TAX ALERT 17/06/2024

The Law on the Ratification of the Convention on the Elimination of Double Taxation between Ukraine and Japan was adopted

On June 5th, 2024, the Verkhovna Rada adopted the Law of Ukraine “On the Ratification of the Convention between the Government of Ukraine and the Government of Japan on the Elimination of Double Taxation with Respect to Income Taxes and the Prevention of Tax Evasion and Avoidance and the Protocol thereto.”

The Convention will apply to:

• corporate income tax, personal income tax (for Ukraine)
• income tax, corporate tax, special reconstruction income tax, local corporate tax, local residence taxes (for Japan).

The Convention provides, in particular, the following rates of taxation of passive income at source:

• dividends – general rate is 15%, reduced rate (applied if the beneficial owner of dividends owns 25% or more of the capital of the company that pays the dividends) is 5%;
• interest – 10% in most cases, a lower rate of 5% is provided for certain situations;
• royalties – 5%.

It should be noted that an outdated convention on the avoidance of double taxation from 1986 was previously in force between Ukraine and Japan.

The Convention and the Protocol thereto will enter into force after the completion of the relevant internal procedures by both parties, and the Law on their ratification adopted by the Verkhovna Rada is currently sent to the President of Ukraine for signature.

The norms regarding interaction with tax authorities via video conference came into force

On June 16th, 2024, certain provisions of the Law of Ukraine No. 3603-IX “On Amending the Tax Code of Ukraine on Improving Online Communication with Taxpayers and Clarifying Certain Provisions of the Law” entered into force. They concern the possibility of interaction with tax authorities via video conference, in particular, during the consideration of complaints and objections to audit reports.

However, by-laws that would regulate the procedure for such interaction have not yet been developed. Therefore, it is difficult to predict when online interaction with tax authorities will work properly.

Laws on the implementation of the provisions of EU law on excise tax were adopted as a basis

On June 4th, 2024, the Verkhovna Rada of Ukraine adopted in the first reading:

• draft law No. 11256-2 “On Amendments to the Tax Code of Ukraine regarding the Implementation of the Provisions of the European Union Acts on Excise Tax”.

The draft law proposes to set excise tax rates on fuel at the level determined by Council Directive (EU) No. 2003/96/EC. A transitional norm regarding the annual rate increase from July 1, 2024 to December 31, 2027 is provided for;

• draft law No. 11090 “On Amendments to the Tax Code of Ukraine regarding revision of excise tax rates on tobacco products”.

It provides for a gradual increase until 2028 of excise tax rates on cigarettes to reach the minimum level established by Council Directive (EU) No. 2011/64/EU, with a simultaneous equivalent increase of such rates for tobacco, industrial tobacco substitutes and a reduction of their size for tobacco-containing products for electric heating. Currently, both draft laws are being finalized before the second reading.

Clarification of the STS regarding the declaration of deemed dividends

In its clarification, the State Tax Service drew the attention of taxpayers to the need to declare payments defined as dividends in accordance with the Tax Code of Ukraine (deemed dividends) by filling out the appendix “PN” to the income tax return separately for each non-resident. Tax officials also reminded that deemed dividends are subject to withholding tax at the rate of 15%, unless otherwise established by an international double tax treaty, or by the formula determined by the Tax Code of Ukraine.

At the same time, the relevant appendix to the income tax return is submitted for the reporting period in which the non-resident’s income tax was paid to the budget, and in the case of exemption from taxation, for the period in which the adjustment and/or payment of income took place.