Taxation of foreign representative offices in Ukraine: the nuances of accounting

When you find yourself in a new place, it’s hard to navigate through many things you’ve never thought about before. Well, if we talk about business in a foreign country, then you may face problems on a completely different scale - from the registration of business, search for partners to the taxation issues. 

Our firm actively cooperates with foreign partners both on the registration of foreign representative offices, and providing all kinds of personnel and accounting assistance during their entry into the Ukrainian market. That is why we understand that one of the first issues that arise when you want to set up a representative office in Ukraine is the form of incorporation of the enterprise and the taxation of your business activities.

Today we will briefly elaborate on this issue in order to clarify what tax options can be used by foreign representative offices in Ukraine.

Taxation schemes for commercial and non-commercial representative offices

There are two types of foreign representative offices defined by the Ukrainian legislation - permanent and “non-commercial”. You can find more information about the difference between these types of representative offices and the process of their registration here.

What kind of taxation scheme shoulld be chosen for each type?

Permanent (commercial) representative offices.

Such representative offices, in fact, are not legal entities, but are the place of the company’s business activity on the territory of Ukraine. Such representative offices will use the general taxation system, according to the current Tax Code of Ukraine. The taxes that such representative offices will have to pay include:

• VAT at 20%, if revenues exceed 1 million per year; 
• Payroll taxes;
• Income tax, when receiving profit in Ukraine, etc.

Accounting for permanent representative offices is kept in a general manner. But each of the taxes has a little “nuance”. Thus, when calculating payroll taxes, you should take into account the personal income tax of non-residents, employees of the representative office, calculate so as not to fall under double taxation.

You may also like: The Most Common Mistakes Made By The Companies When Setting Up Representative Offices In Ukraine

Non-commercial representative offices.

In fact, there is no such notion as non-commercial representative office in legislative acts. This name means organizations that represent non-resident interests but without the right to receive income in Ukraine. 

Such representative offices work as advertising, marketing or storage of non-resident products - that is, they provide auxiliary activities.  Such representative offices are not taxpayers in Ukraine

Read also: Corporate Income Tax: Who And How Much Should Pay?

It is important to remember that different types of representative offices and relationships with parent companies are different. Whereas non-profit companies can only receive money to cover their expenses, the permanent representative offices receive income and can pass it over to the parent company. And here it is necessary to properly consider the income, calculate the profit and do not forget about the repatriation tax when transferring money from the parent company to a non-resident.

We will help you to register with the tax authority in Ukraine, get the necessary certificates of taxpayers, open current accounts, establish accounting and calculate taxes, including for reporting to the parent company. 

If you intend to set up a representative office in Ukraine, don’t hesitate to contact us. We can answer all your questions in simple terms and find effective solutions.

View our offer for foreign Clients.