certain practical issues that have already arisen due to the introduction of the new rules of tax registration and administration also need to be clarified. Unfortunately, the authorities have not been able to address these issues so far. At present, there is a real threat that foreign companies may be forced to close their offices in order to avoid the unpredictable consequences of the new and unclear registration and administration procedure. Such ill-considered and unprepared changes sharply worsen Ukraines performance in various ratings and once again signal to investors about the indifference of the bureaucracy to the concerns of real transparent business. However, it also testifies to the unsatisfactory quality of work demonstrated by government officials. The European Business Association will continue to analyze changes and collect related questions from its members. Meanwhile, we expect urgent action from the Ministry of Finance of Ukraine if the implementation of the registration procedure approved by Order № 62 turns out to be excessively burdensome or contains a number of gaps/inconsistencies. The state should not be ashamed to correct its mistakes, if, of course, the state, represented by its officials, is generally concerned with the proper performance of its functions. Be the first to learn about the latest EBA news with our Telegram-channel – EBAUkraine.

From January 1, 2021, the list of non-resident income taxpayers excludes permanent establishments of non-residents and includes non-residents who carry out economic activities in Ukraine through a permanent establishment and/or receive income originating from Ukraine and other non-residents who are obliged to pay corporate income tax.

The Tax Code of Ukraine requires the independent re-registration of non-residents who have already been duly registered as taxpayers in Ukraine by 2021 through their permanent establishments and separate units according to the rules in force before 2021.

On March 19, 2021, Order №62 of the Ministry of Finance of Ukraine “On Approval of Amendments to the Procedure for Taxpayer Registration and Tax Accounting” of February 8, 2021, entered into force. It stipulates that non-residents, operating in Ukraine through separate units, including permanent establishments, who on the date of entry into force of this order are not registered with the supervisory authorities, are obliged to submit certain documents for registration within two months from the date of entry into force of this order (ie by May 19, 2021).

In connection with these changes, a number of questions arose about its practical implementation for separate units of non-residents, which as of January 1, 2021, had already carried out the tax registration in accordance with the rules in force before January 1, 2021.

Besides, Order № 62 and the State Tax Service in their letters proposed to introduce two tax registrations with different registration (accounting) tax numbers for non-residents and their representative office. According to the European Business Association, this approach is excessively burdensome, and it does not derive directly from the Tax Code of Ukraine and will lead to a significant number of complications in the administration of taxes.

We believe that in cases where a non-resident operates in Ukraine through a permanent establishment in the form of a separate unit, the non-resident and its separate unit could have one registration (accounting) tax number, namely the USREOU code provided to the unit.

The existence of two tax registrations with different registration numbers for a permanent establishment and a non-resident operating in Ukraine through such a representative office in the form of a separate unit is burdensome and does not comply with the Tax Code of Ukraine where in paragraph 14.1.122 the definition of “nonresident” implies both a foreign company and its separate unit.

Therefore, we consider it necessary to make amendments to the Procedure for Taxpayer Registration and Tax Accounting, approved by Order №1588 of the Ministry of Finance dated December 9, 2011, to implement our proposed approach.

Certain practical issues that have already arisen due to the introduction of the new rules of tax registration and administration also need to be clarified. Unfortunately, the authorities have not been able to address these issues so far.

At present, there is a real threat that foreign companies may be forced to close their offices in order to avoid the unpredictable consequences of the new and unclear registration and administration procedure.

Such ill-considered and unprepared changes sharply worsen Ukraine’s performance in various ratings and once again signal to investors about the indifference of the bureaucracy to the concerns of real transparent business. However, it also testifies to the unsatisfactory quality of work demonstrated by government officials.

The European Business Association will continue to analyze changes and collect related questions from its members. Meanwhile, we expect urgent action from the Ministry of Finance of Ukraine if the implementation of the registration procedure approved by Order № 62 turns out to be excessively burdensome or contains a number of gaps/inconsistencies.

The state should not be ashamed to correct its mistakes, if, of course, the state, represented by its officials, is generally concerned with the proper performance of its functions.

Be the first to learn about the latest EBA news with our Telegram-channel – EBAUkraine.