How can a tax resident certificate in Ukraine help avoid double taxation?

Ukrainian companies that cooperate with foreign organizations or receive income from abroad often rely on us for legal assistance. The important point is the origin of income and the receiver of income. Working in this mode, the companies are faced with unpleasant moments associated with the fact that the payments are subject to taxation both abroad and in Ukraine. This significantly affects the amount of accrued income. 

Understanding how to avoid double taxation in Ukraine involves not only obtaining the tax residency certificate but also applying the relevant tax treaties effectively. There are several methods of avoiding double taxation, such as claiming tax credits or exemptions, which can be facilitated by providing this certificate to the tax authorities of other countries.

We advise to use the Convention on avoidance of double taxation which is signed by Ukraine and many other developed and developing countries. There are also separate bilateral Conventions that Ukraine has signed with a number of countries.

Today, we will tell you how you can protect yourself and your business from double taxation, and how the Tax Resident Certificate in Ukraine will help in this matter.

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How can the Convention help avoid double taxation?

The member countries of this Convention have established a format for avoiding double taxation by obtaining tax residency status in one of the countries where a legal entity operates.

Please note! Each bilateral convention has its own definition of a resident, conditions of exemption from taxation or reduction of tax rates. Therefore, you have to study the specific convention.

For this purpose, you just have to meet one of the criteria of residency, namely being a legal entity that is taxable in a particular country by virtue of:

• permanent residence;
• place of registration; 
• place of management;
• any other criterion of a similar nature.

However, the term does not include any person who is subject to taxation in that country only with respect to income from sources in that State or from capital deposited therein. 

If a company is a resident of both countries, it is considered the resident only of the state in which its actual management body is located.

Accordingly, when taxing your income, if you pay taxes in one country, you will no longer pay them in the second. But to do this, you must obtain a document proving that you are a tax resident of one of the countries - that is, you pay taxes there. This document is called a Tax Resident Certificate.

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How does it work in practice?

A tax residency certificate in Ukraine is essential for individuals or businesses seeking to establish their tax residency status and benefit from tax treaties with other countries. This certificate can be used as proof to avoid being taxed on the same income in multiple jurisdictions.

We were contacted by a Ukrainian company, which is engaged in the employment of people in Poland. Accordingly, it receives profit for the work done from Poland. Working with a Polish partner, the Ukrainian company handed over documents of Ukrainian workers, and the Polish company already helped to employ them in Poland. However, income taxes were deducted both in Poland and in Ukraine.

We offered our Client to develop a scheme of double taxation avoidance and optimization of its taxation. This scheme involved obtaining a Certificate.

Since the company is registered in Ukraine and conducts its activities from Ukraine, it falls under the criteria of the Convention as a resident of Ukraine according to its place of registration. This means that we could obtain a Tax Resident Certificate for the company. Since a non-resident of Poland is involved in the process, we could apply the bilateral Convention signed with Poland.

We have prepared the necessary documents and submitted an application to the tax authorities. And in two weeks we obtained a Certificate confirming the company's status as a tax resident of Ukraine. This work was done with minimal involvement of representatives of the Client's company - all communication with state authorities was carried out by our lawyers on the basis of Power of Attorney.

Obtaining a certificate is not the most complicated procedure, but it requires preliminary examination and consultation on taxation issues. There are several important aspects to consider:

• Due to quarantine restrictions and other reasons, you are not always free to get an appointment with a state authority, and even more - to get answers about how and where to get a Certificate - our lawyers will do it for you, and within the desired period of time.
• The important thing is not only to fill in the documents properly to get the Certificate, but also to make sure that the Certificate will solve your problem. Don't just rely on the fact that this is a government agency and it knows exactly what to do - the Certificate will need to be double-checked and made sure that it is suitable for use.

Please note! Obtaining the Certificate is just one little step towards optimizing the taxation of your business. We will help you not only to fulfill this task but also solve the main problem - we will help to optimize your business in Ukraine.

What taxes does this Certificate cover?

It applies to taxes on income and capital levied on behalf of a contracting state, its administrative and territorial entities or local authorities, irrespective of the taxation procedure.

Income and capital taxes are all taxes imposed on gross income, on total capital or on elements of income or capital, including taxes on:

• gains from the alienation of movable or immovable property; 
• the amount of wages and salaries paid by businesses; 
• capital gains.

It also applies to any identical or substantially similar taxes imposed after the date of the Convention, in addition to or instead of existing taxes.

Our company provides services for obtaining such a certificate within the framework of consulting on taxation in Ukraine or legal services for companies.

The approximate cost of obtaining the certificate with us starts from 0. This amount is usually included in the general package of tax optimization services. The price will depend on your case and services you need to solve your issue. Usually, the services for obtaining the Certificate are provided together with other consulting services.

Each situation is unique and we focus on your needs, not on the solution of one problem. It means that when you come to us for the Certificate you will get a legal analysis of your situation and, probably, another, more optimal solution for your basic need.

Not only do we help you get the Certificate, we also offer the following services:

• tax consulting;
• optimization of taxation schemes for your business;
• communication with tax authorities in the interests of your business.

Do you want to be sure of the fairness and efficiency of the taxation scheme for your business? Don't hesitate to contact us! We'll help you find the best option, and translate it to action.

Conditions of our Consulting Services here.

Everything about the Tax Law of Ukraine here.