Tax optimization and tax planning in Ukraine (Digital Nomad)

Advantages of tax planning 

Tax planning allows:

• increase the efficiency of the Client’s business;

• make a moderate tax burden, while not violating the requirements of the law;

• avoid the models, the application of which raises the interest of the supervisory authorities;

• ensure the most correct documented support of transactions, in order to effectively refute possible claims of regulatory authorities.

Our recommendations have nothing in common with:

• the conclusion of fictitious transactions;

• the deliberate misrepresentation of the amount of income of the company;

• the use of contracts with related parties with unreasonable subject matter and price;

• other ways to understate the tax burden.

Companies often provide resources for tax planning for salaried employees to assist them in understanding and optimizing their tax obligations. Many companies employ corporate accountants to handle complex financial transactions and ensure accurate tax filings. Taxes with us are not theory, but optimization in practice. We have a network of practicing accountants and lawyers not only in Ukraine, but also abroad, in the jurisdiction you need. Also among the advantages:

• Fresh current tax practice with us: over the last year, more than 20 cases of business relocation to Malta, UAE, Poland, Andorra, etc. Experience in working with the issue of royalties, double taxation, shares abroad, substance.
• All decisions are legal, the client does not violate anything. Optimization schemes within the framework of the law. We are not about risks, but about efficiency and safety. We calculate the situation not only for this moment, but also take care of the future security of the client.

Business Relocation from Ukraine

If you intend to relocate your business from Ukraine to another jurisdiction, we will offer not only assistance in choosing the country suitable for you in terms of type of activity, planned transactional flows, ownership structure and company management, etc., but we will accompany the entire process of business relocation. Our services include:

• assistance with registration of the company in the chosen jurisdiction, registration with the tax authorities, opening a bank account and bookkeeping;

• assistance with the appointment of a director and relocation/recruitment of employees; 

• drawing up all necessary documents (including legalization of status in the EU, obtaining a residence permit with the right to work, etc.)

• assistance with the search and lease of office – negotiations with the landlord in order to agree on the most favorable conditions for the client; support of the signing of the lease agreement; 

• assistance with drafting business contracts so they meet the requirements of local legislation;

• planning of business operations (in terms of possible tax implications, etc.);

• full support of the foreign company’s business on a turnkey basis, assistance in solving all the issues that may arise during its commercial activity, communication with an accountant, bank, counterparties, preparation of documents for the bank, solving any operational issues in the process of business activity.

Tax planning with our lawyers

Corporate tax planning is essential for businesses to minimize tax liabilities and ensure compliance with government regulations. One of the key tasks set before our lawyers when providing legal support for Clients’ business activities is to ensure the optimal tax burden. Effective tax planning for salaried employees can help maximize take-home pay by utilizing available deductions and credits.

The primary task is always the analysis of the Client’s initial data (current ownership structure, functional load of each company, transactional flows), as well as the goals and objectives the Client sets for itself. 

Having analyzed the current structure, we will make strategies on how to restructure it so that it can be easily adapted to the requirements of rapidly changing legislation, as well as to meet the Client’s objectives and ensure the achievement of their goals. 

In the next stage we can accompany the restructuring of the current business model, in accordance with the restructuring plan agreed with the Client.  

Double taxation for Ukrainian business

Very often in the process of conducting commercial activities, Ukrainian businesses have questions related to the double taxation of some kind of income. This occurs when two jurisdictions have the right to tax certain income. 

To illustrate this point, let’s consider some examples of dividends. 

If the founder of the Ukrainian company is a Cyprus company, the dividends received from the Ukrainian company will be subject to a reduced rate of 5% instead of the standard rate of 15% in Ukraine (subject to the conditions stipulated in the agreement on avoidance of double taxation between Ukraine and Cyprus – the ownership threshold of at least 20% and investment of 100 000 euros). 

Cyprus will not apply taxation by virtue of the fact that Cyprus, in principle, according to the provisions of its domestic legislation, does not charge tax on incoming dividends. If such a tax existed, it would be subject to reduction by the amount of tax paid in Ukraine (reduced by 5%)

Another example. 

If a member of the Cyprus company is a natural person who is a citizen of Ukraine, then when dividends are paid from Cyprus to Ukrainian no tax arises for a Ukrainian citizen in Cyprus (since by virtue of the provisions of local law, Cyprus does not impose tax on the repatriation of outgoing dividends). But in Ukraine you will have to pay 9%+1.5% on received dividends. 

If Cyprus levied tax on outgoing dividends, then we would have to refer to the provisions of the agreement between Ukraine and Cyprus in order to reduce the standard rate of tax on repatriation, provided for by domestic law. Such a treaty provides for 5% (under certain conditions), and in Ukraine we would have to pay the difference between the 5% paid in Cyprus and the 9%. That is, the final tax would be 4% +1.5% in Ukraine. By the way, only personal income tax may be set off, the military fee is not set off since it is not covered by the effect of double taxation treaties. 

And one more example. If a member of the Hungarian company is a citizen of Ukraine, then when paying dividends to non-resident of Hungary, the tax rate on repatriation in Hungary (provided for by domestic law) is 15%. 

According to the agreement between Ukraine and Hungary, it can be reduced to 5% (subject to the threshold of ownership of a share in the Hungarian company of at least 25%). Thus, having paid 5% in Hungary, in Ukraine you would have to pay only 4% (plus 1.5% military tax). 

The same approach applies to any type of income. 

As part of tax optimization and tax consulting, our experts will analyze your situation, and help you not only to find an answer to the question of what taxes you need to pay, but also how to optimize this amount.