Increase of the repatriation tax rates when applying the Convention between Ukraine and the Kingdom of the Netherlands for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and property

On March 12, 2018 the Protocol amending the Convention between Ukraine and the Kingdom of the Netherlands for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and property (the Protocol) was signed.

In the event the Protocol takes effect, the amendments introduced by the Protocol will result in the deterioration of the current conditions for the avoidance of double taxation between the two countries, since the tax rates on dividends, interest and royalty are increased thereunder.

In particular, the Protocol provides for:

  • The exclusion of the provisions on taxation of dividends in Ukraine at a 0% rate, if the beneficial owner is a Dutch company that directly owns at least 50% of the company’s capital and has invested at least US$300,000.00. At the same time, the preferential tax rate on dividends in Ukraine remains at 5%, if the beneficial owner of the dividends is a Dutch company (other than a partnership) that owns directly at least 20% of the capital of a Ukrainian company paying the dividends. In all other cases, the tax rate on dividends should be 15%
  • The increase of the tax rate on income in the form of interest from 2% to 5%. In all other cases the rate is set at 10%
  • The exclusion of the provisions on the taxation of royalty at a 0% rate and setting the tax rate on royalty at 5% and 10%.

In addition, the Protocol introduces a new wording of the article on the exchange of information that envisages a significant extension of possibilities for the Contracting States to exchange tax information.

The Protocol will take effect after Ukraine and the Netherlands complete all the necessary statutory procedures to ratify the Protocol.

The conclusion of the Protocol is a display of the current policy of Ukraine aimed at the revision of the current agreements for the avoidance of double taxation in order to enhance the taxation of non-residents in Ukraine. In addition to the amendments provided for in the Protocol, the Government of Ukraine is also going to introduce similar amendments to the current agreements for the avoidance of double taxation with Great Britain, Austria and Switzerland.