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What Has Changed for Non-Residents in 2020?

07/ 10/ 2020
  Halyna Zelinska. Accountant, Tax Expert of Accountor Ukraine Accountor Ukraine reminds that on May 23, 2020 the Law of Ukraine of January 16, 2020 # 466-IX On Amendments to the Tax Code of Ukraine to Improve Tax Administration, Eliminate Technical and Logical Inconsistencies in Tax Legislation (hereinafter - Law 466) entered into force. This Law is related to the implementation of BEPS (Base Erosion and Profit Shifting) in Ukraine, in particular, to Action 7 of BEPS: “Preventing the Artificial Avoidance of Permanent Establishment Status”. What has changed for representative offices? 1) The concept of a permanent establishment under the TCU has been supplemented by the following paragraphs: The presence of parties who on the basis of an agreement, other transaction or factually have and exercise the authority to negotiate the essential terms of transactions, resulting in the non-resident entering into agreements (contracts) without significant change of such conditions and/or entering into agreements (contracts) on behalf of the non-resident, if the specified activity is carried out by a party in favor of, at the expense of and / or for the benefit of only one non-resident and / or other related non-residents, The presence of parties who on the basis of a contract, other transaction or factually have and exercise the authority to hold (store) stock (goods) belonging to a non-resident, from whose warehouse deliveries of stock (goods) on behalf of the nonresident are made, except for residents owning temporary storage warehouses or customs warehouses. 2) The list of criteria for recognizing a Representative Office as a Permanent Establishment has been supplemented as follows: provision of mandatory instructions by a non-resident, including the ones sent by means of electronic communication, and their implementation by a party in Ukraine; the employee of the Representative Office uses the corporate e-mail of a non-resident and / or their related parties for communication with the non-resident and / or with third parties who the non-resident has already concluded or will conclude agreements or other transactions with; the party rents premises on their own behalf for storage of property acquired at the expense of a non-resident or belonging to a non-resident or third parties which is subject to transfer to third parties at the instruction of the non-resident. 3) According to the results of the first half of 2020, Permanent Establishments must file a Corporate Income Tax return. The calculation of income tax # 544 for non-residents (0.7), approved by the order of the Ministry of Finance of 13.06.2016, is no longer valid; 4) Non-permanent Representative Offices, which, according to the new criteria, have the characteristics of permanent establishments, shall be registered as Permanent Representative Offices. In turn, the powers of the tax authorities have been increased: if a non-resident’s activities meet the criteria of a permanent establishment, the tax authorities may independently register this non-resident based on the results of an inspection of its activities. Accountor Ukraine advises analyzing the activities of your Representative Office and making changes to the Accounting Policy to ensure compliance with the law.

Halyna Zelinska

Accountant, Tax Expert of Accountor Ukraine

Accountor Ukraine reminds that on May 23, 2020 the Law of Ukraine of January 16, 2020 # 466-IX “On Amendments to the Tax Code of Ukraine to Improve Tax Administration, Eliminate Technical and Logical Inconsistencies in Tax Legislation” (hereinafter – Law 466) entered into force.

This Law is related to the implementation of BEPS (Base Erosion and Profit Shifting) in Ukraine, in particular, to Action 7 of BEPS: “Preventing the Artificial Avoidance of Permanent Establishment Status”.

What has changed for representative offices?

1) The concept of a “permanent establishment” under the TCU has been supplemented by the following paragraphs:

  • The presence of parties who on the basis of an agreement, other transaction or factually have and exercise the authority to negotiate the essential terms of transactions, resulting in the non-resident entering into agreements (contracts) without significant change of such conditions and/or entering into agreements (contracts) on behalf of the non-resident, if the specified activity is carried out by a party in favor of, at the expense of and / or for the benefit of only one non-resident and / or other related non-residents,
  • The presence of parties who on the basis of a contract, other transaction or factually have and exercise the authority to hold (store) stock (goods) belonging to a non-resident, from whose warehouse deliveries of stock (goods) on behalf of the nonresident are made, except for residents owning temporary storage warehouses or customs warehouses.

2) The list of criteria for recognizing a Representative Office as a Permanent Establishment has been supplemented as follows:

  • provision of mandatory instructions by a non-resident, including the ones sent by means of electronic communication, and their implementation by a party in Ukraine;
  • the employee of the Representative Office uses the corporate e-mail of a non-resident and / or their related parties for communication with the non-resident and / or with third parties who the non-resident has already concluded or will conclude agreements or other transactions with;
  • the party rents premises on their own behalf for storage of property acquired at the expense of a non-resident or belonging to a non-resident or third parties which is subject to transfer to third parties at the instruction of the non-resident.

3) According to the results of the first half of 2020, Permanent Establishments must file a Corporate Income Tax return. The calculation of income tax # 544 for non-residents (0.7), approved by the order of the Ministry of Finance of 13.06.2016, is no longer valid;

4) Non-permanent Representative Offices, which, according to the new criteria, have the characteristics of permanent establishments, shall be registered as Permanent Representative Offices. In turn, the powers of the tax authorities have been increased: if a non-resident’s activities meet the criteria of a permanent establishment, the tax authorities may independently register this non-resident based on the results of an inspection of its activities.

Accountor Ukraine advises analyzing the activities of your Representative Office and making changes to the Accounting Policy to ensure compliance with the law.

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