Ratification of the new convention with Cyprus on avoidance of double taxation

On June 4, 2013 the Verkhovna Rada of Ukraine ratified a convention between Ukraine and Cyprus on avoidance of double taxation and prevention of income tax evasion.

The Verkhovna Rada of Ukraine ratified a convention between Ukraine and Cyprus on double taxation avoidance and preventing income tax evasion. The convention was signed in Nicosia, Cyprus, on November 8, 2012.

The convention will replace the current agreement between the governments of the former Soviet Union and Cyprus on the avoidance of double taxation of October 29, 1982.

According to the new convention the following taxation rates will be introduced:

  • For dividends, the general rate will be 15%; 5% if the recipient of the dividends holds at least 20% of the company’s capital or has invested at least €100,000 in the company paying the dividends;
  • For interest, 2% will be imposed;
  • For royalties, a 10% and 5% rate will be imposed, whereas 5% will apply with respect to royalties on certain copyright, patents and trademarks.

The current agreement with Cyprus on the avoidance of double taxation provides no tax on royalties, interest and dividends.

Once Ukraine and Cyprus exchange notices on completion of ratification procedures, the new convention will enter into force. Its provisions will, however, only affect taxation of cross-border payments between the two countries starting from January 1 of the year following the year of its ratification. Thus, if Cyprus ratifies the new convention in 2013, it will apply starting from January 1, 2014.

The Law regarding transfer pricing is adopted

On July 4, 2013 the Law “On Amendments to the Tax Code of Ukraine regarding Transfer Pricing” No. 2515 dated May 12, 2013 was adopted.

Law No. 2515 will become effective starting from September 1, 2013.

The most significant innovations to be introduced by Law No. 2515 include the following:

  • control over transfer pricing in Ukraine will apply to transactions between related parties and transactions with non-residents registered in jurisdictions where the corporate profit tax rate is 5% points lower than in Ukraine;
  • the threshold for transactions between the same parties under transfer pricing control is UAH 50 million not including VAT (approximately $6.25 million);
  • the transfer pricing reporting requirement is introduced with respect to transactions qualifying for transfer pricing control;
  • the previously applicable “safe harbor”, i.e. the permitted 20% deviation from the market price is abolished;
  • •axpayers will be obliged to submit transfer pricing documentation on transactions qualifying for transfer pricing control within one month of the request from the tax authorities (two months for large taxpayers);
  • large taxpayers may seek prior tax administration`s approval of prices with respect to transactions qualifying for transfer pricing control;
  • fine for violation of transfer pricing rules shall be limited to UAH 1 for the first year of application of the new legislation except for fine applicable for failure to file the respective transfer pricing tax reports equal to 5% of the controlled transaction’s value and fine for failure to present transfer pricing documentation equal to 100 minimum wages.

Postponement of provisions specifying the requisites of cargo customs declaration in tax invoices

On June 7, 2013 by the Letter of the Ministry of Revenues and Dues of Ukraine No. 9684/7/99-99-19-04-01-17, the introduction of a new obligatory requisite for tax invoices in particular “number and date of the cargo customs declaration” was postponed until the entering into force of the changes to the form of the tax invoice.

Postponement of tax on real estate

On July 4, 2013 the Law of Ukraine “On Amendments to Article 256 of the Tax Code of Ukraine regarding the Objects of Residential Property” No. 2405 dated February 27, 2013 was adopted.

The Law clarified the rules regarding accrual of real property tax and established that individuals do not pay tax on immovable property other than land in 2013.

Financial treasury bills

The Law of Ukraine “On the State Budget of Ukraine for 2013” (regarding Restructuring of the Budget Debt) No. 2290a (hereinafter – the Draft Law) dated June 12, 2013 was adopted by the Verkhovna Rada of Ukraine. The Law is awaiting the President’s signature.

The Law authorizes the Cabinet of Ministers of Ukraine to restructure budget debt, which has arisen as of January 1, 2013, through the issuance of financial treasury bills with five years circulation period and 5% yield. Taxpayers are authorized to claim financial treasury bills with five years circulation period, with 5% yield with respect to VAT refund.