As we mentioned two years ago, back in 2017 Ukrainian legislation was supplemented with special rules enabling favorable withholding tax (WHT) treatment for interest payable by Ukrainian borrowers under Eurobonds relating to LPN structures.

Under the new rules, Ukrainian borrowers paying interest under eligible structures could benefit either from a 5 percent reduced rate or complete exemption provided domestically. The differentiating point is the year of actual drawdown of facilities by the borrower.

Accordingly, loans under eligible structures with drawdown of funds after 1 January 2019 may benefit from a 5 percent WHT rate on part of the interest payable under them provided that:

  1. The funds are raised by a non-Ukrainian issuer of debt securities to be admitted to official listing on the approved foreign exchange
  2. A non-Ukrainian issuer raises funds with the sole aim to on-lend them to a Ukrainian borrower (directly or indirectly) by way of an on-lend facility
  3. A non-Ukrainian issuer is not a resident of a “low-tax” jurisdiction (according to the list approved by the Cabinet of Ministers) as of the date of issuance of debt securities

As such, LPN structures with drawdown of funds after 1 January 2019 may have higher cost of international debt capital market financing for issuers. As a result, issuers and their advisors need to monitor their structures and be innovative to mitigate the impact and ensure the availability of required funding.