How to withdraw money from Ukraine to the account of a legal entity? Tax advice

Non-residents, who set up companies on the territory of Ukraine, sooner or later face a situation when they need to get their money - to withdraw it from Ukraine. The easiest way is to pay the repatriation tax. 

So how to properly formalize the whole process so as not to cause discontent with the tax authorities? Is there any way to reduce the tax burden during repatriation of income from Ukraine?

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Repatriation tax in Ukraine

Payment of repatriation tax in Ukraine looks like this: 

1. A Ukrainian company submits financial statements, based on which it shall pay a profit tax at 18%. 
2. After tax payment, the remaining profit or a part of it may be transferred to a non-resident legal entity, which is the founder. When transferring momey, dividend tax shall be paid at the rate of 15%. However, there are countries with which there is a Treaty on Avoidance of Double Taxation that provides for a list of taxes and royalties, with the conditions of their payment and rates. 

However, you can try to reduce tax payments. Everything will depend on the relationship between a Ukrainian company and a non-resident and their types of activity. Let’s consider some options.

Withdrawal of money through receiving services from a foreign parent company

One of the options is to receive services from a non-resident. How to formalize it properly?

A Ukrainian company receives some services, which it cannot perform independently, but can receive from the parent company. In this case, obtaining of services is reflected in reporting as expenses of the company. Taxable profit is reduced and money for services rendered is transferred to the account of the parent company. 

However, this procedure also has some “pitfalls”. For example, you’ll need to pay VAT at the rate of 20%. When receiving services in Ukraine, regardless of whether the company is a VAT payer, it is necessary to pay tax on the service price. 

This may be a good option, because when receiving a service, the company includes the service price in expenses, and VAT can be ascribed to the tax credit if the service is used in a taxable transaction. That is, if a Ukrainian company is a VAT payer and uses the service for economic purposes or selling it, it may include tax in the amount of VAT reduction payable. 

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As an example: a non-resident provided a service at UAH 100,000, a Ukrainian company paid VAT in the amount of UAH 20,000. The Ukrainan company needs this service for economic activity - sales with VAT. At the end of the period, the amount of UAH 100,000 will be included in expenses and profit tax will be reduced by UAH 18,000, while VAT will be included in the tax credit and will also reduce the tax amount to be paid.

Our tax lawyer will help you determine whether this option will be profitable for your business.

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Formalizing the transfer of software from the parent company to a legal entity in Ukraine

Another option that we have used in our practice is transferring software from a non-resident to use it in the company’s business activities in Ukraine. 

Depending on the type of activity, a Ukrainian company may need software that is already available at a non-resident (parent company). It can buy it. When purchasing software there is no need to pay VAT, because the Tax Code of Ukraine provides for an IT-tax benefit, and the software price is accounted for by a Ukrainian company as an intangible asset, charging depreciation and transferring its cost into expenses. 

As a result, money for the software will be transferred to a non-resident, and the Ukrainian company will have expenses without the need to pay taxes. This situation is possible only if the foreign parent company has such software for sale. Most often, this applies to technically complex activities.

Our lawyers will be able to analyze the benefits of this option for your business, choose another way to repatriate income, or help you with the organization of these types of tax optimization.

If you are planning to do business in Ukraine, and want to do it safely and profitably, don’t hesitate to call us. Our firm can help with tax and personnel issues, as well as provide outsourced accounting services.

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