Ukraine denounces the Agreement for the Avoidance of Double Taxation with Russia

25/ 05/ 2022

On May 22, 2022, the Verkhovna Rada of Ukraine adopted the Law On Denunciation of the Agreement between the Government of Ukraine and the Government of the Russian Federation for the Avoidance of Double Taxation of Income and Property and Prevention of Tax Evasion. The denunciation will have, in particular, the following implications: application of the regular withholding tax rate on Ukrainian-source income for residents of the Russian Federation – 15%, instead of the reduced rates established by the agreement (e.g. 5% – on dividends; 10% or 0% – on interest; 10% – on royalties) or exemption from taxation; disallowance to credit tax paid in the Russian Federation by residents of Ukraine operating in the Russian Federation; termination of tax information exchange procedures between Ukraine and the Russian Federation. The Law enters into force on the day following the day of its publication. Please note that in accordance with the provisions of the double taxation agreement itself, in the event of its denunciation by one of the parties, the agreement will be terminated no earlier than January 1, 2023. It should be noted that the United States, Germany, and the United Kingdom have expressed their solidarity with Ukraine and terminated tax information exchange procedures with the Russian Federation. Such actions will complicate effective collection of tax revenues to the budget of the aggressors country.

On May 22, 2022, the Verkhovna Rada of Ukraine adopted the Law “On Denunciation of the Agreement between the Government of Ukraine and the Government of the Russian Federation for the Avoidance of Double Taxation of Income and Property and Prevention of Tax Evasion”.

The denunciation will have, in particular, the following implications:

application of the regular withholding tax rate on Ukrainian-source income for residents of the Russian Federation – 15%, instead of the reduced rates established by the agreement (e.g. 5% – on dividends; 10% or 0% – on interest; 10% – on royalties) or exemption from taxation;
disallowance to credit tax paid in the Russian Federation by residents of Ukraine operating in the Russian Federation;
termination of tax information exchange procedures between Ukraine and the Russian Federation.

The Law enters into force on the day following the day of its publication. Please note that in accordance with the provisions of the double taxation agreement itself, in the event of its denunciation by one of the parties, the agreement will be terminated no earlier than January 1, 2023.

It should be noted that the United States, Germany, and the United Kingdom have expressed their solidarity with Ukraine and terminated tax information exchange procedures with the Russian Federation. Such actions will complicate effective collection of tax revenues to the budget of the aggressor’s country.